Done Deals: Venture Capitalists Tell Their Story: Featured HBS Alum Breyer

Excerpted from the book Done Deals, edited by Udayan Gupta, Harvard Business School Press

Succession will always be a major issue for venture capitalists. Making the transition from one generation of investors to another has not been easy. Many funds such as Merrill Pickard, Anderson & Eyre, and TVI couldn't make the changeover and faded away. One fund that has made the transition from one group of successful venture capitalists to another is Accel Partners.

Accel Partners was launched in 1984 by Jim Swartz and Art Patterson, two venture capitalists who began their careers in venture capital with New York's Adler & Co. Swartz and Patterson built Accel into a respected technology and telecommunications fund.

Jim Breyer, who joined as an associate in 1987 and now is the managing partner, has successfully continued the tradition. More important, with a network of entrepreneurs, technology professionals, and corporate investors such as Microsoft, Dell, Compaq Computer Corp., Lucent, and Northern Telecom Ltd. in its most recent venture fund, along with a style that has made Accel one of the most successful funds — and most accessible — Breyer has given the venture fund a new image and identity.

Accel always has focused on software and communications, and its focus hasn't shifted in recent years. But like most others, its biggest hits in the recent past have come from Internet companies such as Redback Networks, Foundry Networks, Portal Software, RealNetworks, and UUNET (acquired by MCI WorldCom). Still, Breyer believes in a diversified strategy that encompasses a wide range of businesses involved with the Internet and its infrastructure, along with the "bricks and clicks" initiatives of new investments such as Walmart.com and Accel-KKR Internet Company.

Going West
Rookie Years at Apple
Choosing Venture Capital Over a Start-Up
Venture Capital in the '80s
Hitting Cyberspace through UUNET
Investing in Confusion
The Importance of Corporate Partners
Quintessentially Internet
Strategic Partnering Ambiguities
Partnering with and Competing with Microsoft
The New and Future Venture Capitalist
Defining Jim Breyer

I'll start from the very beginning, or perhaps, before the beginning. The personal history starts with my parents. My parents are Hungarian immigrants; they left Budapest in 1956 during the revolution, settled in Vienna for one year, and attended University of Vienna. My mother had been a very successful mathematics student in Hungary, and had attended the same college as Andy Grove. My father was an engineer, and he received a scholarship to Yale. They came to the United States in '57, and I was born in New Haven in '61. My parents spent all of their working careers in the high-tech industry in the Boston area. I grew up in Natick and Weston, a couple of towns outside of Boston.

My mother worked for Honeywell for twenty years, and eventually ran their design automation group. My father was at Honeywell as well, but eventually left to join Pat McGovern at International Data Group. Both my parents were very much a part of the Route 128 technology world of the mid- to late '70s and early '80s. I grew up with a cultural emphasis on technology, with a focus on Intel because of the Hungarian background of Andy Grove, Les Vadesz, and a number of the people leading Intel.

When it came time to go to college, I was accepted by both Yale and Stanford. My family very much wanted me to stay close by, but I became completely enamored with Stanford for a couple of reasons-its California and Silicon Valley location, and the opportunity to study both computer science and liberal arts. I journeyed 3,000 miles to Stanford in 1979.

Very early on, I became very intrigued with computer science and computers. During my sophomore year, I sent out 50 r©sum©s and received one job offer. Fortunately, it was from Hewlett-Packard. During the summer and fall of 1981, I worked in HP's data systems division in Cupertino, doing product management work and technical work. I came away from the experience with enormous respect for HP. One event stands out: the time I had the audacity to schedule a lunch with John Young, HP's CEO. To his credit, he met with me, and I offered him my opinions on what HP should be doing differently in the computer business. I smile when I look back on what he must have been thinking during that lunch.

In 1981, Steve Jobs was on the cover of Time magazine. Figuring I had nothing to lose, I sent a letter and r©sum© to Steve. I had already gone out and purchased an Apple II, and was deeply passionate about the Apple II experience. Steve, fortunately-as I've said to him several times since-did take a look at the r©sum© and forwarded it to his director of marketing, Alan Oppenheimer. Alan called, brought me in for an interview, and offered me a job. I started working part-time, and then for a summer, at Apple Computer in 1982, one of the defining years in the computing business.

