Posted by: Costanoa Venture Capital | May 19, 2015

The Arrival of On-Demand in the Enterprise

By: Greg Sands, Founder and Managing Partner & Bucky Moore, Investor

With the first annual On-Demand Conference happening today in San Francisco, we are excited to highlight the opportunity for on-demand services to meet critical business requirements. We’ve been observing (and hopefully helping catalyze) this movement at Costanoa, and are thrilled to announce our Series A investment in Directly.

We can agree that our lives as consumers continue to undergo a transformation driven by “on-demand” services. Lyft, Instacart, and Deliv have built and scaled networks of part-time workers to deliver goods and services quickly and cost-effectively. AirBnB, ClassPass and others have created new markets on top of excess supply. We believe there is an equivalently large opportunity taking shape in bringing these business models to the enterprise.

Companies like LiveOps were early pre-cursors to what we now consider enterprise focused on-demand services. They built an impressive business, even though they had a hard time breaking out of their core vertical in direct response call centers. The next generation of services and companies is being created now and is ready to partner with enterprises that are engaged with a remote and flexible work force.

We are already observing this begin to play out in a number of key business functions. One example from within our own portfolio is, Bugcrowd, a provider of crowd-sourced security testing solutions for the enterprise. By enabling a community of over 16,000 cyber security researchers to “hack” on their own time, BugCrowd is able to deliver superior results than traditional penetration testing consultants at a significantly lower cost. Companies like uTest, Upwork (formerly known as Elance/oDesk), Workfusion, and HourlyNerd are also part of the first wave of companies bringing “on-demand” into the enterprise. They each represent a software layer that manages and orchestrates a community of skilled, part-time workers capable of serving as outsourced labor for specific functions within a company. Be it in QA, design, finance, or data collection, these platforms are forcing businesses to think about who should really be handling the “long-tail” of tasks by making outsourced labor readily accessible and easy to manage.

The question is, why now?

First, the global workforce continues to grow more talented and skilled. While there has historically been skilled labor in a variety of countries, they were disconnected from the Western, developed economies. With the proliferation of connectivity and computing power (including in mobiles phones), these workers can now participate in the worldwide technology economy. Second, the sophistication of the collaboration tools we have makes distributed teams far more productive. “Remote worker” doesn’t have negative connotations to companies using tools like Slack, Hangouts, and Trello. The most effective marketplaces contain tools for freelance workers to collaborate and combine their respective expertise to deliver a complex and integrated service. Third, the success of on-demand companies in the consumer space has shown that workers are able to generate meaningful income, whether full- or part-time. We see the potential for the same to be true for increasingly specialized labor. The economic opportunity combined with the freedom and flexibility of freelance work will pull people with specialized skills into these markets. The best marketplaces will even invest in creating and developing the specialized skills necessary for success.

There are enormous operational benefits that come with tapping into part-time labor. Enterprises already spend billions annually with companies like IBM Accenture and Infosys to get lower cost and variable infrastructure by outsourcing functions like IT, and customer support, but it comes with significant tradeoffs in quality. For example, customer support delivered by outsourcers typically reduces customer satisfaction. In contrast, on-demand services for the enterprise have demonstrated the ability to increase quality AND reduce cost. This is why we are thrilled to announce our partnership with Antony, Jeff, and the rest of the Directly team. Customers of Directly who have interacted with their “elastic” service teams, for example, report higher average customer satisfaction (CSAT) scores for cohorts served by employees or outsourcers. Its routing technology sends customer questions and help desk tickets to expert users on their smartphones, and then rewards them for resolving the issues. In fact, customers including Pinterest, AirBnB, Udemy, Lyft and Republic Wireless have resolved nearly 500,000 customer service inquiries via the Directly platform to date. Similar to the way bug bounty platforms are changing the security landscape, we believe Directly’s on-demand service platform will transform the way enterprises service and interact with customers. In addition, the platform provides a workforce capable of scaling up to meet spikes in demand. For fast growing companies, using on-demand services might be the only way they can keep up with customer inquiries.

We believe that today’s Enterprise On Demand companies are just scratching the surface of what is possible — that the benefits of marketplaces, orchestration tools and an elastic workforce will soon undertake tasks that simply could not be done easily by employees.

For more information about Directly’s Series A announcement, read the press release here.

Posted by: Costanoa Venture Capital | March 31, 2015

Stealth no more: revealing Alation

By: Greg Sands, Founder and Managing Partner


Three weeks ago, I wrote about Alation’s funding. This week is even more exciting since we actually get to talk about Alation’s product and its customers.

