The Disruptive Globalization of Technology

By Shanda Bahles | EDV General Partner

One of the lessons we've learned over the years about backing early stage technology startups is that no matter how good the technology, the company will only succeed if it can create and/or exploit a disruption in the marketplace. It isn't enough simply to identify a large addressable market. That market has to be undergoing some sort of fundamental overhaul, or there has to be some large unmet need waiting for the right technology to provide a solution.

Take Google, for instance: the search market was large and addressable back in 2000 and ostensibly well served. The reason Google succeeded was their insight that existing search companies had actually opened the door for a new entrant by creating and then ignoring a critical need: quick and satisfying search results. Today, although there is a new batch of search companies being funded, some with new and interesting approaches, they are very unlikely to penetrate the search market, unless they identify and fill a need that is not currently satisfied.

Closer to the EDV portfolio, Compellent Technologies was founded at a time when many investors believed that storage was a mature market and not attractive for a new entrant. Compellent's founders, however, recognized that, like the incumbent search vendors, the major providers of storage were not innovating and were tolerated, not loved, by their customers. These major companies created but did not satisfy the need that Compellent filled: storage arrays that scaled over a wide range of performance and were simple and inexpensive to manage. Compellent leveraged other market forces as well, but without the disruption created by a critical unmet need, their opportunity would be much, much smaller.

One of the more interesting disruptive forces we are watching today, and investing in, is the globalization of technology and its intersection with a rapidly changing U.S. demographic. We are very interested in companies whose technologies handle the majority of the cross-border heavy lifting, allowing them to focus on products and services that are in demand globally.

Just as the Internet moved technology companies out of their own niche and into the mainstream of corporate and consumer spending in the 90s, globalization and U.S. demographic patterns are transforming the landscape for venture-backed companies in this decade. Young companies are looking at new target markets both inside the U.S. and out that are diverse, multi-lingual, broadband-enabled and less PC-centric, as closer contact with the global economy is bringing new ideas and customer demands back into the U.S. from abroad.

These companies are being drawn by economics and demographics that simply cannot be ignored. The U.S. Hispanic population alone, for instance, has purchasing power approaching $1 trillion annually, is 15% of the population today, is much younger on average and has a compound annual population growth rate that is twice the U.S. average. As a group, they maintain close ties with their country of origin, with money transfers to Latin America from the U.S. comprising a large percentage of remittances worldwide. Latin America was the fourth largest economy in the world in 2006, just ahead of China.

El Dorado has been investing in companies that have been riding both these waves for the last several years. For instance, FusionOne backs up all kinds of mobile phone data to the web - no PC required - while more recently, Blue Casa has established an aspirational brand for U.S. Hispanics with its direct marketing approach. CrossLoop, another new investment, looks to harness the power of global communities for 24x7 tech support for less tech-savvy U.S. consumers.

Perhaps the most exciting aspect of this cross-border trend is that the globalization of technology is just beginning. This is one disruption that isn't going to quickly fade away.

What We're Looking For:

El Dorado Ventures seeks to invest in a select number of companies pursuing opportunities in the following broad categories:

• Communications
  (IP video infrastructure, digital signage, machine-to-machine)
• Services
  (e-commerce tools, green consumer services, cross-border arbitrage)
• Software
  (SaaS, Enterprise 2.0, cloud computing)
• Emerging Technologies
  (energy storage, solid state lighting)

Jeff Hinck Joins EDV as General Partner
Jeff Hinck has joined El Dorado Ventures as the firm's fifth general partner. In his new role with El Dorado Ventures, Hinck will seek new investment opportunities in early-stage information technology companies across the consumer and enterprise sectors. Hinck, who maintains offices in Minneapolis and Dallas, will help EDV increase its presence in the mid-U.S. and particularly in Minnesota and Texas, where El Dorado is already an active investor. Hinck has worked closely with EDV in the past, co-investing with the firm in NuSpeed Internet Systems (which was acquired by Cisco for $465 million) and Compellent (NYSE: CML), which completed its Initial Public Offering in 2007. Hinck joined EDV from Vesbridge Partners, a Minneapolis-based venture capital firm.

Steve Bourne Receives ACM Presidential Award
EDV Chief Technology Officer Steve Bourne was named a recipient of a Presidential Award from the Association for Computing Machinery (ACM), the world's largest educational and scientific computing society. Bourne, a past president of ACM, was recognized for "his tireless efforts on behalf of ACM, most notably his visionary and continuing leadership in the creation of Queue [ACM's magazine] and the ACM Professions Board, as well as for his expert guidance as Chair of ACM's Investment Committee and support for the International Computing Programming Contest. Dr. Bourne's work fosters goodwill for the computing profession and draws the best of the next generation to ACM."

Cortina Systems to Acquire Storm Semiconductor
Sunnyvale-based Cortina Systems agree to acquire Storm Semiconductor, which specializes in embedded network processing, triple play services and storage solutions for both small/medium businesses (SMB) and home networks. The combination of Cortina's infrastructure footprint and Storm's networking solutions for distributing digital multimedia content will create seamless connectivity from service providers to consumers. Terms of the acquisition were not disclosed. El Dorado Ventures co-led Cortina's first round of venture capital funding. www.cortina-systems.com

WebTrends Names Former Google Executive as CEO
WebTrends Inc., a Portland-based provider of web analytics and online marketing solutions, named Dan E. Stickel as its new CEO. Stickel joined WebTrends from Google, where he was responsible for syndication products, serving hundreds of thousands of partners and tens of millions of end users. Prior to Google, Stickel led the Macrovision Software Technologies Group. El Dorado Ventures co-led the first round of VC financing for ClickShift, which was acquired by WebTrends in 2006. EDV General Partner Scott Irwin serves on the WebTrends board. www.webtrends.com

FusionOne Names New CEO
San Jose-based FusionOne, the leading provider of mobile phone backup services, named Mike Mulica as its new chief executive officer. Mulica joined FusionOne with 20 years of industry experience. He most recently served as President and CEO of Bridgeport Networks, a leader in mobile-to-VoIP roaming. Previously, Mulica served as senior vice president of worldwide customer operations for Openwave Systems (Nasdaq:OPWV). EDV's initially invested in FusionOne's seed round of financing. EDV General Partner Shanda Bahles serves on the FusionOne board. www.fusionone.com

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