It was the summer when IBM entered the business-the same summer that Apple ran their famous Wall Street Journal ad welcoming IBM to the business. Apple's stock, at the beginning of the summer, was trading at $11, and by the end of the summer the stock price was north of $60. It was truly an amazing time at Apple and in Silicon Valley-in many ways a frenzy that we did not see again until the Internet era of the late 1990s.

Apple was attracting the most unique, innovative people in the business-it was an extraordinarily young organization. I was twenty-one at the time, and fit right in. My peers were in their mid-twenties, and of course, Steve Jobs was the spiritual and de facto leader of the company. In many ways, it was similar to what many premier Internet companies feel like today.

After the Apple Computer experience, I had a strong visceral feeling that I wanted to spend my time in the technology business, but decided to apply to business school. I was accepted at Harvard Business School, and chose to go to work for McKinsey & Company in New York for two years prior to Harvard. I consulted to very large, bureaucratic Fortune 50 computer and communications companies. Although I had a wonderful experience, and developed enormous admiration for McKinsey, after two years I was absolutely convinced I didn't want to be a management consultant. One day stands out. At 9:00 p.m., we had just finished some presentations, and the director of the project thought it would be a good idea for me to hand-deliver the presentations to the homes of the ten executives who would be attending the meeting the next day. For the next three hours, I went to each of the executives' homes in N.Y.C., Connecticut, and New Jersey, and dropped off the packages. A true learning experience! The next day, as I pulled into the conference center, I saw ten limos waiting outside the building-a sight that never would have occurred at Apple or HP.

Prior to attending Harvard Business School, I went to Europe with my girlfriend-now my wife. I spent several weeks at Cambridge University writing short stories, and although I'm not particularly talented as a writer, it remains a personal passion.

I was at Harvard Business School from 1985 to 1987, a period when Wall Street mania was ubiquitous. There was very little interest in technology. I went through business school with a very strong focus on getting involved deeply in the technology business. I had a limited idea of what venture capital was all about. Professor Bill Sahlman was instrumental in providing that introduction. Mitch Kapor came to speak to our entrepreneurial finance class at Harvard. Not surprisingly, everyone gave me similar advice-spend five to ten years in a technology company, and then enter the venture capital business.

As I graduated, I had a decision to make-join Oracle as a director of product management or enter the venture capital business. Tom Siebel, who founded and has built Siebel Systems into one of the premier software companies in the world, would have been my boss. As he was recruiting me, he emphasized that it would be foolish to go directly into venture capital. His words still resonate: "Jim, you can come work for me for ten years, and you'll be investing your own money-not someone else's." In retrospect, he would have been right. Tom is an exceptional individual, and it would have been a great experience. However, I decided that I wanted to pursue venture capital, knowing that it might be for only a year or two, and that afterwards, I could join an entrepreneurial venture. I received several offers, and decided to accept a position with Accel Partners in San Francisco, working very closely with Arthur Patterson and Jim Swartz.

Arthur and Jim started Accel in 1984, and had built a very unique and successful emphasis on software and communications investing. I had a passion for the software business and communications-oriented technologies. Therefore, it was a tremendous fit. In addition, I viewed them as very strong mentors, and indeed, they have been terrific. Venture capital is still an apprenticeship business, and mentorship is at the heart of learning the venture capital business. My compensation level was anywhere from a half to a quarter of what my other job offers were coming out of business school. Yet, I felt that there are certain fundamental businesses that one joins thinking about the long-term potential-both financial and personal. Venture capital and real estate are two businesses where fundamental value is being created, and over time, if fundamental value is created, positive things happen.

I went in with low expectations. In my heart I felt that I would spend two or three years in the venture capital business, and then join a Tom Siebel, or some start-up, and pursue that path. Eleven years later, I'm finding venture capital to be a great ride. I have not been bored at any time. I never thought I'd be doing it for eleven years, but it's been a terrific experience. I left Harvard Business School in 1987, a very important time. It was the year of the crash. Investment banking hired the highest percentage of Harvard Business School graduates in the history of the school-33 percent of my class. In terms of the technology business, 1987 was rather slow relative to today, to put it mildly! There were few fundamental breakthrough technologies, and there was considerable doom and gloom about the venture capital business as well.

