 Live from Las Vegas, Nevada, it's theCUBE. Covering AWS re-invent 2016. Brought to you by AWS and its ecosystem partners. Now, here are your hosts. John Furrier and Stu Miniman. Okay, welcome back, everyone. We're here live in Las Vegas for Amazon Web Services, re-invent, this is SiliconANGLE's theCUBE. I'm John Furrier, my co-student in man. This week, wall-to-wall coverage for three days. We're going to get all the signals, and share that with you. Our next guest is Dix D'Oreal. Managing partner at Ignition Partners, one of the hottest cloud VCs. Headquartered in Cloud City, Seattle, but also Palo Alto, where Nick hails from. I'm sorry, Los Altos now. Los Altos now, yes. You guys move from Palo Alto to Los Altos. Welcome to theCUBE. Thank you, John. Good to see you again. So, you guys had an intimate party last night, which I attended, which Frank Artali, your partner, always has the best wine. He does. It was a great guest list there. Great insiders. Some of your portfolio companies, Amazon, folks. And the vibe was very positive on the opportunity ecosystem that Amazon has. As an investor, you're looking at the landscape, that's your big decision point. How to get a company funded is easy. Do the other right stuff is hard. Can they make it in distribution? Yes. And so, now that the enterprise battles that full throttle. Yes. What's your thoughts as an investor? Risk strategy there? I mean, what do companies have to do to be successful? What's your thoughts on this enterprise cloud push? Yeah, so, we spent a lot of time enterprise evaluating where are the white spaces? And we try to forecast where Amazon, where Azure, where Google is likely to go, and then try to define areas that a startup actually can have an advantage in because they have a particular domain expertise that's just not native to the DNA of the cloud providers. And so, we do spend it for a amount of time, but the platforms are moving so quickly that it is often hard to figure out what is going to be available from AWS in two years. It's just, the pace of it is very high. So, we have been historically a pretty big infrastructure investor, and we still have several investments in infrastructure, but lately we've moved fairly materially away from it, and we are focused more on applications, services that are applying machine learning to very specific vertical industries that will take those industries and continue the digital transformation that's happening across the entire landscape. For the folks watching, Nick was also an investor in Splunk, which went public. I was. You just recently stepped off the board after six years. No, 11. 11, okay, I don't know where six came from. Yeah. I'm losing my mind. Too much wine last night. So, I want to ask you the question, and this is the issue for startups. It's easy to get to three million and maybe six, but to break through six million in sales and hit that growth curve, you saw that at Splunk. If the world gets satisfied, software as a service becomes the standard for businesses. Some tech funded, some not. Yes. That is a key equation. Your thoughts, because you've seen that from the front lines with Splunk, which went from machine data that no one cared about to a powerhouse that it is today. They just announced a block quarter today. They're now at a billion dollar run rate, 500 new accounts, almost about 35 million in free cash flow. So it staggers me to think that this used to be a three-person company in our office that was going to do kind of grep for log files. And interestingly, they went up and down Sandhill and got rejected routinely by everybody because they thought it was a toy. How many rejections do you think they got? 50? Well, I think certainly over there, two fundraising cycles, at least 30. By the way, I was talking to a friend, a CEO. He got rejected 52 times, he said. But he knew the number. So entrepreneurs, you get rejected, that's a good sign. Let's talk about Splunk. So Splunk actually crossed over. This is the SAS formula. What's your thoughts? Because this has to be, it's evolving, it's changed. What's changed? What's the same? What's your advice on what's happening? Well, so the fundamental premise of doing a startup is that you change an outcome for a user that is so profound, they scream if it goes down. But I think that has never changed. There's a lot of angst about whether or not you're running into competitive levers and what's going to happen. But at the end user level, and that might be a developer, it might be an ops guy, it might be a business user, it might be a marketing analyst. Any of those, if you do something and the hair on the back of their neck stands up, there is probably a business there. And so sometimes we over rotate too much into assuming away opportunities because of the infrastructure providers or the distribution channel. And I will tell you, it will probably be interesting things that everyone says will never work that ends up taking off, which is why the venture business is often kind of an accidental empire. So Stu, I want to give your thoughts and Nick, if you can comment on this too, because Azure, Microsoft Azure is out there competing heavily. They've turned up their sales forces. They got their compensation plans. So you see the numbers are starting to come in. I'm a little skeptical on everyone's been hiding the ball in the cloud reporting and I kind of still think it goes on. But Stu, I was just talking to an entrepreneur and some technical folks, they're saying that Azure is a cobble together service where you got to go through multiple reverse proxies. So it's not really 100% wired effectively, but they're getting there. Your thoughts on the stacked wars between vis-a-vis AWS, Azure, Google and what is