 Okay, we're back at SiliconANGLE.com's continuous coverage of VMworld 2010 in the cube with a discussion with Venture Capitalists who are investing in all the next hot startups, software companies, infrastructure companies. We all know three par two billion dollars is big big wins out there and data domain was a big acquisition and we're here with three venture capitalists. My left is Charles Beeler from El Dorado Ventures and he's done a bunch of storage cloud deals, Pete Sonsini from NEA and Ping Li from XL Partners. So guys welcome welcome to the segment. So first question we just go down the line real quick. On a scale of one to ten how would you rate the overall investment climate for startups in cloud? Startups in cloud I'd say pretty close to seven eight nine. You know the the negative right now is a little bit more around the funding environment than the opportunity for the companies and I think you as venture guys you really have to be able to look past that and see the opportunities for the businesses and unfortunately you got three groups here of capital put to work so you can actually fund these things. It's the biggest challenge we're seeing up there right now. Great. Yeah I agree I mean it's it's definitely eight nine if there's a hot sector enterprise related it's certainly cloud cloud related. The backdrop as it relates to overall venture climate you know Casapowl and affects the investment in this area a little bit but everybody knows this is a big change to the ecosystem is creating tons of opportunities for new businesses and so everybody's very focused on it or they're missing it. Yeah I agree I think in terms of areas of excitement enthusiasm with entrepreneurs is definitely nine or ten I think it it's not just on the infrastructure side as well I think if you look across you know our portfolio I'm sure it's the same with Pete and Charles you know three-quarters of the companies are actually built on cloud infrastructure now so there's no more servers or data rooms than any of the startups that we work with so I think there's up and down the stack from the applications down to the infrastructure there's a lot of enthusiasm for what the cloud can bring. Same process right down the line again another question is how do you guys evaluate a company these days because it's so easy to fake out a VC if they're not smart about throwing some cloud stuff up there making it look great at a Rails front end doing some voodoo I mean is there a new model of evaluating an entrepreneur or startup in the old days it was hey what's Stanford at a PhD got this unique IP with a patent now it's a really fast market things are going crazy how do you guys look at deals and evaluate entrepreneurs and and startups. For me it still comes down to the team and I don't really care where they went to school I care what they know about the market they're going after you know to the extent they're going they're going after something in virtualization and cloud player storage the pedigree matters a lot what have they done before that shows they understand the market they're going after I'm hoping that the entrepreneurs we back know a lot more about the market they're pursuing than I could so if they're really good at it you know I'm not going to keep up on that piece of it I just want to make sure they understand it they understand how they fit in the ecosystem it can drive it and the stage we invest it really is all about the team because good teams have good ideas and they know how to pursue them. Pete? Yeah I mean you can be aware of the trends but you don't know everything about everything there's no way you possibly can so you you try to narrow it down to you know generally speaking it's it's people it's markets it's business traction it's technology I think at the end of the day it comes back to those same four things most of the time and everybody's got their own personal filter as to what they like to optimize around I think for the deals that will do in one of those four categories you know and others I think one of them really has to be out off the charts to grab your attention to want to do the deal but I think it still goes back to you know people technology markets and and the passion behind the entrepreneur does the entrepreneur really have that privilege inside in the opportunity do they really know this market and this opportunity and how to exploit it better than everybody else and being the gauge of that is you know at the end of the day that that's probably the most important thing because as I say you're not going to know you're not going to know everything everything about everything and you can't expect to get anywhere close to that so you try to find those those individuals that really do have that key in so it inside to exploit an opportunity so that's how we would look at it thank you I agree I think the fundamentals of what we look for in a company hasn't really changed I think the sectors and trends as you as you noted have changed a lot you know I think there's still the constant tension that we see between kind of features an actual category defining breakout companies and I think that is you know a lot of times when you see a new market like cloud computing the first wave of a lot of the ideas are more features or we're trying to evolving existing platforms and then the next generation or the emerging ideas are are going to be more kind of the category platform type opportunities so trying to kind of parse out which one is which is not an easy task is something we spent a lot of time on I think the other big change is capital efficiency I think a lot of these companies are able to get to market with a lot less capital because the tools and resources whether it's open source products or you know things like EC2 S3 really