Chris Baldwin

The Byte and Switch Interview

In The Spotlight: Chris Baldwin, partner, Charles River Ventures

As a partner at Charles River Ventures, Chris Baldwin has played a pivotal role in funding storage networking startups like Pirus Networks, Nauticus Networks Inc., and Storigen Networks.

He says hes learned the hard way about picking not only the right company but also the right moment -- to invest in a startup in the first place and also to cash in his chips at the appropriate moment.

“I’ve done it all,” he says. “I’ve been too soon, on time, and too late, which is probably the best training for a VC.”Among Baldwin’s trophies is the sale of Argon Networks to Siemens AG (NYSE: SI; Frankfurt: SIE) for $235 million in 1999. Argon was one of three acquisitions that formed the foundation for Unisphere Networks Inc. (Nasdaq: UNSP). Unisphere has had its problems with Argon (see Unisphere Trips, Stumbles ), although its president, Jim Dolce, maintains that Argon's switch is far from dead (see Jim Dolce).

So, chalk that one up as good timing.

Prior to engineering Argon’s sale, Baldwin was a big marketing cheese at Cascade. Baldwin helped build Cascade’s revenues to $100 million before it was sold to Ascend for $3.5 billion, but Cascade's switch went on to become the jewel in Ascend’s crown, helping it achieve a valuation of $20 billion when it was bought by Lucent Technologies Inc. (NYSE: LU).

Bottom line? Cascade probably sold out too early.

Earlier in his career, Baldwin was a whole decade too early at Digital Equipment Corp, where he wrote a Fibre Channel link proposal for the unification of storage equipment with networking equipment. That was in 1989, and the idea didn't get very far with his peers.Along the way, Baldwin has also picked up some impressive optical credentials. He claims to have developed some of the first erbium-doped fiber amplifiers (EDFAs) while working at Polaroid Corp. (NYSE: PRD) in the 1980s. That's a big deal, because the invention of EDFAs paved the way for today's optical networking revolution.

Now that optical technology is back on the agenda and storage networks have become a hot topic, Baldwin is in his element. In this interview, he talks about:

Why he’s so psyched about storage

The possibility of a SAN shakeout
His pet projects
Why he’s a money salesman

Next Page: Psyched about Storage

Byte and Switch: What turned you on to storage networking?Baldwin: I came out of the industry to become a VC in 1999 when networking companies were growing on trees and quickly realised it was time to face a brave new world.

The storage networking market seemed to have some eerie parallels to the networking world of ten years ago. Back when Token Ring, Netware, and Banyan Vines were all proprietary network systems, Cisco Systems Inc. (Nasdaq: CSCO) came in with a multiprotocol device, sat right in the middle, and made it all work together.

Storage networks today are going through the same predicament with incompatible protocols. There’s iSCSI, Fibre Channel, virtual block level, file level, bridging, routing... and none of these will go away fast. So something has to sit in the middle and sort it all out. That would be where Pirus Networks fits in, as it supports IP, gigabit Ethernet, and Fibre Channel.

Byte and Switch: Pirus wouldn’t happen to be a Charles River Ventures investment, now, would it Chris?

Baldwin: Since you mention it yes, Pirus is.Byte and Switch We’ll get to Pirus later, I promise. But first, tell us when you think the explosion is going to happen in storage networking.

Baldwin: It’s happening as we speak, it’s the theme for 2001 to 2005.

Brocade Communications Systems Inc. (Nasdaq: BRCD), the big gorilla, is building block-based storage hanging off FC SANs. Network Appliance Inc. [Nasdaq: NTAP] is building file-based network attached storage along with EMC Corp. [NYSE: EMC], Sun Microsystems Inc. [Nasdaq: SUNW], and IBM Corp. [NYSE: IBM]; and the startups appearing this year are building intelligent, multiprotocol systems and will have products out by 2002, so the market should be mainstream in 2003, 2004.

Byte and Switch: Not to knock the VC community, Chris, but do you get the feeling the VC herd mentality will take effect in this market like it did in optical networking, and we’ll see 25 Pirus clones in six months' time?

Baldwin: A thousand lemmings can’t be wrong. In fact, Pirus [second plug] has attracted two copycats already -- Andiamo Systems Inc., Cisco’s secret company that’s developing a storage networking switch; and Rhapsody Networks, but both are a year behind. The winner is the first to cross the finish line. In this market it's about the quick and the dead.Byte and Switch: What do you think of the SSP [storage service provider] market after all that’s gone wrong with ASPs [application service providers], MSPs [multiservice providers], and all the other SPs?

Baldwin: It’s an evolving story. They’ve done well with secondary storage like archival services and backing-up data somewhere else, but enterprises won’t pay a lot for it. It’s hard to get them to part with their data, which is the crown jewels of the company, and put it on to someone else's network. Providing monitoring and security services on their premises might work.

Byte and Switch: Anyone you like in this space?

Baldwin: Storability, has an interesting model -- they’re not doing the POPs thing but offering to manage storage on the customer premises. [Note: Charles River has not invested in these guys…yet.]

Byte and Switch: Are there any companies that have been funded in this market that have surprised you?Baldwin: There’s a number of players doing virtualization -- which, as far as I can tell, adds another layer of complexity.

It’s not clear that virtualization addresses the fundamental problem of easing management. It means inserting a new box to hide the fact that you have lots of disks. But this stops working when the virtualization box runs out of capacity. What happens when you add disk number 17 and the virtualization device only scales to 16 disks?

The good news is we haven’t solved the problem. The engineers need to go back in and have another look at this.