the difference between the three players there? Well, first of all, I mean, if we look at kind of infrastructure service, I mean, Amazon just has such a big lead. You know, when I look at Microsoft first thing, you know, SaaS, they're doing phenomenal. They're moving, you know, I think Microsoft has done more for the SaaS model by telling people your office is going Office 365. So they gave the green light to all enterprise to say SaaS is the way you should be consuming everything. I mean, Salesforce started early and lots of other companies, but I get Microsoft kudos there, you know, definitely I don't think Azure is nearly as mature. I look at that stack and you know, early previews of Azure stack, but the storage, well, they're going to partner with some people to kind of enhance that. We saw some things with like VMware, some of the same things as to who has some depth in the staff. Microsoft for years has thought that they could work on, you know, storage, they can work on networking. I definitely want to talk to Nick about networking because he's got one of his companies here that we're going to be talking to. But, you know, Amazon, you know, what was the term they always use? There's no compression algorithm for experience. So Amazon's been doing this longer. They have the most services. They have the most depth. You know, Google has some really good, you know, big data and everything, but- Contacts to that. The most services for their stuff, you know, like Oracle does for their stuff. Right. But if I look at it and say, I want to build an application and put it in the cloud. If I look at Microsoft first, I look at Amazon. I've got the most tools in the box to be able to, you know, build on Amazon versus if I go to Microsoft, there's not as much there. So, I mean, networking's hot. I mean, I'm a networking guy by background. You know, networking's one of the last things that finally seems to be changing after so long being dominated by one player. You know, Nick, you know, what's your thoughts on this space? My analogy is, I think 2016, if you used to look at the old Japanese sci-fi flicks, this year will be King Kong versus Godzilla versus Mothra. As they all go after enterprise accounts, it is going to be a bloody shootout. And I think where Microsoft does have an advantage is they do have the account already. And so what they will do and work, and they are all in on account retention and moving their on-premise business into Azure. And so, for me, it's almost an account retention number as as much as a who's got the better set of services running in the infrastructure. So I got to ask you the question at that point. We were talking about this earlier with Jerry Chin from Greylock. You guys are similar for billion dollar opportunities. If it's going to be a bloodbath, the cost of sales is a huge issue. Yes. Right, so now a startup can't go from zero to market penetration with the cloud because in the past, let's face it. Box, file sharing company, basically then now full enterprise company got to where they are because no one was paying attention. Yes. So can there be another box, another drop box in this market because now if all the guns are blaring on the enterprise, we're back to the 90s too. You couldn't get a startup into an enterprise without going through all kinds of checks and balances. Yeah, but the thing that is also going on in parallel is if you're in Palo Alto, since you're there, if you pick up a rock and throw it, you're going to hit three research outposts from Industrial America. The car companies are there, Dan here's there, Pearson's there, American Apparel, Walmart. So every industry outside of our tech bubble is scared to death that a team, a small team is going to build an app that's going to effectively disrupt and then disintermediate an existing industrial business. And so that industry, that entire ecosystem is an enormous opportunity for venture firms. So we're talking about the wrong thing then, we're talking about shifting the conversation from old way of looking at the market. We're not looking, I don't want to bet on a file server company, I don't want to bet on file, I don't want to bet on a file storage company, but if there is an insurance tech play or a autonomous vehicle services play or a healthcare auditing fraud risk analytics play all running on Amazon or Azure, we're all over that. Yeah, it's interesting enough Uber today or yesterday I saw the news, they're actually coming out saying they're not a transportation company but a digital services company. So that's a great policy politics and that's good PR by Uber, but they are absolutely in the transportation business. They're disrupting the physical landscape but using digital as a way to disrupt yet the rest of the world doesn't know where to put them in a category or not. But they are in transportation, there's no doubt about it but yet this is the opportunity. So imagine Uber applied to other industries. That is going to happen in the next five years because of the infrastructure, the systems, the ability to scale, software above the level of a single device, the ability to just collapse workflows that today are open. And I think we are still in the beginnings of a renaissance and so while I love following King Kong versus Godzilla versus Mothra, I think that's the cloud provider's game and for VCs, we are operating at a level above that and looking for the next generation opportunity. Yeah, Nick, so how about from the cloud networking space? Is there opportunity there? Yes. I think you've got a company that's actually coming on theCUBE next. So it tells a little bit about AVS. So if you go to all the breakout sessions here, the basic theme of every session is migrate your