Interview with Steve Herrod – General Catalyst Partners

General Catalyst PartnersGeneral Catalyst Partners, Interview with Steve Herrod
Date: 16 February 2015
General Catalyst Partners Crunchbase profile

Recently I had the great honor and pleasure to speak with Steve Herrod, managing director at General Catalyst partners. Before entering the VC world, Steve enjoyed an impressive 12-year long career at VMware where he held various technical leadership roles and left as CTO.

I had a very forthright talk with Steve, no marketing speak or any rehearsed answers. To reflect the open nature of our chat, I left the transcription largely un-edited.

Steve-HerrodI spoke to Steve about developments in the market and his investmentfocus at General Catalyst partners. Specifically we discussed the trend towards Mobile, Mobile payment and the increased scarcity in developer talent.

WTH:Hi Steve!
SH:Hi Willem, How are you?

WTH:Good! Thanks for making time. I recently heard you are a great beer lover. West Vleteren is your favorite, if I am not mistaken?
SH:I drink a lot of Belgian beer. That is for sure.

WTH:I have the same vice. I love it.
SH:We have a great place out here in Palo Alto. If you are here again you should try it. All they stock is Belgian Ale.

WTH:The first time I went to San Francisco was in 2009. To my great surprise I could choose three types of Duvel from draught. One of which was taken to market much later in Holland, but I drank it the first time in San Francisco.
SH:There you go. Are you getting out here very often? Or are you pretty much there most of the time?

WTH:I’m mostly here in Europe. But we expect to do much more travelling from now on. We are becoming bigger right now with more clients from San Francisco and the Bay Area.
SH:If you are here again it would be fun to meet in person.

WTH:Thanks, we will do that at the Palo Alto bar then. I would love that. You are based in Palo Alto? You live there as well?
SH:Yes, I’m based in Palo Alto. I live and work here. Most of the start-ups that I’m working with are in this area. But obviously there are some interesting ones surround the world as well.

On his move from VMware to General Catalyst Partners

WTH:It has been more than twelve years that you have worked for VMware right?
SH:I have worked at the company before it was a company, in Stanford. Then I did another start-up, and I was there for almost twelve years. Just over a year ago I joined a Venture Capitalist.

WTH:I think many people were surprised when you made that move. How did people around you react?
SH:There have been mixed reactions and a lot of questions. I have been thinking about it for a long time but I definitely had a theory that not enough investors have the engineering background that you get in a CTO role. I felt it was the perfect time to have a different approach to investing. So far things are good.

A lot of start-ups have looked for someone with a different background from other VCs. A lot of people try to build very technical enterprise IT companies. Having been a CTO at VMware; it has prepared me perfectly for finding and helping these next really cool companies that they are building out here.

WTH:Lots of start-ups in Sillicon Valley started as internal projects at VMware that you helped along the way, right?
SH:It has been really amazing. Obviously you know many of the companies yourself. VMware has created this giant ecosystem. PernixData, Bracket Computing, Illumio, Nuova Systems, these companies are founded from what has already been there.

WTH:Of the top of my head I am thinking Platform9, Hillview Technologies.
SH:There are literally hundreds of great teams that are attacking nasty problems. In a lot of them, I am very interested.

Move to Mobile

WTH:I loved the interview you did with The Cloudcast guys, they asked you for the most significant developments. One thing you indicated was the move enterprise companies are making to mobile.
SH:: I really think, Willem, people have not totally grasped the idea. I spend a lot of time with LinkedIn, Facebook and SalesForce. The transformation they made is amazing. They pivoted from a 100% webcompany to a mobile company. I think right now there are many good reasons why enterprises are going to be making the big shift.

One is that consumer expectations definitely crossed the chasm. It is unacceptable now to have these terrible apps, so there is just demand for 100% mobile apps. People will go elsewhere; they go use dropbox or something else if they don’t like what IT does.

Second, it is actually far easier to build for mobile platforms now as well. There is far less diversity than forty years ago: there is really two platforms where you have to worry about.

WTH:IOS and Android.
SH:IOS and Android that’s it. If you are really focused on those two you are going to be fine. The skill sets really caught up well, there are Objective C or Swift classes wherever you go, companies are retraining Java programmers to Android programmers.

I see everywhere that people are building API’s for the first time and I’m really heavily interested in API build-outs for companies. It is the core engine that is going to allow the creation of mobile applications, but also allowing a more diverse set of people accessing that critical asset that companies have. So I’m helping to build their API’s for the first time, and thinking about that is kind of the fuel for next generations of applications.