Alation accelerates analysis by helping people quickly find, understand, use, and govern data. It centralizes the knowledge of an organization’s data, without forcing the organization to consolidate the data itself.

Alation’s platform approach delivers what data-driven organizations have been trying to achieve for decades – collaborative analytics, data search and discovery, effective data governance, and data warehouse optimization. Many approaches have been tried to solve this 25 year- old problem—and it has only gotten worse as sensors and clickstream data have proliferated and the modern Big Data stack has emerged. Software-as-a-Service (SaaS) applications have enabled business teams to go around IT in rolling out new capabilities quickly, but they make the challenge of finding, using and governing enterprise data that much harder. Data Sprawl, the inability of analysts to find the right data and understand what it means, is a central problem for all data driven organizations.

Organizations and vendors have tried to solve this problem many times. Centralizing all the data quickly becomes prohibitively expensive and limits the agility of technology solutions and the IT team in solving business problems. Asking users to document the data (create meta data) and keep it up to date to make assets searchable is too burdensome. Alation uniquely combines the power of machine learning with human insight, automatically capturing what the data describes, where the data comes from, who’s using it and how’s it’s used.

The objective all along has been to make data more accessible to both analysts and programmers, so that they can find and understand the right data and use this data to get insight for better business decisions. Instead of locking data assets behind a glass wall, Alation fosters faster collaboration between analysts, stewards, business users, and IT by enabling them to share knowledge, exchange ideas, and quickly find answers with an intuitive set of interfaces, depending on role.

Alation is an elegant solution that delivers tools that look like search for enterprise data and a computer-generated wiki (e.g. Wikipedia) for enterprise data. Delivering on that promise is incredibly hard and requires doing a lot of critical foundational work first. Most importantly, it requires integrating directly with key data sources – that is, Alation inserts itself into the query stream for major data warehouses and applications to extract data (and meta-data) and auto-generate a wiki. Slapping a UI layer on top of existing data assets and meta-data simply won’t solve the problem.

One of the things this announcement helps me realize is the pride that I take when our portfolio companies deliver extraordinary customer value. To me, the best part of today’s announcement is that several happy Alation customers have stepped forward to share how they are using and getting value from Alation. That true north is the best metric (even better than sales) about whether the company is focused on the right things. The use cases of eBay, MarketShare and Square are exciting proof points about the capabilities that Alation is enabling. Onward!

For more information, read the press release here.

About Alation
Alation’s enterprise data accessibility platform empowers employees inside of data-driven organizations to find, understand, use, and govern data for better, faster business decisions. Alation combines the power of machine learning with human insight to automatically capture information about what the data describes, where the data comes from, who’s using it and how it’s used. Alation is based in sunny Redwood City and funded by Andreessen Horowitz, Bloomberg Beta, Costanoa Venture Capital, Data Collective and General Catalyst Partners. Customers include eBay, MarketShare, and some of the world’s largest finance and retail firms. For more information, visit

Posted by: Costanoa Venture Capital | March 12, 2015

Our investment in Bugcrowd

By: Neill Occhiogrosso, Partner & Bucky Moore, Investor


Today, Bugcrowd announced a $6M Series A financing, led by Costanoa Venture Capital, with participation from existing investor Rally Ventures. As part of our investment, I have also joined Bugcrowd’s board of directors.

I wrote about our interest in security in October. In the short time since then, a number of large-scale breaches have occurred, including the famous ‘Sony Hack’ and a massive online bank robbery. The problem continues to get worse, and companies are scrambling to protect themselves with the latest and greatest security technologies. This problem has produced several notable startup successes including Palo Alto Networks, Splunk, and FireEye. However, despite their increased vigilance and spending on technology, there is one problem that chief information security officers (CISOs) can’t buy their way out of: talent. There are more than 200,000 unfilled cybersecurity jobs and open job postings have increased by 74% over the past five years.

Pioneered by Netscape, and refined by large web companies like Google and Facebook, bug bounty programs have emerged as a way for security teams to leverage talent outside of their companies, and continue to gain mainstream adoption. By offering financial rewards to security researchers who discover vulnerabilities in their systems, organizations are able to harness the power of crowdsourcing to have more security experts, working on their behalf, exactly when they’re needed. While these programs have been in existence amongst large web companies for some time, running such a program has been very difficult for “the other 99%” of companies until very recently. Bug bounty programs not only require a unique software platform, but also the resources and expertise to review and process the high volume of submissions that a well-run program will generate.

