 on the ground, presented by theCUBE. Here's your host, John Furrier. Hello everyone, I'm John Furrier with Silicon Angles theCUBE. We're on the ground here in Palo Alto, California, Catalyst, Ventures, Partners, we're here. Venture director, Steve Herrick, CUBE alumni. Third year, second year, third year. Three years as a venture capitalist, former CTO of VMware. Obviously a great industry player, great person in the community and plugged in. Welcome to On the Ground, great to see you. This is great, thanks, John. So this year, we're hearing a lot of talk about the bubble bursting. Certainly Apple forecast on their awesome earnings call yesterday about record shipments, 18 billion in profit, 76 billion in cash. The iPhone's only eight years old, going on nine years old this year. This is just the beginning, and yet this bubble's not bursting, or it's kind of reshaping, but not in a major way, but still a lot of great opportunities in tech. If the iPhone's going on its ninth year, it's coming into middle school. So what's your take on this trends that are happening now? Certainly enterprise is hot, what are you seeing? Yeah, right now it's wild on all fronts. Last year was wild because there was irrational exuberance everywhere and money being thrown left and right at all sorts of ideas. I kind of feel this is the year of getting real on so many fronts. And this is where these shocking things like profitability and how you're gonna have a proper margin and grow the business, those are back absolutely as the dominating factors right now. There's really a lot of companies these days that they've raised a series A or a seed round, meaning they have a cool idea, but the question's now are how are you gonna scale it? How are you gonna make money from it? How do you go to market with this? And that's where you go from being a technology to a business. I always enjoy our conversations as we talk about more of the long game in tech, being a CTO to VM where you've seen that. We've had talks with Jerry Chan, who's also at Greylock, one of your cohorts here in the venture community. And there's a long view on this transformation, this platforming with the cloud and data, and I'll see mobility, I mentioned the iPhone. But yet now the capital markets are shifting, you're seeing a lot more IPOs and some lackluster performance, but yet this secondary finance is going on. Still, there's a lot of guys like you making the long bets as they say, go big or go home. There are some game-changing opportunities. What are you seeing out there that are still the great opportunities for entrepreneurs to dig into? Obviously, one says top of mind for you. What are you seeing? Yeah, I just, as a whole, I couldn't be more bullish on where the world is. And obviously there'll be ups and downs in terms of capital markets, but this real innovation doesn't have a cycle. And you find the right people at the right time. These macro trends are unstoppable. So we get involved in all sorts of things as general catalysts. We're here in Palo Alto, where we obviously are in the Silicon Valley side, but we're in New York and Boston as well. And so I think it's really important to be looking, not even just across the US, but globally at all the things that are changing and making sure we're part of that. I will just say the most thing that I see all the time, it's very easy to get obsessed with what people talk about in Silicon Valley, and there's obviously amazing cutting-edge stuff, and people are building startups faster and doing more things yourself, like all kinds of things you can do now you couldn't do before. And the point also though is that the rest of the world isn't on the same speed and not on the same sort of an option cycle. So on the one hand, we wanna know absolutely where the world's going, and we like to think about trends, like what are engineers at Google or Facebook doing, and how can we make that applicable to the rest of the world? That's a very interesting approach to it, you gotta stay in touch with customers like the Fortune 1000 all over the world and the problems they have with PC management. It's a real thing, like you think if you're here, it's all Macs and phones only. So I think I would just say there's a lot of forward-looking stuff you wanna be there at the right time, but there's a ton of existing problems that are ready for newer solutions. The exciting thing about Silicon Valley is there's a lot of shiny new toys that are developing and certainly a lot of experimentation, failure and successes, but at the same time, at the end of the day, it's about the business outcomes for the folks who try to solve their problems. And that was clearly articulated by the CEO Mark Hurd at Oracle when I talked to him, because really it's a timing game on execution. So I wanna bring that question to you, which is, okay, you got the shiny new toys, you guys are looking at a lot of new cutting-edge stuff. Some of it's like crazy good, go big or go home, some of it's more practical blocking and tackling, get profit, get scale, but yet customers still wanna solve their problems. How hard is it, or is it getting easier for startups to compete in the enterprise businesses? Because in the old days, it used to be only the big guys can serve those customers. Then with the cloud, startups came in, but now it's getting more complicated. You got security, you got integration, you got horizontal and vertical specialization. These are interesting dynamics. What's your thoughts there and what's your advice to