Venturesome Capitalist

Venturesome Capitalist
By Margie Wylie and Rose Aguilar
Staff Writers, CNET NEWS.COM

Ann Winblad is a successful venture capitalist with a $95 million fund, but she will be forever known as the woman who dated Bill Gates.

Winblad isn't the only woman to ever date Gates, but the gregarious, outgoing, and refreshingly frank 5-foot-something blonde is the one who never hesitated to discuss the association with candor, including the Microsoft captain's lax personal grooming habits.

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In the Silicon Valley smog of double-talk and superstitious marketingspeak, Winblad's incisiveness is her trademark. The software engineer started her own business in 1976 with 500 borrowed dollars, then sold it in 1983 for over $15 million. After consulting with Apple, Microsoft, and others for several years, she was finally persuaded by ex-NBA basketball player and then venture capitalist John Hummer to bring her know-how to an exclusively software investment fund. Located across the San Francisco Bay in Emeryville, California, and worlds apart from the Ivy League boys club of shady venture capital enclaves in Palo Alto, Winblad and her partner were outsiders in more than one way. At first derided as "Goldilocks and Lurch," the team have become respected, if not insiders.

Compared to venture giants like Kleiner Perkins Caufield and Byers, Hummer Winblad's fund is small. Winblad maximizes its impact by picking small companies with good ideas but green founders, and nursing them to success. NEWS.COM chatted with Winblad in her spacious Pacific Heights home.

NEWS.COM: Did you ever think that the Internet would have this kind of impact on the market?
Winblad: If I said "yes" I'd be lying. And one thing about venture capitalists is that any venture capitalist who tells you she is a visionary is not doing her job because her job is to be an opportunist. We're all sitting around using email. In many companies we're using the Internet, especially Unix software companies, as part of the fabric of the whole corporation. So we're sitting in the middle of the thing not noticing it's really happening. It's not hard to speculate that there'll be many events in the future that we can't predict.

NEXT: Knowing a good deal

Knowing a good deal

When you take on a company, what is your role after you invest?
Our role for young entrepreneurs is to help them avoid self-inflicted wounds. Most companies don't crash and burn because there's not an opportunity or because competitors kill them off. Maim, maybe, but not kill. Most young companies fail because entrepreneurs are inexperienced and they make mistakes. In our industry, the software and the Internet industry, there's plenty of mistakes to be made, because everything is so new; we're still in a growth industry. But there's also a lot of experiential wisdom that has built up over the last 20 years, so some mistakes can be avoided.

The other thing we do is try to meet smart people, because intellectual capital is the hardest thing to get into companies and right now. With such a boom going on in the software industry, there's an extraordinarily short supply of people. So we hoard great people, essentially. I was downstairs before I came up here, and I had five resumes rolling off my fax so I could get those to one of our companies that's looking for a VP of marketing. We have to try to get the best intellectual capital as well as the right amount of dollar capital in our companies.

Do you ever have any urge to invest in companies other than software-type companies? Do you think you will in the future at all?
No, we'll never invest in companies that aren't broadly classified as software. How could I possibly look anywhere else? As a software industry, we're borrowing segments from other peoples industries: we're reinventing the routes of the customer, we're reinventing television, we're reinventing entertainment, we're reinventing commerce, we're reinventing education, and the software industry's going to reinvent information. You know these commercials you see on TV where it says, "Cotton, the fabric of your life"? Next year it will be "Software, the fabric of your life."

I feel very privileged to have been a nerd early on when people thought, "What are you doing starting a software company? That's really stupid; you'll come back (to hardware)." I never came back because there is no back. There's so much more ahead; there's so much future out there, there's so much opportunity that I think that the thing I'll regret is that I'm not 20 years old again. My biggest regret is that by the time I retire, the software industry will have gone on to post-Internet to the next big thing and it will be sort of still inventing itself and still youthful.