This is why Costanoa is absolutely thrilled to be partnering with Casey, Chris, and the rest of Bugcrowd team. Already counting Pinterest, Blackphone, Western Union and Aruba Networks among its customers, Bugcrowd gives companies of any size the ability to run bug bounty programs, and access to their globally distributed team of 15,000+ researchers. They have built a unique, end-to-end platform offering a turnkey solution for running and managing bug bounty programs, while also curating a diverse community of security researchers that are intelligently matched with companies based on their specific expertise.

We are very excited about the profound impact that Bugcrowd is having on the security industry, and look forward to building a great company together. If your company is interested in getting started with a bug bounty program, learn more and get started here.

For more information, read the press release here.

Posted by: Costanoa Venture Capital | March 4, 2015

Our investment in Alation

By: Greg Sands, founder and managing partner


One of the challenges of the venture business is that sometimes we make an investment in a company that we’re really excited about- and then can’t talk about while it builds initial product and makes early customers happy. While we are only announcing the financing today, Costanoa is thrilled to finally be able to talk about Alation and hint about its contribution to solving the problem of data sprawl in enterprise environments.

One of the things that excites us the most is working with truly great people. This is a founding team that fits us – and each other – so well.  Satyen Sangani integrates product leadership for a highly technical product with great go-to market instincts and is a natural draw for great people. He is unequivocally thinking his way through the problem (see The Sales Leader or the Chess Master).  Venky Ganti and Feng Niu provide outstanding technical leadership – both the ability to solve really hard problems and to act as Pied Pipers, attracting unique technical talent that wants to work on really hard problems. Finally, it says something about the company that Aaron Kalb is a co-founder and lead designer in a company that’s addressing how to organize and find enterprise data to get to insights faster.

Alation is addressing a huge problem that is only getting worse.  For decades, business analysts and SQL developers have struggled to find the right data, figure out what a given field means or what manual adjustments had been made to it. Companies have been trying to solve these problems by creating data warehouses to achieve a “single source of truth” – but to little effect.

I remember looking at solutions for Enterprise Data Integration (search for data) and Master Data Management (wiki for data) over a decade ago.  None of those solutions solved the core problem of data access and analyst productivity.  Since that time, the scale of enterprise data has increased by an order of magnitude due to more automation, increased sensors, the rapid increase in web and mobile clickstream data, increased compliance requirements, and the ease of spinning up a database.

This is the problem space into which our friends at Alation are wading. We look forward to telling you more soon.

For more information, read the press release here.


Posted by: Costanoa Venture Capital | February 17, 2015

Welcoming Apptimize

By: Neill Occhiogrosso, Partner

We are thrilled to announce our recent investment in Apptimize and welcome Nancy Hua, Jeremy Orlow and the rest of the Apptimize team. Apptimize lets mobile teams instantly change their native apps for optimization, targeting, and A/B testing.

At Costanoa and at our prior firms, Greg and I were fortunate to participate in the digital marketing revolution with companies like Acquia, Conductor, QuinnStreet, and DemandBase. It’s a space that we know well, and where we think there are many more terrific companies to be built. Apptimize is squarely focused on mobile, one of the unassailable mega-trends in IT today. Like most people, I’m bullish on mobile, but I was still surprised to see the astounding rate at which e-commerce spending is moving to tablets and phones. With their recent Instant Update product launch, the company has hands-down the best product in their market and while the best product doesn’t always win, it sure helps!  The team is incredibly smart and maniacally hard working.  It’s a pleasure to be around them and feel their energy, and we look forward to the amazing things they’ll achieve. Apptimize: Welcome to Costanoa!

Apptimize Raises $4M in Series A Funding to Bring Revolutionary Iteration Speed to Mobile Apps

Menlo Park, CA—February 17, 2015- Apptimize, provider of optimization tools for mobile applications, announced today that it has closed a $4 million Series A funding round led by Costanoa Venture Capital. The Series A round brings Apptimize’s total funding to $6 million, after a $2.1 million seed round in January 2014. The new funds will further revolutionize the mobile development process by enabling product managers, designers, marketers, and developers to make instant updates to any mobile app without having to code or redeploy their app.

“Apptimize is leading and changing the way mobile apps are optimized,” said Neill Occhiogrosso, Partner at Costanoa Venture Capital. “This is the reason why top companies like Vevo, HotelTonight, Glassdoor, Strava, and Flipagram have chosen to leverage Apptimize to iterate faster and with real user data.”

