Posts Tagged "startups"

• Citrix makes surprise $100K awards to ScriptRock and AppEnsure

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  Citrix, the big virtualization and cloud company, awarded a $100,000 check each to startups ScriptRock and AppEnsure, as part of a start-up competition held today in San Francisco. The move was a surprise because Citrix had planned to write only one check.

  ScriptRock is an Australian company that automates checks of applications and other infrastructure for large companies to make those resources run correctly. It tests file systems, file integrity, configuration files, database hosted configuration and so on. It already serves four of the largest financial institutions in Australia, including ANZ, Bankwest and OnePath.

  AppEnsure CEO Colin Macnab

  AppEnsure, meanwhile, provides IT managers a single, integrated view of all the applications and infrastructure running in their company. The AppEnsure appliances perform root cause analysis of those resources, allowing managers to keep them running more smoothly. The company said its product is 85 percent complete, and that its first release would be ready within six months. Judges voted for the company in part because of its market potential. The company said there’s a $12 billion market for its product in 2012, increasing to $16.3 billion in 2015.

  Citrix made the cash awards to the companies on the spot, after a panel judges, including VentureBeat’s Matt Marshall, voted on which startups they liked the most. The vote was close: While Citrix had planned to write only one check of $100K to the winner of five finalists (out of 80 applicants), the company’s executives decided to award two checks after ScriptRock and AppEnsure tied in the final vote by the judges. In addition, early in the vote, judge Jason Calacanis said he’d cough up $25,000 more for ScriptRock. It wasn’t clear whether he is also giving cash to AppEnsure.

  The judges gave the ScriptRock high marks based on the progress the company has already made. Scriptrock said Australian bank ANZ, for example, could soon be spending $1.6M annually for ScriptRock’s service, and that only counting the servers it would run on. Desktops can also run the ScriptRock service, which would mean additional business. The company is looking to close a $650K seed round in the near future.

  The competition was held in San Francisco at the Citrix Startup.Synergy event.

  The winners will also be included in Citrix’s next accelerator class, which can include up to $250K in seed investment, an office in Silicon Valley, and help from Citrix with customer development.

  Other finalists included the following:

  Hey Maya – The company offers a service that lets you delegate boring stuff to a virtual admin. It lets you do everything from managing your contacts, to filling out expense reports to finding out the best flight and hotel information for travel.

  CumuLogic — The platform-as-a-service company offers a way for companies to switch between private and public clouds. It hopes to launch next month.

  BuildAR — The company offers a new kind of augmented reality technology, building much of the technology directly into the browser, and building on top of HTML5. Some of the judges thought it offered the coolest technology of the competition, but they questioned whether the market is ready for it.

  [Disclosure: Citrix sponsored DEMO, a conference co-produced by VentureBeat. As part of that sponsorship relationship, VentureBeat agreed to partner with Citrix on the event, including having Editor-in-Chief Matt Marshall moderate an investor panel. He also helped judge the competition.]

  Below is a video of how ScriptRock works:

  Filed under: VentureBeat

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• Blueseed startup ship of dreams has hundreds knocking at its door

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  Blueseed, the startup-ship making Pirates of Silicon Valley an actual thing, has already gained interest from hundreds of entrepreneurs looking to start a company on the open sea.

  Blueseed is a conceptual floating island-ship intended to house technology startup founders and employees only 30 minutes from California’s northern coast. The founders, who include an ex-Yahoo software engineer, plan to open the ship to inhabitants by the third fiscal quarter of 2013. Because the ship will be located 12 miles outside California in international waters, a visa is not needed, hopefully drawing in international entrepreneurs.

  According to a survey done by BlueSeed, 133 startups are already gearing up for the maritime experience. Twenty percent of those startups come from the United States, followed by India at 10 percent and Australia with six percent. Of those 133 ready startups, 35 percent say they would be ready to move in now, if the ship was complete. Most of the startups would be ready move at least within the next six months. On average, each startup would move around four people to the ship to begin building their company.

  The biggest draw is seemingly not the fact that you do not need a visa to live and work on the ship, but rather entrepreneurs are coming for the “awesome startup and technology-oriented space.” The second most critical element for startups was the close proximity to Silicon Valley’s venture capital scene.