NEXT: The technology craze

The technology craze

Do you find it more difficult or more easy because you have so many companies to choose from now?
I think it's positive and negative. One of the things is that when you have a boom, everyone jumps in on the scene, so we've never seen so many people who are now software investors.

Also, a lot of people are funding early-stage companies who never did before. It's sort of like everyone hopped on a bus and everyone thought the ride was going to be to Disneyland and some people have found themselves in a desert. And I think a lot of entrepreneurs found ready money but not experienced investors and that will be tough on them and we'll see some failures there.

The positive is that people who we could never dislodge otherwise are leaving companies. Look at Silicon Graphics; look at Hewlett-Packard. Lifers are actually leaving those companies. Some really great people have come to us for the first time with ideas that they've been wrapping their minds around for some time that are inclusive of the Internet. The quality of start-ups coming to us is very, very high, and we're funding a lot more companies than we would normally in this period just because the quality is so high. Last year, we auditioned about 700 software companies. This year, in the first six months, we auditioned 600.

When do you think a shakeout will come?
I think the shakeout will occur probably as we turn into 1997. You'll mostly see a lot of companies running out of money or they'll need to do that second round and that's where they'll really take a serious, hard, critical look at who they should invest in. On the other hand, there'll be a lot of companies that don't need a lot of money that will have great businesses on the Net. They just won't be public companies. They'll be great small businesses, great medium-sized businesses, be great places to work, be great innovation leaders and they may be good acquisition candidates.

We'll also see a whole next round of Internet IPOs as we get into fall of 1997, and people will actually see Internet companies with good revenue and profits.

Speaking of public offerings, What do you think of this IPO-mania?
I think companies have to be on a mission, not thinking this is a quick ride to riches. The IPO is not an endgame; the IPO is a capital phase of your company where you build an even thicker mattress of money to support your growth, to withstand competitive onslaughts, and to execute your full-grown mission. There are companies that will need to go public as part of their strategic plan. Some of the business models are much more capital-intensive than others, such as those that are producing shows on the Net or on hybrid media. Those are very rich in content and need to fully complete their content mission.

On the other hand, companies that just want to grab the IPO brass ring, stuff the money in the mattress and are not clear about their mission, don't have a full management team, don't have a good board of directors, don't really have the convincing story that they are on a long-term mission do not deserve to go public and probably will spend the public offering money they obtain if they do successfully conclude a public offering unwisely.

Will all this money improve content?
It used to be that you could have the richest site and it might cost you $50,000. Now such a site probably costs $300,000 to $400,000 for editorial and technology; that makes it hard for the new entrants. The cost of the commerce side is even higher because you have to have that database back end, you have to have a billing system, you have to have an email notification system. Together, perhaps that site might cost a quarter of a million dollars or a million dollars to launch on competitive parity with those companies who are well-funded, who have gone public, and have the richest climate. So that will start to happen here. We still will have to watch for what's happening at the edges because all these edges brings up the creative stuff.

NEXT: Microsoft, Apple & the Big Guys

Microsoft, Apple & the Big Guys

You saw Microsoft grow up.
I can remember Bill Gates saying to me right before Microsoft was going public, "I'm not sure this is going to work. Microsoft is going to have $85 million in revenue and $30 or $40 million in profit. I wonder if people will think we're too small to go public?" People just didn't get software. You couldn't talk to any of your friends that weren't in the software industry, you couldn't talk to your parents, you couldn't talk to your relatives if they weren't in the software industry. It was just this sort of nerdulant group. Now it's, as my nephew would say: "It rocks!" It didn't rock then.

How do the Microsofts and the Suns affect what you do?
Actually the Suns and Microsofts and Netscapes actually have quite a positive effect on what we do. If you look back 10 years ago or 15 years ago, one of the challenges was you didn't have standards. You had to build software for 20 operating systems and write it in 20 languages. The idea that we have standards and we have standard ownership that keeps moving forward is critical to the rocket-ship growth this industry has.