Mobile is changing at an incredible rate, but mobile app development is one of the slowest things out there. Apptimize is solving this by letting mobile app development teams get continuous data-driven deployment without sacrificing the native experience. Traditionally, mobile app development is a slow process because the development, QA, and deployment cycle take 6-12 weeks for a fast moving app.  In order to get faster iteration speed, some apps have opted to integrate non-native components into their app (HTML) at the sacrifice of performance and user experience.

“Apptimize cuts app iteration time down from months to minutes. Now, mobile product mangers can push out a change instantly and immediately start gathering data on whether or not that change made a statistically significant improvement to the app before spending weeks coding,” said Nancy Hua, Apptimize CEO.

“We’ve been able to move faster, iterate faster, and take a few more risks,” says Audrey Tsang, Director of Product of HotelTonight.

“What made me excited about [Apptimize] was the ease by which we could make a change to this new app that just got launched and unlock the whole potential of building things more quickly,” said Jon Li, Senior Director of Product at Vevo.

About Apptimize:

Apptimize is a high performance, reliable way to optimize native Android and iOS applications. With robust A/B testing, Instant Updates, and a codeless installation process, Apptimize empowers anyone on a mobile team to push changes to users in real-time and A/B those changes without App or Play Store approvals. Apptimize also offers a programmatic interface that enables app developers to test anything they can code. Other key features include powerful analytics, feature flagging, staged rollout, results segmentation and filtering, and advanced targeting. For more information visit

About Costanoa Venture Capital:

Costanoa Venture Capital is an early stage investor focused on cloud-­based services solving real problems for businesses and consumers by leveraging data and analytics. The firm’s name originates from the first inhabitants of Silicon Valley, the Costanoans, and harkens back to the origins of entrepreneurship and venture capital in Silicon Valley. Costanoa provides early stage entrepreneurs with a combination of “right­sized” amounts of capital and value ­added support from a high­ quality institutional partner. Current investments include: 3scale, DemandBase, Gamechanger, Grovo, Guardian Analytics, Inflection, Intacct, Kahuna, Lex Machina, NovoEd, Return Path, Risk I/O, StitchLabs, and VictorOps. The firm is headquartered in Palo Alto, CA. For more information, visit read and follow on Twitter @costanoavc and @gsands.

Posted by: Costanoa Venture Capital | February 17, 2015

The Four Stages of the Learning Curve for Young Companies

By: Greg Sands, Founder and Managing Partner

A startup team has accomplished two important goals out of the blocks: 1. they’ve spent the time finding a market and problem space that is big enough to satisfy their ambitions; and 2. they’ve engaged deeply with prospective customers to understand requirements and priorities to build a product that solves a significant problem. What’s next?

About once a week, I hear an entrepreneur during a financing presentation tell me that the product is almost ready for General Availability. They say, “Now all we need to do is hire a sales guy.”  It’s a little bit of an overstatement to say that the meeting ends at that point, but suffice it to say that I know I am dealing with someone who doesn’t have any idea what to do next – and as a result, we are very unlikely to invest.

Enterprise-focused software companies need to take a learning approach to their sales and marketing process if they want it to be scalable and capital efficient. The next stage of a startup, the sales learning curve (SLC), can be both thrilling and terrifying. And even though getting the first product to market is less expensive than ever, it can create or destroy value at high speed because the “go-to market” (sales and marketing) can still be extremely expensive for Software as a Service (SaaS) and other enterprise- focused companies.

Below are the four key stages of my version of the Sales Learning Curve built for early stage companies just shipping their initial product. This process can be used for any new product as well. I use the analogy of industrial development because it makes clear and basic principles like process standardization and scalability.

  1. The Craft Economy—Founder-led selling

Sales in early stage companies shipping 1.0 products is too important to be left to sales people. Founders* have several key advantages critical for early selling—they are involved in creating the product so they know the product and market it serves deeply; their charisma, brilliance and Reality Distortion Field can help overcome the disadvantages of having a new product of a new company; they carry CEO/Founder business cards which opens doors and looks impressive (if they bother to wear closed toe shoes and long pants); and they sell at the white board, sometimes making up new products or committing to new features in a meeting. In addition, this is an essential way to get early product feedback while the company is honing in on Product Market Fit. Feature requests and rejections from potential customers are the fuel for the next phase of innovation. I find that Founders and CEOs are uniquely good at interpreting this early product feedback and synthesizing what needs to be done to be productive.

