Good day and welcome to edition 125 of our digital industry leadership series, I’m honored today to host Matt Bigge, partner at CrossLink Capital, who are focused on venture investments in enterprise and industrial IT infrastructure security, and what they call plausible science fiction. Matt is an entrepreneur and investor with over two decades of successful general management and venture investing experience, including numerous winning investments. Prior to joining Crosslink, Matt was a venture partner with Paladin Capital, he was also the CEO and co-founder of Strategic Social Holdings which was acquired by Constellis Group. Matt was a co-founder and president of MILCOM Technologies where he led the acquisition and commercialization of over two billion of R&D used to create over 10 product companies.
Matt had a start serving the US Army with a distinguished record as an inventory officer and ranger in the 10th Mountain Division, he was a Bachelor of Science in international relations from Georgetown and an MBA from Harvard. In his spare time, as if he has some! Matt is a rabid baseball fan and board member of the Honour Foundation helping special operations veterans transition to the private sector. So, Matt, it is truly a pleasure to host you today on our digital industry leadership podcast.
Hey Ken, thank you very much for having me, yeah, I’ve always enjoyed our discussions and I’m looking
forward to this one too.
As well, as well, and it’s high time that we finally got you cornered for a great conversation, which I’m looking forward to. So, starting off in 2021 we’ve kind of changed our messaging right upfront to talking about what we like to call the red thread. Tell me a little about what you would consider the red thread of your digital industry leadership journey.
Sure. You know, to me it really gets down to kind of an epiphany I had in the mid-nineties, my first job after the military where I discovered that if you can measure something you can improve it, not exactly rocket-science but we’ll call it instrumentation in today’s parlance. It’s really about the ability to measure the physical world using information technology so that you can better understand what’s going on around you, and then improve it using technology and human tools to make it happen.
You know, I’ve often heard that life is divided into three phases, learning, earning, and returning. So, my own coral area if you will is that venture investing is returning with the return, but you made it an interesting jump right from the military effectively into ventures with MILCOM; what inspired that transition?
I’ll steal a turn of phrase from a venerable venture capitalist, Mike Zak who was a partner in Charles River Ventures, and about 25 years ago he was poking a little bit of fun at me when he said I was unencumbered by the laws of physics, mostly implying that I didn’t know what they were. He was largely right, I don’t have a technical degree, but when we were getting MILCOM off the ground a lot of our optimism which is necessary for founders, was a function of not realizing we were supposed to fail. The history of commercializing defense technology is one of very consistent failure, and it gets back to one of the things I love about baseball, it’s a game where if you bat 300, you’re going in the Hall of Fame, and the venture world and startup world is very similar in terms of the success rate. Being unencumbered by the status quo is frequently the basis for innovation because you test the boundaries of what is accepted as realistic, and by testing those boundaries you can often get beyond them.
In my brief role as an inventory control manager at Cintas what I learned was that if you start looking at the data around you, you’re going to see more opportunity, and as it turned out my general manager at Cintas was the person who introduced me to my cofounders of MILCOM and he ultimately was one of our first investors. So, it was a great way to start my post-military life, and I guess I wouldn’t say I’ve had a career, but I’ve had a series of things that I’ve done and have worked out pretty well so far.
Yeah, surely, I would say so. In 2016 you joined Crosslink Capital, so a Silicon Valley-based firm focused on IT-related investments. Your particular focus I believe is enterprise IT, infrastructure, security, and again with a dose of plausible science fiction. So, tell us a bit about the firm and what you mean by plausible science fiction.
Sure. So, Crosslink’s been around for about 30-years, it was originally a spin-out of Robertson Stephens, and the firm’s got a wonderful and rich history of investing in industry-leading companies. When I sold Strategic Social and then I did indentured servitude with the buyer, I knew I wanted to get back to full-time venture investing and it was great to reconnect with Eric Chin and David Silverman, two longtime multi-decade friends; Eric and I have worked together at MILCOM, we also went to grad school together, David and I have been looking at opportunities together for over two decades, tried to work together in the past but timing conspired against us. So, when they presented the opportunity to join the firm it really was a no-brainer.
It’s always really exciting to get to work with people where you have a high degree of mutual respect, trust, and admiration, so that’s just been a phenomenal last five years. We’ve raised three new funds, we’ve had a very-very exciting performance from all three of those funds and hopefully, we’ll continue to do that as we move things forward. Plausible science fiction is really an outgrowth of my desire to find things that are currently just outside the edge of possibility and try to help make them real. One example of that is a company called Mesh Networks, we spun it out of ITT Industries in the late nineties, we were leveraging over $200 million of research and development to enable wireless networking topology that did not require infrastructure, and effectively the goal was to load balance some metropolitan statistical areas.
