When it comes to venture capital firms, few come bigger than New Enterprise Associates. With $11 billion under management, including a $2.6 billion pot raised 18 months ago that ranks among the largest in history, NEA operates from bases including Menlo Park, DC and Mumbai.
Among those Menlo Park investors is Jon Sakoda, co-head of the firm's seed-stage practice. He drops in on Elevator Pitch this week to talk about why even a giant invests in tiny companies.
Q: How'd you get into this racket?
A: Before joining NEA, I was an entrepreneur and founded a venture-backed enterprise software company, IMlogic, which built security software for instant messaging networks. One of my investors was Ravi Viswanathan, now a general partner at NEA. Building a company is a lot of hard work, and I used to call Ravi for advice on just about everything.
IMlogic was successfully acquired by Symantec in 2005, and Ravi knew that I wouldn't be much of a "big company" guy. He encouraged me to spend some time with the partners at NEA, and I joined the firm in 2006.
Q: What do you like about VC?
A: My personal passion is working in the trenches with portfolio companies. As a former entrepreneur, I tend to gravitate toward the day-to-day excitement that companies experience when they ship products, hire people and win new customers. Every startup is resource constrained, and I do whatever I can to help a team by rolling up my sleeves.
Of course, even the best startups face speed bumps along the road, and a very intense part of the job is showing up to help entrepreneurs through what seem like insurmountable challenges. This may not be the most fun part of what we do, but it is definitely one of the most important and meaningful.
Q: What kinds of pitches are you looking for now?
A: I have spent most of my career either building or investing in software companies, and that's a very exciting sector right now as the old guard transitions its leadership to new entrants. I always keep an open mind when I meet an entrepreneur, because some of the best ideas I've seen were -- on the surface -- contrarian or controversial. We really try not to limit our scope and instead look for opportunities that have the potential to become very large public companies.
Q: What's the biggest mistake entrepreneurs make?
A: Entrepreneurs have to do everything in order for a small company to survive. They do all the sales calls, they make all the big product decisions and they interview every single employee. It's this superhuman power that enables them to overcome the moments of crisis that kill other small companies.
Paradoxically, as a company grows and scales, the entrepreneur needs to figure out how not to do everything. They need to figure out how to lead and trust a management team. This is easy to say but very hard to do. I made this mistake in my own company when I was a young founder.
Q: What's the next big thing going to be?
A: There are some obvious trends in software, such as cloud, flash storage, big data and mobility. Though they have become somewhat overhyped, these waves are so disruptive that they will likely be the "next big thing" for some time.
One point of caution for entrepreneurs at this stage in the market evolution: I do think that the obvious ideas are obvious to everyone. If you see a wide-open market opportunity that seems untapped, beware the well-funded competitors and incumbents that are stealthily approaching. I usually encourage entrepreneurs to run away from the herd when they're small, as opposed to trying to break into a crowded pack.
Q: NEA's one of the oldest VC firms in the business, as well as one of the biggest, but it's traditionally kept a pretty low profile. Is that starting to change?
A: Dick Kramlich, NEA's co-founder, is one of the wisest investors in Silicon Valley and one of the founding fathers of the VC industry. He has very sage advice for young VCs like me: "You don't want the brightest brand in the media; you want the best reputation with entrepreneurs."
We've always thought that action speaks louder than words, and we've focused on earning a great reputation with entrepreneurs who are looking for hardworking, thoughtful and trustworthy investors. It's no secret that our industry has become more focused on PR and marketing in recent years. From my perspective, it's not a negative transition so long as the entrepreneurs come first.
Q: You co-manage NEA's seed investment program. Aren't most VCs doing less and less seed funding and leaving it to the angel investors?
A: Seed investing has always been an important part of NEA's investment strategy, and we'll continue to work with entrepreneurs at very early stages. There will be some cyclical shifts in the seed market as some VC firms revisit their strategies, but I don't think NEA will change its approach. We'll always commit capital to work with entrepreneurs that don't need more than a few hundred thousand dollars to start their journeys.
Entrepreneurs can prove a lot more now with a lot less money than they could 10 years ago, and that trend is not going away.
Follow Peter Delevett at Twitter.com/mercwiretap.