Hospital Corners

As the chill of the winter solstice creeps into our homes, am I the only one who likes to gather up the blanket around my body for warmth? We all shift positions at night, and I know that as my limbs wander, I need my down-feathered companion to effortlessly move with me. So who, then, was the demented Nazi that invented hospital corners?

Surely the evil goddess Insomnia herself cursed us mortals with those tightly tucked in corners that pin us down for the count, relentlessly pressing down upon our toes. And just as clearly, she has charged her minions in Hotel Housekeeping to prosecute the nightly terror. Euphemistically deemed a “turn-down service”, their mission is to (i) maximize tension in the sheets just prior to bedtime; (ii) heap layers of heavy bedcovers upon the real estate designated for our feet—defying us to handle the germy, never-been-washed bedspread ourselves; and (iii) deposit tasty (but caffeinated!) chocolate on our nightstands to pharmaceutically reinforce wakefulness.

What else is there to do but squeeze into bed and try to kick the quilted bed-weight off with our feet, racing to find some mobility in there before the maids’ handiwork crushes our lungs? And then the hardest part: wedging my whole body down as far as I can go for maximum leverage so I can execute the leg press of my life to separate the top sheet from those damned hospital corners. It’s actually a good workout, though I often fear that my femurs will snap in the process. “Did you break your leg skiing?” they will ask, and I will answer, No, I was subdued by linen.

Can technology save us? I have developed an extensive road map around this investment hypothesis but I have yet to encounter any new technology powerful enough to overcome the hospital corner. Not even a web2.0 travel site that ranks hotels for Flexible Bedding.

No, like any terrible plague, hospital corners can only be remediated through prayer. So please join me in this bedtime hymn…

“Oh merciful and all-cheesy Flying Spaghetti Monster!
Tonight, on the longest night of the year, your noodly children
beseech you to deliver us from Insomnia’s paralyzing clutches.”

Amen, and good night.

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SaaSy Security Suits SMB

In 2006, even as overall venture investing in the U.S. expanded 12% over 2005, venture investment in security startups that year plummeted more than 50% (Venture Source). It’s no secret that too many "best-of-breed" startups are chasing the ever more elusive enterprise IT security budget. And while hackers have shifted their sights to the juicier consumer segment--selling private credentials to ID thieves and renting bots to spammers--IT departments have resolved that their checklist of must-have security products is long enough. They no longer crave super-duper startup technology, turning instead to the large vendors (Symantec, McAfee, Cisco...) for integration, vendor viability, and security that's, well, good enough. A few pioneers like Arcsight and Tripwire have reached critical mass in the large enterprise market, but the majority of security startups today struggle to sustain field sales reps with less than a million dollars a month in sales. Now that the VCs have turned off the fuel tap, these babies just won't make it off the runway.

So why did my partners at Bessemer just last month let me cut the biggest check of my career ($24 million) in another business IT security company?

According to surveys conducted by the Computer Security Instiutute (CSI), employees of large corporations naturally enjoy far more extensive levels of information security than in businesses with fewer than 1,000 employees. Not only are the corporate PCs more rigorously updated with anti-spyware signatures, but IT locks them down inside a fortress of intrusion prevention systems, application firewalls, policy compliance agents, encrypted SANs, vulnerability scanners, VPNs, etc. Obviously, it takes a large IT shop to assess, integrate, deploy and manage that kind of infrastructure--the kind you don't find in a 200-person medical clinic.

And yet small and medium sized businesses (SMB's) own the majority of business PCs, inviting computer parasites that thrive in vulnerable hosts, armed with admin privileges! Doesn't it bother the SMB owners that they spoil internet hygiene for everyone?

Perhaps not, but contrary to what many believe, SMBs understand full well that they face the same risks and regulations as large corporations. In fact, the CSI survey included a surprising result: even though small businesses lack the IT resources to deploy most security technologies, they spend as much as 8 times what the Fortune 5000 spend for security per capita! I suppose it's because their product choices are limited by their VARs, and each invoice they pay represents a tiny fraction of the vendor's revenue, so SMBs enjoy no pricing leverage at all. Furthermore, the "scalable" appliances they buy (designed for 10,000 Citibank employees) don't amortize well over a law
firm's 300 PCs.

This unmet market need represents an enormous opportunity for the new generation of security companies developing on-demand solutions, or Software-as-a-Service (SaaS). Instead of deploying their own servers and infrastructure, SMBs can now subscribe to security solutions priced by the drink (so we can buy a quart of milk instead of the cow). The simpler deployment alllows SaaS vendors to replace their field reps with web and telephone sales, so now they can afford to sell smaller accounts.