At the time people didn’t believe it was possible, we took that technology, turned it into a product and it was just an exciting journey, ultimately sold the business to Motorola and they continued to leverage the intellectual property. CloudShield and Narus are two cybersecurity companies where we’ve accomplished very similar things, doing things that people didn’t believe possible at the time, and those investments have really altered the way network security has functioned over the last 20 years, they are two small asterisks in the history of cybersecurity, but I believe they were high-impact asterisks.
So, that’s kind of how we think about plausible science-fiction, current examples include a three printed rocket motor company in our portfolio, and we’ve got another one that does hardware-agnostic gate compilers for quantum computing, and these are things that really make the future possibilities in my opinion.
Well, certainly you guys are doing something right because I count at least eight winning investments, you’ve mentioned several already, MeshNetworks, to Motorola, CloudShield, SAIC, Narus to Boeing, ArcSight to HP, and Verodin so what do you attribute your ability to consistently back such winners?
So, that’s people. Great people solving meaningful problems is really the way we think about investing at Crosslink, and frankly, it’s the way I’ve always felt teams are best poised to achieve success, whether that was back in the military as a platoon leader, or working with soldiers in infantry units, or thinking about my career as an entrepreneur and an operator, and really investing. If you find talented high integrity people who are passionate about solving problems and solving big problems, to me those are the very basic ingredients of success, then it’s up to just executing on that vision.
You know, Momenta is proud to be co-investors with you on AKUA and to support GoExpedi and Descartes Labs. You clearly are picking investment winners as we said a moment ago, but how do you scale them?
Again, this gets back to people. One of my favorite things to discuss with entrepreneurs is my belief that CEOs have to sell three things in order to be successful, they have to be able to sell the product, their vision, and their stock certificate. If you as a founder cannot sell your product you can’t expect anyone else to if you can’t sell your vision, you’re never going to attract the right people to your vision, and if you can’t sell your stock certificate you can’t pay for the first two things. So, it really does come down to that CEO being able to sell and attract the right people, and if you attract those right people to your vision a lot of the rest of it is going to fall into place, which is the right people or the ones who are going to help you in the execution phase to build a meaningful long-term business. We’re excited about all three of those companies and we believe that they have the potential to be long-term exciting enterprises.
Yeah, fully agreed and very happy to have the opportunity to both co-invest and to support you on several of those as well.
Last year, and I’m glad that we can call it last year now, has really been unprecedented here as we like to say the three p’s, politics, pandemics, and protests. Interestingly enough we’ve had a whole new rash of different kinds of protests just over the last couple of weeks in the United States. We’ve observed that this time however has been a bit of a digital accelerator, and clearly you see that with remote working as an example, we’ve also seen it in our portfolio with what we like to call remote asset management as well on the industrial side. How has this Triple-P era affected your portfolio and investment thesis?
Early-on, I guess in the last week of March 2020 we sat down as a team and we built what we called our COVID resiliency index, and we picked six different attributes, evaluated each portfolio company across those six attributes, and tried to figure out where we needed to sure-up certain companies and where we needed to invest additionally in specific portfolio companies. It all felt very reminiscent of both 2008 as well as 2001, unfortunately as a team the partnership – this is our kind of third go-around with Black Swan events.
That said, in a lot of ways I view the digital transformation investments that we’ve made as getting hit over the head, but by a lucky stick as opposed to a painful stick. Even with businesses going remote every business still needs to generate leads, they need to pitch their offerings, build their products, get through contracting and procurement with customers, deploy product and then collect revenue, and if you think about the world of even five years ago, performing all those tasks in a purely online manner was not possible, it wasn’t just a best-in-class thing, it wasn’t actually possible.
And so, what we’ve seen in 9-10 months is a near-total transformation of the global 2000 to a fully digital procurement and deployment process, which is a fantastically exciting environment in which to do business in a total global pandemic to force that kind of change, because the alternative was bankruptcy, or assignment for the benefit of creditors, neither of which is pleasant. So, generally, this has bolstered our investment thesis in digital transformation, I think on balance our portfolio has benefitted from the current circumstances as challenging as they are.
Yes, as ours has too. Now, it’s interesting when you think of the impact of COVID, really beginning now hopefully post-COVID, Silicon Valley seems to be at a bit of a crossroads by all accounts. Is California still a great place to start and grow a technology business?
