Panel: What is it about enterprise startups making them so hot right now?

Summary:Seasoned venture capitalists explain how enterprise startups are "borrowing the playbook from the consumer" to succeed during the 2013 Launch Festival.

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SAN FRANCISCO -- The recent successes of enterprise tech IPOs compared to the disasters of their consumer counterparts have many analysts and venture capital firms spinning about what's going on here.

During a panel discussion at the 2013 Launch Festival on Monday, a group of seasoned venture capitalists debated what it is about the enterprise that might be making this area much more attractive to investors.

"The word is definitely out that the enterprise is hot," said Mamoon Hamid, a general partner at the Social+Capital Partnership, describing how there's less of the "nth cloud storage company," and that it's more about what's beyond Zendesk or Box now.

"The word is definitely out the the enterprise is hot," said Hamid, describing how there's less of the "nth cloud storage company," and it's more about what's beyond Zendesk or Box now.

Acknowledging that there are plenty of entrepreneurs shifting back and forth between consumer and enterprise startups, Hamid said that he prefers to see entrepreneurs "solving a pain point" rather than looking for a sweet spot in the market.

Hamid outlined that three major trends have made this shift in the enterprise world possible: cloud, BYOD (bring your own device), and mobility.

While this information is already familiar to anyone involved in enterprise technology, Hamid stipulated that these shifts have fostered "the bottoms-up adoption" of easy-to-use products. He specified Box, Dropbox, and Zendesk as a few examples.

Josh Stein, managing director of the global VC firm Draper Fisher Jurvetson in Silicon Valley concurred, remarking that traditionally every platform shift opens the door to displace incumbents.

But the difference now, Stein explained, is that these shifts have changed who the buyer is. Now that software is delivered through the browser, Stein said, "it's become guerrilla warfare" between users and IT, citing that platforms like Box and Dropbox could have anywhere from one user on an account to 20 people before the CIO ever gets involved.

"It's borrowing the playbook from the consumer. The enterprise giants have no idea how to react to that," Stein argued, explaining that if you're a company like Oracle, it's becoming difficult to control the buyers.

Wesley Chan, angel investor and venture capitalist at Google Ventures, summed it up, "It's effectively bring-your-own-service."

At the same time, Hamid suggested that the market shifts are being influenced by the mobile-first mentality especially. Thus, it becomes about figuring out how to rein in this vision and apply mobile to legacy applications. Hamid used the example of Salesforce.com, describing it as a Software-as-a-Service company, asking how mobile is being applied to something like CRM.

Hamid also warned that even newcomers such as Box and Dropbox could also be disrupted by the mobile-first movement if they don't plan accordingly.

"It's borrowing the playbook from the consumer. The enterprise giants have no idea how to react to that," Stein argued.

Besides overcoming potential crowding in the market, Hamid asserted that the biggest challenge for enterprise startup is falling in either of the following categories: Becoming a software company that's in the "walking dead zone" with $20 million to $30 million in recurring revenue or growing to be a $100 million to $200 million company that goes public.

Yet Stein took a more optimistic approach, positing that "once you have companies that are paying you in a reliable way for your product, you should be able to make a go of it at that point."

"At some point, gravity catches you if your churn rate is too high," Stein added.

Google Ventures as an entity

One topic up for brief discussion was how Google Ventures fits into the Valley, debating why the Internet giant is spending $3 billion over the next decade when it was referred to as "essentially a search engine company."

"It's important that Google starts a fund to give back to the ecosystem," responded Chan, citing that Google co-founders Larry Page and Sergey Brin were funded by Sequoia and Kleiner Perkins.

Stein jokingly asked if Google Ventures is the California-based Mountain View corporation's "thank you" to the technology sector.

Chan sort of affirmed this with a chuckle, but reiterated that it's about investing in companies that develop innovations around bio-fuels, cancer treatments, and other things that have a huge impact on the world.

For Stein, he acknowledged that Google Ventures has been consistent about being a separate, traditional VC firm. He also admitted that Google Ventures has been "a real leader" among the venture capital groups in adding services beyond the money, influencing other firms to follow suit.

Stein continued that his firm is in favor of any company that puts more money into the ecosystem and encourages innovation, implying Google Ventures fits the bill.

Topics: Start-Ups, Cloud, Enterprise 2.0, Enterprise Software, Tech Industry

About

Rachel King is a staff writer for CBS Interactive based in San Francisco, covering business and enterprise technology for ZDNet, CNET and SmartPlanet. She has previously worked for The Business Insider, FastCompany.com, CNN's San Francisco bureau and the U.S. Department of State. Rachel has also written for MainStreet.com, Irish Americ... Full Bio

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