 Live from San Francisco. It's theCUBE, covering Oracle OpenWorld 2016. Brought to you by Oracle. Now, here's your host, John Furrier and Peter Burris. Hey, welcome back, everyone. We are here live in San Francisco for Oracle OpenWorld 2016. This is SiliconANGLE Media's theCUBE, our flagship program where we go out to the events and extract the signal and the noise. I'm John Furrier, the co-CEO of SiliconANGLE Media. Here's my co-CEO Peter Burris, head of research for SiliconANGLE Media as well as the general manager of Wikibon Research. We have two venture capitalists here to tell us the real story. Greg Sands, the founder of CostaNova VC, CostaNovaVC.com, Jim Wilson, operating partner, new to the firm. Welcome to theCUBE. Great to see you, Greg. It's great to see you. We're thrilled to be here. Thank you. Good to see you. We saw each other Saturday at the Stanford USC game. You had a big tailgate, kind of a laid back, but you had the big screen TVs and watching the Alabama Ole Miss game, which is good. Congratulations. Yeah, thank you. You know you made it when you were in the big tailgates for the VC firm. Congratulations. Greg, you've been a great entrepreneur. I've known you personally. So full disclosure, great operating person because you've been at Netscape, a company for the young people out there don't know Netscape is where Mark Andreessen and a bunch of Silicon Valley folks invented the browser and then an enterprise got behind that. So you've been in tech and then Sutter Hill Ventures went out four years ago to start your own VC firm. I'm trying. You're now very successful. Give us the update on the firm, how many partners, how many people, how much cash you have left to right check, second fund, third fund, fifth fund, billion dollars, how much? Yeah, so we started the firm in 2012 and John and I were probably on the soccer sidelines when all that happened and we're talking shop, which was great. We're now, we're investing out of our second fund, which is $135 million fund. We're entirely focused on seed and series A in enterprise technology, meaning data-driven applications and the infrastructure that supports them. We're now two partners, a principal and associate. We've got one venture partner, Mark Selco, who was previously co-founder and president of Merced Systems and a baby center. And we have two operating partners, Martino Lachenko focused on marketing and Jim Wilson focused on sales. And Jim, what's your background? So my background is pure sales. I've been in a sales organization and had a quota in one way or another for 25 years. I've been at big companies through an acquisition. I've been at Microsoft. I've been at enterprise sales through an acquisition in a company called Groove Networks, which was an early collaboration technology. I worked for Ray. I worked at a company called Parametro Technology, now known as PTC and started out actually as a sales engineer, worked my way up, ran Asia for nine years for them and came back to the States and ran the West Coast as well. I've also, as Greg mentioned, was at Merced Systems. That's where I got to know Greg and the founders. And recently I was at Sumo Logic, which does machine data and analytics. Yeah, so you know the value of what's going on. Greg, you've been one of the smartest investors. We've talked many times on the sidelines and I want to get your take on this because you're a smart investor. Again, seed funds, so you're making early bets. So you have to dig in and kind of see the baby growing up, if you will, and understand the trajectory. But over the past four years, the enterprise has been gone from, I know it really doesn't mean the enterprise too. It's the hottest category. Certainly as the consumer unicorns start to kind of fade away or kind of just kind of settle in. Just to tell a story, I was trying to raise fund one in the teeth of the Facebook IPO and I was trying to talk about the enterprise and LPs couldn't be bothered. I mean, we got it done. But everybody thought that consumer and social media were the only things that mattered. Yeah, and then back then storage, ah, storage is boring, center all the action. But the convergence with Facebook showed was the hyper skills from the web skills that I showed the hyper convergence in action. People that were really writing the software saw that the hardware was going down to very low cost but the performance was going to be in the software. It's a hard business to get into. How do you look at the investment thesis for your firm? Do you have a specific category? And what are some of the things that gets your attention? Yeah, so we are investing anywhere from at formation to sometimes a company is two years old, as product and market has a million dollars of annual recurring revenue. So very early stage, both Neil and I as partners are former product managers, so we think of ourselves as fundamentally making decisions about products and people. And then part of the reason that we built the operating infrastructure with Jim and sales and martini and marketing is to help product oriented founders then bring companies to market and focus on efficient market entry and scale up. And I would say we have three or four key things that we're focused on. Certainly one key part of that is SaaS and data driven applications. And so obviously you see people