Well, work from home has definitely changed the way people view Silicon Valley and the way they perceived the value of Silicon Valley. If you look at companies like Tesla, HP, Palantir, Oracle, shifting their headquarters out of the region – largely to do with taxes, those are… call them headwinds to what happens in Silicon Valley, and hopefully, the folks in our state capital of Sacramento will figure out that at some point they need to stop alienating the taxpayer, or people will vote with their feet. All that said I still believe that there are more tailwinds than headwinds, and from a climate standpoint it’s one of the most amazing places on the planet to live, I think it’s one of six or seven Mediterranean climates in the world. It’s got one of the richest and most powerful history of innovation of any location on the planet, and that’s a historic statement, it’s not even a today's statement. When you go through the history of innovation of mankind Silicon Valley very much has a meaningful place. Where we live in Santa Clara County, I believe it’s the ninth-largest economy in the world.
So those sort of benefits don’t fade lightly, and I also believe that at the end of the day while you can have a distributed workforce, in my last business we had hundreds of people all over the world and we had to manage remotely because that’s how global industry works, but at the same time, spending time face to face with people is what builds real trust. I think it’s very difficult to build the type of co-founder trust that’s necessary to construct a culture for an organization without in-person contact. So, from that standpoint I still view Silicon Valley as the best place in the world to pull together a company, even if you end up with a workforce that’s not 100 percent located here.
Yes, it will be interesting to see how those trends continue. We have certainly seen innovative economies or let’s say hubs of innovation rise in many different countries and regions as well, but they all still consider Silicon Valley as Mecca! It will be interesting to see if that – I’ll call it startup tourism trade – continues in that regard.
In terms of impact let’s talk about venture capital investing as well, we’ve both been through the wave of probably the proponents that said ICOs or Initial Coin Offerings are going to completely change venture capital as an asset class, and of course now over the last 18 months, at least in the US we have SPAC, Special Purpose Acquisition Companies, which are not ventures but they clearly are changing the exit dynamics for venture invested portfolio companies. So, what’s your perspective, do you see either of these or any other trends changing venture capital investing as we know it?
It probably colours the way we think about attracting resources to companies, I don’t think it really has a fundamental impact on early-stage venture capital, and when I say early-stage, I talk about the series A, the precede stages, where we spend the vast majority of our time, at least in terms of our initial investments. I think regulatory factors have largely dampened the enthusiasm around ICOs, I see that regulatory regime getting much stricter, and I think ultimately coins will be treated like securities. So, when I think about ICOs on a more forward basis I think they’ll be much more functional than financial, so less bitcoin more coins that are used to facilitate truly distributed ledger capabilities to document things, smart contracts, things along those lines.
From a SPAC standpoint, it’s kind of funny to think about the dialing for dollars and the boiler rooms, there’s a great Ben Affleck movie about 20 years ago, I don’t think people necessarily view those as SPACs, but they were SPACs. But I think in today’s bright, shiny, cleaner approach to SPACs its really just another way to get public currency for your company, and I think they are a great path to listing because the IPO process really is not for all companies, there’s a pattern-matching for successful IPO that folks have been looking at for decades, and I think the companies that didn’t quite fit that specification now have options like direct listings, like SPACs, and there’s some other innovations going on in that corporate finance world, but I still believe that IPOs will continue to be the preponderance of new issues coming to market, but it is great to see those options and alternatives out there.
It is, and you mentioned direct listings as well which one might say was the markets response to SPACs a bit, but it’s nice to have actually different options in there. So, earlier I mentioned your military service, I didn’t thank you for your service and thank you. I note you’re doing some work with the Honor Foundation and was quite fascinated with that, tell us a bit about what you’re doing there.
Well for starters Ken, my pleasure to serve. Honestly, being a platoon leader to this day the best job I’ve ever had, most rewarding, selfless people, basically we’re poorly paid pro-athletes and I feel honored to have been able to serve on such a great team. But when I got out of the military in 1996 there were really very few resources to learn about the civilian world. Armed with a copy of Business Week and a few conversations with friends and family I tried to emerge into a private sector that was absolutely mystifying. Back then the military gave you a two-hour briefing and it didn’t matter if you were a private or general you got the same briefing, and as a result, it was – well, useless.
The Honor Foundation offers what amounts to an executive education program for special operators making the transition to the private sector. If you’ve ever had the fortune to be around special operations personnel what you’ll find is, they are in the top 1 to 3 percent of all members of the armed forces. These are truly special people who are doing incredibly special things for the world around them. Something I’d like to say is they’re really making it their life goal to leave this world better than they found it. When you take people with those sort of intrinsic skills as well as the experience of performing in high-pressure environments, coupled with a consistent track record of success, what you’ve got is high integrity leadership and operating expertise getting injected into the private sector. So, for me I love the mission of the Honor Foundation, I wish it was there when I got out of the military, but very selfishly I’m investing in the macroeconomic future of this country because the people that come through the Honor Foundation will be leading this country in the coming decades that hopefully our children are going to flourish in.