Next Page: SAN Shakeout?

Byte and Switch: When is the shakeout going to happen in SANs?Baldwin: I’d be lying on the beach in the Bahamas if I knew that.

Actually, it’s beginning to happen now. EMC is the big one on the block to knock off and several companies are lining up for the challenge. Brocade and McData Corp. [Nasdaq: MCDT] have dumb, Layer 2 switches and are trying to figure out their next trick, as a bunch of startups building Layer 3-like intelligent, multiprotocol switches are doing it under their noses.

Byte and Switch:So when are we going to see some acquisitions then?

Baldwin: Again, it’s impossible to say, but perhaps towards the end of next year we’ll start to see some consolidation happening.

Byte and Switch: What do think Cisco’s prospects are?Baldwin: It’s not the young upstart anymore but part of the incumbency, which is a wonderful problem to have -- to continue on with life beats the alternatives immensely. Cisco will continue operating as a professional company focusing increasingly on account control and leveraging its sales channel. It is becoming less of a technology company every day but does have sales forces that reach deep into enterprise customers, so it’s easy to flog a box to them. ”What boxes are companies buying? They are buying disks with bits that flow -- that’s kind of a network thing. We can do that.” This is how they think.

Byte and Switch: What will happen to Brocade?

Baldwin: Like the Cisco/Juniper story, Brocade could get a surprise bite out of its marketshare. The question is how willing are they to respond to the changing marketplace. Probably not very.

Byte and Switch: What are your thoughts on IP versus Fibre Channel?

Baldwin: It’s a religious war -- FC will keep going, IP and gigabit Ethernet will all keep going. Why? Because the Fibre Channel people buying the disks are blockheads not net-heads and this is something Cisco has to face up to. The networking guys in the enterprise are not the same folk as the storage guys.Byte and Switch: Sounds like the net-heads vs the Bell-heads, and Cisco hasn’t exactly convinced the Bell-heads that IP is the way ahead for voice. So why should it be so for Fibre Channel?

Baldwin: Right

Next Page: Pet Projects

Byte and Switch: Let’s talk about the companies you are backing in this space. Pirus Networks is the obvious one -- they are rolling in money right? What are they doing with it all?

Baldwin: They’re on the beach too! [ho-ho!] No, really, the challenge for them is to get traction with enterprise customers. They need the banks and insurance companies and to remember to sell to enterprises not just service providers. The problem is when service providers buy, they buy billions, whereas with enterprises it’s a couple of hundred bucks a pop, which is hard work. So a big piece of Pirus’s strategy is to win enterprise accounts as well as the service providers.Byte and Switch: An enormous fuss is being made about Cereva Networks Inc.. Are they going to blow Pirus away?

Baldwin: No, Cereva is very different. It is doing the curious thing of taking EMC straight on. They’re mounting a frontal assault on the most heavily protected hill -- and they should expect major casualties. Pirus, on the other hand, loves EMC -- it connects to them and Sun and Hitachi and IBM. It is a switch and isn’t trying to be everything else as well, which is what Cereva is trying to do.

Byte and Switch: You’ve also backed Nauticus Networks Inc., which we know is still in deep stealth mode. Can you give us a glimpse of why Nauticus will be important?

Baldwin: No

Byte and Switch: Not even a peek?Baldwin: Not even a peek… Sorry.

Byte and Switch: OK then, what about Storigen Networks, which plans to bring storage to the edge? Why is that important?

Baldwin: There is a reason why we have local libraries as well as national libraries, from the standpoint of getting the book and having time to read it. Akamai fired the first salvo by moving content out to the edge, but it needs to be stored here. This will require smart, cost-effective devices; not big, dumb EMC storage, and this is what Storigen is working on.

Byte and Switch: How is it doing?

Baldwin: They have not formally launched yet but are delightfully far along.Next Page: Money Salesman

Byte and Switch: Ok. So you’ve had a lot of marketing experience. How do you market storage networking?

Baldwin: It’s customer pin points. You need to allow them to do things they couldn’t do before at lower costs.

Byte and Switch: Other than the obvious indicators of what makes a startup succeed or fail, are there any specific Chris Baldwin criteria?

Baldwin: Yes. A compelling new angle, not the fifteenth firm out. I’d rather take market risk than incumbency risk. I want to be on the front end and I go for engineering teams that are proven.Byte and Switch: What irritates you the most during company pitches?

Baldwin: When they say stuff I’ve heard a thousand times before and then look surprised when I tell them I’ve heard it before. It demonstrates they do not know their marketplace.

Byte and Switch: Have you ever drifted off during a pitch?

Baldwin:I tend to stop them before it gets that far. I have a tremendous respect for entrepreneurs, and it’s important that they get something useful from us. Then, occasionally the first idea is no good, but the second or third idea makes some sense.

Byte and Switch:What lessons have you learned over the years in this business?Baldwin: Being a VC is a sales job: To get into the good deals, I’m a money salesman. And then it’s about bringing value to entrepreneurs -- you need a sunny disposition that makes them want to work with you.

Byte and Switch: Where does it leave the VC community when the startups are no longer dreaming of being acquired by Cisco, and the IPO market is in the toilet?

Baldwin: This isn’t news for Charles River Ventures. We have been around for 30 years and succeeded in tough times before. The mantra is to focus on building companies that create products that customers want, rather than boutique designer companies built to ride the momentum of the stock market. This is not, historically, the process of the VC market: Hothouse flowers cannot exist when cold winds blow though the marketplace.

Jo Maitland, Senior Editor, Byte and Switch
http://www.byteandswitch.com