From 2003 to 2008, I helped build MySQL into $ 100 million business, then sold it to Sun Microsystems for $ 1 billion cash. By the time Oracle acquired Sun in early 2010, I was ready to take a few months off. I travelled across the U.S., Europe and Mongolia, learned to play blues guitar and cycled a couple thousand miles. By September, I wanted to re-engage, but I wasn’t sure what kind of opportunity would be the best fit.
Many startup companies and VCs called me, eager to get me to repeat what I’d done at MySQL in the latest open-source company. While they were all good opportunities, I was less interested in reliving the past than in helping to create something that was forward-looking. After all, MySQL’s success came from that very approach; it succeeded because it was different and disruptive.
I was primarily interested in two significant trends in the software industry: the consumerization of IT (and the emergence of big data) as well as a bevy of newer data-management approaches variously lumped into the category of NoSQL. I decided I would research these two areas and sought a venture capital firm that invested in those areas to see if there was an overlap in our interests.
While there are as many variations on the EIR position as there are venture firms, there are two flavors, generally speaking: Entrepreneur-in-Residence and Executive-in-Residence. Most firms have some experience with Entrepreneur-in-Residence programs. Essentially, they give office space, coffee and food to a proven entrepreneur so he or she can spend a few months researching or prototyping a new product or service.
The Executive-in-Residence role is somewhat rarer and even harder to define. Basically Executives-in-Residence are guns-for-hire who may or may not be interested in any of the portfolio companies a venture firm has invested in.
I’m not the inventor type, and I didn’t want to just “hang out” at a venture firm to look at their portfolio companies, so I proposed doing a specific research assignment with Scale Venture Partners. Scale typically invests in late-stage Series B or Series C companies, which made it a good fit. I am good at scaling companies, but I don’t know that I’m any better at predicting which Series A investments will thrive than anyone else.
The key area of my research was to analyze some specific developments around Software-as-a-Service (SaaS), big data and NoSQL. This entailed studying the technologies in this area, understanding the optimal use cases and speaking to a broad range of customers and prospects to see what was actually happening in the marketplace and what patterns were starting to emerge. I also worked with the senior partners at Scale to determine how to keep them up-to-date with my findings and how the results would fit into their overall software investment strategy. The important takeaway was that a venture firm is not a research house. At the end of the day, they would measure the success of this effort by whether it helped them make better investments.
While I could have done my research on my own, it was helpful to have an office to go to, access to research materials and introductions from the Venture partners to companies that were using some of the new technologies. While I was primarily focused on pursuing my research, I also gave the investors my perspective on a couple of portfolio companies.
I also attended a few of the partner meetings and saw companies make their investment pitch. Every company had a billion-dollar market opportunity, a dozen marquee customer names and a diagram that put them in the upper-right-hand quadrant. After you’ve seen half a dozen pitches like that, you realize slides come cheap; what’s hard is getting breakthrough momentum.
Scale made two investments while I was there: Docusign, which illustrated the consumerization trend, and Scale Computing, which provides commodity storage for small and medium businesses. Both companies had strong teams and a clear path to the future, but even more important, they had rapid growth in the market. No amount of PowerPoint slides can hide the fact that a company either has traction or it doesn’t.
I continued to meet with other venture firms, recruiters and startup companies beyond Scale Venture’s portfolio. While I was wrapping up my research, I ended up joining a cloud-based help desk company called Zendesk. Working at Scale gave me the perspective to analyze the opportunity as an investor would and be confident that Zendesk was the right fit.
For me, working as an EIR gave me a greater appreciation for the investment side of the business and how companies are valued. It’s amazing to see how many companies a venture firm engages with and evaluates in order to make investments. I have no doubt this experience will be helpful to me in the rest of my career.
Things to keep in mind if you’re interested in an EIR role:
- Make sure you understand the firm’s expectations. How will success be measured? If you are working on a specific project, what are its deliverables?
- Pick a Venture firm that is compatible with the type of opportunity you’re interested in. Are they doing early-stage investment or late-stage? Do they invest in applications? Mobile? Middleware? Networking?
- Agree to a fixed amount of time for your EIR role. Generally shorter is better. If your role runs more than six months, you run the risk of getting too comfortable with the VC lifestyle and forgetting what it’s like to be an operational executive.
- Be clear about your obligations. Will you be attending partner meetings? Working with portfolio companies? Or doing your own thing?
- Don’t fall into the trap of trying to rescue a firm’s problem investments unless you’ve done turnarounds successfully and enjoy it.
- Do your best to add value to the venture firm by introducing possible investments and giving your strategic perspective.
Zack Urlocker worked as an Executive in Residence at Scale Venture Partners from October to December 2010. Prior to that he was Executive VP of Products at MySQL where he was responsible for Engineering and Marketing. He is now Chief Operating Officer at Zendesk.
Image courtesy of Flickr user dweekly.