A great foundation, and a great endeavor, and having been in the military myself I can greatly appreciate how difficult the transition can be if not well-managed. So, since you’re at the epicenter of so many great trends, if you don’t mind, I’m going to put you on the spot a little bit. So, Matt if you could start a company tomorrow and with the highest chance of success, what would it do, what markets would it serve? Where would it be located and how would you go about going to market?
Well, I can’t give away all my secrets, but we do incubate companies from time to time at Crosslink, we incubated two last year, or began the incubation of two last year, we’ll probably do another two to four incubation efforts in 2021. Currently, we’re incubating a security-related company based on a trend that we identified in conjunction with some other investors that we like doing business with, it’s a trend where we look at what was in the market, we saw a meaningful gap between what was being used in the market and what was possible with modern technology. So, this company has headquarters in Silicon Valley with a distributed team that focused on the Global 2000, with a 100 percent digital product, that does feature a lot of automation and leverages AI.
To me, one of the things that I’ve observed just thinking all the way back to writing my first lines of code in BASIC, Pascal, and later-on for FORTRAN AND COBOL, then thinking about the object-oriented languages that came after that and the ability to ultimately let finance teams play with a spreadsheet as opposed to calling IT to change hard-coded accounting rules, and on and on and on over the last 50 years. What we’ve seen is this continued abstraction of complex things into simple things so that you decrease the technical skills required to wield information, and you allow people to apply their efforts more to managing, conditioning, and creating value-added data as opposed to the process of extracting the data. And so, to be one of the highest order things that entrepreneurs can be focused on right now is abstracting away complexity so that with a no-code or low code approach you can enable the business user, the business analyst, to really make use of data as opposed to spending all their cycles gathering it or trying to abstract it.
So, when you say you couldn’t give away all your secrets, I thought we were going to get a 10,000-foot view of some general trends. That was pretty detailed so I’m actually even more intrigued to see what you’re holding back!
Well, saying it and doing it are two different things.
Yeah, there you go. So, in closing can you provide any recommendations of people, books, or resources that inspire you?
Sure, I’d like to just call out a few folks that have really made a difference in my life, my life’s journey, Command Sergeant Major David Draughn who passed away a few years ago, he really taught me about leadership by example, and really the art of getting people to want to do what you need them to do and really just building teams. Kevin Compton formerly of Kleiner Perkins has been a great mentor to me over the years. After talking to him, I feel I'm a better entrepreneur, a better businessperson, a better investor. My partners Eric and David, we talk a lot about what we call HIT – Humility, Integrity, and Teamwork, we believe that embodies what we’re all about at Crosslink, and no coincidence that’s how the three of us got to be so close over the last couple of decades, and we’re super-excited to have Phil Boyer added to the partnership most recently. Then, my wife and son have never been shy about making sure that you never stop what you’re doing until you can honestly say you’ve done the best, you’re possibly capable of doing. So, I appreciate them constantly reminding me of that.
In terms of things, I like to read and all that, there are the classics, ‘Atlas Shrugged’, ‘The Godfather’, and ‘Glengarry Glen Ross,’ it’s about people being people, and how to understand what motivates them and makes them do different things. Yes, the vast interconnectedness of stuff, a Douglas Adams quote there, anything written by Neal Stephenson and of course ‘The Hitchhiker’s Guide’. I think actually very valuable for understanding the ripple effect of decisions, and the second and third-order impact they have. Then just more about leadership and team building, understanding ‘Starship Trooper’, ‘About Face’ by David Hackworth, ‘Killer Angels’, those are a few books that as I was thinking about this question I turned around and looked at my bookshelf, and these are all books that stay top shelf because I go back to them on a regular basis. So, hopefully that’s helpful.
Very helpful, and we could do probably an episode in and of itself on that – Atlas Shrugged, given the conversation we had earlier about Sacramento, so who is John Galt!
So Matt, thank you for spending the time with us today on what was a very insightful interview.
Well, hey Ken I appreciate you inviting me on to the show and as always, I look forward to our discussions. Hopefully, next time I will be asking you questions because I always appreciate the opportunity to learn from you.
No, and I greatly appreciate that about you, and yes, we’ve had lots of good interactions both among ourselves and among our portfolio companies, so I hope to continue that collaboration.
So, this has been Matt Bigge, partner at Crosslink Capital, and if I can say so, a gentleman unencumbered by the status quo. Thank you for listening and please join us next week for the next episode of our digital industry leadership podcast series. Take care and have a great day.