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Anik Bose shares the BGV team’s perspective on the CEO challenges faced by Founders and Venture Capitalists in building technology companies Today’s complex, volatile and fast-paced start-up environment places extraordinary demands on Founder CEO’s.  While many Founder CEO’s bring the comprehensive domain knowledge and the passion/commitment pre-requisites needed for start-up success they sometimes lack the experience and skills required for longer-term company building which can undermine performance.    We believe that this issue is further amplified in the Enterprise IT/B2B space (unlike the Consumer Internet space). In the early stages of a start-up (Seed/Series A) a Founder CEO must be able to: a) Understand how their company fits into the overall competitive eco-system; b) Create a “must have” product that delivers specific value to customers, partners, and potential acquirers; c) Persuade investors to invest in the company; d) Convince potential customers to test the product and; e) Persuade proven executives to join them in building the company.  On the “soft” skills side a Founder CEO must have sufficient inner peace to not panic when faced with the inevitable crises and ambiguities of a start-up.  He/she must project enough confidence to be an effective fund-raiser.  It also means being more proactive than reactive – at least a step ahead of everybody and anticipate what lurks in the future before others have thought about it. Furthermore rare is the Founder CEO who can take the company from seed to IPO – in these situations the Founder CEO must possess the self-awareness and listening skills to know if or when to step aside and bring in the a new CEO, one more suited to a later stage in the company’s life cycle.  Noam Wasserman of Harvard Business School studied 212 startups and found that it was rare for Founder-CEOs to run their companies in the long term; less than half were still CEO after 3 years, and less than a quarter of the CEOs of the companies that reached an IPO were Founder-CEOs.  Noam’s study also indicated that Founder’s do not go easily – four out of five entrepreneurs are forced to step down from the CEO’s post.  Most are shocked when investors insist that they relinquish control, and they are pushed out of office in ways they don’t like and well before they want to abdicate.  If not managed well a leadership change has the potential to be damaging when employees loyal to the founder oppose it. In his academic paper, “Rich versus King”, Noam analyzed 460 American startups from the 2000s. His statistical analysis showed that, paradoxically, founders maximized the value of their equity stakes by giving up the CEO position and board control.  Noam’s study also revealed that founders often make decisions that conflict with the wealth-maximization principle.  The reason behind the conflict is simple – apart from the motivation to become wealthy, Founder CEO’s are also driven to create and lead an organization.  This is a trade-off that Founder CEO’s will face at every step – those who cannot figure out which is more important run the risk of ending up neither “rich” nor a “king”. The BGV team’s experience indicates that previous experience in CEO like situations enables the Founder CEO with pattern recognition – being able to process tons of disparate data, reach the right conclusions, be able to see the forest from the trees and learn from new situations and people.  We also believe that the mastery of the art of leadership comes with the mastery of the self.  So developing leadership is a process of developing the self, which is first an inner quest to discover who you are and what you care about – through this process of self-examination the Founder CEO finds the awareness needed to lead.  Some Founder CEO’s are passionate about developing new technologies and solving interesting problems and perhaps not as excited about scaling a company, managing large teams, making resource allocation decisions and establishing policies and procedures.  As a founder it is good to practice self inquiry – what am I exceptional at ? What do I truly enjoy doing ?  The above combination of experiences, skills and awareness can enable a Founder CEO to take a company successfully from seed to IPO/M&A exit or step down gracefully at the appropriate time if required. To address the Founder CEO critical success factor BGV makes Founder CEO capability evaluation an explicit part of it’s investment evaluation.  Post investment BGV implements a set of best practices which includes: a) A mentoring process to enable the Founder CEO to become aware of and to develop the missing skill sets in a constructive manner; b) A formal CEO evaluation process as part of the Board’s responsibilities with a clear set of milestones and objective criteria; c) Working with the Founder CEO proactively to bring in a new CEO if appropriate instead of reacting to a crisis.   At the end of the day BGV believes that addressing the Founder CEO dilemma is not a simple choice between grooming the founder to become a successful CEO OR replacing the Founder with a professional CEO.  Instead it is about selecting the right leaders with the right skills at the right time.  Through a start-up’s life cycle the skill requirements evolve and change – sometimes the Founder CEO maybe the entrepreneur who can learn and scale with the company and other times they may not be able to – the solution therefore has to be situation specific.