like Oracle making big moves into the SaaS infrastructure. We've been, the venture industry has been doing it for 10 years these days. We used to talk about data driven applications now machine learning is really omnipresent and it really is being used in an application context. So that's certainly one area. There's another area which is that the cloud infrastructure requires a degree of agility in infrastructure and so the DevOps movement. And so there are companies like VictorOps which helps people with real time incident management when developers and operations need to collaborate together and security and the data infrastructure. So we're in our sort of four key areas where we're spending a lot of our time and energy. So I saw the Jerry Chen at Greylock who you know, XVM where again a product guy CTO type similar to yourself and he did a class at Stanford with Reed Hoffman called Blitz Scaling and really focused on consumer which we all know there was a scale model where the 10 billion is a new one billion, one million, 10 million is a new one million where you can actually get rapid growth and hit a slipstream and grow like crazy. So I asked him the question, I asked the same thing is there a Blitz Scaling for the enterprise? Is this not that easy? Especially with a lot of the technology change at the data center level and also in the cloud. Is there a kind of scale pattern that you see in the enterprise that entrepreneurs can look at that take advantage of with the big guys getting richer? IBM, EMC now, Dell Technologies, Oracle. Just seem to get richer. That might not bode well for the stars or does it, does it matter? What's your thoughts? So I wrote a blog post that was tongue in cheek called Blitz, or Tap on the Breaks. I thought we were Blitz Scaling. And so of course the Blitz Scaling course was launched in September of last year, just as we hit that first bump that let some air out of the markets. I mean to me Blitz Scaling is a, is not only a consumer construct but it's a bull market construct. Most of the time enterprise things are even very fast enterprise growth is block by block. So you think about the old Dylan song for every young, right? May you build a ladder to the stars and climb on every rung? In enterprise you gotta climb on every rung. There isn't another way to do it. You can do it fast but it's expensive to do it fast. So we've spent a bunch of time over the years talking about pure storage which we incubated at Sutter Hill while I was there. That is Blitz Scaling for the enterprise and they have done an excellent job. Well they were laser focused at the beginning. They were laser focused but once they found your product market fit and had first product in market they went as fast as you can possibly go in the enterprise and I think have executed extraordinarily well in doing it. But it's extremely expensive. Was there a method to their, I talked to Scott one early on too as well. Again, he never wavered. He always said all flash storage, that's the future, he never wavered off that. But did the market spin in their direction was that the EMC's declining innovation around VMAX and some of these technologies, did they actually know the beach head that they were targeting when they entered the market? Because they had real rapid growth right at the beginning. A lot of that the expense of so many older storage vendors. Was that kind of by design? Is that kind of the pattern that you guys recommend startups to take? Kind of take your advantage and get a nice winning position early? So I think and I'll point out again, Mike Spicer at Sutter Hill was the lead and always has been there. But they had a clear view of the technology trends and the opportunity that the incumbents were leaving on the table. And I think that part was really clear. They had a clear focus on, I think the high IOPS environments. And so basically that there was going to be an opportunity for the greatest scale applications outside of the top three or four consumer companies which have effectively become systems vendors themselves. But I think they also discovered one or two adjacencies that they didn't anticipate that they could, the virtual desktop environment, for example, I don't think was as high on their list as it came out to be and has been a really critical environment for them. That worked out in there. Okay, let's go SaaS, so big data. We heard Larry Ellison in his keynote Sunday night say we have a data cloud. Now that's the first time I've actually heard his term data cloud. I heard databases as a service but they have all this data from human resource management stuff, et cetera, et cetera. Do you see big data analytics being an industry specific? Is there an advantage for startup to have data in a cloud like way? Absolutely, and the Oracle data cloud interestingly is, so it really is the combination of two big acquisitions, the biggest of which was data logics where we were an investor and sold it to them and a blue card. And so the integration of those two products is the data cloud. And it's largely- Is that Sutter or- That was a costano investment. Actually, it was both. Data logics. Data logics was. Yeah, so that was our first opportunity to send money back home to our investors and we appreciate that. And secure us the second fund. Yes, every bit helps. And so