  Rent to live on the ship is about as much as a single person living in San Francisco has to pay: around $1600 a month. That is, if you’re willing to bunk up. The price includes both living and office space, but will range from $1200 for a shared cabin, and runs up to $3000 for a “top-tier single” cabin. Ferries will shuttle entrepreneurs from the ship to Silicon Valley daily, and Blueseed says it will help those from outside the US enter. Blueseed is also looking for incubators who are interested in helping the startups. Can anyone say Y Combinator study abroad?

  hat tip The Register; images via Blueseed

  Filed under: VentureBeat

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• If Financing is Marriage, is M&A Death?

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  Editor’s note: Contributor Ashkan Karbasfrooshan is the founder and CEO of WatchMojo, he hosts a show on business and has published books on success (he was also, from 2000-05 one of the most popular relationship columnists, under a pen name, for a well-known lifestyle mag).  Follow him @ashkan.

  Not a week goes by where I don’t get an email that goes like this: “I wanted to reconnect, as I’ve recently left [the company that bought my startup].  Long story, but suffice it to say their executives and I did not share the same vision for the future.”

  Let’s face it, although there have been some smashing successes, more often than not, Mergers & Acquisitions fail.  If you didn’t know any better, you’d think that selling your company amounted to a kiss of death, when it ought to be closer to a rebirth and the start of something… better.  Indeed, while raising money from investors feels like marriage, M&A sure feels like death.

  How so?  Let’s count the ways.

  Why Bringing on Investors is Like Marriage

  The financing process – prospecting, discussing, negotiating, and closing – is awfully akin to marriage.  Like any relationship that “culminates” with a wedding, the real, hard work starts once the honeymoon is over, and the partying that comes with celebrating the closing of a financing round is eerily similar to a honeymoon.

  In fact, when you go from being your own boss in a bootstrapped company to having a fiduciary duty to investors, the honeymoon is over pretty quick: you can’t act selfish and do what feels right; you have to take into consideration how your words and actions will affect your significant other.  Sure, it might get a bit dysfunctional if you have more than one investor, but we’ll that for a separate article.

  Why Entrepreneurs Fail At “Marriage” (Financing)

  We’ve all seen the stats: half of marriages end in divorce and 99% of VC-backed startups fail, with VCs earning a measly 1% per annum.

  Why the poor record?  It’s perfectly fine to celebrate your financing – something that takes a lot of time and energy to do. But if you treat that as the end result or the outcome that matters, then you’re bound to fail.  In fact, it says a lot about an entrepreneur when all he brags about is how much money he’s raised.  After all, some would argue that if you’ve been divorced three times, you’ve actually failed six times, because you’ve connected with the wrong partner thrice and called it quits three more times.

  Why Stop There with the Analogy?  Products Are Like Children

  The similarities don’t end there.  Regardless of one’s thoughts on how much a man and woman each contribute to pregnancy and child-rearing, the bottom line is you need both to have children in the first place.  Similarly, to some extent, an investor and entrepreneur will come together and create products, but despite their best intentions, it’s impossible to envision how their offspring will grow and develop.

  It Takes a Community To Raise a Child

  In business, unlike in unique scenarios, the entrepreneur is usually acting like a single-parent, relying on his employees, advisors, users and clients to ensure the well-being and development of his “child”, but the best investors have operational and/or strategic experience and will help you shape your product.  Fred Wilson rolls up his sleeves and gets his hands dirty with a product or service before, during and after he backs it; I recall him talking about Twitter before investing, for example.

  It’s all about Compromise and the Greater Good

  Ultimately, though, for an investment to be successful and prosper, the entrepreneur and investor have to compromise and sacrifice for the greater good – and that means setting aside one’s short-term self-interests for the children to go on to greater heights.

  To be perfectly fair, selling one’s company to a larger entity, or merging your business with another ought to be like a marriage, too, but for various reasons, it seldom is.  More often than not, it’s actually destructive.  Why is that?

  Liquidity: My Water Broke!

