Windsurfing Tai Catches New Wave at CRV –

Bill Tai is so crazy about windsurfing that he’s been known to come back from extreme rides on ocean waves without fingerprints. When you’re soaring eight feet in the air off a five-foot swell, you’d better hold on tight to the boom or you’ll go straight into the drink.

Tai, 40, is still passionate about windsurfing, but he’s decided to scale back his time on the water to make some waves in Silicon Valley as the newest general partner at Charles River Ventures (CRV).

A VC for 11 years, Tai took a step back from the industry about three years ago after his old firm, Institutional Venture Partners (IVP), broke into pieces. He turned down about a dozen offers from big firms, because he was skeptical of the mega-funds that started to appear in 1999. “I effectively stepped off the train and missed the pig in the snake,” he said recently over eggs and turkey-apple sausage at the Late For The Train Cafe in Menlo Park, Calif. “The many sectors that became overheated and over funded represent a giant pig in a snake that’s having difficulty digesting it.”

The Show Me VC

Tai, who may be best known for seed-funding upstart Intel competitor Transmeta (Nasdaq: TMTA), wasn’t sold on CRV when he was first approached by general partner Bruce Sachs.

Even though 30-year-old CRV had a good reputation, Tai was concerned that its 11th fund was too big, and he wasn’t convinced that the firm was truly committed to making a multi-office firm work, like Battery Ventures, Greylock or Matrix Partners. Plus, he was quite happy running his own fund, Authentic Ventures.

He mulled the offer to run CRV’s Silicon Valley practice for about seven months before accepting. He talked extensively with the firm’s partners and looked for a concrete sign that it was really going back to basics.

The CRV partners kept him in the loop as they wrestled with the issue of cutting their fund. Even before Mohr, Davidow Ventures and Kleiner Perkins Caufield & Byers reduced their funds, CRV was having internal discussions last fall about cutting its fund by more than half, he says. The firm wasn’t even drawing fees based on the full size of the fund, he notes.

“The Right Reasons”

CRV’s decision in May to slash its 11th fund by 63% to $450 million, “impressed the hell out of me,” he says. “They’re walking away from about $169 million in fees over a 10-year period. That tells you that they’re in this business for the right reasons.”

As impressive as the fund cut was, it wasn’t enough to get Tai to sign on as the firm’s sixth general partner. He wanted to be positive that the CRV partners were committed to Silicon Valley. Would they be willing to fly out and hold their weekly partners’ meeting in Silicon Valley once a quarter? Sure, they replied. How about changing the time of the weekly meeting from 9 a.m. East Coast time on Mondays to 9 a.m. West Coast time on Tuesdays? No problem.

CRV also paved the way for Tai when it let go of its Silicon Valley Partner Greg Waldorf in March. CRV General Partner Ted Dintersmith says that the move wasn’t related to Tai’s hiring.

Tai is looking to hire another GP to join him in Silicon Valley, and he says that CRV eventually wants to have at least as many investment professionals on the West Coast as it does on the East Coast. Sachs has gone so far as to buy a home in San Francisco so he can split his time between the coasts.

As part of his move to CRV, Tai will continue to manage the five investments he made out of his boutique firm, Authentic Ventures. Those deals are IPInfusion, which makes router software; ImGO, a wireless technology investment company; Kinetic Tide, which makes software for managing storage area networks; RLX Technologies, a server maker; and Tradebeam, a Web-based supply chain service co-founded by Tai and Bill Stensrud, a general partner at Enterprise Partners Venture Capital.

Exit Ahead

At least two of those companies will be off his plate soon. ImGO, which trades on the Hong Kong Stock Exchange, has agreed to be acquired by a Chinese investor group in a deal valued at about $340 million. Meanwhile, Kinetic is being courted by an undisclosed buyer, Tai says.

The transition to CRV means that Tai will reduce his number of board seats from nine to four, including seats he holds as a partner of IVP.

He sees no reason to change his investment pace of about two deals per year, a pace he has kept for the past 10 years. His primary focus will be chips and systems software based around communications and computing. “I’m focused on enabling technologies, traditional technology that’s sold on the OEM level.”