there they're really, what they're really focused on as a large marketing cloud provider having the, not so much the data infrastructure but the data from all of their customers and the data aggregated and cleansed and deduced so that they can basically be the market maker and the broker for data enrichment for everyone within the Oracle CRM experience. And actually they've done a great job and arguably they have done the best job in terms of creating that set of data assets. The other big marketing cloud providers Salesforce and Adobe have not yet made nearly as bold a move. And I would say that Microsoft, who Microsoft's purchase of LinkedIn really is a move into the data cloud. That's what they were really trying to do more than buy a media property. I totally agree. Now, but let's talk about this because historically when we were bringing software to processes that everybody had it was how fast can you do that? What kind of technology are you going to use? The minute you start talking about data and engagement especially customer engagement, people got to start being a little bit more concerned about letting those crucial assets out the door. So how are these companies going to be able to both protect their customers at the same time monetize those data assets in a public way? Absolutely and I think by the way it's a significant challenge for all of the marketing cloud providers and I think Salesforce actually made the first move in that regard in buying Jigsaw and ultimately found that the terms of service that they had with customers didn't work as it was inside the Salesforce family. And so I think the notion that says the place that these folks are really all three of them are going to have to end up is to say we have the opportunity for aggregated data assets to enrich your customer experience, to enrich your experience of using the software but you can opt into it or not. The software will actually work better if you're willing to integrate and aggregate your data but we're not going to take your data and sell it to your competitor so they're going to have to be clear firewalls and delineations about how it can be used both to protect the customer and to protect the end user. So I know you guys are looking at, correct me if I'm wrong, but you're looking at some of the new machine learning and some of the new data driven applications. And everybody talks about how automation is going to get rid of people and we'll see how that plays out. But there's one area that I find particularly interesting and that is if I'm a vendor selling a data driven application with machine learning attributes, it's promising a service that's going to do predictive types of stuff. Why wouldn't my first move be to discount another vendor's predictive application? How does a customer ensure that their predictive applications aren't competing with each other in presenting the best next action? Well, I'll give you a couple of good examples. So we've got a company called Guardian Analytics which does fraud prevention for banks using machine learning. And there are 425 banks that are on the platform. There is shared data and as a result, you've got better data across platform, across bank and the algorithms learn faster and prevent fraud better. That's a case where these banks, they may on the margin compete against each other for an individual consumer, but they actually all have a vested interest in preventing fraud. And they're overtly agreeing to share the data for the benefit of the better trillion dollar problem. That's right. I guess your companies are willing to share more actuarial data to get better actuarial tables. That's right. And so that's not every application, but that is a great example. I do think in the marketing ecosystem, there is an individual customer, an e-commerce company is trying to decide, am I going to take my data and sell it into Blue Chi, sell it into the Oracle data cloud? Do I get enough value for doing it? That's probably question number one. The second is, can I go and take the five people that are in my category and say, you can't sell it to them, you can't use it to make their business performance better, but I'm okay if you've got auto manufacturers or people selling toothpaste or other CPG companies who are using it in aggregated form. It's a policy based data sharing. It's a category. And it's critically important. But it's got to be tied back to some notion of data value and that's still a long ways off. Let me ask you, on the sales side, we're observing, and we've had a couple conversations like this in the queue, we're observing that Hadoop, Spark, Big Data, it's a lot of downloads, not as much going into production. So bear with me, I'm not going to ask you specifically about the technology, but that there has been a presumption that open source was going to work as well for Big Data as it worked for say Linux. Now the difference is I was, there was a huge marketplace for a very, very smart, sophisticated Linux administrators. They were more than happy to underwrite the cost of understanding what Linux was. There's a very, very different class of user. A lot of these Big Data technologies, they're not as sophisticated yet arguably the technologies that they're being shown are far more complex than you get in an operating system. Are sales guys going to