  Well, for one, an investment is usually a means to an end.  Like a marriage, it is (or was, at least traditionally) a step towards starting a family.  An investment’s objective is to take an idea from concept to reality.  Only when it grows and successfully exits – thereby providing liquidity to all shareholders – does the marriage seem like a true success.  In other words, if you get married for the status, your marriage will likely fail.  The same applies to fundraising.

  Why Entrepreneurs Fail At M&A

  Ironically, M&A is usually seen like a cause of celebration (birth, or marriage) because it provides with some form of instant gratification but it rarely is one with hindsight.

  There’s a reason why we have a cliché that says: “the grass is greener on the other side”.  In fact, it’s one of the common mistakes entrepreneurs make when they sell their companies.  If you want a good overview of why so many M&A deals fail, take a look at this article.  Ultimately, like a failed marriage, it boils down to the two parties not coming together to make it work.  But does that mean M&A is equal to death?  That sounds harsh.  But it’s usually true because the seller tends to either lose motivation or overpromise the potential of the combined entity.  Alternatively, the buyer is usually going to fail to do a better job of running the acquired entity than the team that ran it as a scrappy startup.

  Do You Want the Crown or the Cash?

  However, because you have exited and experienced financial success, you may not care.  Your passion morphs into frustration and disillusionment; with your bank account full, no amount of money can bring back the thrill of sitting on the throne.  In that context, the entrepreneur is just as guilty as the buyer for killing his “baby”.

  Mind, Body and Soul

  How M&A differs from death, ironically, is that while we’re taught to believe that upon death the mind and body perish but the soul goes on, in M&A, the opposite happens.  A product, unit, or company can continue in form and fashion, but the soul is usually the first thing that is stripped, because of a lack of vision or effort, or an excess of greed, fear and hubris.

  But mainly, entrepreneurs want their cake and eat it, too.  Once you accept an offer, you have to realize that it’s no longer your business and if you can’t see the forest through the trees then you are bound to fail.  If you can’t let go and become part of the new solution, you will be just as responsible in the death of your company.

  Financing, like M&A, requires a collaboration to succeed.  Failure in either, like a child, is a product of two parties.  With a better perspective, hopefully buyers and sellers can make M&A turn out to be more birth, than death.

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• Applications About To Close For Wayra London Incubator

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  Back in March giant telco Telefonica opened the latest addition to its growing global network of startup incubators dubbed “Wayra Academy”. Wayra is the latest incubator/accelerator in London, joining Springboard, Seedcamp and Innovation Warehouse.

  Now this is fair warning that the deadline for Wayra applications is about to close. So you better hurry.

  You can apply here.

  If you’re wondering what the deal is with this latest in a long line of new European incubators, then here’s how it’s set up:

  Telefonica takes around a 10% stake in a startup for up to €50,000 in funding, pocket change to a company their size. Wayra will put about 20 startups into its London building for six months, after which it will help them pitch for follow-on funding from other sources of venture capital. If after 6 months things are not working out I was told that Wayra will sell back their share of the company to the startup for €1. But check Ts & Cs I hazard. In exchange for all this Telefonica gets the right of first refusal on the companies. Clearly that provides some potential security in that you’ve basically got a potential buyer before you even start, but it’s not going to be very competitive if your startup gets a better offer from some other suitor. But if you’re a startup that needs to have a telecom partner at the off, this is a dream come true. Ultimately it plans to fund around 350 startups.

  I think it would be good to get these all places singing and humming in London, which, at least according to the Startup Genome project recently, now ranks behind Silicon Valley and New York in terms of startup activity.

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• A Sign Of The Hiring-pocalypse

  Hots News
  

  Oh San Francisco, has it really come to this?

  Are we now at the point where the disheveled men on street corners no longer ask for change, but rather developers? Apparently so.

  I walked out of the TechCrunch offices yesterday afternoon and passed this guy. He handed me a business card, cut out of cardboard with the URL fingg.com scrawled onto it in black Sharpie pen.

  “Find me a programmer and we’ll buy an island together,” he said.

  Sure. Okay.

  What is Fingg.com? I have no idea. But does it really matter?

  That guy’s cardboard sign is — well — a sign of the times.