The other thing that's really critical is that we have such competitive warfare going on, not just with the little knives and forks on the low end of small companies, but with grenades and rocket launchers and complete armies up at the high end because it forces innovation on the standard platforms.

You once consulted with Apple. What advice would you give them today?
Well, we all love Apple. Apple is a brand that was created from nothing by entrepreneurs in an industry that was not a consumer-oriented industry. And I think that that is where they should still have their continued focus. Next year, probably the first quarter, will be the real telling time for Apple, because they'll run out of a lot of the janitorial things that could be done to clean up the company. They have to draw some stake-in-the ground strategy.

What about Microsoft offering Apple a hand?
I think that from day one Bill Gates had a lot of respect for Steve Jobs and has that level of endearment towards Apple that all of us have individually. I knew that Bill Gates has been invited down a couple of times by (CEO) Gil Amelio and his team to have dinner with the executives. So I know there's a lot of stuff going on behind the scenes, from a lot of people, to prevent Apple slowly fading into the sunset--to help revitalize the company that we all loved, basically.

No one hates Apple Computer; everyone really loves Apple Computer. There's a lot of generosity available to the company. But in the long term, no one else can drive their strategy except Apple themselves. So we can all surround them with strategic assists, strategic advice, but they have to take a pretty high-risk strategy and pick it soon and get on with it. Microsoft is behind the scenes helping Apple as much as they can, which they do with a lot of hardware companies.

They don't want any more antitrust suits also!
I don't think anyone wants antitrust suits. You know, I think using government to intervene in an industry that's been very unregulated--and it seems to do quite well, is not something anyone wants.

NEXT: A (wo)man's world

A (wo)man's world

What's it like being a woman in this man's world?
People don't have the experiences I had in college where there would be the only woman in the math class, the only woman in the computer science department, the only woman in the business department. There are a lot of women in software now. But when you get to the investment banking area and venture capital, there really are not that many women. I went to a cocktail party held by some guys who left Morgan Stanley to go to Deutsche Telekom's investment arm. The room was packed with guys in dark suits. I said to their head of investment banking, "Gee, Frank. Good thing you didn't have this in the men's locker room." He didn't get it. They probably would have not noticed there were three women there out of 200 people.

The software industry is pretty young. I think probably the average age would be these days, probably around 50, and there aren't that many 50-year-old women who have had careers in the software industry. But we are starting to see younger women come into the venture community, and that'll happen a lot more in the next five years as people sort of work their way up the ranks.

My dad is a high school football coach, and he had the grand experience of having five daughters and one son. So on Saturdays when my mom would need a break because there were six of us just a few years apart in age, my dad would take us to the school gym where we hung out in the guys' locker room. When I went to college, of course it was an all-men's college, so I've seen these locker rooms for my whole life. The good thing is that a lot young women are not seeing that scene and are not taking it for granted.

Have you seen it change a lot over the last 10 years?
Oh, yeah. You know, I think almost all of our companies have pretty equally split executive teams that include women in the vice-president slot. I think there are fewer women still starting companies and running companies, but we're auditioning a lot of the new CEOs. Heidi Roizen was CEO of T/Maker, which was acquired by Deluxe, Humongous Entertainment, acquired by GT Interactive for a fair sum of money, was run by Shelley Day, a very talented CEO. And I just think both Shelley and Heidi are indicative of women who can hire other strong women to work for them; women who grow in the role, who are very decisive, but don't lose their femininity. The sad thing will be, I've had a competitive advantage being a woman in this industry because it's been so unique. Unfortunately, for the younger women like yourself, that competitive advantage will go away. It was a big one.

Actually, there's a lot of new CEOs coming about. Kim Polese is a CEO of Marimba, a new company we'll be hearing more about. Katrina Garnett, who just left Sybase, who ran the whole tools division there, which larger than most software companies, has started a new company. I think this crop is very committed. They are a very diverse set of women.