Jon Sakoda is a Partner at NEA and is an entrepreneur turned venture capitalist. The views expressed here are not necessarily shared by NEA.
Jon Sakoda is a Partner at NEA and is an entrepreneur turned venture capitalist. The views expressed here are not necessarily shared by NEA.
What happens when you invite the entire company to watch your board meeting? My guest post on VentureBeat shares my personal experience with Blue Jeans Network’s first board meeting broadcast live over video conferencing to every employee!
Fun video of Bryan Schreier of Sequoia and I responding to the ALS Ice Bucket Challenge. Thanks Clara Shih and Steve Garrity from Hearsay Social! Next up — Scott Sandell and Forest Baskett from NEA, and Doug Leone and Jim Goetz from Sequoia!
Opower went public this week on the New York Stock Exchange — this was my first investment as a partner at NEA and was a long and fulfilling journey. The WSJ wrote a great article on how Opower bested Google and Microsoft — great lessons here for entrepreneurs! http://on.wsj.com/1n5Mhln
“Give me a place to stand, and I shall move the world” – Archimedes, c250 B.C.
Today we are excited to be a part of Opower’s IPO—an amazing milestone for founders Dan Yates and Alex Laskey, who shared the vision that a software company using big data and behavioral science could one day affect climate change.
We first met Dan and Alex six years ago when Opower was piloting a new kind of energy efficiency program to just a few thousand homes with a small utility in Sacramento, California. The program had a simple hypothesis: by giving people personalized data-driven insights about their energy consumption, you could help them save energy. Inspired by Dan and Alex’s enthusiasm and belief that Opower would one day become pervasive in the global utility industry, NEA led the their first round of institutional venture capital when the company had just 12 employees.
Since 2008, my partner Harry Weller and I have had the privilege of being a part of Opower’s journey, and watching Dan and Alex’s dream become a reality. Opower today reaches over 32 million households and businesses through 93 utilities in eight countries, analyzing over 100 billion meter reads a year. Their IPO milestone today will enable the company to continue to deploy its products around the world, working hand in hand with some of the largest customers in the $2.2 trillion utility industry.
The utility industry has historically underinvested in technologies such as CRM and consumer engagement (a company like Opower could not have been imagined just 10 years ago!) In recent years the industry has changed, and utilities have come under increasing regulatory and environmental pressure to build fewer power plants, find cleaner sources of fuel, and compete with new entrants like solar installers. Around the world, utilities are embracing Opower to leverage advanced behavioral science, cloud computing, and “Big Data” analytics to give us all a rich understanding of our energy use. The results are inspiring – Opower provides utilities with a reliable low-cost alternative to building more power plants, saves money for consumers on energy bills, and prevents tons of wasteful carbon emissions every year.
Opower was far from an overnight success and required amazing passion and persistence to overcome the odds. The company’s remarkable journey can be attributed to two incredible entrepreneurs who have largely defied and debunked conventional wisdom:
Congratulations to Dan, Alex, and the Opower team. You have proven that “Big Data” is a big deal in the fight against climate change, and have inspired us all to do our own small part.
Even though many VC firms are backing away from seed investing, NEA is just getting started! My interview with Silicon Beat…
The VC industry faces a multi-front war. How will we respond? My interview with the WSJ…
We are excited to announce our Series A investment in Swiftype, a rapidly growing “search as a service” platform that makes it possible for any website or mobile application to add modern search to their product in less than a minute. As an early seed investor, we have had the privilege of watching Swiftype grow from a proof of concept to a service that is today used by over 100,000 customers including some of the largest e-commerce, media, and technology companies in the world. This tremendous growth has largely been accomplished through word of mouth adoption and, remarkably, without any sales or marketing investment. In the past 12 months since launching their service, Swiftype has quietly become the largest search engine you’ve never heard of!
For several years NEA has been investing in the rapidly growing area of cloud services that simplify very complex tasks for technical users, such as Braintree for payments (recently acquired by eBay for $800 million) and CloudFlare for web security and performance. As these companies have captured the hearts and minds of hundreds of thousands of businesses, they have achieved significant competitive advantage through network effects, scale, and data that have made them as formidable and knowledgeable as the largest tech companies in the world in their unique area of expertise. Swiftype today is already seeing more than 200 million search queries a month, and we believe their focus will enable them to provide the very best “search as a service” for any website or mobile application as their platform expands over time.
We are excited to work with Matt Riley and Quin Hoxie, the founders of Swiftype, who long ago asked why website search was inaccurate, inflexible, and expensive to implement. With Swiftype, luckily we no longer have to search for an answer.