  It’s a time when startups are competing against Google and Facebook offers of $150,000 in base salary for fresh computer science graduates. A time when any young person out of a decent engineering school seems to be able to raise $500,000. A time when the latest Y Combinator batch is attracting angel rounds with valuation caps that are north of $10 million. A time when a 13-person team can be acquired for $1 billion without any revenue in about 48 hours.

  It’s a time when investors and founders are bemoaning the fact that engineers are spread between too many companies, making it hard for any single startup to have the necessary critical mass of talent to break out.

  An entrepreneur-turned-venture investor told me over the weekend: Booms are the worst time to build a company.

  Only capital is cheap. Everything else is expensive — talent most of all.

  P.S. This dude also spelled “programmer” wrong and crossed it out. Probably intentionally.

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• CloudFlare Is In Talks to Raise Funding At Near A $1 Billion Valuation

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  CloudFlare, a San Francisco-based startup that protects web sites from security threats and speeds up their load times, has been in talks to raise funding at a valuation that is around $1 billion, according to multiple sources familiar with the discussions.

  Apparently on the back of the company’s growth, there was inbound interest during the last three to four months with at least one firm agreeing to north of a $1 billion valuation. A few other venture firms have given pushback, saying that a $1 billion post-money valuation is too high.

  The company itself says it has no need to raise funding, with the majority of its last $20 million round still in the bank. (And no, they didn’t plant this story because I heard about it through other backchannel chatter about Sand Hill deal flow.)

  “Cloudflare’s team is working to address some of the Internet’s hardest challenges. We’re literally building a faster, safer, smarter web,” the company’s chief executive Matthew Prince told me. “We’re in a fortunate position where we don’t need to raise capital and have no immediate plans to do so.”

  CloudFlare is Prince’s third company after two anti-spam startups. He’s probably one of the more degree-laden founders around with an MBA, a law degree and a background in computer science. CloudFlare was a runner-up to Qwiki at TechCrunch Disrupt back in late 2010.

  Why a $1 billion valuation? Here are the pros:

  CloudFlare piqued investor interest after a presentation the company gave at an Allen & Co. retreat for late-stage companies and potential long-term IPO candidates.

  It was the company’s growth numbers that had people talking. CloudFlare is serving more than 40 billion pageviews per month and is on track to do more pageviews than Yahoo by the end of the year (although this isn’t a direct comparison as I’ll explain later on).

  CloudFlare is adding about 30,000 customers per week, primarily through word of mouth. Publishers use CloudFlare to speed up their load times and fend off attacks. During Russia’s presidential elections last month, several news agencies and bloggers used CloudFlare to hold off DDOS (or distributed denial of service) attacks that would’ve taken them down while they published reports on voting irregularities.

  The most eye-catching slide in the deck was one that showed the time it took for different pioneering Internet companies to reach 400 million unique visitors. It took Google seven years to get there, 5 years and 7 months for Facebook to get there and 5 years and 2 months for Twitter to get there. CloudFlare got to this benchmark in 1 year and 3 months.

  The company has a mixed revenue model with paid services and advertising. Publishers can either use CloudFlare for free, or pay at least $20 a month for it. Then there’s a forthcoming enterprise plan that’s presumably more expensive for bigger sites.

  CloudFlare is also experimenting with serving advertising on error or 404 pages (the landing pages you end up on when you type in an incorrect URL). A little under 4 percent or about 1.5 billion pageviews in CloudFlare’s network are error pages. On these pages, they’ll show search ads that might redirect the user to where they really want to go. Since these are search ads and not display units, they would have a higher cost-per-click because they better match a user’s intent or are closer to a transaction point. Prince says there are several other publisher services and products that CloudFlare has yet to launch.

  And why not?

  Well, from what I hear (and Prince wouldn’t comment on this at all), is that the company did about $250,000 in revenue in 2011. This would be an extremely high trailing revenue multiple so it’s understandable why there are firms backing off at this valuation. Not that the lack of revenue has stopped anyone from valuing other companies at $1 billion if they have tens of millions of users and off-the-charts engagement metrics. Cough. Instagram. Cough. Pinterest.

