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Hummer Winblad Venture Partners was founded in 1989 as the first VC fund to invest exclusively in software companies. Today Jason sits down Ann Winblad, technology investing legend and the firm’s Co-founder and Managing Director.
Key Takeaways - 2 min read
Top Quote:
"People want to work for a mission. They don’t want to work for just a salary anymore."
- Ann Winblad
Key Takeaways:
On Software Vs. Hardware
Last year, of the $41 billion invested by venture capitalists over 60% of it went to software companies.
Software was a very tiny (if not zero) part of the investment landscape when Ann started.
On Ann's Venture Fund Hummer Winblad
Ann formed her venture fund with John Hummer, and they are coming up on their 26-year anniversary.
They had 16 companies in their first fund and 8 of them went public (a 50% hit rate).They look for those people that are unknown. They are not just finding pedigree. They are finding breakthrough talent.
The exact time you should invest in something is when everyone has armies working on something, but someone already has it done.
On Economic Bubbles
Companies are making real money now.
Ann worries more about the rent in San Francisco.
The public markets are always very discerning for new companies because of these last busts.
It does not feel like a bubble in the enterprise space because there aren’t knockoffs being funded (which is what happened in 1999).
On Seed Investing
Angel investors need to understand that A-round money won’t be increasing, and there is only so much.
People don’t like being A-round investors because it takes 7-10 years to find out if your investment was successful.
If you do an A round you won’t be able to brag about your company at a cocktail party for 5 years.
They don’t expect much in terms of team members from seed round deals, but they do expect some proof that a market exists.
Ann loves the angel investors because they are out there auditioning all these entrepreneurs.
Table of Contents (Full Notes)- 10 min read
*You can use the table of contents links below to jump to that section only on laptop and desktop.*
Ann started her first software company (Open Systems) in 1976.
In today’s world Open Systems would be called an “ERP” company, much like NetSuite.
They wrote accounting software for midsize companies, and the accompanying platform that people could write extended apps on.
They were an open source company because they gave away their source code to their resellers so they could write their own vertical apps using the code.
This was very controversial at the time.
Ann learned to code in college because in her era they weren’t teaching coding in high school.
Most people weren’t focused on programming because they were focused on hardware.
Machines were still pretty big.
When Ann graduated college they were just on the cusp of mini-computers and software becoming the center of the universe as opposed to the hardware itself.
Ann sold Open Systems for a very large sum (for that time).
She sold it in 1983 for $16 million in cash. This was a huge amount back then.
John is a Princeton grad who was a first round draft pick, and played six years for the Seattle Supersonics as a Center.
When they started their venture fund in 1989 they were the first venture fund focused exclusively on software.
In 1990 there was $350 million invested in software by all venture capitalists across the US.
Contrast that with 2014 the amount was about $23 billion invested in pure software companies.
Some notable investments they had in the early days:
Hyperian – the invention of business intelligence. They went public in 1995 and was later purchased by Oracle for over $3 billion (and had only raised $7 million).
PowerSoft - the first company acquired for $1 billion.
Central Point Software - invented anti-virus and later merged with Semantic.
Berkley Systems - did screen savors, and was also acquired.
They had 16 companies in their fund and 8 of them went public (a 50% hit rate).
Ann’s firm is coming up on it’s 26-year anniversary.
Every time you think you have enough wisdom to make perfect picks you realize that you have lost the venture capital handbook.
8 out of 16 companies went public in their first fund. That was unprecedented. It was an amazing fund.
This can be attributed to three things:
It was a very prescient time for software. This was going from the PC era to the client server era. The new companies had an unfair competitive advantage.This is very much like today when you look at enterprise software companies that have to deal with everything at web scale (billions of everything).
They had every software company coming to them because they were the only venture firm 100% focused on software. The quality of their deal flow was unbelievable.
They were also fresh off their own entrepreneurial backgrounds. They were very contemporary with code.
They look for those people that are unknown. They are not just finding pedigree. They are finding breakthrough talent.
The exact time you should invest in something is when everyone has armies working on something, but someone already has it done.
It’s a webscale era, and for enterprise software the means we are going to need a lot of new pieces.
Companies are making real money now.
Ann worries more about the rent in San Francisco.
They advise not taking on leases that they can’t handle. It’s getting expensive being a new company in SF.
There are some winner take all markets in consumer.
Ann loves Uber and Lyft, but they both have raised a ton of money and it’s hard for her to imagine they will both win.
There could be a sinkhole for one of them.
The public markets are always very discerning for new companies because of these last busts.
If the public market window closes it will change everything (liquidity paths, how much companies can raise, etc.).
When the market falls apart they lose a lot of funding sources, and they will need to last longer on investment money.
It does not feel like a bubble in the enterprise space because there aren’t knockoffs being funded (which is what happened in 1999).
If you have real revenue, high gross margins, and a business model that makes you live off your own oxygen over a reasonable period of time then those companies are not in bubbles.
If you are living off just venture funding then that is carbon monoxide and it kills companies.
It is hard to recruit people out of Amazon (Ann has tried) because most are so happy working there.
Amazon employees do say they have to work hard, and it’s a demanding job, but they only have praise for Jeff.
People want to work for a mission. They don’t want to work for just a salary anymore.
Companies that are winning are in a fight everyday, which makes it a tough place to work.
Being in a retail margin business has an enormous amount of velocity and competition.
One mistake can cost you a lot of margin. It requires precision execution.
Another part of the Amazon magic is that they don’t tell you everything they do, and people always want to know more about that company (as well as Google).
Ann was the only woman to graduate in her math major, one of two in her business major, and the only one sitting on the ground writing code in the lab in college.
She has always regarded this as fun.
She is shocked at the small number of women pitching them, especially with a woman’s name on the door.
She is shocked at the number of women that are graduating in STEM.
As a woman you are going it alone, and that is hard.
You want to feel part of a group, and feel like you can be yourself. Ann has always felt she could be herself because of how she was raised.
She always felt respected by her peers in the software industry.
They have funded a lot of women CEO’s over the years, but the number of female founders is still way too low.
The benchmark is not higher for women, but it isn’t lower. The benchmark will not be lower for women.
Most of the VC’s in the industry have technical and advanced degrees, and have worked for at least 5 years in industry on average before becoming a VC.
That’s not going to be lowered for women to enter.
