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Think Big. Move Fast.

When Avi Networks founders Umesh Mahajan, Murali Basavaiah, and Ranga Rajagopalan first came to Lightspeed in 2012 with their vision of bringing the benefits of a hyperscale approach to application delivery and layer 4-7 services, it made perfect sense to us.  We had seen Lightspeed portfolio company Nicira disrupt networking layers 2-3 with an architecture that consisted of highly distributed scale out software elements coupled with centralized control, culminating in an acquisition by VMWare for $1.25B in the summer of 2012.  We were seeing further evidence of “hyperscale envy” by Fortune 1000 enterprises from our early investment in Nutanix, a company that brings “Google-like” converged compute and storage functionality to businesses of all sizes.  In fact, the Avi vision made so much sense that Lightspeed venture partner Guru Chahal, who had worked closely with the founders to define the product, immediately joined the company as VP Product.

To understand why the Avi product makes so much sense, you first need to understand the problem. That is, datacenter infrastructures were designed for a three-tier architecture world, yet we now live in a mobile-to-cloud world.  Virtual Machines (and soon containers) are everywhere – and they are frequently in motion between data centers and clouds. New applications are being created and deployed at an explosive rate and an army of mobile users are demanding the same application performance as desktop users.  Monolithic approaches to application delivery simply don’t work anymore.  The hyperscale giants, companies like Amazon, Facebook, and Google saw this problem first.  They’ve since mothballed fleets of proprietary systems and developed their own analytics-driven highly distributed scale out software to enable an agile, adaptive, and reliable infrastructure to meet the needs of their most demanding application users.

For the first time, Avi brings the benefits of hyperscale application delivery to enterprises of all sizes, for on-premise or cloud-based applications – all at a fraction of the price of monolithic solutions.

At the heart of the Avi solution is a revolutionary approach called Hyperscale Distributed Resources Architecture, or HYDRA. Like Nicira did for layer 2-3, Avi separates the data plane, in this case highly distributed layer 4-7 microservices, from the central control plane, to enable the agility, adaptivity, and scalable performance demanded by today’s modern enterprise.  In addition, Avi employs inline analytics to not only provide insights into application behavior, but also to power a closed-loop application delivery infrastructure that essentially tunes itself.

Avi Networks officially came out of stealth today, armed with several Fortune 1000 customers in pilots and production.

As we look towards the future, companies like Avi, Nicira, and Nutanix will make “Hyperscale envy” a thing of the past…

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Once every few years, the combination of a couple of macro trends allows for a new software category to emerge. At Lightspeed, we believe such a confluence of macro factors is coming together to create the next big software category: Customer Success Management. And today, I am thrilled to announce Lightspeed’s investment in the leading startup in the customer success management space, Gainsight.

Our investment thesis for Gainsight is pretty simple: As customers increasingly interact with products / businesses online, a wealth of data on the frequency and depth of product usage, customer-vendor interaction (webinars, support tickets, NPS surveys etc.) and background of the customer engagement (size of company, contract, is the primary buyer still at the company?) can be analyzed to identify which customer engagements are going well, and which ones are not. In recurring revenue businesses, these signals manifest themselves in the form of customers that are at risk of churning out, or opportunities ripe for upsell. In other businesses, these signals manifest themselves in terms of whether the customer came back to buy more product/services or not. Additionally, at a time when even a little bit of customer dissatisfaction can travel far and wide through social media and other online forums, companies just cannot afford to drop the ball once they’ve made the initial sale to the customer. In this new world, customer success and account management has gone from being a cost center to a revenue imperative.

As these twin trends of (a) more data to analyze customer engagement and (b) increasing need to keep the customer happy throughout the engagement come together, Gainsight is firmly positioned to be the defining company in the customer success category. Gainsight not only provides its customers the ability to analyze internal/external data to measure customer happiness, it also provides the workflow and collaboration tools to the customer success, customer support and sales teams to act upon the insights being generated by their platform.

