From the Partnership
One of our founding general partners Gene Riechers was honored in November by being selected one of the top 100 venture capitalists in the first AlwaysOn Venture Capital 100, which "highlights the one hundred individuals who have backed the most profitable winners in the last four years."
Read more about it here
In this issue of our newsletter we focus on our seed investments and investments we've made -- both seed and early-stage -- out of university research settings.
Kirk Cameron, the Chairman, CEO and Co-Founder of MiserWare, Inc., discusses his experiences turning his university research on server power savings into a Green IT seed-stage company.
General Partner Hooks Johnston offers his thoughts on seed investing, and Valhalla Principal Kevin Greene discusses our experiences with spinning out university innovation into viable companies.
As always, we welcome your comments and questions. Please email to firstname.lastname@example.org.
Valhalla CEOs: Kirk Cameron
Position: Chairman, CEO and Co-Founder of MiserWare, Inc.
What got you interested in the topic of server energy savings in the first place?
When I graduated in 2000, I noticed that power was becoming a significant constraint on microprocessor design. Since high-performance deployments use thousands to tens of thousands of processors, I wondered whether power would consititute a problem for scaled server deployments, and I wrote my dissertation on improving the performance efficiency of servers in those very large-scale environments. At the time, the common wisdom was that power would never be a problem for scaled server deployments. It wasn't until 2003, after I was honored with a CAREER Award from the National Science Foundation (which came with $400K in funding), that the legitmacy conveyed by that award led to the formation of a new area of scientific study now called "Green High Performance Computing" which today involves hundreds of researchers from across the world with numerous workshops and conferences on the topic. Most importantly, our work has been instrumental in highlighting the wasted energy used by servers and elevating the importance of server power efficiency.
What's your take on the state of the market for "Green IT" today? Are customers ready to buy?
There should be a significant market for "Green IT" today. Being green saves customers money, and lots of it. For a 400W server running MiserWare software, we can save over $100 per year in energy use and another $100 per year in cooling costs. This results in about $2M in savings for a 10,000 server deployment.
Yet despite the acceptance of the problem by the mainstream media and many visionary data center operators, adoption of power management software is nascent. Server virtualization, a related technology with more momentum and substantial energy savings of its own, has only about 20% market penetration today. I think many potential customers believe that saving energy -- whether through virtualization or through MiserWare's approach -- will hurt their performance. They are relieved when we can show them that MiserWare can control the impact of power management on performance and service levels, and this kind of message will play an important role in opening up the market.
What holds back more academics from taking their innovations into startup companies?
First, I don't think all academics have the background or fortitude to start companies. Most are trained as researchers and teachers and are quite content in these roles. Only a few seem to have the entrepreneurial bug.
It is also the case that university systems in general lack the proper incentives to get academics to start companies. The tenure and promotion process doesn't reward entrepreneurship. The key metrics for tenure are service and scholarship; entrepreneurship, if addressed, tends to be bundled in as a service contribution or simply implied via a list of patent submissions. By being more supportive of entrepreneurship, universities would benefit both intellectually and commercially. Assuming that the main educational mission of a university remains intact, its best bet would be to invest in the creation of as many companies as possible (under reasonable terms) with the idea that only at scale will they hit a few home runs.
What are the differences between academic and startup life?
I guess on the surface they seem vastly different. Certainly the skills you need to build a company are different from those you need to succeed in academia. Also, few academics have the business acumen to build profitable companies. But, in spirit the two are not that different. It may sound corny, but I got into academia to have an impact on the world. My hope was that some idea I had or that something I created would change the world for the better. Having started a company, I now realize that my motivations here are similar. I still want to change the world, but this time rather than creating a prototype in a lab that proves out an idea, we've had to dig deeper in the technology and create software that serves a similar purpose but is useful to the masses.
What have you learned from MiserWare so far that you would pass on to other potential entrepreneurs?
I would say the number-one criterion for starting a business is passion. Passion will carry you through the ups and downs of a startup in a way that money or fame can never do.
If you've got the passion, the next thing you need is to do your homework. Learn about the potential markets and figure out how you can ultimately create a sustainable business, which is a business that makes money to foster growth.
Don't be afraid of your own weaknesses. Find and court mentors that complement your weaknesses so you can solicit advice on a regular basis. If at all possible, do not do it alone. Find a co-founder who shares your passion and committment. And lastly, set out to change the world and don't stop until you do.
Partners' Viewpoint: Hooks Johnston on Seed Investing
Valhalla Partners has now done a number of seed investments, and I would like to pass on some of the things we've learned about investing at this stage.
The two central facts of seed investments are 1) the opportunity to participate in a high-growth investment at the earliest possible stage and 2) a daunting set of risks. Investing wisely in seed-stage opportunities means understanding both sides of the equation.
The upside of seed-stage deals can be tremendous, both financially and in terms of making a difference. Prior to Valhalla I was one of a group of angels that invested in webMethods, which began as a husband-and-wife team meeting weekly at the Silver Diner and turned into a very successful public offering (and a great exit). The original idea of webMethods was just the sketch of a product. It had to be built, tested, brought to market, and sold in a repeatable, scalable way.
In addition to an untested product idea, seed-stage investments may involve significant team risk. The team is typically incomplete and frequently the "team" is just a founder or a couple of founders who themselves may not be experienced managers. You can't assume that you can just define objectives and leave the team to execute; you need to invest a substantial amount of time working with the team as they execute on their objectives and encounter unexpected obstacles.