WTH:Regarding this whole move to mobile, what are some of the most striking applications in your mind?
SH:Well I think it starts with just the way people are working. It starts with the experience of accessing key data and applications wherever you are. My focus is on big companies, but I also have quite a bit of interest in smaller and medium sized businesses. These aren’t techy businesses, like you and I are in, but the core businesses out there. I’m part owner of a café. If you think about how workers that work in a café work, they don’t have sit down desks.

WTH:Did you say you were partner in a café? Is it the one in Palo Alto?
SH:(laughing)Yes it is. Belgian Ale and Italian Coffee. The point with smaller companies; their workers don’t have a place where to sit down. Doing their hours, or payroll or even trying to get feedback to the owner of the business, is going to be done through the new class of applications. The move to mobile enables the connection to a new type of workforce. So I really think it is going to expand everywhere. Obviously mobile changed geo-location and everything in terms of bringing you the right context at the right time.

WTH:Right now IT infrastructure is dominated by datacenters, these big blocks of storage, compute and networking. With everything becoming mobile how will this architecture change?
SH:Great question. Even if you go one level above as you just asked. On every CIO’s agenda is choosing where todays and tomorrows mobile application is going to run. Is it virtualized here? Or is it on amazon’s web services, will it be on Dockers or should I just throw my hands up and move it to SAAS? That question about where applications run is the basis for a lot.

Below that: how do I properly embrace great user experiences in that plan? Whether it is mobile or something else. Access points in these data platforms.

I think that what is so interesting is that the real asset is the data, and the data that the application is manipulating. And certainly some of that will be running in public cloud services. In business a lot of markets are running on whatever system they have. I am getting excited about API creations and I am really thinking about this as the entry point. So obviously, these become mass applications. Every application is reaching out and grabbing data and reaching a bunch of different places.

So on premise you are going to have to have ways to plumb in and get to your data, but the back of the mobile app or the mobile app itself could easily be running on Amazon or some other SAAS environment. That causes all sorts of network traffic and all sorts of security implications. And all sorts of performances challenges: how do I know what the slowest peace of the puzzle is so I can make my mobile app fast?

Rise of Mobile payment

WTH:There is another class of things I’m personally interested in: it is mobile payment and mobile peer-to-peer payment. A point Vint Cerf raised a while back: there are three and a half billion people connected right now and that leaves around four billion people that are not yet. These same people are also part of the “unbankable”, not actively taking part in the world economy. Mobile payment will be enormous.
SH:It is very interesting if you read about some of the more developing countries, the core unit of these being several African countries. The money exchanges through text messages, it is actually a reliable service and there are some great succes stories.

WTH:We’ve been working with a new company in London that’s called Moni Technologies. They are working with the M-Pesa guys that created that text-based system and are building a 2.0 of that.
SH:Great! We are investors in Stripe, which is a neat company that has the goal to incorporate payments of all sorts directly into websites. Two Irish twins, who are amazing guys, built this really great business by being focused on making it very easy for developers to build it in to their site. It is expanding internationally and makes is possible to take different currencies, even BitCoin if people wanted to use that. But the real idea is: payments are core to everything. People to people are the same as business to people.

Developer scarcity

SH:On the top I want to bring up one other point. I think the developer angle on all of this is a lot of passion and focus. I believe that we’re at a point where developers now have more power over enterprise IT than they had in the past. I think that big developers are going to drive the future of enterprise IT and specifically mobile applications developers are going to be setting the agenda more and more.

There is such a scarcity of talent in that space. What you see if you go to Intuit, they have a great training programme that is taking their existing workers and really turning them into IOS programmers. Talent is really going to be the scarcest resource in achieving all of this.

WTH:There are tons of coder academy types initiatives in Silicon Valley already. Wouldn’t it be interested for a VC start these academies?
SH:Web programming is such a democratized field, you can do it whether you are middle schooler all the way up to a very seasoned person. I think that skill sets are in such a great demand that you can make a great living doing so. We actually see this as a core value that as a Venture Capitalist firm to provide this access to talent. We focus on getting to know the best places, the best academies where programmers are and making it clear what great companies they could go to.

I am not sure if we would run an academy ourselves. But I would definitely sponsor one and enable it, eventually help programmers to move on to companies as they finish. It is a very interesting idea that we have been thinking about, I think you are on to something.

WTH:You are programming in Swift yourself I heard.
SH:I probably am not an advanced programmer at all, but I always enjoyed keeping track with the latest technologies so I can be intelligent about it. But Swift is really cool if you haven’t tried it yet. It is a really easy way to make some great mobile apps quickly.