change how companies can get to market much faster so that's something we do look for if you can build it and get market faster let's see it as opposed to building for three years and then create the markets there I mean a capital efficiency is a great entrepreneurs are great at bootstrapping so they love cloud it's like hey I can do a data center for 20 thousand yeah in three countries yeah so let's talk about that I mean let's couple efficiencies one thing and you guys provide a lot of funding but now momentum has always been the thing you could be capital efficient and never never make the market so it's about momentum where do you guys see the most momentum in cloud cloud related things we have end user environments but you know the VDI stuff and some desktop mobile obviously in the middle where that model is changing and then infrastructure the network at the plumbing storage what do you guys see the most momentum and most fertile for entrepreneurs to stay a safe harbor if you will do you see that anything out there I I mean clearly the place you're going to see the most momentum is the closer you get to the end user of a product that if something's getting adopted quickly and ramping quickly and if you're hosting that cloud it's a lot easier to get the plumbing continue to play and meet that scale I think as you look at more the infrastructure the guts and things that are going on and we're pretty big believers that while virtual desktop is still early in terms of enterprise usage we think it's at the point now with technologies evolved far enough that it's ready to go we made a bet recently we just we think that's a market that's starting to gain momentum and when it happens we think it'll happen quickly I think a lot of these other areas there are great opportunities but in some ways it's still company-specific it was someone really figures out how to take advantage of a technology and leverage something whether it's software infrastructure or network it's more the company getting it and getting it right and you're seeing that today and you mentioned some of these acquisitions it's companies you figure that out you've understood how to get that wave and catch it and hit it at the right time yeah I mean I think that you know you want to get it you want to get in before the momentum hits I mean that's really where the money is made and venture capital is getting in ahead of the ways before they all head and you know so so there's certainly excitement there's plenty of excitement around the cloud to spread around and and you know you point out which year is you like the best which ones yes I think that you point out platform as a service and private clouds there's a lot of excitement around there right now I think it's because it's you know it's it's kind of open field it's there's there's huge growth prospects ahead of it there's no real dominant player and the venture investors minds kind of go why you know kind of go crazy thinking about where you know how big this opportunity could be without really that many proof points category not formed you're saying categories not formed yet that's right one two and three you know it with private clouds you're taking private clouds as an example there's clearly a lot of interest and talk around IT organizations about private clouds people are talking about it how many deployments are there there's actually you know not you know not commensurate with the hype and so you know you have to discount that back and so you know there's still a lot of interest that there's there are always going to be interest from investors and things like that but the end of the day you know you're taking a leap of faith that a materialized and something like that is just not there yet yeah well you had data domain you're confirmed data domain acquisition that was a big exit three par just went went or going to HP it looks like so you know there's big deals to be had I mean big big deals you know there's you know as it relates to virtualization and cloud it's really shaking up the entire stack we all know that we all know it's it's a big change and all these areas are presenting huge opportunities for new businesses and really novel technology to come in and capitalize on them and even though traditional areas like storage which is you know storage I mean it's it's boring old storage but no it's not crazy yeah they're crazy rules yeah exactly but it's the crazy things happen and there's a lot of innovation be had as it relates to cloud and yes Charles knows with companies that he has this this thing so paying you you're on the board of an investment that you have called cloud era which we're familiar with their friends of ours in Palo Alto they service the Hadoop platform and it's an open-source project commercializing it but you have big cloud players out there that have a product that they don't sell they just use like Facebook Google Amazon so so there's a whole nother world of big data and and data is the big themes in this conference and the world what is your view of that trend of data the tsunami of data as Michael would say at cloud era what do you on that yeah I think it ties really well into a lot of the conversations I think you got you're having around virtualization and cloud computing because if you look at what cloud computing is doing it's actually reinventing the entire computing stack from you know was there was mainframe there's client server there's web and now there's cloud computing so I think there's opportunities at all the layers of the stack I think what cloud era is focused on is around the data layer and I think what you mentioned that the big data trend is one that one could argue started in the web world because they were pushing the envelopes the data when Facebook Yahoo Google were