  Also, it’s not a totally accurate comparison to run CloudFlare’s monthly pageviews against those of consumer-facing companies like Tumblr or Yahoo, since CloudFlare’s business relationship is with the publisher, not the end-consumer. In both good ways and bad ways, that affects CloudFlare’s monetization strategy. On the one hand, CloudFlare can actually charge users for its product. On the other hand, any advertising solution CloudFlare that comes up with would have to be attractive to its publisher clients. And publishers can be very finicky.

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• Dave McClure On What’s Next For 500 Startups [TCTV]

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  Today was a pretty big day for 500 Startups, the Silicon Valley seed venture capital firm and startup accelerator founded by outspoken tech investment extraordinaire Dave McClure. The firm disclosed in a regulatory filing that it’s halfway finished raising a brand new $50 million round of funding, the second in its two-year history and a significant step up from the $29 million investment that it raised in its first round. 500 Startups also named four new partners — Paul Singh, Christen O’Brien, Bedy Yang, and George Kellerman — who will help select and manage the more than 100 investments that the firm makes each year.

  So we were very happy to have McClure as a guest today on TechCrunch TV. Because of regulatory limitations on what companies can say while they’re in the process of raising funding, his hands were tied on lots of topics on the details of the new fund — but we were still able to get some great details from him on the future direction of 500 Startups and the venture funding world in general.

  Watch the video above to hear McClure’s thoughts on what some people call his “spray and pray” funding strategy, how being a “hillbilly from West Virginia” originally informs his instincts as an investor, why 500 Startups is so keen on international investments, what sector he’s especially excited about right now, and lots more.

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• With JOBS Act Becoming Law, Crowdfunding Platforms Look To Create Self-Regulatory Body

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  Today, President Obama signs the JOBS Act into law, legalizing crowdfunding in startups by non-accredited investors, so that anyone and their mother can invest. The new law stipulates that entrepreneurs can now raise money from any and all, however, startups are limited to $1 million per year, and must stick to portals approved by the Securities and Exchange Commission. What’s more, the legislation dispenses with the 500-shareholder rule, which put a limit on the number of shareholders a company was allowed before registering with the SEC (and going public).

  The new law gives high-growth companies a longer grace period, or on-ramp, leading up to IPOs, and lifts some of the one-size-fits all regulation that likely has been hampering the IPO market. While this is a big win for startups, it puts significant pressure on the crowdfunding market to self-regulate — which is risky. That’s why 13 equity and debt crowdfunding platforms and insiders have come together to form a leadership group to bring attention to the need — really, requirement — for the industry to develop effective self-regulation, best practices, and investor protection.

  As the JOBS Act requires all crowdfunding sites to be members of a national securities association, the group is on a mission to find the best way to do that in a way that encourages the new industry while protecting investors. The “leadership group” is to include members of the crowdfunding industry, (duh), who will be working in collaboration with legal, securities, and SEC experts — many of the same people who helped push the JOBS Act forward.

  According to the its statement, the leadership group will seek to “agree upon a set of principles as well as explore the development of a robust industry regulator.” The group will be collaborating with the SEC during its 9-month rule-making process that will enact the crowdfunding rules.

  The group aims to create principles to:

  Establish strong protections for investors in the form of an Investor’s Bill of Rights, including tests to assess investors understanding of risk, criminal background checks on issuers, and adequate disclosures by issuers; Ensure confidentiality of investors’ personal financial information; Ensure that investors do not exceed statutory investment limits, by implementing standardized reporting and communication among platforms; Establish standard communication processes for transparent flow of information between the issuer, the investor, the intermediary and the regulatory agency; Develop a code of conduct for crowdfunding platforms, with enforcement mechanisms to punish bad actors; Create a recognizable brand common to trustworthy intermediaries (akin to VeriSign or BBB).

  In the end, it’s all about implementation, and how effectively these principles can be established and protected on the wild and woolly web that’s seen its fair share of fraud. Plus, a cynic might raise an eyebrow at asking the very platforms that stand to gain financially by an explosion of crowdfunding to police themselves. That being said, this is an important step for the crowdfunding industry to take — as long as it’s not simply for show.