WTH:I will give it a try actually. I am working on learning coding myself. It will really help my job and understand what is going on. I used to be able to do QBasic and C but it is a long time ago.
SH:These languages are so much easier than learning QBasic and C, it is really straight forward to have very quick output for relatively little work, which is very nice.

On Steve’s personal life and views

WTH:How about your personal choices? Are you married, do you have kids? I think you are a busy guy.
SH:I have a fun family, I have three kids. I actually subject them tremendously to market research. I have a fourteen-year-old boy and a twelve-year-old boy who are just now really getting in to programing as well. So it really has been fun for me, keeping track of what schools are doing right now. Neither of them own a single textbook, neither of them has to turn in homework in any way expect through an iPad or online. GoogleDocs is the way they all work. It is really amazing to watch how, in one generation, the education process is working so differently.

WTH:For kids growing up now, life is completely different.
SH:Absolutely, (Laughing) I just have to tell you this other thing. I was at one of my kids sporting events and there was this little four-year-old kid, maybe three years old, and her dad handed her a blackberry phone to have her stop crying. But when she tried to touch the screen it didn’t do anything so she started crying.

WTH:Haha..that does show how technology changes people in a fundamental way. Do you sympathize with the whole singularity idea? What Ray Kurzweil is proposing.
SH:Honestly, I tend to focus much lower in the stack. The mobile infrastructure is certainly one thing. But I find myself much more drawn in to thinking about where containers and Docker go and looking at Open Stack these other areas. Definitely down below that. I kind of think of that as ground work that is ultimately going to enable all those higher level interesting functions to occur.

Investment focus

WTH:You must visit quite a few of start-ups all the time. I heard you say that it was quite a number that you are just friends with or keep in touch with just for your ecosystem fuel, to keep it up to date.
SH:Yes obviously this job is all about continuously learning and keeping track with what is new, both from what costumers are demanding and people are building. What I really enjoy is going around to a lot of big companies around here. I go to tech-talks and talk a little bit about things that I learned while building the VMware engineering team.

In turn I learn what it is like to compete these days, what it is like to have a subscription based licensing versus the traditional approach. The companies I meet are going through new things that are really relevant to start-ups.

WTH:One of your first real investments was Virtual Instruments I believe, right? That was one where you were heavily involved in.
SH:Our partnership invested in it. It is a cool company and I actually had used their technology before, but I wasn’t the lead investor in it. But I spend a lot of time with John Thompson, the CEO, and he is an amazing guy, former CEO of Symantec.

WTH:I spoke to him and interviewed him as well.
SH:Great! I really loved working with John. He in turn is an investor in several of the companies I am working with, like Illumio: it is a stealth company where John is an investor in, it has been very interesting.

WTH:Impressive how Satya Nadella is so clearly focused on mobile as the way forward for Microsoft, that must resonate with you.
SH:I have had the pleasure of meeting Satya, just once or twice. I think he is a very smart and interesting leader that is going to take them forward. The Minecraft acquisition was interesting as well. If you have kids you know what that is like.

WTH:How about the investment focus of the companies that you are focusing on right now? How would you delineate your core interests right? What companies do you really want to invest in?
SH:I definitely take a sort of technologist longer-term view towards it. So I definitely try to do things that I know might take a while to develop. The real goal is to have an opinion on where the world is headed and the disruptions that are taking place. Then you find a killer set of engineers and business people that capable to attack that.

By nature I focus on early stage enterprise IT. I prefer to get involved before the product exists, sharing my experience on the things you should be careful about and things to know about. I enjoy helping to build engineering teams and understanding how to reach the type of costumers that we reached at VMware.

That has been really our focus. One of these big disruption areas, whether it be mobile or whether it be thinking about security in a multicloud world, those are two really big things. Getting involved with teams in a way and finding good chemistry and working together.

WTH:That is where your skillset comes in handy again.
SH:I didn’t realize how useful my CTO background really would be, but I do think that the things you do as a CTO are almost exactly the same. You have to have an opinion on where the world goes and convince people to go after the right things. Lastly, you really make a big bet and you don’t be shy about it. Go big on wherever you have your passion. I think that is exactly what a good Venture Capitalist person should be doing.

WTH:Steve, thanks very much for talking. I really appreciate you took time out of your day for me. Great to catch up with you when I am in Palo Alto. You have a good day.
SH:Thanks Willem. You too.

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