your portfolio companies and startups? Yeah, and this is a great topic and when we deal with every single day, I'd say there are kind of three competing factors that are always at play here. First of all, enterprises are the companies that have a lot of money to use versus individuals. They have problems that have hit at scale because they're so much bigger and hitting them. Certain types of problems such as how they reach their own customers or how they secure their crown jewels have become so important that they're even board level issues. At the one hand, there's this great demand for solutions and more accountability and holding. On the flip side, one of the challenges of the last couple of years is that there's so many startups funded, especially in certain areas, that there's so much noise. And how is a CIO supposed to understand which of these many cybersecurity companies is the one that's really gonna help them or how do they choose among so many more things? So I think that has put a more emphasis on both marketing as well as like, how are you proving that you can truly solve their problems in a shorter amount of time? I think that's a really good driver. So we often ask, from the time a company first sees your product, how quickly does it take them to actually get it off the shelf and then use? And that's a metric that is super critical these days. I think people haven't always watched as much. The other thing is back towards the third part of it, which is funding. I do think right now, you kind of look through startups as these phases, usually for what I look at as kind of high tech companies trying to use new technologies in a hard way. So there's a technology risk that you have to get through. Can I even build this thing? Then you have to prove that there's at least two or three interesting customers that would actually pay for it and use it. And that's sort of phase two of the company. And then phase three is how could I do this sales in a repeatable model that has margin to it and could be a sustainable business? So each of these requires different people, different questions that we ask, different skill sets that are in there. And there's attraction proof points too, as well as that you want to look for that traction for the startup to see that validation with the idea of kind of commercializing. So on that thread, what's the B rounds like right now? I mean, obviously B rounds are a big discussion in the industry, that second financing. A rounds have been bigger in this past cycle, you know, 10, 15 million dollar A rounds. B rounds tended to be a little bit higher, maybe even 30 plus. But that's really an indicator for the market. We're hearing B's are tight, B rounds are hard. The traction points are, can you comment on that and what's your thoughts on that? Is it more revenue? Is it more traction? What's your thoughts on the B? It comes from this pipeline of company starting, which is so awesome around here. It's fairly easy to get a seed round. It's harder, but not as hard to get an A and then it's harder to get a B. So it's always this filtering or this like hunger games type of thing that's going on. I would just say that the questions now for a B round and the proof points required are just more poignant. And it's a supply and demand discussion where there are, perhaps it's higher level of criteria being applied for these bigger rounds. And back to the specific point in the enterprise, the question that any good VC firm is really gonna be looking for at a B is, they've proven that the technology works. They've proven that they have good people skills and can recruit. They've proven that at least a handful of companies will pay something for it. The B round is in theory, it is really created for, I've figured out this pattern for how I'm gonna sell and this will be the accelerant that lets me hire more people and repeat that process in a different way. So it is, at the end of the day you've proven that you have a repeatable way of selling something. It could be big. It could be big. That's the thesis. Actually in more, I've figured out who I need to reach with what message and with what means. Is it a phone call, is it an email campaign? You've at least figured out a pattern that you can repeat. You don't typically wanna experiment with hiring giant sales forces but you haven't figured that out in a B round. So that's why it's just gotten more stringent on that front. Awesome, it's a scale piece. That's Dave Vonte would say is rationalization. Things get more focused. That's more growing in the market. I wanna talk to you about developers. You know, when you're the CTO of VMware and you still are active in the community, the community was really a key part of that growth and certainly funded that whole universalization trend and then cloud. What's your take on developers today? Because now you're seeing companies looking at commercial available software and solutions in the cloud which brings back like it doesn't have to be to do it yourself. It has to, there is some commercialization opportunities for companies to make money on. You know, in the old days startups would make it because they didn't have a lot of cash and they would build their own web scale stuff. So now we're moving to this next generation of developers. What's your thoughts on the makeup, the persona, any sentiment that you're seeing, trends around today's developer community? Yeah, I think this has been going on for a while but I do think there are more choices than ever for now. I