  The passage of the JOBS Act is a veritable miracle, in the sense both parties’ political interests actually aligned. It seemed for once it behooved them to dispense with the typical partisan tomfoolery, and send a message to their constituencies (in an election year, by the way) that they are taking the necessary steps to create jobs. By starting work right away on regulation that protects investors and enables a strong crowdfunding market, the group is demonstrating a willingness to work with the SEC for the good of mom and pop investors and to take self-regulation seriously.

  Crowdsourcing.org, a neutral professional association and industry resource that offers news, articles, videos, and site information on all things crowdsourcing and crowdfunding, has established the Crowdfunding Accreditation for Platform Standards (CAPS) program to create standards for crowdfunding operations, and while the industry creates self-regulatory frameworks, CAPS has been designed to govern the accreditation of crowdfunding platforms.

  With more than 400 crowdfunding platforms already operating in January 2012, and a new wave of sites likely to launch in the wake of Obama’s approval, the initiative to establish accreditation criteria — in collaboration with the SEC — to ensure crowdfunding platforms adequately protect fundraisers and investors is essential. Council member and founder of Crowdsourcing.org, Carl Esposti, said that more than 200 crowdfunding platforms are expected to apply for accreditation in 2012.

  The leadership group’s goal is to use CAPS criteria as a way to mandates for SEC approval, along with building a united voice that can work carefully and quickly to launch equity crowdfunding in the U.S. so entrepreneurs can innovate and create new jobs, Esposti said. [The leadership group includes, thus far, CAPS, Crowdfunder, Funding Roadmap, Gate Technology, Indiegogo, Launcht, Motaavi, RocketHub, and more.]

  There is no doubt that the JOBS Act can have a big effect on later-stage startups on the path to IPO. When asked about the potential consequences, Rally Software CEO Tim Miller told us:

  “Before the JOBS Act, emerging growth companies were subject to the same stringent regulatory rules as multi-billion dollar corporations like Apple. The JOBS Act will loosen some of these requirements on emerging growth companies, creating a more vibrant and diverse IPO market and allowing companies like Rally to reinvest the money they would have spent on regulatory filings back into jobs.”

  There are likely very few entrepreneurs who would disagree, but that deregulation has to be managed very carefully, or the industry will be in for a very bumpy ride. CAPS and a crowdfunding leadership group doesn’t sound like a bad place to start.

  What do you think?

  More on CAPS here.

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• Greylock-Backed Citrus Lane Helps Parents Discover ‘Best Of’ Products For Little Ones

  Hots News
  

  The dawn of subscription commerce has spawned a number of startups in technology including BirchBox, Kiwi Crate, Babbaco and many others. Citrus Lane is one of the latest startups to tackle the model, which sends a box of kiddie goodies to members each month. The startup is focused on parents as the client, and aims to help moms and dads discover interesting and ‘Best Of’ products for those expecting babies, as well as for newborns to three-year-olds.

  Each month, Citrus Lane will send parents a box filled with user-tested and vetted toys and products for babies and toddlers. Each month has a theme. So for example, March’s theme for the baby box was “Dining Out With Baby,” and included snack cases, a sippy cup, apple crisps and baby food. The startup prides itself on delivering organic and natural products.

  Citrus Lane even offers a box for expectant parents, which includes swaddle blankets, newborn skin balm, body wash, a gift card to Minted for baby announcements, a tin that allows you to take a print of your baby’s first hand or footprint and a rattle; as well as for newly pregnant women.

  Each box comes with a pamphlet explaining the origin of each product, and where the product can be bought and price, as well as tips on how to use the item. The box is $25 a month or members can order 6 months for $125, or a year of boxes for $250.

  The startup’s founders Mauria Finley and Claire Hough tell me that finding and curating interesting and engaging products for kids is a process that repeats itself in every step of a child’s life. Parents inherently want to be savvy about choosing the best products for their newborns, babies and toddlers to interact with but it can be a challenge to actually find these, vetted products. Citrus Lane solves this problem. “The brand itself is about helping you discover products,” says Finley. And the startup has a parent advisory board to research and test all products.

  The company also raised an undisclosed amount of funding from Greylock Partners last year.

