Salil Deshpande never really imagined life as a venture capitalist before he was one.
The former software engineer and startup founder never considered life on the other side of the fence when he was putting himself behind enterprise startups. It wasn’t until he took a couple years off from life as a founder that his attitude began to change. He credits the ability to “relax and have a sense of humor” to his success.
“I think, mentally, I had made the transition from player to coach somewhere around the mid-2000s, right around the time I was taking time off after having kids,” Deshpande said. “I think that’s helped a lot.”
Deshpande is a managing director at Bain Capital Ventures, focusing on infrastructure software and open source technologies. At Bain, he has led investments in companies such as Typesafe, Redis Labs, Aria Systems, Hazelcast and Concurrent. He joined Bain Capital Ventures in 2013 after working at Bay Partners for the past seven years and he has made the Forbes Midas List in 2013 and 2014. According to Deshpande, much of his success, especially with early stage companies, has been directly related to his years as a software engineer.
“For early stage software infrastructure I wouldn’t know how to do this job without having been an engineer and a founder and a practitioner for many years,” he said.
Software infrastructure product sales generally require a lot of technical expertise. Products are made by engineers for other technical buyers, usually engineers. If you’re not an engineer, it’s harder to have a visceral sense of the technology. It is especially difficult to relate to the buyer when you are dealing with an early stage company, because you don’t have customers that you can use as a proxy to show value.
When it comes to the companies he invests in, Deshpande prefers the companies that don’t have to sell to the CIO, or anyone with a manager title for that matter. He acknowledges that isn’t possible in all cases, but it explains why he is particularly passionate about software infrastructure that can be delivered as open source or SaaS.
He pictures a corporation as a house, with a CIO or CISO is guarding the front door. No one is guarding the side doors, so SaaS products like Salesforce.com can sneak in the side door if they are acquired by an individual department, and then they slowly fold into the company.
Open source, he said, comes up through the floorboard. Open source software are generally very technical products that quickly get integrated into other products. Engineers can set it up and combine it with existing code, and it has the possibility of eventually becoming mission critical. This makes companies that provide support, or an enterprise version of the open source products, paramount.
As this allows individual departments and silos to innovate on their own, it is beginning to change the face of corporate IT. According to Deshpande, IT is still important, but it is no longer strategic to the business.
“In the 90s, we were in the phase of the cycle where everything IT was doing was strategically important, it was an arms race,” he said. “IT enabled you to compete, and the moves that IT made enabled you to influence how well your organization could compete. That’s no longer the case. IT has changed from being a strategic center to a cost center.”
While that might not be the best situation for IT, it creates rampant opportunities for new enterprise startups. Deshpande said that software infrastructure is “in a renaissance period.” As things get rewritten and reinvented, the new ways of doing things are quickening the pace for the rest of the market.
However, he notes that what’s happening in the IT revolution, over the last few decades, has outpaced people’s expectations. And, he said, those expectations have been changed in Silicon Valley as well.
“Sometimes the progress that we make, even far outstrips our own expectations. And, we’re still in that period,” Deshpande said. “So, that makes it a little tricky to say whether valuations are fair or whether our expectations have stretched too far, but I think we’re in a really good spot.”
Still, he maintains that the environment for new infrastructure companies is a constructive one; a great time to start companies and a great time to raise money. For growth companies, valuations are high and that makes it difficult to find diamonds in the rough, but he doesn’t think that’s true for early stage companies. This industry knowledge is precisely what made him a candidate for Bain Capital Ventures when he came on 18 months ago.
Deshpande graduated from Cornell University with a degree in electrical engineering in 1989, and later graduated with a Masters Degree in electrical engineering from Stanford University in 1991. His first job out of Stanford was working as an engineer for Sun Microsystems. It was there that he got interested in CORBA middleware which led him to leave and start a company to focus on CORBA tools, which eventually got acquired by a CORBA vendor called Visigenic.
After Visigenic was acquired by Borland, Salil decided to leave and start another company focusing on Java middleware. He ran it for three years before it was acquired by a Java performance tool company called Precise. The COO of Precise at the time, the person who decided to buy his company, is now one of the other managing directors at Bain Capital Ventures and a major reason why Deshpande decided to join Bain Capital Ventures.
His third company was called TheServerSide.com, which was acquired by TechTarget. At this point, around 2004, he took two years off to invest in his family and decide what to do next. His kids were three and five at the time and he wanted to spend more time with them.
He joined Bay Partners as an EIR, quickly rising in rank to partner, and then general partner. He was with Bay Partners for seven years before he moved to Bain Capital Ventures in early 2013. At Bay Partners he invested $85 million into 20 companies and, so far, at Bain Capital Ventures he has made six investments for an aggregate of $35 million. While being an investor is much different from life as a founder, there’s nothing he’d rather do.
“I really love this job and, right now, I can’t imagine doing anything else,” he said.
In his own words…
What’s one thing you do every day?
“First of all, I wish it were working out. That’s one thing I need to do everyday but, it’s not on my list of must do things everyday. Lately, I am completely hooked on this really boutique coffee called Philz Coffee. It opens at 6 a.m. and one thing I must do is be there at 6 a.m. to get that cup of coffee, because they hand brew every cup according to your preferences.”
What’s your No. 1 philosophy about work?
“You have to love your work. You have to love what you do, day to day; and everything else is secondary, because your happiness is primary. If you’re loving what you’re doing everyday, than you’ll work harder than people who don’t, certainly, and it won’t feel like work. And, that’s really important because starting a company or doing anything unusual, doing anything that not everybody does is hard, and you have to make sacrifices. Those sacrifices are easier to make when you’re loving what you do every minute.”
What is something you would tell yourself at the start of your career?
“Enjoy this moment.”
What do you mean by that?
“I think a lot of competent, intelligent, and driven people get very focused on goals; and sometimes they forget why the goals are their goals. Are they trying to prove something to themselves, or their parents, or their peers? What is a particular goal a goal? I think if you keep peeling the layers, you often realize that the reasons for the goals are surprising. So, I think the most important thing is our time here is finite and you have to enjoy doing what you’re doing.”