May 9, 2018

2002 was the watershed year for me. I was a spent man emotionally, physically and financially, at the end of 2001. I weighed 275+ lbs, lost most of my wealth to dotcom bust and had serious self doubts. My self image of a confident, smart man who mentors people was shattered because I did not foresee the intensity of dotcom bust.
During a visit to Kuala Lumpur for TiE Malaysia launch, I had trouble keeping up with my schedule. I woke one morning and stared at a man in the mirror I did not like. I saw a man who was morbidly obese who had a family history of strokes. I saw a man who was outright stupid, it could not have been me as I was smart and people came to me for advice. This dissonance got better of me. I cut my trip short and flew back to California. I dropped everything I was doing and decided to retool myself in to my self image. I went on a doctor supervised crash diet, signed on with Barbara Blackburn (http://www.fitedge.net/) to get in shape.
My brother in law Mark Holt signed on with me to help me get fit.
I got in to hiking and biking like there was no tomorrow.
A year of workouts with Barbara (cardio, pumping iron, flexibility training), hiking all the hills around the valley and bicycling every trail in the greater bay area restored my health. I lost almost 75 pounds.
I emerged at the end 2002 as a restored man. It has been 13 years. I have stayed with Barbara all this time, have kept with my hiking and biking. I can do 10 mile hike in the hills and ride my bike 40 mile. I am fitter and stronger person at 70 years of age than I was at 50! I felt good enough as a person to launch a new carrier as a venture capitalist.
I partnered with John Dougery Jr. and Samir Kumar (in Bangalore) to launch Inventus Capital Partners as a US/India fund. We are now thinking of raising our third fund!!

That is me atop Mt. Tamalpais, the highest peak in the Bay Area.


VC Business

Dec 14, 2017

In Spite of the glamor associated with it, VC business is a tough business. Most VCs don’t even in provide market returns to their investors, let alone outsized returns! VC investments are risky investments and a majority of them fizzle out where the total invested capital is lost. The remaining companies have to provide big returns to overcome those losses and provide good returns overall. Dirty little secret of the VC business is that almost 80% of the funds don’t even return the invested capital let alone any ROI.

Most of the funds are organized as partnerships where the Limited Partners (LPs) provide the capital and General Partners (GPs) manage the money. A typical partnership provides for 80-20 split of the profits, where the LPs who provide all the capital get 80% of the profits and GPs pocket 20%. Further 2% is allowed every year as the fund expense. Funds have a 10 year life. For a VC fund to provide 5X return, which is less than 18% per year, on a $100 million dollar fund, it will have to produce total value of $600 million, of which $500 million would be returned to the LPs (hence 5X) and $100 million will be retained by GPs as their share of the profits. For this to happen, every investment will have to produce 6X return. If half the investments fail, then the remaining half will have to produce 12X returns. VCs typically invest only 80% of the capital as they spend about 20% on expenses over 10 years. That says winners will have to produce 15X on winners. Math gets worse if more than half the companies fail. Also, 15X winners are not that common.

For VCs to return 5X, they have to have a couple of super-hits, meaning 50X or even 100X returns. For this kind of returns, the initial valuations have to be reasonable. Higher the valuation in the beginning, lower the chances of making big hits. Also capital efficiency plays a big part too. Lower the capital efficiency, meaning high burn rates, results in more capital raised; diluting all stakeholders. This requires much bigger win to get those multibagger returns.

The situations gets dire very quickly. VCs and entrepreneurs who do not focus on profitability sooner rather than later discover that even a win does not give any satisfaction.

Like I said in the beginning, most VCs lose money. In India all the VC capital invested in last 20 years has not been returned to LPs. India has proven to be a bottomless pit. There just have not been any big hits to speak of. Microsoft was profitable after only $1 million of capital raised and Google was profitable at $2 million. They turned out to be big winners for everybody involved.

Duane Murray

Nov 26, 2017

Duane Murray was the the fourth founder of Excelan. We had an ambitious hardware development plan and we needed somebody to supplement me. Duane’s name popped up in my head. Duane had worked with me for four years. He had interned under me at Singer-Link in 1976 and came on full time in 1977. Both of us had gone separate ways in 1980, I went on to work for Zilog and he had gone to work for Tandem Computers. When I called him to let him know that I was starting a new company, he immediately asked when could he join. No discussion about title, salary or equity followed. He just assumed that I will take care of him.

Duane was a hardware engineer par excellence. He handwired the initial boards that I had designed and debugged them. He totally relieved me of actual design work. I designed the initial Multibus Ethernet board but Duane designed all the other busses- Uni Bus, Q Bus, PC Bus, VME Bus. Duane was a most dependable individual and was like me, a perfectionist.