* sometimes early product managers or CTOs can play this role as well

  1. The Sales Apprentice—Business Development as Sales

When the Founder/CEO has successfully found a pattern of successful sales, it is tempting to say, “Now it is time to hire a traditional coin-operated sales person to scale up this process,” but that rarely works. I’ve seen companies hire a salesperson from a competitor or incumbent and not sell anything. Even worse, I’ve had the experience (as a board member) of hiring “exactly the right” VP of Sales, (she worked previously in an adjacent company for a former colleague so I could reference closely) and she hired a team to scale up the process. It was a very expensive mistake, but it wasn’t the fault of the VP of Sales. The company had very few things a mature company has– like sales materials, marketing air cover, a real price list, and inbound leads. By contrast, the highly charismatic CEO could “sell ice cream to eskimos”- so the handful of early (and big) sales was not an indication that a mere mortal could do the same.

In contrast, the most successful example I’ve seen was at Merced Systems, where I was fortunate to be the only venture investor. Founder and President Mark Selcow sold the first half dozen deals himself and then hired a young, smart and hungry Sales Apprentice. The Apprentice learns from the Founder, but doesn’t assume he can simply replicate the process. He doesn’t have Malcolm Gladwell’s proverbial “10,000 hours” in the domain, the stature or oftentimes the natural charisma. His job is to run experiments and see how he can map the founder’s successes onto his own pitch, skills and process. The Sales Apprentice has to be smart and humble enough to learn from all this experimentation to find a process that can be scaled up successfully. Oftentimes, this person is a mid-level Business Development hire rather than a traditional coin-operated sales rep. Business Development in more mature companies still involves investigation with potential partners, typically deeper product knowledge and tends to attract people who want to create a new process rather than follow an existing one. In the modern parlance, this might be a “sales ninja” (see Bloomreach CEO, Raj De Datta’s piece on this subject), but a sales ninja doesn’t tell you what to do before or next.

  1. Light Manufacturing

At this stage, the company is ready to TRY to standardize the process with a few traditional sales people. I emphasize ‘try’ because even if the company has been through the first two stages, there is no guarantee of success- and the focus has to remain on the learning curve. I’ll also note that the sales team is an important principle. In today’s world where a great deal of selling is handled inside (or over the phone), startups that have 2-4 people in a single location—even a bullpen—challenging and learning from each other can accelerate the rate of learning.

Ideally, the first true sales people come from adjacent companies or segments. I differentiate “true sales people” from Business Development because they’ve been on quota all their life and once they figure how to make a sale, they want to go as fast as they can rather than invent a second new way to sell. The first hires are often people who want to be early in a company’s life and have honed the skills to do so. The Sales Rep from Oracle who has been selling with that brand and machinery behind him is unlikely to be successful at this stage. Early stage sales people like learning a bit more about product and are comfortable iterating their own positioning, presentation and scripts (for inside sales). Their high energy lets them run many experiments- making a lot of calls into different customer types and with different pitches. While the Apprentice is focused on making their product (in this case, the sale) themselves, the first sales team is “engineering” the first sales factory. They are employing to the method developed in stage two, beginning to standardize it, and continually tweaking, improving and optimizing the process. Building from the first rep to the first team of reps (5-10 people), who are closing business and hitting their quotas, is where you start to see the unit economics of sales and marketing.  Once you have them dialed in, you are ready for the final stage, heavy manufacturing.

  1. Heavy Manufacturing

Once the company is generally hitting sales goals, knows the levers to improve and scale up the sales/marketing process and its unit economics (Customer Acquisition Cost/estimated Lifetime Values), they are ready to accelerate. In fact, the company is ready for the bigger equity round that gives you the resources to do so. Stepping on the gas has several forms, from gentle acceleration to rocket boosters, which is largely driven by how good the unit economics (again, CAC, LTV) are. However, it is important to note that some acceleration may be appropriate even when the numbers are just “OK” since this phase is all about learning to improve it.

This final stage is where the company moves into the process of optimization and scaling at an even higher velocity — developing a hiring profile, training and onboarding program, standardizing the sales process materials, improving close rates and the accuracy of forecasting. This is where the team is increasingly fed leads by marketing or a sales development team, which qualifies leads inbound leads and does outbound prospecting. This final stage also requires significant development of all the adjacent functions. Arguably the first job of marketing is sales enablement and getting the sales team “selling on PDF” where the sales materials are completely standardized so the company can deliver consistently and efficiently. Sales operations becomes a real job.