think what most people recognize is that at the very top level of businesses more and more things are obviously digital, more ways of reaching the customer than ever through on the channel or whatever else are requiring developers to get there. So more of the company's value is limited by what they can get out either by speed of development or people that they can hire. So at the top level developers are a scarcer resource than ever and wanting to make them both productive and happy so that they stay around matter. And the end result of that has been that developers do absolutely big companies and small companies have more influence over how things are done than in the past. And we've actually talked about this before too, it's you can't tell developers to do certain things when they can just get up and go somewhere else. And if you're on a crappy schedule for products they wanna go somewhere where they can get their work out. So that's why DevOps movements and tools are there. If they wanna be productive and write beautiful applications they're gonna choose one framework over some older one that was the standard. So I think the big recognition first of all is developers have more influence over where the spend and where the tools are going and that companies can and should look at their productivity and happiness as a very, very critical part of the puzzle. Translation, don't jam stuff down the developer's throat. Yeah, and translation to startups is like make developers love you. You gotta recognize developers don't ultimately usually pay. It's usually someone else there. But make developers love you, have operations teams pay for you. Like that's kind of the mantra if you're in the development world. We mentioned DevOps, you mentioned DevOps. Agiles obviously is out in the open now and everyone's adopting the DevOps but it's really implementing to the application level. So you mentioned developers are closer to the action. We've had many talks on theCUBE on that. But now you're seeing as it's like retail is a retail event this January. You know retail would be conversation like, oh omni-channel, but now that's being disrupted by DevOps, it's a horizontal integration. So the DevOps is actually impacting all aspects of this digital transformation that's happening. So I want to get your thoughts on that whole digital transformation. If you assume that the app has a development component and or cloud and data, it will be horizontally disrupting and might have some vertical packaging per the verticals. So I ask you, the old way versus the new way? If you had to kind of like create sides of the street, old side of the street and new side of the street, what are some of the forces that you see happening out there, old way of doing things in the new way? Can you give some examples, some technology, some approaches that you've seen, startups and examples? Yeah, that's a great set of questions to get into. Maybe at the top level. So definitely, actually there's this funny survey, John. I read this thing that said 92% of CEOs want to deliver software faster. I was like, who in the world, who's the 8% who doesn't want to? So at a top level, again, because it is the thing that's exposing access to the products, everything around businesses are coming through that. It can be the bottleneck for putting out new SKUs and new products and reaching your customer and good support. So at the top level, everyone wants to move faster. I think to talk out of two sides of my mouth, I think you want to have the tools that allow people to experiment and get the feedback more quickly when appropriate. I do think the downside of this is for certain types of software, whether it's maybe lower in the stack, things that have to be absolutely rock solid and you actually want them to have more bake time before they're put out into the wild. That's where those advocates would call it fragile programming instead of agile programming because you really do need to have some things that bake. There's a five millions aspect to it. There's more ops, less dev kind of thing, right? That's right and that's a big chunk of it. The other chunk for enterprise in particular, when you're really truly an enterprise company, especially lower in the stack, there are a lot of dependencies on you in terms of what tools you're plugging into and people that have been trained around how to use you. Now I think that's something, if you're in the consumer world, you probably don't appreciate quite as much and so the ability to absorb and have all of the ecosystem work around a super fast moving piece of code causes a lot of challenges as well. So I do think you have to apply this technique to the right areas and with the right thinking and absolutely experimentation is better than ever, you can get real time feedback. That matters in every part of it. But knowing that some parts have to just be rock solid and shouldn't move that quickly. Thoughts on digital data in this data transmission, we say digital data, our thesis that we're speculating on now is that customers would prefer to buy from a brand whether it's consumer enterprise, prefer to buy from a brand that has digital assets that are engaging. When that's basically data, assets are now data. And data's got to be protected and it's got to be integrated, all kinds of opportunities around data. What's your thoughts around today's world around? Big data facet, just data in general as an asset. Digital asset. Obviously it's everywhere. There's all kinds of data. You're