Later when I became CEO and realized that our sales and marketing was not very effective. I plucked Duane out of engineering and made him director of Technical marketing with an explicit charter of making our sales process effective. Duane moved into sales area and with his usual zeal set about to find out why a large number of incoming calls were not converting into sales. He quickly discovered that actual sales were very much technical in nature and a usual initial buyer was a ‘nerd’ and needed a “nerd’ on our side to close the deal. We put several engineers on the frontlines and started to close sales rapidly. Duane was later promoted to VP of marketing. He made a great VP of Marketing.

Incidentally, Duane did very well when the company went public. I had assumed that Duane would do a start-up of his own after leaving Novell. That was not to be. Instead, he opened a restaurant and lived happily ever after.

Making of a CEO Part 5

Jan 23, 2017

I felt very good and confident about things as the 1985 drew to close. Company had established itself as a profitable venture with a very sharp market positioning. We were the go-to company if you needed to network your heterogeneous environment. We had gone from $5. 2 million in revenue and $2.5 million in losses in 1984 to $10.1 million in revenue and  $100K in profits in 1985. Additional $5 million of revenue had produced additional gross margin of $2.6 million. We had a high spirited holiday party that year. I expected the growth to continue and profits to in 1986. The board even talked about going public in 1987.

So it came as a big shock when board talked about bringing in a new CEO. This time to dress the company for an IPO. The Wall Street was not used to seeing Indian CEOs back then. We needed a new CEO not because the company had done poorly but because it had done too well. The thought was to consolidate the value by going public. No body wanted to risk a failed IPO. I was asked if I wanted to risk my net-worth just because I wanted to stay the CEO. Board was extremely diplomatic and did not want to risk alienating me. I had done what they thought was impossible. A potential write off for the VC firms had turned into a potential 10X return. I was to be made the chairman of the board.

As expected Excelan kept growing and improved its profitability. We transitioned from the survival mode to growth mode. We loosened the hiring and increased the marketing spend.  A virtuous cycle had set in. The board hired C. Richard Moore, the GM of HP’s Calculators division as CEO. HP under David Packard had a tradition of promoting only tall people to senior management positions. David himself was 6′ 8″. At 6′ 5″”, Dick Moore looked the role. He joined us in April of 1986.  I stepped back and had all my direct reports, report to Dick. I did attend our staff meetings but let Dick drive them. It was not that long before Dick started to see a slow down coming. In the summer I took a much needed vacation but when I returned the company’s mood was decidedly downbeat. While I was gone, Dick had put in a hiring freeze and cut back on the marketing in anticipation of the slow-down. Sure enough a slow down materialized. I found this very interesting as our incoming leads had slowed to a trickle just as we cut back on the advertising.  I told Dick that I saw growth returning and overrode him to increase the marketing spend. Within days the leads started to flow in growth resumed. It was much later a I realized that so called GMs from HP were nothing more than product line managers. Financial control and management was with the corporate. Most of the GM’s had no P&L responsibility. I was very disillusioned by the situation but the company was on its way to going public. I had resumed the reins behind the scene and Dick was fine with that.

Company went public in February of 1987. It was a very successful offering. Excelan had done $22.3 million in revenue and had produced $3.5 million in profit in 1986. I wished we had not slowed down the company on purpose for a couple of months. Right after the IPO We acquired Kinetics, an Apple networking company. Open Macs were selling like hot cakes and we had to have a solution for them. Rest of 1987 continued with growth as usual. Stock Market crash of October 1987 and cut our stock price to below 7 from over 21. Company had gone public at $12/share. In 1987, our revenues topped $39 million and we made $6 million in profit but we were now worth one third the value in the market.

Dick was coasting as I was running the company. It was not that long before a scandal broke involving  Dick. We had just gone public and for the Wall Street Dick was still our CEO. Board decided to sell the company rather than fire Dick. NET made an offer to acquire us with no premium over the market price. I went along with it but made it very clear after the deal was signed that I was moving on. NET did not want Dick as a part of the merger so he was let go by the board. After I got to know NET and its management better and before the merger was closed, I told my board that I did not trust NETs books. I felt that they were cooking the numbers. We broke the merger. A few months later, NET scandal broke in public and their stock price dropped by 90%. Our merger was stock for stock and we had been saved from a disaster by a whisker. I became the CEO again and this time I was truly in charge. For the first time, I was not an interim CEO or behind the scene CEO. The company went on to do well. Doing $69 million  in revenue and $10 million in profits in 1988.

In spite our tribulations we kept improving our position in the market. TCP/IP had emerged as a winner in the protocol wars. Both Novell and Microsoft became our partners. In the middle of 1989 Novell made an offer to acquire Excelan with a 50% premium over our NASDAQ price. We became a part of Novell in late summer of 1989. I joined the Novell board and was made CTO of Novell.