From: Linda (firstname.lastname@example.org)
Date: Wed Sep 06 2000 - 01:21:12 PDT
VC P.S.: Back to basics
By Lawrence Aragon
Redherring.com, August 30, 2000
Bill Stensrud is a throwback. While his contemporaries burn
through billions of dollars of other people's money, he
focuses on smaller investments and takes a major personal
stake in any deal he makes through his fund.
A general partner at Enterprise Partners Venture Capital, he
eschews drive-by venture capitalists, choosing instead to
model himself after thoughtful, hands-on VCs such as the
legendary Arthur Rock. It all seems a bit strange when you
realize that he's been a VC for just three years. But take
into account the greater context of his experience --
including the 27 years spent in operational roles ranging
from sales and marketing officer to CEO -- and it all makes
WHO WANTS TO BE A BILLIONAIRE?
If you don't know Mr. Stensrud, you should -- not only
because of the stunning success he's achieved in such a
short period, but because he's so damned smart. His
investments have resulted in a personal net worth
approaching $1 billion.
Mr. Stensrud and I are sitting on a patio, talking over
hamburgers and lemonade at San Francisco's Potrero Brewing
Co. A tape recorder is right before him, but it doesn't
color what he says. He talks just as easily about a big
failure as he does about his successes. The jolly VC with a
scruffy beard and a potbelly is very much at peace with
himself. He's got nothing to prove.
His first taste of technology was at MIT. He went in to
become a biologist, but he was deeply affected by the
passion of a computer science professor. After graduating
with a bachelor's degree in electrical engineering and a
master's degree in computer science, he did stints at Bell
Labs and Pacific Bell, moving from technical positions into
marketing. Although he says his life has been a "series of
happy accidents," it was no accident that he decided to
become an entrepreneur. He says he woke up one morning when
he was with Pacific Bell and had an "epiphany that nothing I
did really mattered."
With that in mind, he kept his eye out for an opportunity to
join a startup. That chance came in 1979 with ROLM -- at
that time a $2 million company -- where he was a product
manager for a next-generation PBX. After four and a half
years, he decided it was time to start his own company. He
got together with two other ROLM executives and started
Sydis, which made voice/data workstations. The company
raised $10 million from Exxon Enterprises (when the oil
company thought it could be a VC). Sydis flopped, and Mr.
Stensrud now jokingly refers to it as his "$28 million MBA."
He took two lessons away. One: "There's one thing worse than
not raising money, and that's raising money when you
shouldn't." Two: Before you start a company, you need to
thoroughly understand who is going to buy your product and
It wasn't long before Mr. Stensrud had his first hit. He
made a small fortune as a founding member and director of
sales and marketing for Stratacom. Cisco Systems (Nasdaq:
CSCO) bought the company for $4 billion in stock. (Cisco is
still the third-largest holding in his portfolio.)
He went on to run Primary Access, a communications equipment
vendor, for four years, before it was bought by 3Com
(Nasdaq: COMS). He stayed with 3Com for nine months, but
decided he didn't fit into the big corporate culture and
"retired." That lasted just six weeks: his wife got so
frustrated having him around the house that she sent him
back to work, he says with a laugh.
With a fat bank account, he dove into angel investing,
quickly proving his savvy for picking winners and that he
had the skills to help early-stage communications companies
succeed. He invested and helped build Globespan (Nasdaq:
GSPN) and Paradyne (Nasdaq: PDYN). He owned about 2 percent
of each company when they went public. The companies today
have market caps of $9.1 billion and $743 million,
His biggest hit -- a company he was instrumental in building
-- was Juniper Networks (Nasdaq: JNPR). He owned about 1
percent of the company during its explosive IPO. Today,
Juniper's market cap is about $62 billion. He still sits on
With his reputation growing as an angel, Mr. Stensrud was
approached by a number of VCs who offered to make him
partner. He could have joined a brand-name firm on Sand Hill
Road, but he chose instead to find a firm near his home in
San Diego. "It was a family decision," he says. He actually
sat down with his wife and three kids to make the choice,
which he figured was only fair because they had "put up"
with his career for so many years.
TIME WAITS FOR NO ONE
As much as he likes building companies, Mr. Stensrud has
very firm beliefs and values beyond the corporate world. One
of his key drivers is the understanding that time is the
only thing that can't be replaced. "Use your time, invest
it," he says. "Spend it on the things you love. If you
don't, you're squandering the scarcest resource that God
gives you." As a result of that belief, he and his wife of
23 years have a standing date every Thursday night. He'll be
in Europe on business next week, but he'll be back by
Thursday to make his date, he assures me.
Mr. Stensrud applies his time principle to his work, as
well. The self-described "major propeller head," focuses
almostexclusively on seed-stage or pre-seed deals where he
can have a direct impact on a company. He's a "proactive
investor" rather than an opportunistic one.