Indeed, the first generation of security SaaS has fared remarkably well, and I've been fortunate to participate as an investor: Verisign's SSL business trounced Entrust, and Postini (now Google, as of yesterday) thrived in the densely crowded spam filter market. Qualys leads the market for vulnerability assessment, and Cyota quickly dominated the banking security sector (before RSA bought it). Counterpane pioneered security monitoring, but performed only moderately well because we focused on high end security instead of easy and affordable deployment. Meanwhile, several security SaaS winners I didn't fund, like Websense and Riptech, now populate my anti-portfolio of lost opportunities.

Unfortunately, I don't think we'll see too many more winners, because consolidation will come and go faster this time around. Even more than large corporations, SMBs will gravitate toward suites, rather than hire IT resources to buy subscriptions and manage portals from multiple vendors (Who Has Time For This?). They won't be easily sold on whiz-bang novelty.

That's why the vendor(s) who can integrate security services from soup to nuts will ultimately dominate the SMB security market. The winner(s) will pay once to acquire a customer but sell multiple services, pushing down sales costs as well as prices. Meanwhile, the incumbents (Symantec, Cisco...) are stuck in the licensed software world, and they can't patiently invest in building recurring revenue streams when Wall Street values them at normal software multiples (In his most recent earnings call Larry Ellison proclaimed that he can't justify investment in a SaaS business given the lower up-front margins.) So the field is open for new entrants to integrate on-demand services for SMBs who want a single portal to manage their security.

Of course, no single company can develop a winning product in every category, and so the winner(s) will have to grow through acquisition, following in Symantec's footsteps. The early favorite in this race is my latest investment, Perimeter eSecurity. Slowly and surely, Perimeter has acquired and integrated nine SaaS companies, fully integrating a portfolio of over 50 services that the Company supplies to several thousand businesses. Their portal manages AV, anti-spyware, spam filters, content filters, VPNs, firewalls, application firewalls, IDS, IPS, remote backup, email archiving, Exchange hosting with encrypted web access, vulnerability assessment, monitoring, and many other services. Nothing else out there comes close, and customers like it. Perimeter's own organic growth has financed the acquisitions--all except the last one, USA.Net, creating the opportunity for Bessemer and Goldman Sachs to invest.

Whether or not this particular bet pays off, SaaS promises a major disruption for the industry and its investors. Starting new companies to develop more and more advanced technology will never solve the security problems of our local accountants, banks and realtors. The internet remains woefully insecure--not because our technology is insufficiently advanced, but because it's insufficiently deployed.

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There Once Was A Founder Named Scott

I've been asked three times now for the text of my toast at last night's closing dinner for the Postini/Google deal. Here it is (the heroes mentioned in this ballad are founder Scott Petry, CEO Quentin Gallivan, board director Ryan Mcintyre, and lead investor John Johnston):

There once was a founder named Scott
Who invented a messaging bot
That filtered out spam--
be it virus or scam--
Now we never get spam (not a lot).

John, who led us with class,
Thought a quick IPO would be crass.
But Cowan kept cryin'
To Quentin and Ryan
Which gave John a pain in the ass.

For spam and archive retrieval
Google came, and caused upheaval!
Are we now Googlini,
Postoogle, Gostini?
All they told us is just: Don't Be Evil.

Congratulations and thanks to the Postini team for executing so well and for inviting Bessemer to be a partner in your business.

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A Carbon Footprint Reduction Plan

Today, my partners and I announced an extensive plan to:

• offset 100 percent of our firm's estimated 728 tons of carbon-dioxide equivalent emissions beginning this year;
• to purchase offsets for our young portfolio companies (the dozen or so with 15 or fewer employees, and probably 3 to 5 more startups each year); and
• to reduce our total carbon emissions 25 percent by 2013 (and continue to purchase carbon credits to offset the balance).

We follow in the tradition of our namesake, Sir Henry Bessemer, whose inventive process dramatically reduced both the carbon and the energy required to refine steel. The culture and values of a business most often take root early in its life cycle, so we will instill environmental awareness in startups at the time of inception. Our goal is to fund a new generation of companies committed to constructive carbon policies that reduce the harmful emissions which cause global warming. And our hope is that other investment firms will follow suit.

