Triple Threat

Anu Nigam knows what it takes to run a successful startup. You’ve got to be good, you’ve got to be lucky, and you’ve got to be in the right place at the right time.

He was certainly all those things back in 1999, when he played a major role in two of the biggest venture deals of the dot-com era: Cerent Corp. and Siara Systems.

For those with short memories, Cerent and Siara were the brainchild of legendary investor and former Kleiner Perkins partner Vinod Khosla. In the halcyon days of 1996, Khosla saw the future, and that future was optical networking.

Several years later, just before the turn of the century, Khosla’s vision paid off. In an unprecedented four-month period, Cisco Systems acquired Cerent for $6.9 billion and Redback Networks snapped up Siara for $4.7 billion.

Nigam, for his part, was a lead engineer and part of the founding team at both these companies. At the ripe old age of 28, after four years of incredibly hard work, he found himself fabulously wealthy.

But the gravy train didn’t last long. As the dot-com bubble burst, so did the value of his stock holdings. “Sure, I made money, but I proceeded to lose most of it,” jokes Nigam, now 36. “I don’t have enough to retire.”

In fact, he did semi-retire for a few years, traveling the world, dying his jet-black hair platinum blonde and generally having the time of his life.

But by 2002, the siren’s call of the startup world beckoned once again. He missed the adrenaline rush of working on a technology that could potentially change the world. He wanted once again to ride that rollercoaster of highs, lows and near-misses that only a startup can provide.

Today, he’s back in the game with his latest startup called BuzzBox. The company, which is now on the prowl for its first round of funding, makes a fast-forward button for browsers. Press the button while surfing and it takes you to the top Web page people went to after the one you’re currently viewing. The product has interesting potential for online advertising and data mining.

Nigam is also an active angel investor in dozens of startups and is a vice president and board member of Sand Hill Angels, an angel-investing group of 70 accredited investors. After watching Khosla strike gold time and again, he’s following in the great investor’s footsteps. “Vinod sees an emerging trend and puts his money where his mouth his,” says Nigam. “He gets in very early, makes big bets and lives and dies by them. He has huge hits and huge failures. But he plays the game like no one else and it pays off in the end.”

Khosla’s investment approach really impressed Nigam, especially when compared against other venture capitalists. “VCs are all smart guys, but they do have a bit of a herd mentality,” he says.

Anu was willing to take a bet on both my co-founder and myself when many others were unwilling. He was very helpful in the beginning when we were fleshing out our product strategy and vision, and his energy and attitude helped us get through some rough periods.”

Akash Garg

The average VC, he notes, has to justify to general partners and limited partners why he or she is investing here and not there. That’s why it’s easier to back an idea that other people are also betting on. But a select few, like Khosla, are brave enough to take a risk on something that no one else has ever tried.

Nigam does not put himself in Khosla’s class, but he says he was trying to emulate him when he did his very first venture deal in late 2002. Two of Nigam’s friends, Ramu Yalamanchi and Akash Garg, had just started a new kind of online dating site, which at the time was called

Nigam loved the idea for two reasons. First, it was the post-bubble economy, and he reasoned that when the economy goes bad, more people turn to romance. Second, it targeted the Indian community. The site was not just for people looking to hook up. It was actually a social network that encouraged friends and family members of single Indians to join as well, because these were the people who could make the right introductions and connections.

Nigam was the very first investor in the company. He spent two years there in an operational role, introducing the founders to VCs, building up the team, and engaging in a variety of marketing functions. By the time he left, the company had changed its name to hi5 Networks and morphed into a mainstream social networking site in the vein of MySpace and Facebook.

“Anu was willing to take a bet on both my co-founder and myself when many others were unwilling,” says Garg, hi5’s chief technology officer. “He was very helpful in the beginning when we were fleshing out our product strategy and vision, and his energy and attitude helped us get through some rough periods.”

One such rough patch occurred in the middle of 2003, when it became obvious that the original dating site model wasn’t going to work. “We needed to change direction,” says Garg. “Anu was extremely supportive and helpful as we made the transition from a dating site into full-fledged social network.”

Today, hi5 is one of the world’s largest social networks, with more than 80 million registered members in some 200 countries. The company raised $20 million from Mohr Davidow Ventures in 2007 and is currently the 25th most visited website on the planet. Hi5 has hit a speed bump or two of late, undergoing a round of layoffs in March, but Nigam, who’s no longer involved with the company, still believes it will be a great investment.

“That’s the thing about investing in startups: You never know how much you’re going to be worth until the very end,” he says. “But one thing’s for sure: the bad deals die early and good ones take forever. They keep you waiting and waiting.”

Since his first taste of success with hi5, Nigam has invested in some 30 startups over the past seven years. At first he was investing as much as $200,000 per company, but these days he typically puts in $25,000 or less.

