OK Labs Story (7): The Investors
We had a total of three investors: In the first round we got an Australian VC. In the second round we got a US-based VC, plus Citrix as a strategic investor. Citrix only had observer status on the Board.
Fundamentally, the Board was weak.
One thing I learned is that Australian VCs have severe limits. Australia is a small pool, and VCs have to be very broad, which means they lack the technical expertise to really understand what they are investing in. In contrast, the top-tier Silicon Valley (“Sandhill Road”) VCs operate in a huge market, and specialise on particular segments, where they build up considerable expertise. Also, they have their Stanford and Berkeley professors at hand for in-depth technical assessments.
I saw this at play when we tried to raise a B round. None of the top-tiers wanted to bite, for obvious reasons: Our business plan was a combination of bullshit and wishful thinking. We had the best technology, but no inherent reason why it couldn’t be replicated (in fact, I knew I could take a half-dozen of the latest student generation and do it). And we had no convincing story of the value-add we were providing in the area we were targeting.
So, we ended up with a second- or third-tier VC, and it wasn’t a B round either, but a re-opening of the A round.
A top-notch VC not only brings in money, but also market insights and connections leading to deals. We didn’t get any of that from our VCs.
Steve had one of our directors eating out of his hand from early on, to the very end that person thought Steve was the greatest thing since bottled beer. He was a total walk-over for Steve. The other one was more critical, but didn’t really add much either. He probably noticed that there was a lot of BS, but couldn’t really dig deeper to keep the CEO honest. Which is actually quite an achievement by Steve, that they kept backing him despite never delivering on any of the sales or revenue targets. But the breakthrough was always around the corner, with all those great deals about to happen, and we were really just a couple quarters away from being cash positive…
The only deal our VCs ever got us was the fatal Dash one, but that’s for a later section. In the end, they were no more effective in holding Steve to account than I was, and they didn’t help develop the business at all.
Citrix should have been a chance, but they were restricted to observer status, and therefore couldn’t do much. Martin, the head of the Citrix CTO office who was the Board observer, saw through a lot of the bullshit, but wasn’t empowered to do much. Maybe it would have helped if I had built a closer relationship to him earlier.
© 2014 by Gernot Heiser. All rights reserved.
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