Taking a learning approach to selling is like building a solid foundation for your house—it’s safer and more capital efficient. Do it right and the entrepreneur can build a very big company—and one that the founding team owns much more of than they would if they took the “go big or go home” approach. Even if “go big” is the orientation, knowing where a company is on the Sales Learning Curve will help an entrepreneur make better decisions and grow more efficiently. And I assure you, venture capitalists will highly value a company’s knowledge of and approach to build the sales machinery. Growth equity investors, who typically pay higher prices than early stage investors, love nothing more than a “just add water” company where the go-to market process is well defined and has good unit economics. They know such a company can use the new capital with high confidence to grow faster. As a result, focusing on the Sales Learning Curve is the way to increase the value of your next round and the long-term value of your company.

*Mark Leslie’s Sales Learning Curve in the Harvard Business Review uses a different nomenclature and is a much more detailed article based on his experience building Veritas Software and as a Silicon Valley board member. I highly recommend it for further reading.

A version of this post originally appeared on VentureBeat.

Image Credit: Frank Fiedler/ShutterStock

Posted by: Costanoa Venture Capital | October 26, 2014

Security Will Need Big Insight, Not Just Big Data

Guest Post by Neill Occhiogrosso

In looking for new opportunities in security and many other sectors, we look for the echoes of the current IT mega-trends: cloud, mobile, big data. These trends, and especially the interactions between them, are dramatically changing security needs. Add to that the changing profile of would-be hackers — now a frightening mix of international organized crime and employees of enemy governments — and we see the potential for several new solutions that can each be the foundation of one or more successful companies.

The first is the application of big data technologies to produce security insights. This is a classic example of “Applied Big Data,” the application of new analytic technologies to a current business problem. Security professionals are drowning in log files, vulnerability scan reports, alerts, reports, and more, but the data is not actionable.

This isn’t an idle observation: Several high-profile breaches happened through vulnerabilities that had been documented months or sometimes years prior. The future lies in analyzing this data to give security professionals a comprehensive view of their security posture. Tell them what is at risk, how severe the risk, how important the asset is, and how to fix it. We see tremendous promise in Risk I/O’s approach to this problem, and we’re proud to have led their most recent investment.

Another area for exploration is security solutions that follow assets to protect them wherever they are. With cloud infrastructures (both public and private) and bring-your-own-device mobile enterprises, there is no perimeter and every layer of the stack is dynamic. Security professionals need to be able to apply security policies to applications, data, and users wherever they are, and those policies need to adapt based on the changing context.

There’s an increasingly popular saying that there are two types of organizations now: those that have been breached, and those that just don’t know it yet. As attacks have become too sophisticated for signature-based detection, there is a need for solutions that quickly notice anomalous and potentially dangerous behavior (likely leveraging machine learning) to prevent breaches or — failing that — detect malicious behavior once a breach has occurred, and minimize its impact.

Guardian Analytics, another Costanoa investment, applies behavioral analytics to data already resident in online banking platforms to prevent a broad range of fraudulent activity. This is just one example of applying data science to existing data sets to address more nebulous threats. There will be more opportunities looking at different applications and different types of attacks.

Finally, there is also the need for efficient data capture and analysis that can look broadly and historically across an infrastructure, sometimes trailing several months, to see when and how a breach occurred, and what the consequences were. This is a prototypical big data problem. It involves great volume, variety, and velocity of data.  It now may be tractable, and we are on the lookout for solutions.

We live in an exciting time, but unfortunately in the case of security, that is a double-edged sword. New technologies present new opportunities for criminals. We are optimistic that great new companies are emerging to rise to the challenge.

This post originally appeared on TechCrunch.

Posted by: Costanoa Venture Capital | May 31, 2014

The Missing Slide in a Startup Venture Pitch

We see a lot of pitches at Costanoa Venture Capital. We look to make a small handful of new investments per year.  With those odds, entrepreneurs need every advantage they can get.

Most people get the basics of a venture pitch: an overview, team information, product and customer adoption (early indications of product/market fit), market and market size (ideally built from the bottom up rather than top down) and competition — pick your favorite two-by-two matrix. As a former product manager, I’m partial to adding a Harvey Balls chart as well and then your financial plan (not optional).

However, there is one missing slide. When we come out of a meeting with an entrepreneurial company and want to learn more about its forward plan, I often ask the entrepreneur to create one more slide with the following directions:

  1. Draw a line across the top representing the next six quarters.
  2. Tell me what happens.

As an early stage investor, we do detailed analysis of product and product/market fit, extensive work on the team, and technical due diligence, but there just isn’t much financial data to analyze. Going through the pro forma financial plan in detail is important, but it doesn’t tell us very much beyond how well the team has thought through the business. It is necessary, but not sufficient.

