Tips to building your enterprise while having another commitment, such as young children.
The late entrepreneur and father of the iPhone will join the ranks of famous inventors commemorated via postage stamp.
Thomas Flohr bought a corporate jet to ease his own travel problems and as a result the Swiss entrepreneur hit upon a successful business plan
Financial Times - Entrepreneurship
Editor’s note: Umang Gupta is the former CEO of Keynote, which was recently acquired by Thoma Bravo LLC.
Nothing in my childhood would have suggested that I’d grow up to be a Silicon Valley entrepreneur. In fact, the opposite was more likely.
I was raised in newly independent India by leftist parents who inculcated in me a strong desire to serve my country either through politics or social activism. But when I became a teenager, I became fascinated with technology, and I was admitted into the prestigious Indian Institute of Technology (IIT) in Kanpur. There I learned computer programming on one of India’s early mainframe computers, and from then on I fell in love with all things digital. I also became aware of a world outside of India that I wanted to explore. So like a lot of other Indian engineering students of that era, I came to the USA to pursue an advanced degree (in my case an MBA), and decided to stay and make a life here.
My first job was with IBM in sales, and that gave me a great grounding in business. But I really became enamored of starting my own company when I read a fascinating article in 1976 about the invention of the microprocessor, and the potential for what it might mean for the then largely mainframe dominated computer industry.
I got my main chance to join this exciting new world when in 1981, I ran into a little company then called Relational Software, Inc., which had developed a database software package called Oracle for early DEC minicomputers. The entrepreneur running that company offered me a job as one of his early sales and marketing employees.
Well, one thing led to another, and I was soon hired as employee #17 at Oracle, working for Larry Ellison, and writing Oracle’s first formal business plan. Shortly thereafter, I became a vice president in charge of Oracle’s first forays into the microcomputer and PC business. I learned a lot about starting and building a business from Larry, and I will forever be grateful for that. My entrepreneurial career over the next 30 years would not have been possible without the three years I spent at Oracle learning my craft from one of the most successful entrepreneurs of our time.
Three years after I joined Oracle, I spotted an opportunity to start my own company, and I took it. The PC had been introduced in 1980, but notwithstanding its designation as a “personal computer” it was largely being used as an office productivity tool to replace typewriters, calculators, and filing cabinets. What made the early PC so successful was software companies of that era who made word-processing, spreadsheet and database packages. Local area networks (LANs) had just been invented, but very little software existed to truly take advantage of these PCs all hooked together in a corporate setting.
So in 1984, I left Oracle to co-found a company called Gupta Technologies that built a SQL database server for PC LANs. Our Gupta SQL System software also included an application development tool for Microsoft Windows and SQL connectivity software. We called that type of network configuration “client-server software,” and by the late eighties I found myself helping to usher in what came to be known as the client-server computing revolution.
Building and running Gupta Technologies was an absolute blast for me. For the first eight years after our founding, we doubled each year with very little venture capital funding. We were soon considered one of the hottest companies in the software industry and took our company public in January 1993. For a while we thought we would be the next Oracle. But that was not meant to be. Very quickly, the entire client-server tools business became a crowded market with many new entrants, Oracle modified its successful mainframe and minicomputer database software to run on PCs, and Microsoft got into the business with its own Windows based SQL Server product.
And then the Internet came along, which represented an even bigger blow for our business. By 1996, the ideal corporate application had changed from being “client server” to “Internet based.” The technology revolution I had helped to start was over, and I didn’t have the heart to carry on any more. I decided to sell all my shares in Gupta Technologies and to leave the company. Before leaving, I even changed our corporate name so I could separate myself from the company I had founded.
It was the hardest thing I ever did. For the first time in my life I felt like a failure and I didn’t know what I was going to do next.
During the next year, I went through a deeply introspective period and I became I obsessed with figuring out what I’d done wrong. I vowed to myself that the next time, if there was going to be a next time, I would build a “business to last.” My experience at Gupta Technologies taught me the first and most important valuable lesson of my Silicon Valley career: that technology is a ticket to the game but not the game itself.