We are excited to be a part of today’s $50 million financing in Blue Jeans Network, the world’s fastest growing cloud-based video conferencing service. NEA invested in Blue Jeans over 2 years ago and has had the privilege of watching the service grow from a proof-of-concept to a disruptive product now serving over 2,000 customers and 3 million participants. The premise behind Blue Jeans is very simple – make video conferencing as pervasive and easy to use as audio conferencing by providing a service that works from any device with a two-way camera (across Cisco and Polycom room systems, Microsoft, Google, and Skype clients, and every browser and mobile phone). By providing interoperability across these services, Blue Jeans has become the missing link in real-time collaboration and one of the fastest growing software-as-a-service companies in our portfolio.
Blue Jeans is an incredibly simple service to use and describe, but it is an extremely complex technical solution that was not possible (or feasible) just 5 years ago. First, high quality video bridging has traditionally been done through special purpose (expensive) processors, and it is only recently that multi-core processors have reached a price point for video interoperability to be performed on commodity hardware. Second, significant advancements in H.264 compression have made it easier for high quality video to be streamed through low bandwidth connections. Finally, pervasive cloud infrastructure has made it possible to scale up to support millions of users overnight, a requirement to meet the demands of the largest customers around the world. The convergence of these technology trends has made it possible to launch Blue Jeans, and to unlock the true potential of video in the workforce.
It is truly a privilege to work with the founders of Blue Jeans, Krish and Alagu, who have realized the vision of video as a “dial-tone” service that would connect the world around us. Today we can see this vision coming to life, transforming many industries that have adopted their service. We see universities using Blue Jeans to turn physical lecture halls into virtual classrooms that can bridge in students from multiple countries. We see doctors using Blue Jeans to connect medical experts into emergency procedures, enabling patients to get the best care even in remote locations. And in a workforce that is increasingly geographically dispersed, we see millions of people using Blue Jeans to see their customers and colleagues, and to discover what is possible with pervasive video.
Want to see the future? Just try www.bluejeans.com!
*This post is a follow-up to my “Ask a VC” interview with Leena Rao at TechCrunch who posed the question, “Why does a $2.6 billion fund make seed investments?”
NEA is one of the largest VC firms by assets under management, and has quietly become one of the most active seed investors in the industry. Launching a seed program was controversial, both within the firm and throughout the seed investment community. The primary concern was “signaling risk”, or the notion that when a large VC fund makes a seed investment but chooses not to invest in a Series A round, the company’s ability to raise additional capital is significantly impaired. That negative “signal” could damage both the reputation of the company and the relationship between the entrepreneur and its investor. After 35 years of building a reputation of trust and respect with entrepreneurs, we probably worried as much—or more—about this “signaling risk” than anyone. As a result, since launching a dedicated seed program in early 2011, it’s something we have proactively measured and monitored from day one. The early results so far have been surprising to many with whom we’ve shared the data.
NEA’s seed program has made more than 50 investments totaling north of $20 million. The portfolio spans multiple sectors of technology (consumer, enterprise, healthcare, energy) and geography (Silicon Valley, Boston, New York, LA, and DC) and represents the diversity of interests and strategies employed by our global partnership. We have recently analyzed our first cohort of 35 seed investments, all of whom raised their initial seed rounds between March 2011 and July 2012. The data is as follows:
(*this category includes companies that have not yet tried to raise capital, have raised seed extensions in advance of Series A, or are otherwise too early to tell)
Given all of our concern about signaling risk, we expected to see more companies that are NOT funded by NEA struggle to raise a Series A. Instead, we have found the opposite.
The fact is that many VC firms choose to invest in NEA-seeded companies even if NEA does not lead the Series A. There are many reasons why this occurs, but a few of the more consistent ones are:
On this last point, it is important to remember that building a successful start-up is one of the hardest undertakings on the planet. It should not be surprising that investing in start-ups is equally challenging. When we make a decision to invest—or not—in a Series A, it does NOT always mean we’ve made the right call. We are human and we make mistakes. We aim not to repeat those mistakes at Series B, Series C, and beyond.
To be clear, we are not claiming that signaling risk does not exist. To this day we are still very careful and selective about our seed investing for this very reason. Entrepreneurs have many choices for how to build their seed syndicates, and those that choose to work with NEA get a partner with a long term perspective, at any and every stage of their growth, no matter how much money we’ve invested. We aspire to help entrepreneurs build very large companies, and have a track record of doing so that spans four decades. This is the strongest signal we send to our entrepreneurs, to our co-investors, and to the market, and it is a signal that hopefully continues to drown out the noise of signaling risk.
Why does a $2.6 billion fund make seed investments? Good question from Leena Rao at Techcrunch!
“You are on Mount Everest. This is not for everyone” – Sherpa Tensing, June 2001
Note: I went on a trek to Everest Base Camp in 2001 prior to starting my first company. I unexpectedly learned one of the hardest lessons about entrepreneurship, loyalty, and leadership while on the mountain. This post is for entrepreneurs that have scaled their companies to the highest of altitudes, and have come face to face with the realization that not everyone on their team can make the climb.
