Chris Baldwin, General Partner, Charles River Ventures

"The days of a 10x return on your investment are gone - it's more like three to four times what you put in, now."

August 1, 2002

8 Min Read
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Try managing a portfolio of startups in the high-tech sector today -- including one or two in the telecom equipment market -- and you might not feel that inclined to bound out of bed, galvanized by the day's possibilities, on any kind of regular basis.

That is, unless you happen to be Chris Baldwin, who has just won a promotion to general partner at Charles River Ventures (CRV), an early-stage VC firm with an emphasis on storage networking, optical technologies, and next-generation computing (see Baldwin Makes General Partner at CRV).

"I still love it," he says.

Baldwin (who's not insane!) has been at CRV for three years and currently serves as a director on the boards of Acopia Networks Inc., EqualLogic Inc., Mariko Systems, Nauticus Networks Inc., Picolight Inc., Pirus Networks, and Storigen Systems Inc. (See EqualLogic Takes Flight, Acopia Founder Quits, Nauticus Closes $21M Round, Nauticus Nabs $5M, Pirus Takes Channel Challenge, Pirus Ships Switch, and Storigen Ships Cache of Many Colors.)

Baldwin had considerable success in the data communications industry before joining CRV. He was VP of marketing for Argon Networks, which was acquired by Siemens AG (NYSE: SI; Frankfurt: SIE) in 1999 for $250 million. Before Argon, he spent three years at Cascade Communications as director of marketing, which was sold to Ascend for $3.7 billion. And Ascend was later sold to Lucent Technologies Inc. (NYSE: LU) for a whopping $20 billion. Not bad going.That might go some way towards explaining Baldwins extraordinary enthusiasm. There is a Byte and Switch school of thought that says: If you want to succeed in the stock market today, you need to be seriously rich in the first place. We recommend old money! (Just teasing, Chris.)

We interviewed Baldwin a year ago on why the storage networking market was hot (see the interview). One year later, Senior Editor Jo Maitland caught up with his latest views on:

Byte and Switch: What are your extra responsibilities as a general partner?

Chris Baldwin: Oh... no one told me about those. Good question!

Byte and Switch: Do you get to take longer lunches?Baldwin: I wish!

Byte and Switch: So what does it mean to be a general partner, then?

Baldwin: Well, it means I've become a significant part of the landscape and my track record is put up there for people to see. It's all about the DNA of the people involved, unlike a company with a CEO that sets the direction, a venture capital firm is more of a collective thing.

Byte and Switch: So they picked you because you are an agreeable sort of person?

Baldwin: No, not necessarily; you need to have a strong point of view. The position is more of a confidence-building job.Byte and Switch: How do you stay confident in these grim market conditions?

Baldwin: Well, CRV has been at this for 30 years or more, so we’ve been through this before... The inherent nature of risk/reward is that they both scale up. The risky aspect comes with the territory, really. It’s all part of it.

Byte and Switch: How has your investment strategy changed from a year ago?

Baldwin: The amount of money you can put to work on any project has come down, because the amount you get back in a sale or an IPO has come down considerably. The days of a 10x return on your investment are gone -- it’s more like three to four times what you put in, now.

Byte and Switch: What went wrong at Cereva Networks Inc.? [See Cereva Is Cerover, Xwave Opens Storage Center.] [Ed. note: CRV was not an investor in Cereva.]Baldwin: The question was how much would they still have to put in to keep it going in this tough environment. They were at the high-burn-rate stage of the company and needed revenue, but customers don’t necessarily want to buy that kind of technology from a startup -- and if they do, they are going to wait and see if the company sticks around. It's expense against time, and time is not our friend today.

Byte and Switch: What do you mean by "that kind of technology?"

Baldwin: Well, I never really had a crisp understanding of the product, but I believe it was a high-end system to compete with EMC Corp. [NYSE: EMC], aimed at the SSP [storage service provider] model. But the premise for this went askew with the collapse of that market.