Silicon Valley is full of many visionaries who build a hot new business based on a revolutionary technology, but their companies do not survive when technology or market trends change. To build a business to last, an entrepreneur, especially a “techie” type, has to realize that innovation comes not just from inventing new products, but can also just as easily come from introducing new business models and new ways to market those products.
I quickly caught up with the latest technology trends on the Internet that I had missed out on during my tunnel-vision days at Gupta Technologies. I also started to make angel investments in many startups of that era, and in 1997 one of those investments was in a little company called Keynote Systems located in San Mateo, not too far away from my home.
The company had built some interesting technology to measure the performance of Internet websites and to determine problems that might have been caused due to Internet backbone delays. But Keynote’s business model was still uncertain at that time, and I quickly realized that while the company’s software was not all that differentiated from many other systems management tools, we could apply an “on demand” service model to the business and make it truly valuable to up-and-coming e-commerce websites.
In effect, we would measure the real-time response time and reliability of any website on the Internet from multiple cities across the world, including of multiple competitors within the same industry or of multiple players in a product supply chain, and make this data available on a monthly subscription basis to enterprises who needed to assure themselves of their e-commerce website’s technical performance and quality.
Before we knew it, Keynote was a hot Internet startup that became known as the “JD Powers of the Internet.” We had more than 2,000 corporate customers across the world subscribing to our performance metrics. Though we did not know it at that time, we would also have the distinction of becoming one of the world’s first “software as a service” (SaaS) businesses before the term would become popularized.
But in in the fast moving technology world, the ability of your organization to react speedily to change is just as crucial as your personal ability to anticipate the future. This was the dot-com era, and we were running a hot Internet start-up during the mother of all technology bubbles. In Silicon Valley there is a saying that goes: “if the wind blows hard enough, even turkeys can fly.” While Keynote clearly had real revenues, real customers and a viable business model, I didn’t fool myself into thinking I knew how our technology or business would unfold in the future. Instead I just made sure we were prepared to seize chances when they came to us.
When the chance presented itself for us to go public in August 1999, we took it way before we were showing any profits. A few months later in February 2000, when the stock market was still hot, we did a secondary offering and obtained a valuation of more than a 100x revenues. Even though the stock market bubble burst a few months later, we found ourselves in the fortunate position of having $ 350 million in cash on the Keynote balance sheet, and a lot of happy VCs and early investors. No question about it — I was clearly applying the lessons I learned from my Gupta Technologies days to make sure Keynote did not get left behind many of those turkeys!
The aftermath of the Internet crash of 2000 was a searing one for Silicon Valley and Keynote was no exception. Many of our customers went out of business, our revenues started to plummet precipitously, and our losses grew larger each month. While we did not have any danger of running out of cash, we did face an existential question at that time: Do we sell Keynote? Or, failing that, simply shut down the business and return the substantial amount of cash on our balance sheet to our public shareholders? Or do we try and rebuild the business, thereby risking more cash in what might be a doomed effort anyway?
There were no buyers for Keynote at that time, since at that time no one knew how far and how deep the downturn would go, and how much our revenues would decline. I was also haunted by the memory of how, during Gupta Technologies’ decline, Larry Ellison had made me an offer to buy the company at what turned out later to be a pretty good price, but I did not want to sell my baby, and I had said no. After all, I had risked the future of my company many times during its first eight years as a private company and I had always managed to make it bigger and more valuable. So why would I sell to Oracle then? With the benefit of hindsight, I can say that I should have sold the company when we still had the chance.
This time around I did not want to make the same mistake again with Keynote. I had learned an important lesson by then: “Know when to hold ‘em, and know when to fold ‘em.”
As it turned out, we did not shut down Keynote but decided to rebuild it. Over the next 12 years, we steadily regrew the company. We introduced new products for our corporate Internet customers and also expanded into the mobile monitoring and testing space through a couple of well timed acquisitions. By 2013, Keynote had grown to more than 4,000 customers, and revenues had tripled to more than $ 125 million with very respectable profit margins of around 20 percent.