clicking click streams and then trolling the entire web to figure out you know what's what's relevant to two different people I think that amount of data has really pushing envelope with today's database technologies I think what cloud era and Hadoop is trying to do is change the boundaries of what data can do what database technology and data management technologies can do so I think one thing we've seen at cloud areas everyone's got big data we most of the customer we talked to always start off with a terabyte before the end of the conversation they find a petabytes so the reason why people didn't have all the data is because they were throwing them away there's no cheap efficient way to store and derive value from semi-structured unstructured data so they were kind of going to waste I think now with technologies such as Hadoop you can really change that that paradigm around and you can do analytics you can do a lot more data data management capabilities you couldn't do before it's hard to think of a better guy than Mike Goulson to run something like that yeah he's a good guy great guy the question about scale and start-ups dynamic so let's talk about from a start-up perspective they're out there they can deal with and super angels have been in the news we've covered that in Silicon angle you guys are venture capitalists and you deal with big deals if I'm efficient to get started off the ground what advice do you have to an entrepreneur out there they want a good VC they want to have someone who's not going to screw them over they want someone who's going to grow with them help them navigate and reduce their risk as well and go to the market be successful so what advice do you have to entrepreneurs out there about navigating the I need to get financed I have a prototype I'm going to fill this white space of a VMware platform or do this and that was your bike was your eyes by speak I'm sure we agree that you just go to El Dorado start there do your series be with one of these guys a lot of ways it really depends on what your business is we talked about capital efficiency but if you're building a storage solution if you're building complex technology it's going to take 12 to 18 months to building it to market you got to be funded to get through that point the hardest fancings today or the series be financing for these companies if you don't appropriately find your company through the series a give yourself time to get to market get the product out have some customers work with it it's going to be really hard to raise a good follow on financing around as an entrepreneur you suffer the most frankly because you've suffered delusion from that more capital efficient deals you know and I've heard some really smart super angels say the same thing the best deals they've ever done they may have done it on their own initially but most of those over time taken of capital that to not raise venture money will be a very challenging thing to do to really build it appropriately you're saying if you want to build a real big business go to a serious VC absolutely and if you need to start if you want to start small a few million bucks because your ID only takes that to start great most of the companies that we're seeing cloud space are not companies are going to get profitability on two million dollars and as an entrepreneur if you really think that's going to happen you should look very hard your business and look at all the comps around your business and see how many of them were able to do it and if none of them were you guys question what's so unique about our model it's different or should it be planted to to get more capital most most entrepreneurs don't know that angels tend not to do follow on financing so that if it's an intensive deal that needs more cash they may not pony up more right I mean I would just add that you know when you're as an entrepreneur looking at a venture firm an angel you obviously need to pick a firm that is going to have some money to be to be there for successive financing I mean people don't knock out of the park every time after their first financing usually they have that successive deals and it's a up and down ride so you need to have a firm that it obviously has money and as deeper as you know there's obviously contraction value where they want value well there's certainly value out of the point I was making is that there's contraction of the venture business right now and so there's a lot of pressure on firms who aren't going to be able to raise future funds so you gotta feel good that there's going to be funding there for you down the road is obviously obviously very important and you need to have you have to feel good about who you're working with obviously and yeah I mean that the value add is important I mean that the network that the firm brings the experience they have in building companies is actually we feel like it's worth something we've we've we've done that before and you've got a lot of success and we think that that can helps and I mean we have a bench of entrepreneurs that can you know speak on behalf and hopefully it's say the same thing but that's the way we look at references are a big thing right yeah I think but a big part of that value add as Pete said is is having access to additional capital from your initial funding sources knowing that when push comes to shove if things are going well but you're having a hard time raising money out in the market you can come back to your existing group of investors and continue to scale the business the way it needs to be scaled or should be scaled to be successful and that's that is a component of being value add to those companies being there when they need you to really support them through this thing you were for a blue chip in Excel there you know earn the