Anik Bose, BGV General Partner shares his perspective on “separating the wheat from the chaff” in Cybersecurity investing. At BGV we have recently observed a 200% growth in Cybersecurity deal flow.  We believe that this deluge is driven by a combination of facts and hype.  A few data points: –       According to a June 2014 report from the Center of Strategic Studies, crime involving computers and networks has cost the world economy $445Bn annually –       Hackers have been in the news headlines with increasingly sophisticated attacks on Fortune 1000 corporations like E-Bay, Target, Neiman Marcus, JP Morgan –       Information security public company valuations are sky high – FireEye a company that is yet to turn a profit is valued at $5.7Bn –       CB Insights reported that VC firms invested a record $1.4Bn in 239 cybersecurity companies in 2013 –       451 Research Enterprise Security Practice (January 2014) reports that significant proportion of cybersecurity products end up as shelfware in enterprises – most common being Security Information and Event Management (SIEM), Intrusion Detection Systems (IDS), Governance, risk and compliance (GRC), and Web application Firewalls (WAF) To find the real opportunities to invest in building cybersecurity companies BGV evaluates opportunities by attempting to answer two fundamental questions: –       Is there a market opportunity for building a best of breed company in the target market segment? –       Does the product deliver a compelling differentiated value proposition in terms of: a) Broader coverage of mode of operation and method of detection; b) Creating stickiness with enterprise customers; c) Providing quantifiable and measurable improvement metrics A few examples to illustrate how BGV applies the above approach: –       We believe there are more opportunities to build of best of breed cybersecurity companies in segments such as Anti-Malware (anti-botnet, antimalware suites, reverse engineering/anti-malware analysis) but far fewer in saturated segments such as Identity/Access Management and Mobile Security (Access control, Digital rights management). –       To deliver a compelling differentiated value proposition a product must be able to deliver on multiple methods of use such as continuous real time monitoring and advanced threat detection for STAP to name a few, while addressing at least one mode of operation such as Network security services (NFV, Cloud based SaaS) and Vulnerability Detection and Monitoring (STAP, Malware and APT identification and blocking) etc. –       To ensure customer stickiness a product must be used frequently (versus one time compliance use), be able to integrate with other systems, work in the background with limited user involvement and be based on key algorithms that make them difficult to be replaced by other solutions –       Last but not least the products must be able to deliver clear and measurable improvement metrics such as reducing time from attack to detection, time from detection to mitigation, reduced false positives, false negatives and or automation/productivity cost savings As early stage investors and company builders BGV believes it is critical to be discerning and not be swept away by market hype and herd mentality.   We do so by focusing on the fundamentals to evaluate and select the best early stage cybersecurity opportunities.