  Discovery and curation is a key part of the success and appeal of the subscription commerce model. And bringing this experience to a parent who is actively looking for ‘Best Of’ products for their young children could be a winning formula. Most of these recommendations have come through word of mouth. As a soon to be parent myself, I have absolutely no clue where to start looking for the best swaddlers, baby moisturizer, toys and more. And we know time is a premium for parents of small children. For any new parent, Citrus Lane is worth a look.

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• Hitting It Big In The Enterprise

  Hots News
  

  Editor’s Note: Alexander Haislip is a marketing executive with cloud-based server automation startup ScaleXtreme and the author of Essentials of Venture Capital.

  Silicon Valley is its own best friend when it comes to booking sales. The first dollar in the door for most startups comes from another startup. That’s because startups are always seeking a competitive edge, they can make purchasing decisions fast and are willing to accept the risk of buying from another small company. It works great for most companies in most tech verticals most of the time.

  But it also induces market myopia. Selling solutions only to startups slows your growth by limiting your addressable market. That may not seem like a problem if you’ve got customers like Zynga, but even the most amazing and fast-growing startups have but a fraction of the budget of big established corporations outside of Silicon Valley.

  Waiting for your startups customers to get big is not a viable growth strategy. If you truly want to hit the accelerator, you have to sell to big, established corporations—especially the ones outside of the Valley.

  Big Desires

  That’s hard work. It requires a lot of traveling and a lot of listening. Big corporations aren’t particularly good at explaining specifically what they want and the individual requirements will vary from industry to industry. But each potential enterprise customer expects two things from a Silicon Valley startup: a path to the future and a solution for the here and now.

  Consider the market for computing power. Each big buyer we talk to wants to start using public cloud computing. They cite some of the regular reasons you’d expect to hear: Flexibility, self-service, cost. Everybody knows the benefits. But they’re acutely aware of the costs. For them, innovation comes at the cost of management complexity. Considering the public cloud? Better begin reading SLAs and start looking for a VP of Cloud to run the thing. Then there’s the issue of making sure the public cloud can work in tandem with the physical servers and virtual machines.

  Big buyers need ways to harvest the benefits of new technology while incorporating them into their existing IT portfolios. They don’t have the startup’s luxury of building from a blank slate and they’re not about to rip out their old server farms to rush to the public cloud or chuck their Dell desktops in favor of iPads. Enterprise IT doesn’t begin and end with the launch of an EC2 instance.

  The juiciest accounts with the deepest pockets face tradeoffs, looking to optimize their infrastructure for certain parameters and picking a portfolio of technologies to get them to their goals. Physical servers, virtual machines, public cloud instances—they each have a role to play and the potential benefits have to be weighed against both the actual costs and the attendant complexity and management costs.

  The public cloud is going mainstream inside big companies because it can show both how it can help and how it can be managed as part of a bigger compute portfolio. Startups should take note: No matter how exciting your future vision, you’ll only win enterprise accounts when you can easily fit into the existing IT infrastructure and start solving problems immediately. You have to align your startup selling cycle with the enterprise IT “need cycle.”

  The Big Easy

  The best part about going after big customers outside the Silicon Valley echo chamber is that it’s easier than ever. SaaS, elastic compute, freemium, agile development—all change the way big companies buy what startups sell. An enterprise sale can start small, with a few installations or even a single user. Growth can be explosive once you’ve connected with the right people inside of a business and they start getting value. They’ll give you great insights and sell your product for you.

  To be sure, not every large organization is comfortable with this new model. Many IT managers remain mired in the old model of enterprise sales called “big game hunting.” They expect to be hit by a dozen suited salesmen that make ridiculous promises (the “Every-time Always Say Yes” strategy). They’re still looking for lengthy contracts fraught with opportunities to upsell consulting, training and integration. They still perceive the cost of even considering an enterprise IT buy substantial. It’s just what they’re used to.

  But over the past decade the economics of the business have changed. It used to be that the price of complexity, management and commitment required for an enterprise sale was high, so the quantity of sales was low. Today, the price of trying things out and getting them to work together is much, much lower. The quantity of sales must go up. Self-provisioning, easy-to-use, pay-as-you-go applications and infrastructure may not make enterprise IT sexy, but they do enable startups that can offer immediate solutions to companies beyond the borders of the Valley to see some big returns.

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