A few months ago, we sold Keynote to Thoma Bravo, a private equity company, for around 3x revenues and a 50 percent premium above its public share price. That’s a far cry from the 100x revenue valuation of our bubble days, but a pretty decent outcome for our shareholders — and yet also a good purchase for its new owners, who are looking to grow and build even more value into it.
Which brings me to the last important lesson I have learned and applied consistently at Keynote: Your company’s destiny is not your destiny.
I ran Gupta Technologies like it was a mission, not a company. And even when it went public, I always thought of it as my baby. After all, it had my name on it.
With Keynote, I made sure from the beginning to recognize that my job, like any parent, was to give the company its roots and wings, and like any parent when the job was done, I would have to separate my own life from the company’s life. Today, Keynote is a solid, stable company that is a leader in its space, but still has a long way to go before it will have fulfilled its potential.
During our early days of Keynote I was fond of saying, “In a trillion dollar e-economy, surely there ought to be a billion dollar company devoted to testing and measuring the online experience.” I still believe that.
My own fondest wish would be, a decade or two from now, to look at a far bigger Keynote than today and say, with some nostalgia, “I had a hand in building that!”
Umang Gupta is a well-known Silicon valley technology visionary, entrepreneur, company founder, and public company CEO. After having spent more than 40 years helping to build the enterprise software industry, among other things being credited with writing the first business plan for Oracle in 1981, Umang is now devoting his time exclusively to the fledgling online education industry as an investor, board member and advisor.
VentureBeat » Entrepreneur
The venture business is a complex one – and the relationships between VCs and entrepreneurs are sometimes fraught with tension. Experienced VCs have seen thousands of companies and dozens of financing rounds. Most entrepreneurs are working on their first company, or perhaps their second or third. There is, often, an experiential advantage that VCs enjoy relative to entrepreneurs – when it comes to the VC-entrepreneur relationship, we VCs have simply been around the block many more times. Because of that, I think it’s important that VCs act decently at all times. But “decency” can mean many things, and I wanted to try to set down on paper what I think it means for a VC to be decent.
To be honest, this post has also been sparked by my travels around Europe. I have met too many founders in London, Edinburgh, Berlin, Belgrade, and beyond that have been (pardon my Americanism) screwed by unscrupulous or unprofessional VCs or angels. In far too many of these cases, the situation is basically unrecoverable: the cap table, legal terms, and investor base of the company have become so toxic that no new investor will be likely to go through the pain of rescuing the situation – and things typically just unravel from there.
So here it is: my crude attempt at a VC Code of Conduct. Like everything else in this business, it is a work in progress, it’s subject to change, and it needs the feedback and insight of the community to make it better. So please have a read through, and let me know what I’ve not included.
- I will do no harm.
I think this is sort of goes without saying. There are many ways that VCs can unintentionally harm a company: saying the wrong thing to the wrong person, giving really bad advice, dragging things out too long, etc. The core principal that underlies all of the rules below is that VCs should do their utmost to ensure that they don’t cause any damage. Startups are fragile things. Entrepreneurs are trusting us with their time, their energy, their plans, their life’s work – and we owe it to them to act thoughtfully and carefully so as not to cause unintended harm.
- I will respect your time.
None of us have enough time – but we VCs have a tendency to think that our time is a bit more valuable than that of everyone else. I do my best not to be late for meetings or calls – especially when someone has travelled across town or across a continent to meet me. Invariable, I am late occasionally. When all you do is meet companies back-to-back five days a week it is inevitable. But it’s unforgiveable, and I try avoid it at all costs. Similarly, I try never to allow an entrepreneur to travel too far just for a meeting with me. No need for a meeting when a Skype call will suffice.
- I will not ask you for material I don’t need.