Anik Bose, General Partner at Benhamou Global Ventures (former SVP Corp Dev @ 3Com and Investor/Board Member of H3C) shares his perspective on building a global technology business in China. Building a successful Joint Venture in China requires one to recognize the opportunity but also to be able to mitigate the inherent risks.  This John F Kennedy quote captures the inherent tension eloquently – “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity.” Within 3 years of it’s inception, H3C (  a Joint Venture between 3Com and Huawei had captured 31% market share in China and developed a R&D platform of 2,000+ engineers at 1/6th the cost of competitors like Cisco, Foundry and Extreme.   Within 6 years of it’s inception H3C was operating at a revenue run rate of $1Bn+ with 20%+ operating margins and representing $2Bn+ in shareholder value for 3Com.  H3C is one of the most successful technology JV’s of its kind based on most metrics.  Established in late 2003 the JV’s strategic objectives were: a) TAM expansion – Capture a significant market share of the China enterprise switching and routing market; b) Establish a high quality low cost R&D platform for worldwide enterprise switching and routing products. The strategic reasons for building a Joint Venture (JV) in China for technology companies often range from TAM expansion in China, transforming their R&D and supply chain cost structure and or both.   But even with the best intentions the failure rates among cross border JV’s is high.  According to a report on JV’s and Alliances by the Tuck School in 2006 over 50% of JV’s fail. I have often been asked – “What was the secret ingredient behind H3C’s success?”  People often expect a simple answer.  In reality the answer is that the secret ingredients were a combination of : i) A carefully crafted formula that addressed several critical success factors; ii) An exceptional JV leader – Zheng Susheng (then H3C President and now close friend) and; iii) A tremendous amount of hard work by all the parties involved.  If it were easy then successful China JV’s would be the norm not the exception.   In this blog I will outline the key elements of the formula behind H3C’s success – see diagram and details below. 1.  Pre Deal – A big domestic market combined with the presence of local engineering competencies with the required skill set is a pre-requisite condition for success.  Next Partner selection must be based on a clear alignment of longer-term vision and goals, in addition both partners must bring complementary competencies required for the JV’s success.  Deal structure must be carefully crafted to address JV scope, align value expectations, minimize operational overhang of “minority investor protection rights”, establish an appropriate Board structure for governance and managing conflicts while providing a clear mechanism for exit.  All these tasks must be accomplished within the context of understanding the Chinese culture, a few examples: –        Local partners often tend to have global aspirations for the JV, often a source of conflict with multinational partners –        Furthermore legal contracts cannot be a substitute for relationships – strength of relationships are often the basis for conflict resolution not contracts alone –        Local business practices tend to be relatively opaque – limited business and financial transparency –        Board meetings tend to be primarily ceremonial with all the critical work occurring a few days prior to the board meetings. –        Finally the Chinese culture tends to be “operational excellence” and “customer intimacy” oriented NOT innovation – consequently “fast follower” JV product portfolio/roadmap have the best chances for success Once the above ingredients are in place then the next most important element is the selection of a JV leader, one who possesses the relevant industry knowledge/relationships as well as a proven leadership and execution track record.  A strong JV leader is the glue that builds the team, the business and can manage the conflicts between the JV parents – a rare skill set.  Multinational companies often tend to focus on the wrong skill sets when selecting JV leaders such as English language skills because they feel more comfortable with a bi-lingual executive but this should be a secondary criteria not the primary. 2.  Post Deal – An important execution task is to create goal alignment – this requires understanding parent core business cannibalization risks from the JV; investing time in building multi level senior relationships between both parents and aligning interests through the creation of a compelling operating plan, one that is tied to an aggressive JV incentive plan that rewards management and employees for exceptional performance.  A highly variable compensation structure creates an entrepreneurial culture that avoids the Multinational Corporation “salary inflation trap” while rewarding exceptional performance.  Maintaining goal alignment requires creating transparency through process linkages between the JV and the parents, building trusted relationships with JV executives and ensuring commensurate ongoing value contribution from both parents to the JV’s success.  Finally preparing for exit requires navigating through the landmines of valuation expectations, creating a compelling go forward vision and role for the JV team and creating a retention plan for the management team and employees. In summary, the potential for creating value from cross border investments can be significant but realizing the potential requires addressing both pre and post deal critical success factors.  Companies often fail to unlock this potential either because they fail to address critical pre-deal issues or they declare victory after signing the agreement and do not invest time on de-risking the important post deal issues.