Tai will continue his emphasis on seed and very early stage deals, but he will expand his net to look for select late-stage deals at bargain prices. “I’ll be looking at situations where the company has something that matters but the rest of the market can’t seem to figure out,” he says.

Tai is always on the lookout for a deal that doesn’t fit with the flavor of the month. “If the herd believes that a category is hot, then a company in that space will get over-funded in a way that will discount 10 years of good news into today’s price,” he says. “That means the company has to do everything right for a decade just to get your money back.”

Use the Force

With valuations down significantly and many venture firms pulling back, Tai expects to see lots of good opportunities. “While I was incredibly negative about the investment environment in ’98, ’99 and 2000, it’s unquestionably a better time to be investing now,” he says. He contends that CRV is well-positioned in Silicon Valley because “a fresh new force has the opportunity to sift through the rubble without conflicts or baggage.”

Tai, whose heroes are VCs like Don Valentine, subscribes to the old school of venture capital, which tries to identify core technologies that will lead to the growth of significant companies, and, subsequently, good returns for LPs. That model doesn’t require $1 billion behind it. In fact, having too much money can be problematic because GPs, who are collecting fees for an oversized fund, feel more pressure to do deals.

“It’s very much like surfing: It’s a game of efficiency, not mass,” he says. “You’re trying to create or be part of a vehicle that captures economic value in the midst of a structural change. It’s like the migration from mainframes to minicomputers to workstations to PCs, which is reoccurring as we speak in the field of communications equipment.”

Tai’s focus on the fundamentals has served him well. Since he became a venture capitalist in 1991, he has backed 28 companies, 15 of which have gone public and five that have been acquired. According to his calculations, Tai invested $82 million between 1991 and 2000 and it returned $900 million. “He’s an amazing person with a remarkable track record; he has hit for average and power,” Dintersmith says.

Among the companies that Tai has helped take public are Transmeta; communication chipmakers 8×8 Inc. (Nasdaq: EGHT) and Microtune (Nasdaq: TUNE); and communications equipment companies Terayon Communication Systems (Nasdaq: TERN) and Network Peripherals (which went public and was later acquired).

Not everything he’s touched has turned to gold. Transmeta completed a very successful IPO in 2000, but since that time its stock has slid from more than $40 per share to a close of $2.30 on June 10. The company “bungled” the transition from 0.18-micron chips to 0.13-micron chips, which results in a faster and smaller microprocessor, says Tai, who sits on its board. The manufacturing problems are now behind Transmeta and it’s positioned to be a key player in the growing market of mobile computing, he notes. He still considers Transmeta to be his biggest success.

Moonscape

His biggest flop, he says, was iAsiaWorks, an Internet infrastructure company that served the Pacific Rim. The company liquidated its assets and went out of business in March. “That’s my big crater,” he says. I took about $250 million [in private and public investments] into the ground. It goes with the territory.”

Tai founded iAsiaWorks in 1995. It pulled in more than $118 million from more than a dozen VCs, including IVP, JPMorgan Partners and New Enterprise Associates, according to research firm Venture Economics, publisher of Venture Capital Journal. It went on to raise another $117 million through an IPO in August 2000.

The company’s timing was wrong. “We built massive data centers in Seoul, Taipei and Hong Kong and we were growing revenues very rapidly, but then our customers started going out of business,” Tai says. “With the dot-com meltdown in the U.S., our customer base evaporated rapidly.”

And with high fixed costs, iAsiaWorks found itself in a jam it couldn’t get out of. It looked like the company might be sold, but a buyer backed out at the last minute. “This thing had nine lives and got through eight of them,” Tai says. “Unlike Exodus and Global Crossing, we at least managed to settle our obligations honorably and avoid bankruptcy.”

And how did the VCs fare? Some of the passive investors sold when they had the opportunity, but Tai, representing IVP, never sold a share. “I live and die with my projects,” he says. “If I have a flaw, that’s it.”

 

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