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Alternative Models of the Venture Investing Process
William H. Janeway, Warburg Pincus

Track: Keynote
Date: Thursday, February 12
Time: 9:30am - 10:30am
Location: California Ballroom B & C

Most IT start-ups are product-driven: the goal is to deliver an innovative product to a defined market. The conventional venture capital model - multiple funding rounds, multiple investors per round - evolved to address the operational risks of this sort of venture. But failure to execute operationally is not the only source of risk; every venture is also subject to volatility in the price and availability of capital due to the volatility of the stock market. After the collapse of the Internet Bubble, many promising companies foundered because their funding dried up.

By contrast, our biggest successes at Warburg Pincus (VERITAS, BEA) have come from inverting the normal venture funding model, with the visionary investor as company co-founder. Starting with the identification of a major market discontinuity, we have teamed with experienced operating executives to assemble the components of a complete business - technological base, product development and management, channels to market; buying what we can, building what we have to - in order to establish positive cash flow from operations as rapidly as possible. And we have supported the multi-year process of building a sustainable business by underwriting all of the capital needed to reach positive cash flow, thereby not only enabling management to focus full-time on the business but also insuring against the risks generated by a volatile stock market.

As has been the case with every transformational wave of fundamental technological innnovation since the Canals, the short-term greed of the Internet Bubble financed a Darwinian explosion of exercises in building out the necessary infrastructure and of experiments in finding commercial uses for it. When the bubble inevitably collapsed, it left behind two sets of road maps: at the application level, the business models that worked, such as Ebay and Yahoo! and Amazon; at the infrastructure level, a set of challenging technological requirements needed to deliver a distributed computing and communications environment as scalable and secure as it is robust and easy to manage. This is precisely when our alternative model is relevant again. In the post-Bubble world, long-term financial commitments are required to fund the ventures that will fulfill the long-term technological vision and implement the long-term commercial promise of the Internet Age.

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