Getting in early on the next big thing

On Monday, Zeisler, or "Z," as he is known by industry confederates, begins his newest career as the sixth general partner of Nokia Venture Partners, a Menlo Park, Calif.-based venture capital firm.

The fund invests in mobile Internet technology, a field that is of obvious interest to phone giant Nokia, which is a limited partner in the firm along with Goldman Sachs, CDBWebTech, BMC Software and others. It also happens to be a field that Zeisler believes is destined for exponential growth.

"Our idea of mobility is to plug in a desktop and get your data," he says. "But in the world of telephony, they're coming at it from another perspective. Here is my cell phone. Now, wouldn't it be great if I could just plug my data into it?"

Ever so slowly, developers are figuring out ways to do just that. Now it's going to be Zeisler's challenge to separate the winners from the losers. He recently talked about what's hot and how chastened venture capitalists are finding their footing in the post-irrational exuberance era.

What's especially interesting to you about the technology growing up around the mobile Internet?
I'm really excited about the rapid adoption of 802.11b. This is one of most phenomenal things; you take an off-the-shelf card, plug it into your notebook, and you're on the Internet. It's achieving rapid deployment and it's incredibly inexpensive. We'll be looking at companies with plans to build networks of nationwide access points.

Any familiar trends in this emerging market that resemble what you've witnessed in any of your former careers?
It's reminiscent of my days at Netcom where customers want a nationwide footprint, even when they don't need it. But much like the ISP market, this is going to get built region by region, and then there'll be a consolidation.

If entrepreneurs from this domain want venture investment from you, what sort of things should they be saying in the interview to whet your appetite?
There's an old axiom that I'll take an A team with a B plan, rather than a B team with an A plan. The first thing is great management. Second is the size of the market. Third, I'm looking for a defensible technology. I've seen too many companies knocked over by companies that ran over their tailpipe--the reason being they didn't have a sustainable technology.

What's different about the ways venture capitalists select the companies they want to bet on?
Last year was the year of, "Build it and they will come." There's now a more cautious approach to capital consumption with VCs turning very, very picky. They're also doing triage on their portfolios and don't have time to look at new deals unless these are way, way high on their radar screens.

What's different about the vetting process you use to decide whether or not to invest in a particular company?
The process is taking a lot longer. It used to be measured in days: You'd take a walk around 3000 Sand Hill Rd., and by the end of the day, one or two firms would invite you back; and by the end of the week, you'd have a handshake. Then your competitor could come and do the same thing. You saw this with those five or six pet things all getting funded within weeks of each other--and most got funded because their competitor got funded. Nowadays, entrepreneurs who I know find that it's taking many months to raise money.

Are there any sectors that are especially hot?
In the corporate market, people are very concerned about security and privacy on their intranets. They pay a lot of money to make the pain go away. Also, I like the wireless intranet. Along with security and privacy come things like authorizing visitors to use (the intranet) dynamically. Once we have all these wireless nodes, you can do triangulation location services.

How about the telephony side?
Yes. About one-third of the population has cell phones, but the data side remains pretty weak. The joke is that WAP is the sound you hear when a cell phone hits the garbage can. The nice thing is that the second generation fixes the mess left over from the first. So I think that you'll see widespread deployment of 2.5G, beginning in Asia and Europe. With much higher packet rates, you'll be able to tap into the mobile Internet right off my handset.

There will be 500 million handsets sold this year. Now, the naysayers think that number will be flat next year, which is fine because it's still a large number. If you can imagine that number of new devices enabling a next generation of new services, there's going to be a whole array of new services because you'll have a critical mass of new users.

Such as?
One is in the instant messaging space. Today, it's SMS messaging, which doesn't work well in the U.S. but has a very big market in Europe and Asia. People have overcome some of these aspects of text input, and phones are getting smart about this. The next generation of SMS phones will become very, very compelling.

It could even move beyond text where I send you an instant message and ask, "Hey, can I chat for a moment?" You say yes, and I hit a button and we speak. 3G is much farther on the horizon than I'm comfortable attacking. Some people are doing a leapfrog and jumping to it and my hat's off to them. But there are an awful lot of carriers making the logical progression into 2.5G. I don't think there's a significant customer disruption. You still have to buy new handsets, but it's a much more logical progression. I like the fact that it's a little more tangible.

How much of a big deal?
I think it will be pretty widespread and a pretty well thought-out set of steps to move customers and carriers into that environment completely.

There's been a lot of finger-pointing lately. How much blame do you think the VCs need to shoulder for the zaniness that prevailed before the crash?
I can recall thinking about certain VCs who totally missed the boat. At the time, people said they don't count anymore. Now it's being said they were the thoughtful ones. And I see lots of others who have had books written about them who did lots of significant investments. But the investments they were doing were driven so as to sell more stock downstream. A lot of that is now coming home to roost.

So what's different about the atmosphere in Silicon Valley after the Nasdaq implosion?
It's remarkably sobering. The level of investing is one-third of what it was a year ago at this time. The rate of investing is one-third as well. But the good news is that B2C is Back to Cleveland. There's a little more thoughtful entrepreneur calling on us. It's not someone trying to convince us about Eggs.com.

People have short memories. Do you think they'll carry away any lasting lessons from what's taking place?
I'm actually excited about that. Yes, we're in a depression now and people are walking around moping. One result is we're able to do very thoughtful investing. The valuations are reasonable and expectations are reasonable. This funk that investors are in is perhaps an overcorrection. Maybe I'm an eternal optimist, but I think the next couple of years will be a great time to do early-stage investing.

You've been kicking around Silicon Valley since what, the early 1980s? Is it still as fun as it as when you were younger?
I lived through the PC wave and those were my Wonder-bread years. It was the best time ever and I'll never forget it. Then the networking and Internet revolution lasted six or seven years. That was just as phenomenal, though I wasn't that young anymore. To me, this whole mobile Internet feels like a decade-long opportunity and one that will equally change our lives. This is not a small thing. It feels to me like the third wave. The last two revolutions started at ground zero in Sunnyvale or wherever in Silicon Valley, and worked out to the edges, then moving to Europe and Asia after that. But in the case of mobile, we're looking to Japan first and then to Europe. By comparison, the U.S. is a laggard.