To mitigate these risks, we try, first of all, to invest in potentially very big ideas, since only a giant win can compensate for the level of risk in a seed investment. A second way to mitigate risk is to invest with a syndicate with experience in seed investments, whether angels or, if the right deal can be structured, with other institutational investors.
To succeed, we have found that the plan for a seed investment needs to involve objective, verifiable, and determinative proof points that can be observed in the very near-term. If the proof points are not objective and verifiable, there will be no clean way to find out if they have been met. If they are not determinative, the seed investment will not have proved enough about the product and the market to warrant a Series A investment.
Lastly, of course, you need to be willing to let go if the proof points are not testing out.
One advantage we have in the mid-Atlantic is being knowledgeable about government programs for seed-stage investing. In addition to the Small Business Innovation Research (SBIR) programs run by many Federal agencies, there are seed-level grants from state or quasi-governmental entities such as Virginia's Center for Innovative Technology. And government entities can be customers as well as investors, or, with a group like In-Q-Tel (the venture capital arm of the intelligence community), both.
Kevin Greene, Principal: Virginia Universities- Bringing About Change That Matters
In the mid-Atlantic region, we are fortunate to have a large number of first-rate research institutions, but transitioning research at these universities and research labs into real-world businesses requires a change in approach at these organizations, from their historic role as "knowledge center" into some kind of new "innovation center" which can play a key role in driving business and job growth. This transformation begins with the right leadership fostering the right culture and requires the partnership, active support and engagement of local industry, venture capital and government leaders.
Valhalla Partners recently made two investments in Virginia university spin-outs that are focused on solving two of our nation’s largest problems – the energy crisis and the improvement in care for our rapidly growing senior population.
Miserware was founded at Virginia Tech by Dr. Kirk Cameron, who developed a technology for predicting computational load on a microprocessor. With this information, MiserWare is able to offer projected reductions in server energy costs of up to 35%. We believe this technology could reduce the energy consumption of datacenters (and, potentially, PCs) throughout the world. As an example of a university creating the right innovation culture, Virginia Tech is supporting Dr. Cameron taking a sabbatical to launch the company. Federal and state government also played a significant role in seeding Miserware with a 2003 award from the National Science Foundation and additional seed funding from the Center for Innovative Technology (CIT), a joint venture between the Commonwealth of Virginia and private industry.
WellAWARE Systems has developed a "next-generation wellness monitoring solution" that provides valuable information to family members and caregivers. Starting this company involved a multi-way partnership between the university, investors, and sernior-care industry giants. The technology powering WellAWARE Systems began as a research project at the University of Virginia’s Medical Automation Research Center. Two of the nation’s largest senior-care providers, the Evangelical Lutheran Good Samaritan Society and Volunteers of America, stepped in to provide seed financing. Finally, the UVA Patent Foundation worked closely with the company to formulate a royalty structure that made sense for both WellAWARE and the University when Valhalla Partners and .406 Ventures stepped in to provide the next round of funding.
MiserWare and WellAWARE Systems would not be where they are today without the active partnership and collaboration of academia, industry, government and the venture capital community.
Active Storage, Inc.
Active Storage, Inc., Torrance, CA
Valhalla Partners participated in an $8.0 million Series A round led by Intel Capital. Mission Ventures also participated in the financing.
Active Storage, Inc. is a leading developer of SAN asset production solutions for Apple-based infrastructure in education, business, and media production and broadcast.
WellAWARE Systems, Inc.
WellAWARE Systems, Inc., Charlottesville, VA
Valhalla Partners and .406 Ventures led a $7.5 million Series A round providing the company with growth capital.
WellAWARE™ Systems develops next-generation wellness monitoring solutions for the full continuum of senior care including Home Health, Independent Living, Assisted Living, Memory Care and Skilled Nursing. These technology-based systems are designed and engineered to provide meaningful physiological data to caregivers and family members in support of improved healthcare. WellAWARE Systems, in partnership with Volunteers of America (VOA) and The Evangelical Lutheran Good Samaritan Society (GSS), offers the opportunity for proactive, unobtrusive and passive monitoring through an innovative approach to wellness and safety.
Flat World Knowledge
Flat World Knowledge, Inc., Nyack, NY
Valhalla Partners, and other existing investors Greenhill Venture Partners and High Peaks Ventures, provided the company with a $6.2 million extension of the Series A round.
Flat World Knowledge publishes college textbooks from some of the world's top authors, distributing them to universities for free in a commercial open source online format so universities can customize them for use in their courses. The company sells affordable alternative formats such as print-on-demand full color and black and white print versions, PDF versions, podcast and .mp3 versions, as well as Flat World Knowledge and user-generated study aids such as mobile flash cards and Web quizzes to support the books. The company will enhance its value by building vibrant student social learning networks around these free books.
Persystent Technologies, Inc., Tampa, FL
Valhalla Partners and ABS Ventures led a $2.8 million Series B round in which existing investors participated.
Persystent's software increases the usability and reliability of computing devices by repairing operating systems and application programs, automatically or on demand. This reduces the need for human intervention in repairing software problems, resulting in lower help-desk and service-technician costs, more uptime for users, and desktop configuration enforcement on or off the network.
TidalTV, Inc., Baltimore, MD
Valhalla, along with existing investors including NEA, participated in a $9.0 million Series B round.
TidalTV describes itself as an online video advertising network that leverages the power of data and technology to guarantee delivery of brand's message against a target demographic, and enable publishers to fully monetize the value of their audiences across all demographic segments.
Q & A
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