Byte and Switch: Does this mean the other companies in that space -- 3PARdata Inc. and Yotta Yotta Inc. -- are doomed, too?

Baldwin: The wild card in the deck is execution. If they can make efficient use of their funding, scale the sales and marketing part of the business, and still support their burn rate while customers make up their minds, they might have a chance.Byte and Switch: How do startups know how much they are worth these days?

Baldwin: Good question. Working out valuations is something of a black art. You look at the revenue momentum and the prospects for the market the company is in. It’s no more difficult than working out public company valuations... You talk to sell-side analysts, look at revenue, prospects. But it’s not a guarantee -- look at the swing in EMC's stock price. It seems to have changed some.

Byte and Switch: Aye! Just a wee bit. [Ed. note: EMC is down from $80 at the start of 2001 to about $6.70 today.]

Byte and Switch: Has the bubble burst for storage networking, or are there still opportunities to invest in this sector?

Baldwin: Being the fifth company chasing Pirus is not a good idea. We look for investments not connected to hype-driven opportunities. In times of downturn, we want companies that are at cash-flow breakeven point and generating sales. Those that can dip into working capital are an ideal setup; this way, they can take care of themselves. The idea is to have a bunch of these lined up on the shelf that could become IPOs.Byte and Switch: Acopia appears to have had a few problems lately, leading CEO Dan Boudreaux to leave. What happened there? [See Acopia Founder Quits.]

Baldwin: No comment.

Byte and Switch: When we interviewed you this time last year, you said storage networking would be the theme for 2001 to 2005 and that it would be mainstream in 2003, 2004. Do you still agree with this? [See our interview with Chris Baldwin.]

Baldwin: Yes -- it’s quite prophetic, if I may say so.

Byte and Switch: We asked you if you liked any of the SSPs, and you said, "Not much," but that Storability Inc. was an interesting one. Given that it has just sold off its managed service business to Storage Technology Corp. [StorageTek] [NYSE: STK] for not very much money, you must be glad you steered clear, right? [See StorageTek Buys Storability Assets.]Baldwin: I liked their technical approach -- which is what they are moving into -- a software business. SSP as a business model is what I had a problem with. It makes sense as a service offering for StorageTek. They have the customers and the service relationships as it is now.

Byte and Switch: Are there any other sectors of the storage networking market that have received funding that you think are ill-conceived?

Baldwin: No comment. A prophet of doom is a cad everywhere he goes...

Byte and Switch: Right, but you've got to stick your neck out on a limb sometimes, right? [Ed. note: I think we've opened a Pandora's box of worms here?]

How about virtualization, Chris? You were unsure about its merits the last time we spoke. You said it adds another layer of complexity. Have your views on virtualization changed at all, given the relative success of companies like DataCore Software Corp. and FalconStor Software Inc. [Nasdaq: FALC]?Baldwin: I’m marginally more favorable to it, but not so much that I've done much about it...

Byte and Switch: Fair enough. What do you think of the current state of the InfiniBand market? It seems to have taken a bit of a bashing lately. [See Microsoft Backs Off InfiniBand and Intel Bails on InfiniBand.]

Baldwin: InfiniBand will be a great internal fabric for high-end appliances built on cluster aggregations of compute elements. I'm less sure about its prospects as a native interconnect for next-generation data centers.

Byte and Switch: Do you think Andiamo Systems Inc. [the SAN switch startup Cisco Systems Inc. (Nasdaq: CSCO) may eventually spin-in] poses more or less of a threat to Pirus today than it did a year ago, and why? [See Cisco Owns Up to Andiamo.]

Baldwin: Andiamo appears to have gotten out in record time, so it would seem to be more of a threat. It appears to be a pure Fibre Channel/virtualization play to start off, which was a shrewd credibility-building move on Cisco's part: the IP/Ethernet advocates showing their FC expertise.Byte and Switch: Is Brocade Communications Systems Inc.

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