In 1987, when I joined the business, there were a number of articles suggesting that the venture capital bubble had burst. For me, this simply indicated that this was an excellent time to get into the venture capital business. I am a contrarian by nature, and all of the negative articles, combined with all of the people advising me that it was a terrible time to join, strongly fueled my interest and desire. From afar, it looked like an extraordinarily compelling business, and the contrarian characteristics suggested to me the timing was right.

What was unique about the venture capital business in the late 1980s was the declining base of venture capitalists. Every year in the late '80s there was a 20 percent drop in terms of the number of venture capitalists and venture firms in the business. There was limited competition for deals, although the competition to back the best entrepreneurs is always fierce. If we made three times our investment on an acquisition, it was viewed as heroic. Obviously, we were in a completely different cycle from 1999, where we're at the other extreme. Today there is euphoria-in many cases a mania-that will inevitably come to an end. In today's environment, it is easy to confuse brains with a bull market.

The rapidity with which some of these returns have been generated is unlike anything we've ever seen. In May 1999, we had four companies go public, creating over $10 billion in market capitalization. The Internet has dramatically impacted all parts of our professional lives, and has fundamentally altered Silicon Valley and the venture capital business forever.

Fortunately, I became very interested in the Internet in 1992, largely through Mitch Kapor. Mitch deserves an enormous amount of credit for being one of the first individuals in the world to recognize the commercial importance of the Internet. He'd been a personal investor in a small Internet service provider in Virginia called UUNET. I met Mitch at an industry conference in 1992. We stayed in touch, and in 1993 Mitch introduced UUNET to us, and emphasized that it was an explosive opportunity. We had also looked at PSINet, a competitor of UUNET, as a potential investment. In early 1993, we came to the conclusion that there was a fundamental investment opportunity in the Internet. We also felt going in that UUNET's Internet service provider (ISP) business wouldn't be the only upside. We believed that the ISP business would commoditize over time, and that the real upside was in the value-added services that UUNET would provide. We were wrong about the ISP business commoditizing quickly, but fortunately we made the investment. That's true of many of the deals that one does. The initial thesis is often a little bit off.

UUNET not only made money, it was one of the first and best venture capital investments in the Internet. In our case, we invested $4 million in UUNET in 1993, and after the mergers with MFS and later WorldCom, the as-carried value was well over $1 billion (at the time of the WorldCom merger, the value was $500 million). It also was a terrific team effort where several of the partners played a significant role in the spring, summer, and fall of 1993 in finalizing the investment.

As I said, we felt that there would be a fundamental business for UUNET around value-added services, and this will turn out to be the case in the longer run. However, for the first five years, there was an enormously valuable business in providing high-speed Internet service capability to businesses, and UUNET established category leadership. UUNET also gave us unique insight into other investments. In 1994, I was the only venture capitalist at Internet World. I walked the tradeshow floor with Mike Odell, the VP of technology, and we talked through every one of the interesting deals. This strategy is a clear example of how an early franchise deal can lead to "prepared mind" thinking around many other related investment opportunities. In addition, it is vitally important to remember that in nine cases out of ten, the first business plan is not the business plan that ends up being pursued by the company. Therefore, the intangibles around the team, market, and position within a turbulent wave are so critical. In almost all cases that I can think of, Internet businesses have created enormous value in a very different way from what was proposed in the original investment thesis that was circulated within the partnership.

Perhaps the defining characteristic of what we look for, taking all this into account, is confusion. Confusion is an enormous positive for the businesses that we participate and invest in. Massive confusion indicates to us that established leaders such as Microsoft, Cisco, and Intel are unlikely to put together a detailed, implementable plan on their own. They can buy into the market, but they won't innovate and lead the market when there's a very high degree of confusion. Therefore, we look for dramatically growing markets where confusion is a defining characteristic. This increases the odds substantially for the start-up venture. Venture firms approach this confusion from the standpoint of risk reduction combined with opportunity maximization. The operating assumption is that opportunities can be realized by eliminating the risks to their achievement. Obviously, risk can never be fully eliminated; however, there are definite benchmarks in technical and marketing accomplishments that represent the lowering of risk.