This new missing slide tells us what the entrepreneur thinks are the most important developmental milestones for the business. Typically, they include things like:

  • critical product shipments
  • number of customers and/or average selling price
  • revenue or the annual contract value (ACV) of bookings
  • net burn (total cash flow, usually negative for well more than 18 months given the stage at which we invest)
  • number of employees
  • key hires

One of the best missing slides I’ve seen had “Revenue and Operating Burn” superimposed on a chart in the back. The innovative format combined quantitative and qualitative information in a way that conveyed a ton of information. It brought me back to the best visual display I’ve ever seen from Edward Tufte’s map of Napolean’s March to Moscow by Charles Joseph Minard. The revenue and operating burn slide put a smile on my face and I gave a huge compliment to the entrepreneurs. I’ve included a mock-up using this format below:

Image: Costanoa Venture Capital

Image: Costanoa Venture Capital

This chart gives us a sense of the planned development of the business over the next six quarters. What are the key milestones and hires? When do new products ship? What will the catalysts be for future growth and which metrics should we be looking at to decide if it is time to step on the gas?  This timeline also gives us a better sense of how the pieces of the business fit together — as well as what the company will look like the next time it needs financing.

A version of this post originally appeared on WSJ Weekend Read.

Posted by: Costanoa Venture Capital | May 20, 2014

How to Be a CEO: The Sales Leader or the Chess Master

There are many types of successful entrepreneurs that build and lead great companies. Most that I have seen have elements of what I refer to as the “Chessmaster” and those of a “Sales Leader.” Some amount of each skill set is required, but it is interesting to observe which is the dominant or “go to” skill set for an entrepreneur. After more than 15 years in the venture business and over 40 venture investments, I have found that I prefer – and work more effectively with – entrepreneurs and CEOs where the Chessmaster is the more dominant skill set.

It’s a bit of a caricature, but the Chessmaster is someone who is data-driven, constantly trying to understand the landscape, formulate strategy, run experiments and learn quickly. The Sales Leader has a big vision, has high confidence that he (or she) is right, and is highly successful in getting others to see the world their way. Most media represent entrepreneurs as the Grand Salesman. A fellow venture investor recently stated on a panel that the qualities she looked for the most in an entrepreneur were passion and storytelling. Steve Jobs, the subject of so much Silicon Valley hagiography, was an unbelievable Salesman and got much of the world to share his worldview – but this isn’t the only route to success.

I’ve been re-reading the Lean Start Up by Eric Ries. In my opinion, the entire book describes the Chessmaster approach to launching a new product- whether a start up or as part of a bigger company. The successful companies I’ve seen and been a part of have a dedication to learning quickly and cultures where people are trained to “speak with data.” Figuring out which metrics are truly meaningful for the business, building the instrumentation to understand them, and making data driven decisions to improve product market fit and business performance are actions of a great Chessmaster.

This post was provoked by a recent blog post, “The Post Mortem,” by Return Path CEO Matt Blumberg. His main argument is that successful endeavors need post-mortems as much as failures because companies often misattribute the reasons for their success and find it hard to sustain or replicate those successes. Success has a hundred fathers – and that is just within the company. As Matt points out, some of those claimed reasons for success come from external dynamics, market phenomena or the failures of competition. And it can be damaging –or even fatal – for companies to have the wrong interpretation of successful history. The clear thinking and intellectual honesty of this argument is one of the reasons why I enjoy working with Matt and many of the other Costanoa portfolio CEOs.

It is the relationships with great entrepreneurs that make my role in the start up ecosystem so rewarding. I appreciate: entrepreneurs who call when they have an issue and don’t quite have a solution but just want someone else thinking about it as well; CEOs who value questions about a product or its strategic context instigating an appropriate discussion rather than getting defensive because it assumes the team hasn’t done its job well; long, informal conversations that meander through various perspectives of the business and how to align all of its elements into a coherent strategy and execution plan; debating challenges that can go unresolved because all the information isn’t there, but a concerted effort is being made to address them; executives and team members who will say what they think and add a perspective to the comments of the CEO in a board meeting, but respectfully sign up to execute a plan agreed by the team. These are the signs of a high function company- and the kind that I love to work with.

Matt brought this kind of data-driven honesty and transparency to a whole new level last week by having his 360 degree review conducted with the Return Path management team and board together in one room. He applied the core lesson to himself – you can’t improve performance if you don’t have the data- and then he committed to getting the data about his own performance.

It takes a special kind of entrepreneur to lead like that. I’ve noticed several common traits: a sense of humility, knowing what they know but also what they don’t, comfort with uncertainty, and a data-driven orientation. These are the people that make my job great. Thank you.