Calient Networks is a good example of how Mr. Stensrud
works. The optical switch company, based in San Jose,
California, grew out of work done by John Bowers, an optical
switching guru at the University of California at Santa
Barbara (UCSB), and Daniel Blumenthal, an associate
professor at UCSB. Mr. Stensrud routinely prowls around
universities and government research labs because he's
always looking to get a major jump on the next big
In Mr. Bowers he had a "strong technology founder." He
helped him and Mr. Blumenthal draw up Calient's business
plan and recruit the company's management team, including
CEO Charles Corbalis, whom he knew as a cofounder and VP of
engineering at Stratacom.
His hands-on work is already paying dividends. Calient
announced its first product in June and will start shipping
it by the end of the third quarter. The company has created
quite a buzz, resulting in a $50 million second round of
funding with a pre-money valuation of $400 million from
Greylock, Juniper, and Tellabs (Nasdaq: TLAB), as well as
first-round investors Enterprise Partners, Telesoft
Partners, and Storm Ventures. Enterprise put up $5million
of Calient's first round of $6 million. It's still the
company's largest shareholder. Calient has turned down
numerous buyout offers and has its eyes fixed on an IPO, Mr.
Like the fictional Jerry McGuire, Mr. Stensrud fiercely
believes the best way to serve his "clients" is to limit the
number he works with so that he can give each one personal
attention. Although he officially sits on 13 boards, the
majority of the companies are on "auto pilot," he says. He
limits the number of companies that he actively works with
to no more than five.
He is very down on momentum players. "There are too many
firms that view VC as a financial business, when it's really
a company-creation business," he says. "The financial
players are the least likely to survive."
When Enterprise went out to raise its last fund, it
purposefully didn't raise one cent more than it knew it
could invest without stretching the limits of its partners.
"We wantto keep the firm and the fund small," he says.
"We're either the first money in, or on those rare occasions
where we're not, we're very close to it."
Mr. Stensrud is the only VC I know of who hasa contractual
deal with his firm's limited partners that says he'll
personally invest 25 percent of the total dollar amount in
every round of every deal that he does for Enterprise. He
thought the limited partners might push back on the demand
during the last fund-raising, but they rightfully understood
that if he has a sizable amount of his own money in a deal,
he's going to work twice as hard to make sure it succeeds.
The limited partners also know that Mr. Stensrud's track
record as an angel isn't a fluke. At Enterprise, three of
his portfolio companies have already gone public -- Rhythms
Netconnections (Nasdaq: RTHM), which he started in his
office and has a market cap of $701 million; Packeteer
(Nasdaq: PKTR), which has a market cap of $1.4 billion; and
iAsiaworks (Nasdaq: IAWK) (no market cap available).
Besides Calient, his current deals that he's most bullish
about are AirFiber and Ultraband Fiber Optics (UFO). Ask him
about either one and he becomes animated, his language
quickly turning from English to Geekspeak. If history is a
guide, investors should keep on eye on this trio.
NEXT TIME: Mr. Stensrud will answer your questions. Send
them to me at email@example.com.
VC P.S.: Back to basics, part 2
By Lawrence Aragon
Redherring.com, September 06, 2000
He doesn't have the pizzazz of the windsurfing venture
capitalist, but Bill Stensrud got tons of fan mail -- and
questions -- after he was featured in last week's VC P.S. In
fact, there were too many questions for Mr. Stensrud, a
general partner at Enterprise Partners Venture Capital.
Apparently, the entrepreneur-turned-VC touched a nerve with
his unpretentious manner and common-sense approach to VC. Or
maybe it was simply that he's personally made close to a
billion dollars with his investments. After all, money
Q. What advice would you give to a former successful
entrepreneur who is about to start a career in early-stage
technology venture investing? What are the common pitfalls I
should try to avoid? What are the things I should focus on
to be successful? -- Jonathan Clifford
A. If you've been a successful entrepreneur, you've had your
hands on the driving wheel. You have to recognize that if
you're going to be an investor, you're not driving the car,
you're helping to read the map. You have to let the
entrepreneur drive. People making the transition from
operating guy to investor have to learn to let go. They have
a tendency to over-manage. I did.
Q. How did you overcome that urge to keep driving the car? -
- Lawrence Aragon (L.A.)
A. It takes a little maturity -- and somebody hitting you on
the head. Peter Drucker, the management guru, said that the
biggest mistake people make when they get a new job is they
keep doing their old job. That's what you have to avoid.
