Frank Artale is new to the venture capital business, so maybe he didn’t get the memo. After all, most VCs take off the month of August to travel, play golf or get some needed R&R? But not Artale. So far this month, the newest member of the Ignition Partners team has invested in three new deals. (Couchbase, AppFog and Apprenda).
“It is kind of funny. I do notice that most of my trading partners are on vacation. First weeks of July, first weeks of August they are gone,” Artale tells GeekWire. “So, yeah, they didn’t give me the memo.”
But it’s not just a summer thing.
Since joining Ignition in March, Artale has invested in half a dozen companies. It is part of a blistering investment pace at the Bellevue venture capital firm this year, with no fewer than 17 new deals.
Many of those new companies are based in the San Francisco Bay Area and being driven by Artale who has contacts there from his days working at Citrix, XenSource and HP.
“These are companies that I’ve been involved with for a long time, so none of these are really new,” he says.
While Artale says that Ignition wants to back the best deals no matter where they are located, he’s also committed to spending more time with early-stage Seattle area startups in the coming months.
“I’ll overweight Seattle deals. I will spend more time with a potential Seattle deal than I will elsewhere,” he said. “I’d love to figure out a way to encourage more entrepreneurship.”
Here’s more from our chat with Artale in which he discusses everything from Microsoft’s position in cloud computing to what makes a thriving innovation hub.
Why are you so active with new investments? “What we do in the venture community is look for patterns. Right now, the pattern that I see is one that I’ve lived through before. And to me, it feels a lot like the early 90s when the transition was made from simply desktop computers sitting in individual islands …. to the client-server and the first Web app service. We are really in that situation right now with the new platform and new servers, if you will, being public, hybrid and private clouds.”
What else has you excited? “The addition, if you will, of unstructured data — in addition to relational data — and the need to analyze it, access it and distribute it is like nothing that has happened in the past…. Every time someone does a ‘like’ on Facebook or every time a text message is sent, these are all forms of unstructured data. The databases … to house these things are basically brand new…. So, you have a platform change, you have a deployment style change and you have data change and there are new companies that are being built as we speak with tremendous momentum.”
Why is cloud computing taking off right now in your opinion? “It is not just a hobbyist type of thing put together by integrators anymore. What has happened in the past two years is that real companies have sprung up — companies of size — that are the cloud companies. Amazon AWS, RackSpace, Verizon Terremark, Microsoft Azure. All of these things now are things of size, and the grass roots guys are telling their bosses: ‘Yeah, of course, we are using it.’ That’s when momentum picks up and things take a life of its own.”
You are an ex-Microsoft VP and some of the companies you are backing have connections to Microsoft, either as a disruptor or as a potential partner. Are you looking at companies that play nice with them? “Microsoft is a company I know really well, and I have an awful lot of friends there. When I look at a company that is Microsoft related, I am definitely looking at something that is complementary and it has the ability to go and partner with Microsoft. I’ve never made an investment decision where I am going to go invest in something that is a destructive force on Microsoft.”
Examples of how your companies work with Microsoft? “I do look for areas of strong partnerships. Blue Stacks is an interesting one because it gives enterprise developers the ability to develop on Android …. and then deploy to Windows, taking advantage of the big installed base. … Another seed company that we invested in, called AppHarbor, is sort of like a push-button Heroku stylized way to deploy .Net applications on Amazon. That could be viewed in some ways as disruptive because it doesn’t run on Azure, but it is promoting the .NET framework and the .NET stylized languages. So, we always look for those partnerships.”
Given your time at Microsoft and past work for XenSource, how do you think Microsoft is positioned right now in terms of cloud computing? “You look at the people who are involved and they are people that I respect and trust. But they are still coming — and they will admit this — that they are in catch-up mode. But when you listen to the statements of the executives, guys like Satya Nadella, you see an absolute commitment and dedication to the success of this. And a willingness to invest and a willingness to partner in ways that I have not seen from Microsoft in the past. There’s still time to see how this plays out from a technology perspective.”
There’s a lot of talk about a bubble forming around consumer Internet companies. Are you seeing that in the back-end infrastructure companies that you back? “We are not seeing the multi hundred million dollar valuations in the companies that I am backing. They are in the tens (of millions). They are more rational. There has been valuation expansion in the last two years, but it is not crazy like it is on the consumer side, thankfully.”
On why he doesn’t like the term bubble: “When people associate bubble — you know the one that you and I lived through in the late 90s — keep in mind that things were a bit different then. And one of the big differences was that a lot of the Internet companies had a lot of (capital expenditures) to go spend. You had an awful lot of stuff to buy. I was at Microsoft then and I actually went to work Veritas Software at the time, and I was just amazed at the spend from these dot-com companies were doing, buying massive Sun servers and things like that. Now, you go and look at even a consumer company or any sort of SAAS company, like one of my companies ScaleXtreme, and there’s almost no cap ex spending. These companies can run very lean for a long time on their capital. They don’t have to go and raise tons and tons of money, and that’s a big difference from what we saw in the late 90s.”
What are you seeing in Seattle when it comes to new cloud computing startups? “As the people who are working on things like Amazon AWS and Windows Azure and systems management and the mature enterprise software things, as people have strong ideas and as those companies get bigger and have trouble, let’s just say, getting these thoughts to market, you start seeing people emerge with those ideas. And then you couple those folks with second or third generation entrepreneurs — that we do have in the area. That just takes time to get that rolling.”
How’s the deal flow from Seattle entrepreneurs? “Let’s just say, I’ve seen a marked uptick in the amount of LinkedIn requests and requests for cups of coffee that people want to buy me, people that are currently working at large-cap companies. I could have a cup of coffee probably bought every hour for the next few weeks.”
On why it’s important for big companies to work with small companies: “It does take people to leave their current posts at those companies and people who know how to work with those companies who come out and do that kind of innovation. What you will largely see is what’s called the parent company or the mothership willing to accept that kind of innovation coming back. In the Valley, Cisco has done an amazing job of that. And, I think one of the responsibilities that the venture community has here in the Northwest, is to encourage that kind of circle of innovation that has happened in the Valley.”
Ignition has done a lot of deals outside the Seattle area this year. Can you talk about that strategy since the firm started more as a regional player? “First of all, you have a responsibility to limited partners to generate the best return possible. And if our expertise aligns with a company in London or Texas or Santa Clara or Portland or New York or Seattle — we align our skills with where the companies are starting. We are not a heavy life science investor, and there’s a lot of life science here in the Seattle area. It is not a strategic thing…. We are going to invest where the best deals are. We are a national firm. That being said, we will spend more time with entrepreneurs and developing a deal where they are investment-grade, not just by Ignition but also with strong syndication partners from outside the area. Me personally, I’ll spend more time developing something that is a Seattle area deal.”
What’s missing here in Seattle? “It does require the second and third generation entrepreneurs coupling up with the guys coming out of large caps with good ideas. Part of our job is to go and encourage that. And, maybe as a venture community in general in the Seattle area, we haven’t done enough of that. I spend a lot of time in the Valley and I see how the Valley firms work with their large cap companies there, and we need to do more of that with the local entrepreneurs.”