More perspective from OVP’s first 25 years.

Do you remember your first McNugget? Or maybe the size of your forearm from carrying around your first Motorola DynaTAC cell phone? A lot has changed since OVP was formed in 1983.

While we spend our hours these days on our seventh venture fund, it is fun to look back at what we thought (correctly or not) was “hot” in technology back in the day our first fund was launched.

Back in 1983:

• The Internet was invented. TCP/IP protocol was approved that year. At the time - we paid no attention to it.
• IBM introduced the IBM XT and Microsoft announced Windows. At the time, we paid a lot of attention to it. In fact, Gerry Langeler got to know Chad Waite in an early OVP deal that was built on Windows 1.0. You do remember Windows 1.0, don’t you? None of us knew then you never, EVER, trust a 1.0 release from Microsoft.
• PCR (polymerase chain reaction) was conceived and became a major biotech research tool. At the time, we paid a lot of attention to what it could do, but it took 20 years, until OVP VI, for us to find a company with the technology to perhaps replace it. Stay tuned……
• There was this company named Relational Software. We paid a lot of attention to it, because it competed with one of our startups. We thought when they changed their name to Oracle, it was just marketing fluff.
• There was no company named Cisco. It wasn’t founded until 1984. So, from the very beginning, OVP built a venture firm without the notion that the only way to succeed was to sell stuff to Cisco.

Some other interesting facts and factoids:

• The price of 1 GB of disk storage was $250,000. Today, that number is $0.50.
• The number of approved biotech drugs in the US was 2. Today, that number is >500.
• Intel’s top-of-the-line microprocessor had 134,000 transistors. Today, that number is 1,700,000,000.
• The number of industry principals in venture capital was about 2,500. Today, that number is about 9,000.
• Microsoft had about 500 employees worldwide. Today, that number is approaching 80,000.
• Intel had 1 building in Oregon with fewer than 500 employees there. Today, that number is over 25 buildings, with more than 15,000 employees there.
• The Dow was at 1,200. Today, even with all our current troubles, it is about 11,000.

We will continue to see incredible technological and company advances ripe for the picking by aggressive, but patient venture investors.

Bring on the next 25 years!

Luck Favors The Prepared Mind

While surveying investment opportunities in Clean Tech, we did an in-depth analysis of the solar power industry. This is a rapidly growing market worldwide. Japan and Germany were the first countries to aggressively promote solar power. During the past few years, the United States (primarily California), Spain, Italy and South Korea also have increased their investments in this space.

Solar is one of the cleanest alternatives for generating power, but currently it costs 4-7 times more than other methods of producing electricity. To date, market growth has been spurred primarily by government subsidies.

The goal of most solar players, regardless of their position in the value chain, is to drive down component costs to enable competitive, subsidy-free electricity. UBS Securities is forecasting solar power will reach grid parity with traditional electricity rates for some sunny regions starting in 2011 and on a global, aggregated basis by 2015. This will be achieved through more efficient solar panels, plus reductions in system and installation costs.

The solar power value chain looks a lot like the semiconductor & electronics value chain:

• raw solar silicon
• solar ingots and wafers
• solar cells
• solar modules/panels
• solar systems and balance of plant (BOP)
• solar installers and distributors

We concluded that there are now too many major barriers at the top of the value-chain for startups with silicon or hardware-based solar power solutions. There are lots of competitors, including formidable, established players; significant pricing pressures over the next 5-10 years; and it is too capital intensive. Moreover, we forecast an excess supply of solar panels, which may swamp out any incremental technology advances by startups.

But, just like the semiconductor industry in the 1980s when electronic design automation (EDA) software tools were introduced, the solar industry now requires technologies that enable a large number of players to drive down costs and increase efficiency.

Fortuitously, just as we were concluding that the best solar power investment opportunities would be in installation efficiency and monitoring and control software, an OVP friend, Sam Arditi, introduced us to his start-up, Tigo Energy. Sam is a world-class executive, leader and entrepreneur. We would have looked closely at any deal which he brought to us. But the fact that Tigo Energy’s solution fits the ecosystem category where we think venture returns are most likely was pure serendipity. We are pleased to have Matrix Partners join us in the investment.

Luck favors the prepared mind.

Managing In Uncertain Times

Frankly, these kinds of lines, “______ in uncertain times” drive us to distraction. Can anybody tell us when the times were certain? The only difference between times like these, when people are hand-wringing, and times when they are not, is that now we admit to ourselves they are uncertain. In “good” times, we think we know what comes next, even though we don’t.

One of the reasons most major, sustainable enterprises were started not in “certain” times but in “uncertain” ones, is the different mind-set and culture that is forged in the crucible of worry. Companies that come to life in an industry boom never develop the fear of abject failure, the palpitations of wondering if we can make payroll, the perspective that comes from knowing at a gut level that your customer is your life-line.

It goes without saying that a culture of frugality, born of necessity, stands firms well in all times. When the “good-time Charlie” firms hit a tough economic patch it is amazing how long some can go on little capital, once they understand at a basic level that no more capital is available.

One of the best practices we see from top-flight CEOs in our portfolio is where they are, from day one, constantly challenging their teams to do more with less. They are regularly prodding their sales organizations to deliver the orders, but also pushing very hard on what appear to be overly optimistic assessments of the speed at which accounts will close.

Engineering teams are being asked very hard questions about their schedule assumptions, and exactly “why” they believe the current development forecasts are likely to be achieved.

One CEO we know recently hit the nail on the head. He asked his sales VP how confident he was in his forecast for the quarter. Of course, the response was positive, as most sales professionals are. Then the CEO asked a second question, “If you had to literally bet your job on the number, what would your number be?”

Needless to say it was not as bullish an outlook. The CEO then turned to his CFO and said, “Tell me how we don’t run out of cash at that lower number, because in these times, I’ll go with the ‘bet your job’ test. We’re all betting our jobs here today."

OVP cut its teeth in digital media many years ago, with a lead investment in Loudeye. Recently, we added another portfolio company to that category, Lucid Commerce in Seattle, WA.

Lucid Commerce has taken the business intelligence model for on-line media, so successfully employed by aQuantive (that Microsoft bought for $6 billion), and aimed it at the direct marketing industry. Amazingly, with almost $200 billion in annual revenues, direct marketing is largely devoid of integrated data and the analysis tools to make informed decisions.

OVP led the $2.4M seed round in Lucid Commerce along with a few relevant angels. Lucinda Stewart has joined the board of the company, backed up by Mark Ashida.