app, migrate your data, migrate your systems into Amazon. The challenge is, you know, once you have your corporate network up and running, you don't want to touch it. You don't want to touch the rounding tables. You don't want to do anything that causes an outage. So if you're going to start connecting your VPCs or your private networks running in the cloud or you're going to move your network to the cloud, you still need a fairly simple connection back to your edge network and your corporate side that requires no changes to the usual network admin functions that scares everybody. And so we invested in a company called AVA Tricks that effectively gives you secure elastic networking for connecting enterprise edge to the cloud. So what's the impact of that? Because they're trying to change the game on networking. And you guys are looking at investments like that. And I know you're doing some of the ones in the stackcast, Jonathan Grace Company. Is this a philosophy that you guys are taking on your investments now? I mean, because you bring up the digital thing. I think that's very relevant. You guys are thinking differently. What are you looking at right now? And when Oxford walks in, because it's clear the cloud has changed the game on mindset, is it an ageism thing? Is it a mindset thing? What is the cloud formula that you look for? When do you know when you see something that gets your attention? And when do you drill down? So I've been doing venture capital for 17 years. I started when I was 14. The two things that VC is trying to do is they look for platform shifts and generational shifts. And often the generation and the platform are tied together. And so what you're looking for is people that are already seeing the wave happen ahead of time from a generational standpoint. And typically, they are way ahead of where people are already thinking the game is right now. And so they are younger, unfortunately, because they have no legacy and conferences on things are done this way. It's like you're too young to know any different. And so we do find often very interesting ideas that take things that everyone thinks will never change and say, I'm just going to go after that. Sometimes people do it by accident. I mean, splunk from what I heard in the story of their fundraising was this elaborate system. And their demo was the one that actually got funded. Is that a true story that the whole log file thing was more of a demo of a big elaborate vision? So any success story in venture capital, the history of it gets whitewashed away to make it look a lot better. So unfortunately, you know, or fortunately for them. That story, that's false. Yeah, well, I would call that the enhanced, polished version of the truth. Really, Eric, and Rob, and Michael built the product that they would have bought had it been vented to them. And they went around and looked at all the vendors and no one was building anything like this. And then they saw that many engineers, like Cisco engineers, were literally doing Google searches and cutting past the snippets of code and putting it in to their system when there was a fault. And so they just captured that behavior. It said, why don't we make that the model and make that as an autonomous system? And then they, of course, a lot of other things around downloading it, making it free in perpetuity. So it was a platform shift. Well, it was a business model shift, but it was a five minutes to joy shift. That was the big thing. It can't help but notice, there's a lot of VCs at the show this year. Yes, we're like mushrooms. A lot of the companies, a lot of the VCs that held parties at VMworld, shifted it over here. Yes. The question I have for you is, with the new platforms, with the marketplace, with the global reach that anybody can get in software, is there still the opportunities for startups? Can they grow as big? Can they make the margins? Can they really compete in this new platform market as that they might have a few years ago? Yes. The answer is yes. The thing that is critical, though, is that they have to be doing something that most people in the industry itself think is either stupid or can't be done on one of those two dimensions. And so because it is, you are defeating biases that already exist in the industry, and that's usually where you see the game changer. You know, and if you look at the history of innovation, it always goes from why would I ever need that to how could I have lived without it? And that I think is why it's such a great opportunity for us. Nick, final question. Your thoughts on what this industry is going to turn into on the next wave beyond this show this year. 32,000 people. Obviously the genes out of the bottle, as you said, this shift is happening. What's going on? Well, I do think it will force a complete change in the labor force for people that work in the IT business because I think that'll be a playing defense lifestyle for a long time now because the trends are inexorable. I think if you are in an existing and incumbent business world, if you are not reinventing your business model right now, you are going to be toast. And you can see it even in the companies like GE that have moved from selling jet engines to selling services with the jet engines to selling uptime. And I think you're going to see that kind of evolution across every industrial company. And so, you know, you had better be here figuring it out or you're going to be in the unemployment line. All right, Nick, thanks for coming on. Adventure Capital, so we're all here scouring the landscape looking for the big deals. Certainly it's really robust here. Congratulations on your success. Ignition partners on theCUBE, we're right back with more after this short break.