The trek to Everest Base Camp is one of the most beautiful and challenging treks on earth. Visited by thousands every year, most groups start their journey by flying into a small village at 9,000 feet in the heart of the Himalayas, and spend the next 7-10 days pushing up the mountain to nearly 19,000 feet*. Those that come to Everest train hard to prepare themselves for the effects of ascending a mountain at such high altitude, but there are few places in the world to simulate such strenuous conditions. The trail itself is steep and at extreme elevations your brain and muscles become deprived of oxygen. Your body rapidly dehydrates. You experience headaches, can’t sleep, and lose your appetite. And the conditions only get harder every day as you climb higher.
At the beginning of the trek, the group is fueled by the pure adrenaline of being on the trail of the tallest mountain on earth. But by 12,500 feet, the climb gets steeper and the effects of Everest begin to set in on everyone. A few people begin to fall back, and the pack breaks into two – those that can keep pace, and those that cannot. At ~14,000 feet, the gap between the leaders and stragglers grows larger and the landscape turns dry and barren – it is a startling reminder that the conditions do not allow for biological life to thrive. By ~16,000 feet, everyone is starting to show concern for friends and colleagues that are struggling, and the group must stop to make tough decision. The final stage of the trek, from ~16,000 to ~19,000 feet, is the greatest challenge. Your guides inform you of the choice the group must make: some people will get to Everest, and some people will have to stay back or go home. It seems unfair that some of the hardest working and best prepared in the group are feeling the most fatigue, and that everyone has come so far only to turn back now. But as the group approaches the highest altitudes on earth, the conditions are extreme and it is very clear who will need to stay back for the good of those that will continue the journey.
As an entrepreneur, you don’t need to go to Everest to know that there are a lot of parallels between climbing a mountain in extreme conditions and building a start-up. Starting a company is one of the most physically and emotionally stressful activities you can undertake, and it will test even the best trained and qualified of individuals. Similar to the beginning of any great expedition, start-ups can thrive on the adrenaline of the adventure ahead. But as you scale your company, the path gets steeper and the conditions more challenging. Whether you are at 50 or 500 employees, the road ahead is always more difficult than the already steep trail you’ve climbed and you must confront the reality that you are pushing your team to the highest of altitudes.
In a high growth company one of the hardest tests of leadership and loyalty is determining who can make the ascent and who will lag behind. Paradoxically, the bonds of friendship, camaraderie, and trust that make start-up teams strong in the early part of a company’s life become the hardest obstacles to overcome in making the tough decisions that set up companies to take on the challenges ahead. How can you lead your company through these transitions? Here are some best practices I’ve seen great leaders follow through the years:
Enforce an Honest “Bell Curve” Ranking and Don’t Inflate Grades – every manager loves their team and needs resources to accomplish their goals, but CEOs need to be honest about their “A” players (10-20%), “B” players” (60-70%), and “C” players (10-20%). Stacked and forced rankings of every employee reveals who is likely to keep up, and who is likely not to make it.
Don’t Make “Churn” a Bad Word – in a scaling company, there is a relentless focus on hiring great talent to fill important roles. But it is equally important to assess overall quality, not just quantity, along the way and to be honest about hiring mistakes that are inevitable in a hyper growth environment. Make employee “churn” a metric that is measured every quarter, and don’t make “churn” a bad word.
Look to Promote from Within – when it becomes clear that one of your managers isn’t keeping up, the natural tendency is to recruit a seasoned executive. But one of the best, and frequently overlooked, sources of talented and fresh leadership is within your own organization. Rather than force an outside hire, find the “A” players deep within your organization that are setting the pace for everyone else.
Don’t Force People “Up or Out” – an “A” player can become a “B” player if given too much responsibility, too fast, and spread too thin. Creating a culture that rewards and recognizes “A” players, even if they are in entry level and individual contributor roles, gives you the best chance at getting your entire team up the mountain.
I am constantly reminded of and humbled by the trials of entrepreneurship at its highest level. I have witnessed firsthand how difficult it is to challenge the loyalty entrepreneurs have for their teams in order to honestly assess who is ready for the road ahead. But starting and scaling a large and successful company is one of the most challenging endeavors on earth. Those blazing the trail must remember that at the highest of altitudes, not everyone can make the climb.
*Everest Base Camp is the START of professional expeditions to the top of Mount Everest. Though thousands of tourists (like me) go to Base Camp every year, only a few hundred professional climbers successfully climb to the top and as many as a dozen die trying.
WSJ coverage of the challenges entrepreneurs face in the hyper competitive environment of Silicon Valley.