become more or less relevant as we try to match complex use cases, complex technologies to companies that are learning how to use them? You know, I think the one constant I've seen at least in the last 10 years is that you're always going to need a sales organization in one shape or form. I think the question is around what level and what's your sales motion. So I see a lot of companies and Sumo Logic was a great example of that with multiple routes to market that are trying to tackle different problems. They have an enterprise rep that's focused on more larger, multi-buyer sales cycles. And then for the smaller SMB companies they have an inside sales team. I think the big challenge, especially as it relates to open source is the companies need to figure out how to monetize that and as that relates to salespeople, salespeople need to understand how they're going to be properly quoted and gold and make money in commission. And I think that's a big challenge for any open source company today. You know, one of the things that I'd say to that is particularly in a startup ecosystem, if you're Oracle you might be able to get away with it. But we all know that the buyer's journey, whether it's open source or SaaS, half of that maybe more is happening before a sales rep ever talks to a customer. So the requirement for product experience, download experience, self-provisioning experience, pilots, demos with live data are critically important and then most often I think salespeople are intersecting with a customer farther down the funnel than they would have 10 years ago. When, you know, 10 years ago a salesperson was calling on somebody and explaining the product to them from first principles and now the customer's like, yeah, I've already downloaded, I'm trying, I'm using it. The question is, how am I going to use it? Can you help me figure out how I'm going to integrate it with other things? How does it, is it the single best way to solve the problem that I'm working on? Great, go and ask your questions just we have limited time, I want to get this out there because you mentioned the bank sharing data to get the massive upside on the fraud, which is trillions. Brings up the notion of how we're living in today's environment of mobile engagement data. And I know you got a lot of background with some portfolio companies and past and present that are in marketing. And so account-based marketing is the rage right now. So I can all here, account-based marketing, but yet I hear people say, well, we don't want to go into the lead gen capturing people. And in fact, we don't even want to ask them questions. We actually have them at the freemium engagement, free content, because we're instrumenting new types of engagement. I'd much rather know who the person is not the company. In most forms today, they want to know first type in the company, not who you are, CEO, CTO. Do you see the balance shifting between account-based marketing seems to be a database feature, less of a human feature? Well, so we actually have two investments that are in and around account-based marketing, demand-based, which is the bigger and more mature company, ZenIQ, which is a newer upstart going after it with a slightly different angle. And I'll point out that demand-based in particular is the Oracle Marketing Clouds, main partner for account-based marketing. So we're, you know, we love working with them and they've been a great partner to us. And I think it depends on you, I think you actually want both. You want to know if- Because persona data lets you move around different- If you're selling storage, you want to know whether someone's a storage buyer. On the other hand, if you are selling to Citibank or Procter and Gamble or Exxon, it's an enterprise sale and it's a multi-constituent sale. It's not mutually exclusive. It's not mutually exclusive. You still, you, there are- You're selling into a community. You're selling into a community. You want coverage across that community. In the long run, you're going to have to touch IT, a business buyer, a technical decision maker, finance, legal, procurement, and you actually want to have an orchestrated approach to talk to them all. And so that, so account-based marketing is really, it's more relevant if you're selling to enterprise rather than mid-market, but when you've got complex sale, you absolutely need to take the notion that those five people are all treated as individual atomic units and you're selling to each of them, you're not. You're trying to take it- It depends on how you're looking at the problem. But open data means you want to get as much data as possible. Does that fit persona better? And then you can come and take a much more account-based- I totally get that. We kind of like to frame the problem as an inbound problem, how to get found and have your brand in an outbound problem. And account-based marketing really solves more of the outbound problem, but you need both to be successful as you grow. All right guys, final question for you. Greg, talk about the kind of hot deals you're looking at. You know, you've got guys coming in doing a lot of pitches, you'd say a lot of no's, but you do say yes to your writing checks. What are some of the hot areas that are on your radar that are getting you excited right now? And vis-a-vis Oracle and their movement to the