When most people think of customer success, or what Gainsight does specifically, they associate it with renewals management in recurring revenue businesses. While that is definitely where Gainsight started, that is only the tip of the iceberg. Gainsight’s vision of customer success is much broader than just enabling annual renewals, and we’re already beginning to see an expansion beyond SaaS/tech companies in Gainsight’s customer base. Gainsight’s vision is to place customer success at the heart of every conversation a vendor has with their customer. In my mind, this is a very important part of our investment thesis here. Every company that intends to have a repeatable engagement with its customers needs customer success. We live in a world where regardless of business model, companies can measure customer satisfaction through social media, NPS surveys, support tickets, online usage of the product, whether the customer is attending your webinars and conferences or not, etc. We also live in a world where one bad customer experience gets amplified through social media and can damage a brand at a global scale within minutes. While social media and customer support solutions provide the tools to react to such scenarios, Gainsight offers the toolkit to be proactive about customer happiness, not just when someone is complaining online or when it’s time to renew a contract. In this day and age, any company that does not have a dedicated customer success team is sending out a clear message to its customers as well as prospects that it doesn’t care about them.

I’ve had the pleasure of getting to know Nick and his team well since early 2013, and have been blown away by their expansive vision for customer success. In the last two years, Gainsight has gone from being an early stage startup that focused on account management to starting a movement around customer success. Nick has put together a great management team around him, and Gainsight is leading this movement from the front. We’re thrilled to be backing Gainsight in this journey, and are looking forward to helping them build the next big software company.

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Today we are excited to announce that we are co-leading the first venture round in Blockchain, the leading Bitcoin wallet; a $30M Series A.

We have been studying and investing in the Bitcoin space for a couple of years now and have posted actively about our thoughts on Bitcoin since then. We first met the Blockchain team at the inaugural Bitcoin Foundation conference in San Jose in early 2013 where we were one of very few VCs in attendance. Since then we have continued to meet with the team regularly, including at this year’s Bitcoin Foundation conference in Amsterdam, and making a field trip out to the company’s founding headquarters in York, England.  Through that time we have come to hone our thesis on Bitcoin and build our enthusiasm for Blockchain. This investment is by far the largest one that we have made in the Bitcoin space.

Right now, a lot of attention is being paid to the Bitcoin price which has been steadily drifting downwards since it peaked in December 2013. We think that this focus on short term price fluctuations is misguided. Bitcoin is a long game that will be played out over a decade or more. In a success case, Bitcoin will become a payment mechanism as widely accepted as Paypal or American Express, and a major world currency. This has the potential to massively disrupt the financial services sector. Widespread Bitcoin adoption will enable various other applications of its distributed ledger, including smart contracts and more.

All that being said, it is still early days for Bitcoin. We expect much to change over the coming years. In as fluid an environment as this one, the value lies in the strategic high ground. We believe that in the Bitcoin ecosystem, the wallet is the strategic high ground. Wallets own the relationship with the consumer and every transaction begins and ends with a wallet. Unsurprisingly, this is the area that has attracted the most VC Investment, including Coinbase ($6M Series A and $25M Series B), Xapo ($20M Series A and $20M Series A1) and Circle ($9M Series A and $17M Series B).

Blockchain wallets over time

Blockchain is the largest Bitcoin wallet, with about 2.3M wallet accounts at the time of writing (see growth chart above) relative to the 1.7M wallet accounts at Coinbase at the time of writing. Although Xapo and Circle have not publicly discussed how many accounts they have, given that they have only publicly launched in the last few months, it is likely that Blockchain has more Bitcoin wallets than Coinbase, Xapo and Circle combined. Blockchain is also growing more rapidly, having added 500k new accounts since mid July, during which time Coinbase added 300k new accounts. Blockchain’s market leadership was a key reason for our decision to invest.

The other key reason for our decision to invest in Blockchain is its user-controlled architecture, which contrasts to a custodial architecture.