It's very clear to me that the only way to generate home runs is by building franchise businesses. Occasionally, we get a unique IPO environment where it's possible to generate a significant return without building the business. But these are abnormalities. There's simply no doubt that it is all about building businesses with strong underlying fundamentals that achieve market share dominance. Our returns are generated through the big hits, and the big hits almost always come from building great businesses. As I said, we may get lucky in times like today where extreme sales and earnings multiples are applied to our companies, but we cannot generate high rates of return over a long period of time without building fundamental new businesses. We have been in a fortunate time: Our 1993 fund has generated an internal rate of return after fees and expenses of 90 percent per year, and our 1996 fund's IRR is well over 100 percent per year.

Any entrepreneur or venture capitalist who as part of the investment thesis says this company is being created to be sold to Microsoft or to Cisco will inevitably fail in my view. We simply won't back entrepreneurs who view it in this manner. Now, clearly a merger will be one of the outcomes in a lot of cases. However, it is important to fundamentally attempt to build an underlying business that will stand the test of time. They don't all become franchise companies, but the ones that do are the investments that generate the disproportionate share of returns for our investors.

One area of the venture business that has fundamentally changed is the view of corporate partners. It will be interesting to see how it turns out. We've taken a very proactive stance around corporate partnering. In our latest fund, which we closed in April 1998, we brought in Microsoft, Lucent, Nortel, and Compaq as direct investors-all major corporations, but Microsoft in particular has received the most attention. Our view is that because of the Internet, a young start-up has minimal time to establish escape velocity. It used to be that a company could spend a year developing product, and another year putting together a sales and marketing plan. If there was a mistake made it was possible to recover. Two or three years into a company's life, that company might think about a strategic corporate partner. Today, on day one we're asking ourselves, Who is the appropriate corporate partner? What is the right distribution, OEM, or technology deal that needs to be put together? How do we as venture capitalists ensure that we are putting together an optimal deal for the portfolio company? This does not mean our exits will change over time. The goal is still to build an independent entity, but Microsoft, Cisco, Intel, and others have changed the rules of the game. They are the leading companies of the '90s. They are also the leading minority equity investors in Silicon Valley. Contrast that with the '80s when IBM and AT&T were the dominant companies in their spaces. They were truly horrible at business development. They simply did not understand start-up entrepreneurial cultures, or how to co-opt some of the innovation that occurred in young companies.

The fundamental difference today is that the technology leaders are venture-backed companies, and in some cases the founders are still leading the firms. These leaders completely understand the importance of partnering effectively with start-ups. Therefore, our role as venture capitalists has changed. There's controversy today in Silicon Valley around the importance of strategic partnering. One camp believes that strategic partnering is not fundamentally important, that independent companies will grow without strategic partners, and it's business as usual. Another camp-which we are firmly a part of-believes that entrepreneurial company building has fundamentally changed from five or ten years ago. The right deal, on the right basis, with the right corporate partner, and at the right time is often the difference between home-run success and failure. UUNET is a perfect example. The Microsoft deal in 1994 was fundamental in UUNET's history, and in its ability to distance itself from its competitors. Without the Microsoft deal, you could question whether UUNET would have been the ISP that garnered 60 to 70 percent of the market capitalization of that space. We see that again and again in the market spaces that we're investing in.

The increase in strategic partnering does present certain dilemmas. People always want to buy the exceptional companies. The most difficult decision we have to make, in most cases, is a Las Vegas-type bet: do we let it ride or not? We may be receiving an enormous valuation offer from a major company for a certain portfolio company, and yet for the very best companies we need to let the bet ride. We need to pursue the independent home-run opportunity, because that's the business we're in. We're not in the business of hitting singles and doubles. We're in the business of hitting home runs and grand slams.

One deal worth talking about, because it illustrates a number of defining characteristics of the Internet, is RealNetworks. In some sense, Rob Glaser, the founder and CEO, is the perfect entrepreneur. Rob graduated from Yale in 1983-the same year I graduated from Stanford. He was also a computer science and economics major. Rob decided to go directly to Microsoft as his first job out of school, and stayed ten years at Microsoft, eventually becoming the vice president of multimedia. He left in 1994, and started a company called Progressive Networks.