reputation over the years I see the Facebook's a big investment they got slew of other great investments and you've got a good tracker in cloud what do you say to the folks out there say oh just go Super Angel there's some delusion not just in capital but reputation don't you think you know I I think the angels are or the Super Angels are an important part of the ecosystem for startups I think we work with a lot of angels we have angels in Cloudera we have angels in a lot of our companies so I think they definitely provide an important you know segment of the creation of startups more and more today than ever because the capital isn't a Super Angel just a fund no I think I think they provide value add just like just like a VC well I think for me it's more the entrepreneur needs to decide what they want and where they want the company to go and I think and figuring what the business needs should be able to help you figure out if you go with angels you go with VCs you go with both your combination you bring people at different times I don't think there is there's one formula but I do encourage entrepreneurs not to feel there's only one way to do it there's probably more than one way to do it take the time to figure it out I think the most important thing is get to know the people that will be investing in your company spend the time to get to know the VC we're all very accessible we return emails phone calls whatever it takes and that's true for the angels get to know everyone and I think that will help you make the right decision I saw a quote recently that said it's very hard to get an investor to come into your company but it's 10 times harder to get them out and to think point you got to get it right because you can absolutely kill a company if you get the wrong ones and if you run out of cash to you're out of business I heard that too somewhere I've heard it I've never seen it quick you can't go to business if you have money in the bank Pete guys can you guys comment on Facebook what is the phenome of Facebook obviously it's a cloud play for themselves it's a huge platform growing at scale I know pink your company has the big data business and trying to figure out clustering Google has ever talked about Facebook particularly growing very short history is that a cloud play for enterprises to look at is a unique data point is that cloud any takers on that question I'm going to look at the expert the last time I sat on a panel with Ping was three weeks after they did the initial investment in Facebook and I still couldn't get in because it was only for college I mean they are operating a scale they use our open source they're writing their own code is a cloud kind of yeah I mean I think you know we've had a lot of conversations with different enterprise architects who are curious in terms of how Facebook has built their data center I think whether it's you know Facebook or Yahoo or Amazon it's it's very interesting seeing how these internet data centers are becoming thought leaders in terms of where some of the new groundbreaking technologies are whether it's in the storage later networking or computer layer you know Facebook's an early adopter of a lot of these technologies just because they were pushing the boundaries of what can be done with existing proof point though of what as a roadmap for the enterprises to look at or is it just a unique one off I think it is I think you have to be careful about just transplanting things that were done for a consumer web property and all the nuances that you need for an enterprise environment but I think absolutely just like a lot of consumer companies like Facebook use enterprise technologies right so I think it's just an evolution of you know what they're building will be adapted I think a lot of the private cloud stuff that we're investing in is very much borrowing from a lot of the quote-unquote public cloud understandings and then bringing that to an enterprise environment so you know you talk to enterprise IT guys and the CIOs are saying to the architects we want one of those Amazon things inside the building yeah that's what they're saying right so I think I think there's I think that's one try I think the other trend is the Amazon we don't want them to have it we don't want them to have it right and then the other thing is applications are getting rewritten for different ways in other words people are building applications for EC2 and S3 that are web-based cloud type applications as more of these type applications get built they're going to end up in the enterprise and then the infrastructure is going to have to adapt to the application so I think that cycle just keeps going Pete Pete for you question for you you've been in the even a lot experience in the enterprise obviously and IT was a sector that kind of went dark from a venture perspective seems to be coming back with cloud how are the enterprise IT changing as a marketplace when I say market I mean like a market for entrepreneurs what what do you see that's different now from when you were in the enterprise when you were to HP you worked at some startups in the enterprises it's changing what I mean you know when I was I mean before I got in the venture business you know six seven years ago the whole social media you know consumerization of IT was not really happening so that's a huge change that's impacting enterprise IT landscape and it's it's got you know IT executives running around with their hair on fire and how to deal with so you know that's in the world of IT that's a huge change since I was in the business eight or nine years ago and it's still a you know it's an unsolved problem and there's nobody knows exactly how you know what the right answer is with all these these iPads and so forth entering the world so at the same