Successful venture funding syndication is as much an art as it is a science.  Bob Ackerman Founder/Managing Director at Allegis Capital, a BGV syndication partner shares his experience on this important topic. Syndication has long been a mainstay of venture financing, since it allows a group of investors to pool large resources of capital and “share” the inherent risk and rewards associated with the building of a successful company from an original idea.  While the process of syndication is relatively straightforward, “effective” syndication is a complex process resulting in a significant strategic asset.  Effective syndication is not only about sharing risks and rewards, but also puts in play a combination of complementary skills, experience, networks and resources that no single investor alone can provide to a company. A cohesive investment team shares a vision and set of goals that are achieved through continual collaboration with one another as well as with a company’s CEO and management team.  Effective syndication won’t eliminate risk, but it can play a huge part in mitigating it.  On the other hand, weak syndication can really ramp up risk for a start-up enterprise if syndicate members introduce external division, distraction and diversion for a CEO and the entrepreneurial team.  As a former serial CEO and as a venture capitalist for more than 15 years, I’ve seen and lived through both scenarios. Effective syndication is not solely a CEO’s responsibility.  Success becomes more likely when expertise, networks and pro-active collaboration are equally important to both management and investors.  The process begins with a financing event and will continue throughout the life of the company, including the future financings that a company will likely require to support continued growth.  Assuring that everyone is on the same page before taking the first step is simply the smart way to go. Basic Skills and Attributes – Not a Name on a Door The skills and attributes needed for effective syndication have everything to do with each individual investor and very little to do with a name on some investment firm door. I’d start any evaluation of a potential finance partner by considering five basic components:
  1. Personality
  2. Expertise
  3. Willingness to commit significant time to engaging with management
  4. Willingness to commit significant time to engaging with other board members
  5. Ability to cooperate and be “part of the solution”
Some investment firms have teams of such individuals, some don’t. Experienced investors know the difference, or at least they should.  Entrepreneurs have to know the difference and select their investors accordingly. If the management team, corporate culture and shared values provide the foundation upon which a successful start-up will build its vision of success, effective syndication is the support network that can measurably contribute to reduced risk and accelerated growth as a company traverses the minefields that mark the path of a start-up. Take Time to Find Cohesion and Balance Making the right choices for a team is never simple. Of those five basic components above, only personality might reveal itself without some pointed research on your potential investors (although reference checks with other entrepreneurs are a worth while investment of time. And remember: personality reveals itself in times of crisis ..). Getting to the bottom of the other four takes some work.
  1. Select investors with demonstrated expertise in your company’s domain who have a track record of adding material value to their past portfolio companies.  Will they make a difference?  How?  Be focused and concise.
  2. Spend the time necessary to get to know prospective investors and develop a shared vision for the company – before any investment.  Understand what each investor can bring to your efforts to build the company.  Place reference calls about the individual representing the investment firm before selecting the investors.
  3. Determine that they have the time to actively engage with you and your management team in between board meetings.  Too many board seats means to little time to support a CEO and their team.
  4. Talk with CEO’s with whom the investor has worked in the past.  Would these CEOs work with the investor again?  Why?  Understand their particular strengths and weakness.  How can you use them most effectively in building your business?
  5. Talk with your prospective investors to understand biases — both the good and the bad — among the investors working together.  Building a team of the willing is paramount. The goal is not to referee egos and personalities.
You want cohesion and balance.  Build an investor group and a board that can make a difference. How to Best Keep the Team in Synch Once a syndicate is formed, it will take a consistent and on-going effort to meld an effective team from your syndicate members:
  • Ensure open communications. Informed and engaged board members can be invaluable resources.  Co-opt the board – make them part of your team.  Not as friends, but as trusted advisors.
  • Assign each board member specific responsibilities in support of the company’s needs and goals.  Hold them accountable – to you and their fellow board members.
  • In addition to board meetings, make a point of holding board dinners on a regular schedule – use the opportunity to develop a deeper understanding amongst your syndicate members of the opportunities and challenges confronting the business.  Engage your management team in the process so that they view board members as resources to assist them in meeting their objectives.
  • At least once a quarter, spend one-on-one time with each of your board members.  Build relationships and shared responsibility for the success of the company.