Posted by: Costanoa Venture Capital | March 19, 2014

How to Build and Manage High Performance Start Up Teams

I’ve spent a lot of time talking to entrepreneurs and CEOs about team building, but it had been a long time since I was at Netscape (‘94-’98) building teams of my own. When I started Costanoa Venture Capital in 2012, I had to test my principles once again. They held up pretty well, but with a few modifications I was able to distill it down to these three:

1. Team first

Start ups are a team sport. Especially in business-facing companies, the product development environment, go to market infrastructure and overall business system are complicated enough that alignment matters as much as brute force or sheer brilliance. There is an old saying that “there is no I in team.” More recently, we’ve learned that there is an “I” in team, it is just hidden. You need to make sure you root out the ***holes– those that destroy chemistry, ruin alignment, and pursue their own agendas.

One of the best parts of being at Netscape in its founding days was that we really lived “All for one and one for all.” It really felt like we were on a mission together. Anyone’s victories were victories for the team. Any failure was a challenge to all. Unfortunately, that changed in early 1998 when the business stalled and we had a Reduction in Force of 12%. The change in culture was palpable as some people began to think their interests and the company’s might not be the same. It became less fun – and the company never was the same.

Products are complicated enough that they are produced by teams, not by one great engineer. Building a great product doesn’t matter if it targets the wrong market, so alignment with product management and marketing matters. Some companies are lucky enough that they build a great product and the world comes to them credit card in hand. However, most often there are actual human beings (salespeople) who talk to customers, explain the benefits, and try to close business. If these pieces aren’t working together, the business fails. As a result, finding people with the communications skills, emotional maturity and self-awareness and ability to put the team’s needs ahead of their own desire for professional advancement or empire-building is absolutely essential.

Besides, you’re going to be working long hours on a project whose material rewards come from team success, so you might as well like them (no ***hole rule) and you better think they are working for the team too.

2. Get A players in every job

Most start ups are lean by definition. Raise a chunk of capital, target a couple of key milestones, hit targets, and get to raise another chunk of capital at higher prices. Constraints on capital mean constraints on headcount, so each person needs to hyper-productive. There isn’t room for mediocrity. In fact, mediocrity reduces team morale (when it is needed most) and is poison in terms of people being able to put the Team First. Besides, when someone isn’t pulling their weight, everyone on the team knows it.

In the early days of Netscape when I was a Product Manager, there was a Director-level person in another department who wasn’t pulling his weight. It was a source of frustration to many who wondered (sometimes outloud) whether the organization was as meritocratic as we all wanted it to be. Management eventually took care of it but not before it had festered for too long. This is one of the ways Me First gets introduced into the organization.

An A Player refers to someone’s ability to do the job at hand, what Andy Grove called Task Relevant Maturity in his book High Output Management. Everybody doesn’t need to be a future CEO. You can have people who are great individual contributors and will always be great individual contributors, and you can mix in a couple of super star talents that are inexperienced but capable of high output and are willing to learn if you have some people they can learn from. BUT you cannot tolerate mediocrity in a startup or have people that are bottlenecks. Time and teamwork is too precious.

3. Everybody goes to their highest and best use

One could call this a corollary of Team First but I think it is important enough to draw it out separately. Team members absolutely need to spend most of their time and energy recognizing how they can contribute the most to the team at that moment. Typically, this means working on the things they are best at, but sometimes that means taking on an unglamorous task that no one wants to do. People with “utility player” skills – and attitudes – are extremely valuable.

Over and over again, I see people who screw up their jobs – and sometimes their careers – by wanting to be something they are not. At one of our portfolio companies, we had a terrific executive who was great at his job, highly valued and well-compensated. But he wanted more- particularly, he wanted a General Management responsibility to meet his own career objectives. In a fast growing company, he endeavored to grow and defend his “empire” rather than partnering with new executives who had joined the thriving company. In the end, it was destructive for him and for the executive team. Avoiding such a situation requires a combination of self-awareness and humility, and it isn’t easy.

There is room for professional development in start ups, but it needs to be built on the foundation of achievement in areas of strength that are important to the company. Executing on the things that a team member is great at “earns” the right to take on new roles/capacities and learn new skills.

Further, the areas of development ought to be adjacent to areas of strength, all of which requires a real understanding of both strengths and weaknesses. Some of that can be obtained by introspection, but eventually any team member needs external feedback – and s/he might need to solicit it since most companies do it poorly.


Nothing in start ups is easy. By following these general principles, one can build high performance teams while trying to achieve crazily ambitious things with limited resources – and that goes a long way towards success.

Photo: Off Center Designs

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