I have always been passionate about rich media and multimedia. I learned about what Rob Glaser was doing at an Esther Dyson Conference in Phoenix in 1995, and from the beginning I pursued the investment aggressively. It took six months to eventually arrive at an investment agreement, and we made a $5 million investment in RealNetworks in the fall of 1995. The final negotiation was memorable: Rob was at a Yankees-Mariners playoff game in New York. I was at home in California watching the game on television. Between innings, Rob would call me from his cell phone-with wild cheering in the background-and we'd negotiate pricing and other terms. After six or seven calls, we agreed on the deal. I cannot remember who won the game, but I hope it was the Seattle Mariners since I'm a die-hard Red Sox fan.

Rob's personal characteristics in many ways define exactly what an Internet entrepreneur needs to be. In real estate, it's all about location, location, location. In venture capital, the axiom is people, people, people. The major characteristics we look for are leadership, integrity, vision, and dedication. Rob is brilliant from a strategic standpoint. He is off scale in terms of IQ, deeply technical, and passionate about the business he's pursuing. He immerses himself completely in the business. He is able to completely internalize that an Internet business is not about one specific discipline, but about a multidisciplinary approach. That is the fundamental shift in the Internet. In every successful Internet business today, there is a strong core technology component, an e-commerce sensibility, and a broadcasting/media strategy. The franchise businesses sit at the intersection of these different markets.

This is fundamentally different from five or ten years ago, when the entrepreneur would often have a very deep, specific skill. Businesses rarely sat at the intersection of colliding worlds. The enterprise or client server software business was defined as a business where the individuals came from an Oracle or an IBM and the strategy was often a continuation of that set of experiences. What is dramatic, exciting, and challenging about Internet investing is that the home runs are all about interdisciplinary interaction.

Rob combines a set of sensibilities in a way that is extremely rare. Today's entrepreneurs are defined by deep strategic capability, IQ, and personal characteristics-not their r©sum©s. Five years ago we spent considerable time with r©sum©s. We simply don't place emphasis on them today. We care about personal characteristics. I'm much more interested today in getting to know how the entrepreneur personally views the opportunity and what their level of passion is. It wasn't Rob's experience that led me to pursue the investment so aggressively-he possessed the set of personal characteristics that I believe define outstanding entrepreneurs today. Today, RealNetworks has a market capitalization of over $12 billion. It's been an enormously successful investment for us, but more importantly, we also feel that we've started to build a business that matters.

What's very interesting to me as a venture capitalist is how RealNetworks has developed a defining set of relationships. Microsoft is an investor in Accel Partners. Greg Maffei, the CFO, is the point person. I spend a very significant amount of time in Redmond with various Microsoft senior and product executives. The relationship with RealNetworks is one that I helped define. It was Father's Day, 1997. We had heard that Microsoft was pursuing an acquisition strategy in the streaming media space. I flew up to Seattle on a Friday. Rob Glaser, Bruce Jacobson, and I brainstormed about what an appropriate deal might be with Microsoft. That evening, Rob, Bruce, and I met with Greg Maffei and Paul Moritz. Over that Father's Day weekend, we put together an equity and business deal with Microsoft that helped fuel RealNetworks' rise to prominence. At the same time it became a cause c©l¨bre; by 1998, it had clearly evolved into an untenable business relationship. Microsoft and RealNetworks today have become direct competitors in the rich media space.

Strategic partnering is a clear example how our business has fundamentally changed. Strategic partners can be highly valuable. At the same time, the wrong deal can destroy value. If we don't have a built-in, graceful way out for both sides in a deal from the beginning, it's potentially a disastrous scenario. Mistake number one that venture capitalists and entrepreneurs make when building strategic partner deals is that the deals are too often based on a successful outcome. What has to be built into these deals is how to manage the relationship when unpredictable things happen. RealNetworks and UUNET are two wonderful examples of different outcomes. Microsoft was the strategic investment partner in both cases. In the case of UUNET, it turned out to be a deal from heaven. Microsoft contributed enormous amounts of capital and value and helped UUNET achieve a multibillion-dollar value in the space of three years. In the case of RealNetworks, Microsoft and RealNetworks embarked on a journey where everyone knew going in that there was a significant likelihood of collision. Both sides knew that going in, but still went ahead with the deal. The rapidity with which the worlds collided was a surprise to both. However, the fact that the two companies became competitive over time was not a surprise. Microsoft provided enormous distribution leverage through Windows early on in the deal's history. RealNetworks provided to Microsoft a very important part of the overall rich media experience. Today, however, Microsoft believes that streaming media is a very large future opportunity. In the venture business, we like to say that, as the grass grows taller and passes a certain height, the strategic partner often takes a look at the market and decides that it needs to be in the business. It's no longer a niche market. When the lawnmower comes directly at us-whether it's Cisco, Microsoft, or Intel-we need to understand that the relationship is unstable, and that it's time to quickly move in separate directions.