I try to be very careful before asking an entrepreneur to provide me with any material. Raising money may be an important corporate objective, but entrepreneurs have a lot of other more important things to do, and putting together slide decks and fancy excel sheets in response to VC questions is not a good use of time, especially at early stages of a process. I try to ask for material that already exists, or for the “real” data that a CEO is using to manage the business. No need for a customer pipeline analysis in PowerPoint when you can just export something from Salesforce.
- I will not string you along. I will be straight-forward and transparent about the likelihood of an investment. VCs can easily waste tons of entrepreneur time by not being honest about the likelihood of an investment, or by the all-too-common “it’s interesting, let’s talk again soon.” The reality is, we don’t invest in the vast majority of companies we see – and we should be honest about that. By not saying “no,” VCs run the risk of an entrepreneur turning down another investor or jeopardizing a round by delaying it too long. It’s better to give a quick “no” and then re-engage later than create a false sense of momentum.
- I will let you know about any competitors in our portfolio.
This is a no-brainer. Sometimes, it’s not clear that there might be a competitor in the VC’s portfolio until halfway through a meeting, but if it becomes clear to the VC that this is the case, the VC must flag this immediately. It doesn’t necessarily mean that the investment shouldn’t happen, but at the very least all parties should be aware of any potential conflict.
- I will be transparent about any conflicts of interest between an entrepreneur and myself.
Often, what’s best for the company, what’s best for the entrepreneur, and what’s best for the VC are not in full alignment. For example, when a company wants to raise more money than it needs in the early stages, a VC can end up with a large holding at a great price, and the entrepreneur can end up with a big signaling problem on his hands if the VC isn’t committed to further investment. It might, however, be better for the entrepreneur to raise less money from the same VC (or from angels) in order to prove out a concept before raising a larger round later at a higher valuation. This can give him or her more freedom to operate, less dilution, and – especially when a near-term low-value exit is possible – a much better personal financial outcome. I think as a VC it’s my duty to expose these conflicts of interest honestly so that we can get to a true win-win: the right investment from the right investors at the right price at the right time.
- I will not sign an NDA, but I will act as if a reasonable one is in place.
VCs often get asked to sign NDAs by entrepreneurs who are not aware that the vast majority of VCs try never to sign them. We don’t sign NDAs for two reasons: First, we deal in confidential information all the time and trying to specify the precise rules in each case is next to impossible. Secondly, even if it was possible, the administrative overhead of an NDA per company when we are sometimes meeting twenty companies a week is just prohibitively onerous. That said, entrepreneurs have a reasonable expectation of confidentiality when they approach a VCs. And VCs need to be sensitive that much of what is discussed in their presence is not public. Often, we will meet five companies in the same space in the course of a month or two (even unintentionally – innovation happens in waves – a future blog post). Each of those entrepreneurs has a reasonable expectation that we will not divulge anything specific and non-public to a competitor or, frankly, to anyone. My test is simple: is this information that someone could garner from the public internet in five minutes? If not, it’s confidential.
- I will not share your slide deck or any material with anyone unless you give me permission.
Needless to say, the expectation of confidentiality pertains to any materials provided by the company. Sometimes this is viewed as a grey area, however, because VCs are genuinely trying to help a company by sharing a slide deck with other investors or with experts in order to due diligence a company. But this is actually not a grey area at all. I never share a slide deck with anyone (VCs, angels, trusted technical advisors, etc.) unless I’ve received explicit permission to do so from the entrepreneur.
- I will not speak with your customers without your permission.
Speaking with customers is a natural part of any due diligence. That said, it can cause damage and needs to be done in the right way, at the right time, and with the entrepreneur’s permission. Sometimes when I have an existing relationship with a customer, I will reach out, but only when I know that my questions will not cause any damage. But I will never cold contact a customer without the entrepreneur’s permission. Startups are fragile things and two many VC inquiries can shake up a customer, especially in the early stages and especially if the customer is not expecting them. How and when to contact customers is something I determine on a case-by-case basis, but I usually try to wait until the end of the process when I’m reasonably educated on the business and very enthusiastic – as I know that speaking with me is, in a round-about way, part of the customers due diligence on their vendor.