Q. Regarding Mr. Stensrud's comments about the value of
time, how often does he stop and take stock of what he's
doing and why he's doing it? How does he make sure that he's
not wasting time? Does he modify his goals regularly? -- Roy
A. At the 50,000-foot level, I go to the mountain top about
every five years and reassess at the most fundamental level
whether what I'm doing is what I want to be doing. That's
not how you save minutes, that's how you save years. Beneath
that, I try to develop patterns or habits that make certain
that I prioritize things extremely savagely.
Q. Can you give me an example? -- L.A.
A. I allocate my time to priorities. I'm not doing time
management, I'm doing priority management. I make sure I do
the most important things and don't spend time on the
unimportant things. You have to work hard to decide what not
to do. It's easy to decide what to do, but it's hard to
decide what not to do. One of my strongest skills is
actively deciding what not to do.
Q. What recommendation would you make to a VC who is looking
to become more educated on many of the technical aspects of
deals? Would it be in basic engineering courses? -- James
A. I'd tell him to go get a job in a company. Too many
venture capitalists have become VCs too early. I got my
domain the old fashioned way: I worked my butt off for it. I
don't think you can get domain knowledge from school. You
get it in the real world. You can get some technical
knowledge in school. [Mr. Stensrud has a bachelor's in
electrical engineering and a master's in computer science
from MIT.] I spent most of my career in sales and marketing.
I learned the important domain knowledge in the trenches
with customers and understanding their world.
Q. Mr. Stensrud has demonstrated a knack for picking winners
in competitive spaces. When looking at multiple-seed and
pre-seed companies in a competitive space, what factors
stand out as indicative of the ultimate winners? -- Fred Van
A. I work really hard not to invest in companies in
competitive spaces. I look for companies that have an unfair
advantage or are defining their own space. Investing in
existing competitive markets hurts. Don't do it.
Q. You mention the importance of being able to work with a
founder. What other characteristics and levels of experience
do you look for in a founder and his or her management team
to determine their likelihood of success? -- Alan Letzt
A. The most important thing is commitment to management
excellence. That means that the team founding the company
needs to be committed to hire to their weaknesses. If
they're not the best person for their job, they have to be
willing to hire the best person for that job and to take the
job they are the best suited for. Fundamentally, what you
want is someone who understands that if the company wins,
you win. If you have that attitude, I want to work with you.
Q. On the surface, that sounds like something an
entrepreneur would understand and agree with. How often do
you meet entrepreneurs that really get it? -- L.A.
A. I would guess that I pass on 75 percent of the deals I
really want to do because that element is missing.
Q. That must be very difficult. Do you ever think to
yourself, "Everything is in place, so if I can just change
the attitude of the founder, everything will be OK?" -- L.A.
A. That's like getting married to someone and saying I can
fix them. It's really true that the worst experiences I've
had as VC have been personnel related, where I've had to
fight with the founder. I don't want to do that anymore. If
the founders really want to be successful, they'll do the
right thing, and we'll have great fun together.
Q. What are your flop investments, and how many of them are
there as compared with the successful ones? -- Sandeep Asija
A. I haven't had -- knock on wood -- any of my investments
flop yet. I've had a couple that have reinvested themselves
on way to success, like Ipivot. That was my first investment
at Enterprise. It's a really good people story. It turned
out that the original concept didn't work, but the company
had a real strong entrepreneur and CEO, Brett Helm. He
figured out early that the concept wouldn't work and
refocused the company around a related opportunity. Two-and-
a-half years later, Intel (Nasdaq: INTC) walked in and paid
a half a billion for it. It was a big win. We made 70 times
our money. I haven't had any flops, but I've had to work
hard with good entrepreneurs to find the right course. The
world never seems to happen exactly the way you figured in
your business plan. I will have flops.
Q. Does Mr. Stensrud have any advice for marketing people on
how to change industries? I noticed he has changed several
times in his career. -- Mike Glenn
A. Changing industries is hard. I never really changed
industries. I stayed in the communications industry all my
life. If you want to change industries, you need to be
prepared to take a step back while climbing the learning
curve. If you have a lot of functional skills but not the
domain knowledge, you have to find someone willing to give
you the opportunity to learn the domain knowledge. You'll
rarely find someone willing to give you that opportunity in
a senior executive job in a startup. It's too hard to be
effective at Internet speed if you haven't built up your
Q. I'd like to know how Bill Stensrud feels about mobile
commerce, and what he thinks its largest impact will be on
the traditional brick-and-mortar companies. -- Barbara
A. I think it's going to be very nichy. It will be good for
tourists. Seriously, I don't invest in content deals. It's
not my area of expertise.
Q. Well, your opinion is just as valid as anyone else's in
such a new market. What do think? -- L.A.
A. There are a limited number of things I'm going to do when
I'm driving down the road. I'm not going to buy a new
computer, for instance. I don't know what mobility does for
commerce other than obvious niches. I think there is a lot
more hype than there is substance in the mobile commerce
space, but, fortunately, I'm not going to find out because I
focus on infrastructure.