cloud, because it's daunting for an entrepreneur like, do you hear people come in and say, oh no, I want to take down Oracle. Do you hear that pitch? Or I want to come in and ride with them on their journey, or fail on white space, or maybe better questions, what's the white space? So there are, by the way, we're completely willing to do both, right? As I said, we've got a great partnership with them. Your stories, I want to take down EMC. That's right. That was a bold statement. And so, you know, we have sold them data logics. We're working with them at demand base on our marketing cloud. They just bought NetSuite, and so we're investors in intact, and so we're willing to compete with them. And we welcome them to that space, and that'll I think will continue to be a good battle. But I'll tell you, most of the time, we're actually more focused on technology and the customer problem, and so here's a great example. The clearly containers are one of the really interesting trends in and around the infrastructure category. And so we've all been looking at containers. Containers are largely an open source technology, right to the question of, how are you going to make money, build an income statement? Even if, you know, certainly if you're not Docker, how are you going to do it? And so we've been really excited to find places where you can use container, containers in a containerized infrastructure, and we found one in a company called Apporbit, which is around, in and around the DevOps ecosystem for Dev and Test. So you can think of it in some ways as virtual lab manager, but rather than using a VM infrastructure, using a containerized infrastructure, it's a technology technological tour to force, but it solves a customer problem in and around the Dev and Test ecosystem. It's a nice white space with room to grow. White space with room to grow with great people, and we will do that all day long. All right, so tell me the white spaces that you guys see out there, for entrepreneurs that are watching, they're like, the number one question I get from entrepreneurs, where's the white space? They're looking for some insight, any you can share. White space that are good targets for entrepreneurs to go after, and they might have some technology, might not have heard from them yet, but where can they attack some nice white spaces? So I think the SaaS ecosystem is actually ready for second generation companies that are built around data and machine learning. So that's certainly one. I think the pervasiveness of Enterprise Mobile is opening up new application categories that weren't categories before field-oriented workers had a smart device in their hands. So those are two things that we're working a lot on. I think agility and infrastructure is absolutely critical, and therefore there are new problems that the Dev platforms and the DevOps infrastructure is creating, and exactly. And so, and by the way, we just made our first investment in and around drones for use in very specific industrial purposes. So to me, the technology that you can bring to bear on these business and enterprise problems is really extraordinary, and therefore the challenge for a technology entrepreneur is to say, where is that business problem that I attached to to go solve it? And that's the piece that I would encourage them to take that technology and assemble it and bring it to bear to solve a very specific business problem. I saw a great Facebook video called Drone Surfing. It's going to be the new hot trend. You basically, the drone carries you out instead of kite surfing, new trend. Well, and so for us, we're geeks, right? So we're excited about being the back end software that drones use to do the visual analysis and volumetric analysis for industrial applications. That's the kind of stuff that we get excited about. The string is not off the reservation to look at some sort of physics play that's got some technology that might be energy related to the data center or software that power drones that syncs up with the power grid. That would not be off the radar screen. That's okay. We'd be, yeah. All right, so I made that up. Sounded good. Yeah. You should start that company. On the cube, final question. How much cash do you have left in fund two? I know you saved some for investment follow on. How much dry powder do you have left? Yeah, we're probably two thirds of the way through the fund two investment cycle. So it was raised in the middle of 2014. So you more checks to write. Yeah, yeah. We'll make, you know, but we expect to be steadily and constantly in market where our LPs are excited about what we're doing and we're going to be continuing to execute. Fund three in the horizon. You can't really talk about that because you can't quiet period. Is that the rule? We're not actively doing it. So I don't think there's any rags against it. But the main point is, you know, we are expected, you know, we expect to be doing what we're doing for many years into the future. Well, congratulations on your great success. Great to see you. Costa Nova, BC, one of the best VCs. Really focused, not the big fund, but they're doing a lot of great investments. Check them out if you haven't seen them. This is theCUBE live here in Moscone in San Francisco. In San Francisco, I'm John Furrier with Peter Burris. You're watching theCUBE.