Custodial wallet companies take custody of customer funds, much like a bank does. They take actions on your behalf. One of the key advantages of an online custodial wallet is ease of use – online custodial wallets map onto users’ current mental models of a bank. These wallets can simplify buying and selling Bitcoin by acting on your behalf, obscuring the complexity of actually using Bitcoin.

The downside of an online custodial wallet is that the wallet company literally controls your account and makes transactions on your behalf. This creates a potential security risk. If, either through a hacker’s attack or internal action, a bad actor gains entry into the wallet’s internal systems, they are able to steal money from all the users accounts. This is the way that every failed Bitcoin wallet or exchange (including Mt Gox) has been compromised.

The best online custodial wallets mitigate this risk through various mechanisms including cold storage, physical and IT security, multi-sig accounts and insurance, but it is impossible to completely eliminate the risk that a sufficiently determined and patient attacker who has access to internal systems can compromise all accounts. The more successful a wallet becomes, the greater the prize available to a successful attacker, with the same level of work to breach the system.

The original Bitcoin wallets were client wallets and were all user-controlled. User-controlled wallets never have control over customer funds, so they look more like software than like a financial institution. An analogy might be an online safe to which only the customer has the key.  Client wallets run the risk of loss if the computer or phone where the client is installed is lost or stolen.

Blockchain is an online, user-controlled wallet. It runs in the cloud, so it does not expose a user to risk of Bitcion loss if a computer or phone is lost.

The downside of user-controlled wallets is that they cannot help a user if they forget their password, in the same way that a safe manufacturer cannot help a customer if they forget their safe combination. Also, because user-controlled wallets cannot transact on behalf of their users, they need to work through third parties to help users buy and sell bitcoin.

However, a user-controlled wallet is a less attractive target for theft/hacking. Instead of breaching a single internal “master system”, an attacker would need to compromise each individual wallet, one at a time, without knowing in advance which wallets are empty and which have high balances.  Under this model, the amount of work an attacker has to do scales with the number of accounts, making it a less attractive target for attack.

So to sum it up, our investment thesis is as follows:

  1. Bitcoin has the opportunity to be a big disruptor in financial services.
  2. Wallet companies will occupy a central position in the Bitcoin ecosystem since they own the relationship with the consumer. This is the area that has attracted the most VC investment.
  3. Blockchain is the biggest wallet company and is currently growing faster than the #2 player.
  4. Blockchain’s user-controlled architecture will prove to be more valuable over time, leading it to maintain and increase its leadership position.

We have spent the last two years carefully studying Bitcoin and have spent time with most of the companies in the space. We have met many excellent management teams and made a few other investments in the space, but with Blockchain we are writing our biggest check so far. We are very excited about working with the team to help Blockchain realize its full potential, and to help Bitcoin realize its full potential!

 

 

 

 

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I recently wrote about this idea of the “Product Person” and how important it is for startups to have visionary artist DNA in its founding team. They are truly rare and it’s a big reason why so few startups succeed.…

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Who is the Product person? When we talk about early stage venture capital at Lightspeed, this is the single most important question we can ask when making an investment.

Why?

Because the product person is the artist with the vision …

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Our freshly minted investment in Comprehend (www.comprehend.com) was announced today. We are thrilled to back co-founders Rick Morrison and Jud Gardner and their team as they continue their mission to use next generation data analytics to help life …

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We are excited to announce our new Series A investment in EverString (www.everstring.com)!  CEO and co-founder Vincent Yang, a mathematician by training, had built a system while he was at Summit Partners, a private equity firm, to comb …

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Business Intelligence (BI) is the gift that keeps on giving. For years, startups have popped up, promising better insights and faster decision making capabilities, consistently resulting in new waves of highly valued companies. Take a look at the past decade, …

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Congratulations to Tony Fadell, Matt Rogers and the world class team at Nest!  Today Nest announced that it has agreed to be acquired by Google.   As investors in the company since the early days, we here at Lightspeed have been …

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Today is an exciting day for Nimble Storage. We are fortunate to be early investors and partners to the company, having made our initial investment during the depths of the global financial collapse in late 2008. Nimble successfully completed its …

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