The Serial Entrepreneur

12 October 2005

What's the secret to raising venture capital? Phil Tee, co-founder of three successful start-ups, says it's all about resolving contradictions.

Entrepreneur Phil Tee has co-founded three companies, including Nasdaq-listed Micromuse, and raised some £200m in venture capital. His latest venture, Njini, has come up with a radical way of cataloguing unstructured data - and is aiming to exploit a gap in the market not catered for by the big storage players. Based in Richmond, it has been through two rounds of funding from Accel Partners and Add Partners

You've succeeded where others have failed - and raised significant venture capital from investors on three separate occasions. What's your secret, and where do others go wrong?

It can be very difficult - if I was a first-time entrepreneur approaching Accel Partners today I'd not be so confident. But there are one or two things that will help your cause. A successful entrepreneur is a collection of paradoxes - you have to believe passionately in your idea but not be too rigid in your arguments; you have to show that you can think both strategically and tactically; and you have to think you will be successful but also be realistic and manage expectations carefully. You can't stand in front of people and tell them you're going to be the next Microsoft in six months, because you're not.

But isn't that part of the problem? People starting out sometimes have unrealistic expectations of what they can achieve.

When I was at Micromuse [as co-founder and Chief Technology Officer from 1993-1996] in our original business plan for the Netcool product, we did a five-year plan and in three out of those five years our revenue was less than five percent divergent from the plan.

How did you achieve that?

A mixture of experience and informed guesswork! Technology sales forecasting is notoriously difficult, but at the early stage of promoting the company, before going out to raise capital when no one is dependent on it being successful, it's actually quite fun. You have to ask yourself: What are we selling? What is our mechanism for getting it to market? How big can we sell it? And how fast can we find, recruit and make productive a sales force? With Njini, for example, we are seeding a channel to take on the customer base. Eventually, 99% of customers will deal with resellers.

Do investors still beat you up over figures? Or are they more respectful?

There's an implicit pressure on the executive team by shareholders to perform and outperform their numbers. But it's one of the fundamental flaws of capitalism that this happens and then these same people sit piously in judgement if it goes wrong.

One of the key differences between a good and bad investor  - and we have two top drawer VCs with places on the board that are fantastic for the company - is that a good investor will understand what it's realistic to expect. They'll know, for example, that it takes years to bring a software product to market.

One of the most dangerous things a technology start-up can do is to go too early for revenue. You need to make sure the product is bullet proof before you bring it to market. We've got tremendously supportive VCs and after starting in 2003, we're just starting to get some commercial traction.

So what's the technology you're selling - we understand it's all about tagging the data at source and providing intelligent cataloguing about the data for future searching? Why hasn't someone else come up with the idea - after all there are some very big companies in the storage market?

Everybody recognises the problem with unstructured data [which is not stored in a database or recognised file system]. You don't need a PhD to understand the problem. Where the solution comes from is thinking differently about it. What's played into Njini's hands is that we come from policy management, network management and event management backgrounds. We have a different approach from the one the big storage vendors would think to use, [cataloguing the data at source].

But surely they're onto your case now? How long before they have a similar product?

I think we've got two years' lead on the market. We have filed patents for our IP defence. But big companies go through three stages when faced with new innovations - first they deny it exists; then they go through a rubbishing phase; then they try to marginalize it - tell people it doesn't have general application.

You're clearly a technology advocate? How do you ensure you don't get carried away with that side - and end up developing product that no one actually wants to buy?

There is a risk. You've got to mitigate against that risk. So we got customer input very early on and that user has now joined our technology advisory board. You've got to keep in contact with customers and keep on pushing their priorities. There are two types of entrepreneur: one is fascinated by business and creating wealth; and the other type of entrepreneur is more driven by the technology or some other aspect depending on the business they're in. I'm a meddler in technology, not someone who sits down and plots how to get fabulously wealthy.

And finally - what sort of exit have you promised your investors? A trade sale to one of the big storage players would seem an obvious route.

I would never countenance founding a company where the proposed exit was a trade sale. That's not how I run things. I've built two public companies in my time and Njini is going to be a significant new opportunity. Clearly it's not a bolt on to an EMC. There's an opportunity for a significant very large successful standalone company in this space. So my price tag to the big companies would be prohibitive. It would never happen.