ZapThink Startup Insights: The CIOs are to Blame… in part. A Conversation with Eric Hjerpe, Kepha Partners
ZapThink Startup Insights
Week of May 17, 2010
Interview: Eric Hjerpe – Kepha Partners
For this issue, ZapThink spoke with Eric Hjerpe, Partner at Kepha Partners, a $100M software venture fund, and formerly Venture Partner and Partner at AtlasVenture.
IT Sold to Business Units, not IT Departments
Hjerpe sees significant opportunities for companies selling IT solutions to business problems to business units, rather than IT departments. Businesses will find the dollars to fund things that they can deploy that are critical to revenue generation and helps the company innovate to its customers. As an example, Hjerpe cites Azuki Systems that sells applications for mobile-device content to business units, not the IT organization.
Digital Media and Advertising
Eric also sees that the digital media and advertising area is still very hot for enterprise IT innovation – especially around the sell-side of advertising (such ad exchanges and display ads). OwnerIQ is an example company in this area.
Given the continued explosion of data, Hjerpe sees data migration as another hot area. This is especially the case around unstructured information, and startups who help determine importance, access, archival, and backup, and server-to-server migration. One example is Autovirt which virtualizes the location of data. These products are often sold through B2B channel partners, especially with data storage devices.
Horizontal and General Business Process Solutions
According to Eric Hjerpe, the opportuitiesa are slim for general purpose enterprise software that solves general business processes or is targeted at a general business function (HR, process-specific). CIOs are reluctant to over-invest in this area, and most companies already have much of the technology that they need — they just need help putting it into practice.
Business Intelligence (BI) & Master Data Management (MDM)
Hjerpe doesn’t see a lot of startup activity around BI / MDM because this is something that the large incumbent software vendors are putting effort to innovate. This makes for limited opportunities for startup companies.
Middleware / General IT infrastructure Tools
As above, Eric Hjerpe doesn’t see much startup opportunity for general purpose IT infrastructure / middleware or general purpose IT infrasrtucture tools. He sees the IT market as generally very depressed and unwilling to devote precious little dollars to infrastructure spending vs. applications that solve particular customer-oriented problems.
Advice for Enterprise IT Startups
The CIOs are to blame… in part
Millions of dollars of innovation is flowing away from the enterprise due to CIO actions as well as VCs. Hjerpe in particular blasts CIOs who simlutaneously deride IT startups as being too risky or problematic to invest in, while lamenting the lack of innovation and pace of change from their existing vendors. CIOs say that they are generally not open to working with startups, but this is hypocritical given the lack of innovation in the enterprise.
Startup Laziness – Solve the Harder Problems
Likewise, Hjerpe sees far too many startups solving common and technically unchallenging problems. Companies that solve tough, challenging problems in innovative ways can always find customers, but these startups are far and few between. Given that the enterprise IT market is in a period of maturation, the vast majority of opportunities going forward will be precisely the hard problems that even the large vendors can’t solve.