Justin Label (head of Bessemer's CleanTech practice):
 

"While we have set aggressive targets, we also recognize that energy is critical to the economy and that for the foreseeable future, most energy will have a carbon footprint. Therefore, being 'carbon neutral' is not our ultimate goal. Rather, we hope this initiative will serve as a way to stay engaged on carbon issues and add to the pool of capital available for creative solutions."

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Vimo's TV campaign

with real customer testimonials...

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Scratching the Surface at Microsoft

This morning I got to play with a prototype unit of Microsoft Surface. The new gadget addicts among you have already seen videos of it, featuring families and friends seamlessly sharing their digital content across cameras and phones. The concept intrigues, but the actual experience exceeded my expectations, in a Wow-I-Want-This! kind of way.

Infra-red cameras beneath the Surface track physical objects like fingers, mobile devices, paint brushes and "optical tags," so Surface can engage the user in new kinds of applications with physical movements and objects. But more importantly, those applications can be used by more than one person at the same time, enabling a level of collaboration and play that, psychologically, cannot be achieved through separate networked computers. For example, the paint program and the photo manager accommodate simultaneous actions on different parts of the Surface. I imagined an implementation of Flock on Surface where users branch off the same page in different directions, sliding their discoveries back and forth. The most fun example of a physically collaborative app was the video jigsaw puzzle, enabled by marked lucite tiles that trigger videos beneath them for assembly into a single image. Two of us worked together to identify the right position, orientation, and side of each piece (when the tile is on the wrong side, the video snippet is reversed).



I can also attest that the Surface handily withstands Coke spills. (What can I say? I was feeling naughty.)

The platform obviously does have challenges to overcome, such as initial manufacturing cost, security friction in pairing mobile devices to it, an immature developer community, and the lack of power outlets in the middle of our living room floors. But the Microsoft folks seem to have lined up enough retail and hotel partners to nurse the baby platform through its early growing pains. By Q4 next year, you'll have seen units deployed in public places (and, with any luck, my family room).

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How I Lost 160 Pounds

Yesterday I was free of Earth's gravity for 8 full minutes aboard G-Force 1, the airline of X-Prize founder Peter Diamandis that induces weightlessness through parabolic flight. Parabolic flights have been used for decades to train astronauts (and shoot film scenes like in Apollo 13), and G-Force has recently completed its 100th flight (an important milestone for me as I assessed the risk of this adventure).

Esther Dyson, an active supporter of commercial space filght and an investor in the business, had recruited Second Life founder Phil Rosedale and VC Chris Hadsell to try out this experience, and Chris in turn recruited me. I figured that if Stephen Hawking could do it, so can I. Still, I was quite anxious leading up to the flight, certain that I would spark a puke fest on board--but a single dose of scopalamine completely warded off the nausea. (Warning: scopalamine is also a truth serum, so never operate a blog while medicated!)

G-Force 1 is a hollowed out 727-200 with a re-inforced steel frame, cushy mats along the bottom, no windows, and 30 seats way in the back. After a brief training video, we boarded the aircraft and 15 minutes after taking off we reached air space off the coast where the FAA allows G-Force to swoop up and down like a roller coaster.

For the climbs, we lay down still on the mats, barely able to lift our limbs as the plane's acceleration exerted 1.8g on our bodies. I found the feeling quite restful--not unlike being pinned down by my kids sleeping on top of me. As the plane started to crest the first time, the pilots followed a course that induced "Martian gravity", or 1/3 Earth gravity. For the next 30 seconds, we all performed stunts like one-armed push-ups.

As Peter called out "Feet Down" we all found a place on the mat for the next climb. the next two parabolas were shaped to induce lunar gravity, or 1/6 that of Earth's. During these episodes we easily pushed ourselves to a standing position with our fingers, and leapt through the cabin like gold medal gymnasts.

The next dozen parabolas all simulated zero gravity. For the first one we simply enjoyed the serenity of floating. In the second parabola we released M&Ms in the air and floated around trying to catch them. Another time we squeezed globs of water out of our bottles, and watched them float around--some of them into our mouths--like levitating soap bubbles. Once we played catch--with other passengers, who curled up into balls as we tossed them through the cabin. Once I launched off the bulkhead to fly like Superman through the cabin, and another time I just sat on the ceiling. I completed a full circle by crawling up the walls and over the ceiling, and I accomplished a quintuple somersault in the air. And each time we heard "Feet Down" we'd play a variation of musical chairs, scrambling for floor space before gravity kicked in.

The afternoon was thrilling and eye-opening. I had the chance to experience something I had only dreamed of, and without the risk of a rocket launch. It was fun, pure and simple, and I highly recommend you try it.

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