Sand Hill road-trip: A day with the VCs behind the network industry

As we embarked upon our whirlwind visit with venture capitalists in Silicon Valley one day earlier this month, our first two meetings started in nearly identical fashion. Receptionists cordially ushered us into window-encased boardrooms, then quizzed us about our projector system needs. The assumption seemed to be: You're here to pitch our partners on an idea for a new company, right?

Actually, our intention was roughly the opposite. We were there to get the VCs to pitch us on their view of the enterprise network scene and to give us a feel for where they are placing their bets.

The upshot, based on our visit with five investors, is that despite the dominance of vendors such as Cisco and Microsoft, plenty of money is available for creative enterprise network start-ups. The VCs said they are increasingly thinking globally, especially about China, and are aggressively seeking to discover entrepreneurs who can provide true industry leadership. Meanwhile, they're trying to be cautious not to overfund areas, such as search, and not overlook seemingly passé areas, such as carrier services.

To continue reading, register here and become an Insider. You'll get free access to premium content from CIO, Computerworld, CSO, InfoWorld, and Network World. See more Insider content or sign in.

As we embarked upon our whirlwind visit with venture capitalists in Silicon Valley one day earlier this month, our first two meetings started in nearly identical fashion. Receptionists cordially ushered us into window-encased boardrooms, then quizzed us about our projector system needs. The assumption seemed to be: You're here to pitch our partners on an idea for a new company, right?

Actually, our intention was roughly the opposite. We were there to get the VCs to pitch us on their view of the enterprise network scene and to give us a feel for where they are placing their bets.

The upshot, based on our visit with five investors, is that despite the dominance of vendors such as Cisco and Microsoft, plenty of money is available for creative enterprise network start-ups. The VCs said they are increasingly thinking globally, especially about China, and are aggressively seeking to discover entrepreneurs who can provide true industry leadership. Meanwhile, they're trying to be cautious not to overfund areas, such as search, and not overlook seemingly passé areas, such as carrier services.

We made our first stop at Lightspeed Venture Partners in Menlo Park, where we met with Barry Eggers, a general partner who oversaw acquisitions and other projects at Cisco before becoming a venture capitalist in 1997.

Eggers said that the mood these days on Sand Hill Rd., a mecca for venture investors, "is optimistic -- without caution -- that things are coming back. Overall, it seems like companies are willing to do business with start-ups again."

This has particularly been true with carriers over the past 12 to 18 months, said Eggers, whose investments include Ellacoya Networks, a company that sells products designed to help service providers make the most of their broadband offerings. Although making investments in actual service provider start-ups has been more or less taboo since a rash of CLECs went under a few years back, Eggers says that certain types of service providers might even warrant a fresh look if they can figure out "how to turn dumb pipes into smart pipes." But he said it is challenging to figure out how to make money on services such as VoIP since the success of offerings like those from Vonage basically come down to spending marketing dollars. "It's tough to compete on that front with the AT&Ts of the world," he said.

Eggers says his company rounds up CIOs and other IT pros to peek at new companies, and among the most sought-after technologies are those for getting more out of the low-cost server platforms upon which companies are building their data centers. "Now it's all about managing all that and billing for it and providing quality of service." He teased us about a stealthy investment of Lightspeed's called ScaleMP that is building SMP systems from off-the-shelf hardware.

Like many of the other investors we were to meet with that day, Eggers also said start-ups have a great opportunity in making applications run better across the WAN as companies re-centralize their networks and seek to deliver full-fledged apps to remote workers.