As the Microsoft relationship publicly fell out of bed during the summer of 1998, it was up to us on the RealNetworks side to go out and form fundamental business deals with America Online, Netscape, Intel, and IBM Lotus, which we successfully did that autumn. The nature of the Internet investing business is that today's strategic partner is tomorrow's competitor.

Surprisingly, during this period of time, we became the first venture capital firm to receive a direct investment from Microsoft. Microsoft specifically approached me in November of 1997. Greg Maffei knew we were potentially going to raise a fund, and he proactively suggested that Microsoft would like to be a direct investor in Accel. We thought long and hard about it. Microsoft brings some tremendous value and strengths, but at the same time if there are any strings attached to a corporate relationship with an investor, it becomes a non-starter. There were no strings attached to the Microsoft investment. Like our other strategic partners and financial partners, they received no confidential information regarding technology, business plans, and so on. Our conclusion was that Microsoft is a factor in every business we invest in. In some portfolio company cases we will compete vigorously and directly with Microsoft. In other cases Microsoft is an exceptional strategic partner.

While they have been an investor, we have worked together on a number of new deals as well as on existing deals. Greg Maffei was the point person on the investment in both Accel Partners and RealNetworks. This leads to obvious complexity. At RealNetworks, my role is one of board member and significant shareholder. I do everything that I possibly can to help RealNetworks beat Microsoft in the rich media space. However, at the same time in other segments, I have to ensure that there are positive relationships that come out of the overall relationship with Microsoft. This is typical of the venture business. One day I will be in competition with venture capitalists on a particular deal. The next day, we're working together as board members on another deal. This continuously shifting role between competition and cooperation is part of the nature of venture capital, and is becoming more pronounced. I find myself constantly competing with, as well as working with, a handful of exceptional venture capitalists including John Doerr, Bob Kagle, Vinod Khosla, Doug Leone, Mike Moritz, John Walecka, and Geoff Yang. I'm juggling more potentially conflicting relationships than ever before. And I have access to more confidential information than ever before. We as venture capitalists are part psychologist, part investor, part agent, and part entrepreneur.

In a venture capitalist, there are nine or ten different elements of personality that need to be pulled together in a coherent way. Everything is happening an order of magnitude more quickly. Therefore, the venture capitalist needs to be able to juggle these different challenges and decide, with management, what the critical path is. We used to talk about two or three balls in the air. Today, there are nine or ten balls in the air. It's our job as venture capitalists to help prioritize the balls, and make sure that we're catching the really important ones. This is very different from five or ten years ago, where the challenges and the execution were far more defined. This balance between strategic partners, entrepreneurs, and venture capitalists has fundamentally altered our ecosystem.

We are also much more hands-on, but not necessarily in day-to-day management. We are far more hands-on when it comes to recruiting, strategy, and defining business relationships. I'm on two boards with John Doerr. As busy as John is, he is absolutely remarkable at being able to cut right to the critical-path issues for a company, and devoting his enormous energy and talent to helping a company achieve its critical-path milestones. That is the business we're in today. There are a lot of ways to waste time. Being able to determine what is critical path is a matter of survival. One month it may be recruiting a key individual; the next month it is cementing a corporate partnership. Our job is to be insanely rigorous about what that critical path is. So, if there is a defining characteristic of the venture capitalist today, versus five years ago, it's analytical-being able to help management form conclusions around critical-path items, and helping management achieve the core milestones. This is where the hands-on element exists today, and why you're seeing even greater concentration in the venture capital business today than ever before. I think of the venture capital business as a series of individual personalities, as opposed to a series of firms.