- I will educate before I negotiate.
Often in term sheet negotiations, I realize that the experiential advantage is in my favor. For example, some first time entrepreneurs are not familiar with concepts such a “drag along.” Just this week, I came across a case where a VC had almost managed to convince an entrepreneur that drag along rights should allow a minority holder to force the company to sell at any valuation – effectively giving that minority holder a back-door majority control on any exit-related decision. My view is that it is my responsibility as a trusted partner to make sure the entrepreneur is fully aware of the meaning and implications of any subject we are negotiating about before the negotiation takes place. Often I find myself saying things like: “this is why I am going to push for founder vesting, this is why you might not like it, and this is why I am going to insist on it anyway – now let’s meet in the reasonable middle.”
- I will be honest about what standard terms are.
In my near-decade of VC experience, I’ve seen just about every possible term, condition, and provision thrown into term sheets and legal docs. I know what’s standard and what’s unique, what’s fair and what’s unfair. I think entrepreneurs deserve to know what standard terms are – and they certainly should not have to deal with VCs that are misrepresenting non-standard terms as the industry norm.
- I will not issue a term sheet unless my firm has made a firm decision to invest.
Every firm is different here, but my practice is to make sure my partners are on board with an investment before issuing a term sheet. This can mean longer due diligence and a bit more risk that I’ll lose the deal, but it means that when I negotiate a term sheet, I’m empowered to do so. It also means that the entrepreneur can take the term sheet as a very reliable signal that our business due diligence is completed, and we intend to invest. (Financial and legal due diligence typically happen post-term sheet as part of deal closing, but that rarely scuttles a deal. Needless to say, deals can still fall apart post-term sheet – but it’s very rare.)
- I will reflect the term sheet in the final legals.
VCs sometimes try to sneak terms into investments by writing a friendly term sheet and then inserting unexpected things into the final legals in the hopes that no one notices or, at least, that they don’t have the energy to fight and risk the deal. This is just bad practice. Term sheets should be an honest reflection of what the final agreement will look like.
- I will not seek an unreasonable equity stake in your business.
I’ve seen too many cases of VCs taking unreasonably high equity stakes in early-stage companies. In some cases, this is because the VC feels the risk is very high and, in other cases, it’s simple because he can. In any event, I’m pretty convinced that it’s wrong to do so because it makes it much harder for the company to raise money in the future. The majority of VC rounds (from seed stage to expansion rounds) are typically done at a total dilution of 20-30%. Sometimes a bit more, sometimes a bit less. A really high-risk company that’s super capital intensive might have to suffer up to 40-45% dilution. But when I see early-stage rounds in software companies being done at 60%, I know something is deeply wrong. More often than not, it’s the case of a naïve founder and a short-sighted VCs. My view is that entrepreneurs and VCs are building companies together and it’s our joint responsibility to build healthy cap tables for the long term. However, because an unhealthy cap table can kill a company, this is not just a business issue, and it’s ethical issue.
- I will avoid surprises.
As an investor and a board member, a VC has a fiduciary duty to every company he or she backs. Part of this, in my view, is that the VC must communicate honestly and early in order to avoid unpleasant surprises. This should be the case both pre-investment and post-investment. Usually, this has to do with delivering bad news in a timely way. If I think a company needs to hire a CEO, it’s my duty to say so early. If I think I’m unlikely to want to lead a future round, it’s my duty to say so early in order to give the CEO enough time to turn things around and/or plan appropriately.
- I will act in the best interests of the company at all times.
I don’t think this requires any detailed explanation, but it’s profoundly important.
- I promise to try not to look at my phone in meetings.
This is a matter of courtesy and respect more than ethics, but it’s important nonetheless. I’m not very good at this one. But I promise to try.
Gil Dibner is a venture capitalist at DFJ Esprit, part of the DFJ network. He was born in Boston, lived in Israel, and works in London, as you can tell from where this was first published: yankeesabralimey.tumblr.com.