  • If you have investors who are not represented on your board, find time to periodically update them on the business.  Ignorance is not bliss – it leads to a lack of support.
The process of building an effective syndicate is time consuming.  The right investors will be willing and supportive contributors to the process and provide the company with a competitive advantage and resources for risk mitigation.  If you fail to mobilize and engage your investors, what you get is detachment and a lack of ownership. This mindset is at best neutral to your goals or, potentially, negative. From personal experience, I have never seen a board “make” a company, but I have seen effective syndicates make a big difference for a company.  I’ve also seen dysfunctional syndicates get in the way of a company’s success.  Some may say that syndication is too much work – akin to “herding cats”.  But the alternative, a single investor, limits expertise, resources and bandwidth while also representing a “single point of failure” as you look to the future needs – financial and strategic – of the company.

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” – Sun Tzu Strategy (Greek stratēgia) is defined as a high level plan to achieve one or more goals under conditions of uncertainty. Entrepreneurs often tend to view strategy as the domain of large established slow moving companies with high priced management consultants and fancy power point slides.  Often times this disdain leads to a technology driven approach to build a start-up – i.e. build it and they will come. Our experience in building successful companies from raw startups to large global companies leads us to believe that strategy formulation is an essential building block for value creation in a start-up.  Whether this is at inception through the development of an investor pitch/business plan or during it’s operations via continued refinement and testing of key assumptions with new data.  This is because start-ups operate with limited resources and often compete against companies with far larger resources and balance sheets; consequently the right strategy can determine the difference between spectacular success and abject failure.  Our experience has also led us to the conclusion that no amount of detailed tactics and flawless execution can overcome a bad strategy.  Tactics and execution must follow a well-formulated strategy. A well thought through strategy answers three fundamental questions:
  1. Who – Who is our target customer segment.  For example are we selling to enterprises or consumers or service providers?  Within enterprises are we selling to the CIO or the CSO?   Within service providers are we selling to the Network group or the Marketing group.  Furthermore a clear understanding of who is the technical buyer and who is the economic buyer is important for success.  A crisp definition of the target customer segment allows a startup to quickly get market validation for its business/product concept prior to investing resources on product development.
  2. What – What is the value proposition that we will offer to our target customer segment?  For example what pain point or unmet need are we solving and is it several orders of magnitude better than the current approach to address the pain point along the dimensions of cost, time or value – a quantitative definition is critical i.e. 10X cheaper, 5X faster etc. This helps prioritize product features, defines the company’s unique differentiation and ensure that the company’s technology is adopted more broadly vis a vis the competition.
  3. Where – Where do we want to build our distribution channels?  For example which geographies and within the chosen region which are the optimal pathways to best reach our target customer segment.  This helps define the company’s Go To Market model.
Needless to say relevant market, technology, industry and regulatory trends inform and shape the answers to the above three questions and the strategy needs to be refined over time with new data. Commitment to a strategy is reflected in the operating plan, budgets and goals – deciding where the company will invest its resources.  Many start-ups make the mistake of trying to avoid making tough strategic choices but strategy at its core is about making choices.  In most cases deciding what not to do is equally important as what the company will do.

Illustrative Example




Intrusion Prevention Company Chief Security Officers & Network Administrators in Large Enterprises In-line, Automated Network security @ Multi Gigabit throughput protecting enterprise networks from worms, Trojans, spyware and DoS Initially US and Financial and Higher Educations Vertical Markets with Direct Touch Sales; Later expansion to other verticals and System Integrator channel partners
Small Cell LTE company VP of Networks in Mobile Carriers High performance, carrier grade availability small cells – offering macro parity at a fraction of the cost, footprint and power Initially US through an overlay technical sales force working with the direct touch sales force of  large carrier systems integrator partners
We are not suggesting that Strategy formulation is a substitute for innovation, talent or critical thinking.  What we are suggesting is that it provides a powerful framework for guiding resource allocation decisions and significantly increases the likelihood of success in building a technology company.