ZapThink Startup Insights: Find Strategies that Allow for Incremental Innovation

ZapThink Startup Insights
Week of May 24, 2010

Funding Insights
Interview: Richard Dale – Sigma Partners
For this issue, ZapThink spoke with Richard Dale, Principal at Sigma Partners, a 25 yr old Venture firm with offices in Boston, Menlo Park, and San Ramon. The firm is an early-stage seed / Series A round investor with $500M in the current fund.

What’s Hot
Storage and More Storage
Sigma Partners continues Continue to see innovation in storage and storage-related areas. With Sigma’s experience in generating lots of money in storage deals, they tend to see the majority of the deals in this area. The current evolution is around Cloud storage, such as their current portfolio companies Nasuni and Exagrid.

Continued Database Evolution
Related to the above, Richard tells us that he’s seeing activity in a bunch of database-related areas, including those around the NoSQL movement to deal with the web-related issues around data storage, management, and query.

Process-related or industry-specific enterprise application activity
Richard Dale tells us that there’s still lots of interest in solving process- or industry-specific problem areas. This includes focus on horizontal areas like customer support or sales and marketing, or on industry-specific areas such as healthcare or telecommunications.

What’s Not
Knowledge Management is a Cliché
People are still trying to push enterprises to bite on Knowledge Management, but it’s a cliché – it’s not an easy market or product area to grow. This is an area that has continued to struggle despite decades of work. Some companies have success, and some social media / wikis are having impact, but the value proposition and difficulty has not compelled many investments in this area.

Middleware is overplayed
Middleware layer is quite overplayed in that companies have already invested as much as they can. Dale says they won’t see another WebLogic-type success. In general, he feels that More difficult these days to create horizontal enterprise application or infrastructure plays.

Advice for Enterprise IT Startups
Find Strategies that Allow for Incremental Innovation
Enterprises that want to adopt innovative technologies and approaches from startups really need to focus on implementing a methodology that allows the innovation to happen at lowered risk. Enterprises shouldn’t expect startups to necessarily to play initially in the “critical path” of the organization, but enterprises, as well as startup companies, need to create strategies that allow their customers to implement innovation incrementally without incurring risk. This process is collaborative with the customers – enterprises and the startups serving them should focus on the implementation that maximizes innovation and minimizes risk. Startup vendors should focus on ways to bring their value knowing that CIOs and IT organizations are highly risk averse.