generating plenty of it as we speak too. It's everywhere through all the different assets. And I do think this rise in the hotness as we were talking about earlier of whether it's data analytics or people are using AI and machine learning in different, maybe not always the right way, but the idea is that there is so much data, the real challenge I think for everyone now is what do you make of it and how do you actually get an insight that you do something with. So absolutely more sources than ever and this is whether it's splunk dealing with logs all the way up to marketing analytics looking at how their drip campaign is working. I think everyone's fully recognized now that great, we have a lot of data, what do I do with it? And that's where all these, I think a lot of great innovations are happening. Yeah, I mean I think still it's really early there. I'm super excited about as you know data, we love data, and theCUBE is looking at you with your bond. Just what's up with you these days? I mean obviously your focus has recently been security, we talked about that. What are you excited about this year? What's some of your investments and what trends you're watching closely? Yeah, I mean security is a big, big focus of mine and clearly it's got a long way to go to be perfect but it is a spending priority and I think there are a lot of great technologies coming to bear across a rapidly changing world of public clouds and mobile phones and a lot of weird attackers coming in new ways. So that continues to be a big focus and a priority for enterprises. But also to the point on DevOps and generally people productivity is something that I've been really heavily focused on whether it's tools that let developers be more productive or you'll speak with Zugata in a little bit. How do you actually make sure that the employees you have are improving and developing themselves as fast as possible? But all this has to be done in the modern expectations of a mobile world and of a world where I don't want something once a year or I want it real time and I think it applies to whether it's me figuring out how I'm doing as an employee and getting better or putting out a product and getting real time feedback. It ultimately comes down to more sources of data being used in a quicker cycle to make things better. So basically digital disruption or transformation as you're referring to there is really a process change fundamentally within companies. I mean, everything is essentially being disrupted. It's not the old way of doing it. It might be vertically stacked or there's the application that does it. Now there's a lot more integration and cross functional process improvements or process changes. I think it affects absolutely everything. Every part of our lives in my heart is doing that certainly around the people side and the technology side but the marketing side, the product development side. And like if you zoom all the way back, I think what's ultimately happening is things move faster than ever. They change faster and they grow faster. So everything has to change. If you're doing something once a year that's sort of like the world has changed a huge amount. You just mentioned iPhones like these things are only in their middle sort of middle teen years or early teen years. Eighth grade, is it nine year old? But anyway, it's early. It's so super early, a lot of opportunities. What are you most excited about right now? What is, let me rephrase. What's the coolest thing going on in Palo Alto and Silicon Valley that you're seeing come through the board room here at Catalyst? Is there a trend? Is there a coolness? Obviously people talk about AI virtual reality. Obviously you see it by the Facebook and others do some cool stuff. Obviously the development communities are exploding. What are some of the cool things you've seen come through this room? At a macro level, the coolest thing going on right now is I think when people leave school now, it used to be you would think that I want to go be a lawyer or a doctor. But creating a new company is so top of mind for people that wouldn't previously thought about that. So at the top of what's so cool is the diversity of ideas coming in. And diversity isn't even just in this tech space. It's how do I apply this to some new disease or how do I apply it to something else? So this notion of starting something new applying across the board, I think it couples with, there's definitely an attitude among newer graduates coming out that they want to do something meaningful. And it's sort of cliche and it's like a digital transformation for entrepreneurship. Across the board, just name anything that we deal with in life, whether it's food or doctors or anything, there are people trying to try something new around that. And I think just the notion of failure modes and everything is fine. People are very happy with the trade-off. We're psyched to have you here on the ground. We'll see you at theCUBE. Any events you got on the radar, we make sure we connect with you on? You guys, you're in a lot of the good ones. RSA is right around the corner. That's where a lot of security companies are going to be really going wide. And we'll have, it's always fun to go to VMworld and to reinvent all kinds of interesting things going on in that world. All right, Steve, thanks for taking the time here on there. This is theCUBE on the ground. I'm John Furrier with Steve Herrod, Managing Director of Catalyst Partners. The cost ventures we'll be right back with more after the short break.