Q. As a telecom-investing pioneer, what do you think is the
most disruptive technology currently attacking the "last
mile" problem? -- David Morken
A. Free space laser technology [the technology used by
AirFiber, a San Diego startup he funded]. It delivers the
largest amount of bandwidth in the shortest amount of time,
at the lowest cost, and without consuming regulated
resources. Buying spectrum is expensive, and you can't put
in wireless technologies unless you buy spectrum. Also, with
free space laser technology, you don't have don't have to
dig up streets to lay fiber. You stick a little box in your
window or on your roof, and you're connected. You don't use
regulated spectrum or rights of way.
Q. But what about all these startups cropping up that are
leasing dark fiber, such as Yipes? It appears that it's low
cost, and the fiber is already in the ground. -- L.A.
A. It's great if you have fiber in your office, but the
challenge is how to get to the fiber. The last-mile problem
is how to connect the customer to end of the fiber. Ninety
percent of the office buildings in North America with 200
people or more are not connected to fiber.
Q. Please ask Mr. Stensrud to discuss the merits of being
publicly held versus privately held. I work in a small
software company. Our initial founders have good ideas, a
strong product, great work ethic, good vision, and decent
logistics. However, they are adverse to the "corporate
environment" -- the trappings of being in an office, and
facing outside scrutiny. It appears that we will be able to
self-fund our growth plan for the foreseeable future. --
A. Other than liquidity and access to capital, there is no
advantage to being a public company. If you're happy being
private, stay that way. Ninety-nine percent of the
businesses in the U.S. aren't public -- dry cleaners,
retailers, gardening stores. They're run on cash flow, and
that's a fine business model. If you can run business on
that model, you should continue to do it. Don't invite
public scrutiny. The only reason you should go for VC is if
you want to grow business very rapidly or you need access to
capital. But you have to remember that if you do that, you
put yourself on a public track.
NEXT TIME: I'll be talking to Heidi Roizen of Softbank
Venture Capital. Ms. Roizen made it as a software
entrepreneur and was a VP at Apple before she became a VC.
- Lawrence Aragon
COMPANY: Enterprise Partners Venture Capital
HEADQUARTERS: La Jolla (San Diego) CA
GENERAL PARTNERS: Mr. Stensrud, Drew Senyei, Ron Taylor, Tom
Clancy, Jim Berglund, and Naser Partovi
CURRENT FUND: $310M (fifth)
TOTAL UNDER MANAGEMENT: $745M
FOCUS: Primarily early stage. Mr. Stensrud and Mr. Partovi
focus on telecommunications; Mr. Senyei, Mr. Taylor, and Mr.
Berglund target health care, e-health, and medical devices;
and Mr. Clancy focuses on enterprise software and Internet
software and services.
INVESTMENT CRITERIA: "I look for three things: a big market
where there's a big need; technology that has a compelling
advantage that's sustainable and is disruptive; and people
who have a commitment to management excellence." If an
investment meets the first two tests but fails the third,
Mr. Stensrud takes a pass. "I'm willing to work and build a
team, but I'm not willing to fight with an entrepreneur," he
VC AVERAGE 1ST ROUND INVESTMENT: $7M (Mr. Stensrud focuses
primarily on seed-stage deals -- where he typically puts in
$500K to develop a business plan -- but he also does
NO. OF COMPANIES FUNDED: 150
NO. IN ACTIVE PORTFOLIO: 80+
SAMPLE OF FUNDINGS: Stamps.com (Nasdaq: STMP), Rhythms
Netconnections (Nasdaq: RTHM), Packeteer (Nasdaq: PKTR),
Active Software (Nasdaq: ASWX), Efficient Networks (Nasdaq:
EFNT), iAsiaworks (Nasdaq: IAWK), MedicaLogic/Medscape
SAMPLE OF LIMITED PARTNERS: The Ford Foundation,
Columbia University, Yale University, Salomon Smith Barney,
GM Pension Fund, HarbourVest Partners, and Horsley Bridge
FAVORITE COMPANIES FUNDED AT ENTERPRISE: Calient and AirFiber
EMAIL ADDRESS FOR PITCHES: firstname.lastname@example.org
UNSOLICITED B-PLAN POLICY: "Not many get funded, but they
get looked at, and nearly all of them get responded to." Mr.
Stensrud funded one plan that came unsolicited through the
mail -- Solus Micro Technologies, a fiber-optic component
company. "It really resonated with my model, and the
entrepreneur was credible," he says.
PERSONAL: Born in Chicago. Likes to golf -- on a good day he
can break 90. Classical music buff. President of the San
Diego Opera. Wife operates the Stensrud Family Foundation,
which funds educational programs for "at-risk" kids, from
elementary school to high school.
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