ORACLE HEDGES ITS BETS
By Lawrence Aragon [email protected]
October 25, 1999
Copyright © 1999 Redherring Inc.
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For a company known for backing risky ideas -- like the controversial
network computer -- Oracle (Nasdaq: ORCL) is positively conservative when it
comes to venture capital investing.
Nevertheless, CEO Larry Ellison likes the VC business so much, he said this
week that he's doubling his company's commitment to the Oracle Venture Fund.
But don't think you can just strut into the database company and land a few
million dollars for your startup: it's imposing rigid funding requirements.
If you're fortunate enough to get in, the payoff can be great, according to
some lucky entrepreneurs. "What they can
do that traditional VCs can't is find those elusive engineers who understand
your technology and tap them very quickly," says Kris Hagerman, CEO of
startup Affinia. "It's hard for me to put a dollar value on that, but it's
big." Affinia received $15 million in funding from Oracle, Sequoia Capital,
and Bowman Capital Management.
I NEED AN ORACLE
Mr. Hagerman had been waiting ... and waiting ... and waiting ... for other
large technology companies to provide answers. "All hyperbole aside, Oracle
has taken
conversations that would have required two months to produce results and
found a way to make them happen in two days," he says. Affinia offers a
service for small Web sites that lets them build "instant shopping portals."
It has signed up 25,000
sites so far, which is music to Oracle's ears. "In some ways, we're creating
mini Oracle e-commerce databases for hundreds of thousands of small Web
sites," says Mr. Hagerman.
That's why Oracle got into the VC business -- to help startups that support
or use its technology. The other reason is to flat out make money. Besides
Affinia, Oracle invested in Chipshot.com, an online golf shop; Miadora, an
online diamond merchant; Portera, an application service provider for the
consulting industry; Exp.com, formerly Advoco.com, an online marketplace for
advice; Bidcom, an e-commerce hub for the construction industry; and Red Hat
(Nasdaq: RHAT), a Linux vendor.
SWEET SUCCESS
Oracle typically invests $2 million to $3 million per company. At just ten
months old, the $100 million fund is already a "great success," says Matt
Mossman, vice president of corporate development at Oracle, a job that puts
him in charge of VC investments. Because of that success, Oracle is adding
more talent to its venture arm and is boosting the size of its average deal
to $5 million. "The net result is that we'll spend the $100 million faster
than anticipated," Mr. Mossman says. As long as the fund does well, Oracle
will replenish it, he says. The company has already seen the return on one
investment, Red Hat, which went public in August. Before you rush to get
your business plan to Mr. Mossman and his crew, be aware that they're
already receiving dozens of business plans a week. More important, though,
understand that although Oracle can afford to take risks, the company is in
the VC business to make money, just like traditional VCs. That's where its
conservatism comes from.
NOT THE UNITED WAY
"There are a few [entrepreneurs] who kind of figure that it is a charity,"
Mr. Mossman says. "If you're meeting with Oracle, and you're a little
business starting up, you might
think we ought to invest in you. But the truth is you've got to be a good
business." Oracle only coinvests. It wants to ride the coattails of the
established VCs. Mr. Mossman is very deferential when speaking about Kleiner
Perkins Caufield & Byers and others. Asked if Oracle has any particular
requirements for its pitches, he says, "The same kind of pitch you make to
one of the venture firms will work for us. We don't need any kind of special
pitch, and we don't impose any additional terms or conditions in the
contracts. We typically let the venture firms set the price. We're
coinvesting, and we let those guys do the job they do so well." At least
half of the deals that Oracle funded were referred from other venture firms.
"If you come to us and don't have an established VC on board, we're going to
ask you to go get one," Mr. Mossman says.
The better the VC, the better the chance you'll get funded. "If one of the
great VC firms brings us a deal, at that point I am 6 feet, 4 inches of
ears," says the lanky Mr.
Mossman.
Interested? Pitch Mr. Mossman and his cohorts at
www.oracle.com/ventures.