I would certainly prefer that the entrepreneurs, rather than I, talk about what my strengths and weaknesses are-and my weaknesses are substantial! Here's how I think one needs to think about the venture capital business, and how I think about myself in the business.

Venture capital is a team-oriented business. I grew up playing soccer, hockey, and basketball. I received as much satisfaction from assists as I did from scoring the goal or basket. At Accel, we strongly believe in working on deals as a team. Redback Networks is a perfect example. Sequoia Capital introduced the deal to me. I led the due diligence process, negotiated the deal, and championed the investment. The company needed significant operational help so my partner, Jim Flach, became the board member and interim CEO. Without Jim's efforts, the company would not have completed its successful IPO in May 1999-the deal was priced at $23 a share and finished its first day of trading at $84 a share.

Venture capital is a humbling business. For all the successes, there are humbling events that occur on a daily basis. When we're looking to hire people at Accel, one of their defining characteristics needs to be an ability to laugh at themselves and not take themselves too seriously. We're in a highly competitive, highly intense business. There are always failures along the way. They might not be investment failures, but failures in terms of the people we hire and our business relationships. So, there has to be an ability to look at each event, learn from it, and rebound from it. First and foremost we have to laugh at ourselves, have a sense of humor about the day-to-day lives that we lead. Second, there's an enormous amount of luck in this business. Anyone who says otherwise is delusional. The fact is that we can do everything right as venture capitalists-in terms of identifying an investment, building a management team, and defining a market strategy-but external variables beyond our control still help define whether we've hit a home run, a single, or a double. I view my greatest strength as being passionate about building businesses, and passionate about building something that we can all be proud of. If we take the RealNetworks example, we're on a journey where the outcome is unclear. There's an enormous market capitalization. More importantly, we have an 85 percent market share of a business that I think is going to be enormous over the next five years, and we are innovating in areas such as digital music and media delivery.

Nonetheless, Real's outcome as a major defining entity is still in question. I'm very bullish, but fundamental challenges lie ahead. How does RealNetworks play in the broadband world? Will the Internet truly turn into a mass medium? How do we take RealNetworks from a leader in a small, defined business today on the Internet-streaming media-to a true leader and enduring franchise? It's not just the outcome that I enjoy. I love the process of getting from point A to point B. I get bored extremely easily. Like many in the business I suffer from Attention Deficit Disorder. I need to be challenged constantly on an intellectual basis. For my type of personality there is no other career that would be as fulfilling. The entrepreneurs quickly figure out who are the venture capitalists who are passionate about what they do, who can make a real strategic contribution, and, most important, who can bring the right set of values over a period of time. This isn't about creating a company to sell to Microsoft or Cisco. It's not about generating enormous returns. It's not about trying to take a company public. It's about creating businesses and cultures that we can feel proud of. They don't all get there, but what's so compelling about the venture capital business is that there's the opportunity to make a huge difference. Not as a CEO, but as a CEO's business development partner. This is what I try to excel at. I'm constantly asking, How do I as Jim Breyer, or we as Accel, help the entrepreneur build a truly world-class company? We must have personal passion around human resources as a strategic advantage to a company. There are numerous CEOs who view human resources management as follows: If the stock price is going up, I have a good culture, and I don't have to worry about anything. That's not what it's all about, obviously. I'm trying to help put together an innovative program where we help entrepreneurs view HR strategically from day one. I want the entrepreneurs to be thinking from the beginning about how to build a culture that's enduring, that scales, and that is one to be proud of. Mitch Kapor and Bud Colligan have been personal mentors in this area. This has not been a historical focus of venture capitalists or entrepreneurs, but going forward, as the public markets inevitably pull back, recruiting and retaining great personnel will become the single most important factor in the success of a company. Helping entrepreneurs build a culture that allows employees to achieve dramatic personal growth and that encourages employees to stay when the stock price is clipped in half is a personal passion. It is where we as Accel can help innovate.

At the end of the day, I define my success or failure by the answer to the question: Are we the first phone call that an entrepreneur makes when he or she goes off and starts a new company? If we're not that first phone call, we have not done our job. If the entrepreneur does not believe that we genuinely assisted in building a franchise company that stands for integrity as well as financial success, we have failed in our mission.

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