Like any good investor, he’s had his share of success—and failure. Deals that have flamed out include an electronic design automation startup that was doing proxy acceleration and an IT outsourcing company. Another deal that looked promising but fizzled was a company called Drop Spot. It allowed consumers to exchange their old iPhones for gift cards at leading big box retailers.

Nigam learned some valuable lessons from these failed deals. “I learned to put smaller amounts in each deal,” he says with a wry smile. He’s also learned to tell the difference between an entrepreneur who talks a big game and someone who has actually thought through every angle of the business—from the technology risks to the marketing strategy—and who can answer tough questions quickly and truthfully, without hemming and hawing. At the end of the day, the best entrepreneurs also know exactly what their job is: to return money to investors.

Anu was extremely valuable in our last fund-raising in March. His feedback really helped us hone our pitch.

Eric Koger

Nigam tries to avoid inflexible founders he thinks aren’t good at taking advice or changing direction when needed. But he also knows that angel investing is something of a crap shoot.

“In almost any deal, whether it’s Cerent or Siara or whatever, there has to be 50 different things that work out,” he says. “At the time, you always think it’s about you. But when you look back, you see there are all these other small things that need to come together if you want to hit it right.”

To date, Nigam’s had two successful exits through Sand Hill Angels: Opelin, a provider of online services such as storage and data migration, and BiPar Sciences, a cancer drug maker. Opelin was acquired by Hewlett-Packard last year, while BiPar was acquired by Sanofi-aventis three months ago. “We made four or five times our money,” says Nigam.

Stephen Schneider, a fellow Sand Hill Angels board member, calls Nigam a “bright, energetic, creative and ethical investor who cares deeply about entrepreneurs.” He says Nigam has made significant contributions to the group in terms of identifying new deal opportunities and conducting rigorous due diligence. He even introduced an innovative way for the group to source new deals and expedite deal flow, says Schneider.

Deals that Nigam has made through his personal network include ModCloth, an online retailer of indie and vintage clothing. Nigam went to the same university (Carnegie Mellon) as the founders and was deeply impressed with their passion and vision for the company.

“Anu’s been an excellent investor for ModCloth. He’s not demanding, but is available for advice when needed,” says ModCloth CEO Eric Koger. “He’s well informed, and provides a lot of insight into consumer media and positioning. He was extremely valuable in our last fund-raising in March. His feedback really helped us hone our pitch.”

Another investment with real potential is cloud computing company 3Tera, which was recently named to InformationWeek’s list of top 50 startups. Nigam found this deal through the power of social networking. Actually, the deal found him. 3Tera founder Vlad Miloushev contacted Nigam after reading his LinkedIn profile. “I used to get two to three business plans a week just through LinkedIn,” says Nigam.

Nigam also keeps busy with his own startup, BuzzBox, which he founded with two partners. The company is currently looking for its first round of funding. In fact, Nigam pitched the company to one prominent VC whom he invested alongside in another deal. “I was one slide into the presentation when he made me stop,” says Nigam. “He told me there are three kinds of VCs. Those that say yes and invest in your deal, those that say nothing and string you along forever, and those that say no right away. Obviously, he was that last kind.”

Nigam appreciated his honestly but wished the VC would have at least allowed him to finish the presentation. “I’ve been on both sides of the table, so I know that as an entrepreneur you need to have a thick skin and take constructive criticism. But it’s still a punch in the gut when someone says ‘no.’”

No matter what happens with BuzzBox, Nigam plans to be involved in the startup world as a founder or investor for the rest of life. He’d even like to try his hand working at professional venture fund.

“It would be very interesting to see how VCs make their decisions and understand the pressures they face from LPs and GPs,” he says.

I’ve been on both sides of the table, so I know that as an entrepreneur you need to have a thick skin and take constructive criticism. But it’s still a punch in the gut when someone says ‘no.’”

Anu Nigam

But ultimately, he adds, the best investors aren’t in it solely for the money. “It’s really about the fun and excitement of being there at the beginning—and envisioning the future.”

PROFILE: Anurag “Anu” NigamFounder and CEO, Vice President and board member, Sand Hill AngelsAGE: 36

BORN: Bombay (now Mumbai) and grew up in Chelmsford, Mass.

EDUCATION: B.S. in electrical and computer engineering, Carnegie Mellon University, 1994.

WORK HISTORY: ASIC Lead and co-founder of Cerent Corp., September 1996 to July 1998; Technical Lead and co-founder of Siara Systems, July 1998 to September 2001; VP and Board Member, Sand Hill Angels, May 2006 to present; CEO of BuzzBox, December 2007 to present.

INVESTMENT FOCUS: Consumer IT software and consumer devices and biotech.

SAMPLE INVESTMENTS: 3Tera, BiPar Sciences, hi5 and ModCloth.

PERSONAL: Single and searching.

DID YOU KNOW? Nigam lives in a rent-controlled apartment in San Francisco’s Marina district.

Source: VCJ reporting