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Private Equity Week Interview With Bob Metcalfe

Dr. Robert (“Bob”) Metcalfe became a venture partner with Polaris Venture Partners on Jan. 1, 2001. Prior to becoming a venture capitalist, Metcalfe had three separate careers. While an engineer-scientist (1965-1979), he helped build the early Internet. In 1973, at the Xerox Palo Alto Research Center, he invented Ethernet. While an entrepreneur-executive (1979-1990), he founded 3Com Corp., where at various times he was chairman, CEO, division general manager and vice president of engineering, marketing and sales. Finally, he was a publisher and columnist (1990-2000) as CEO of IDG’s InfoWorld Publishing Co. His column for InfoWorld magazine was titled From the Ether.

Of all the choices in the VC world, why did you choose Polaris?

I know the people here [so] I didn’t really do much searching. It was sort of love at first sight. Some other reasons are Polaris is successful even after the bubble has burst. That’s a plus. It’s a diversified company, so it wasn’t knee-deep in dotcoms, and the diversity is attractive to me. As my former board members used to say to me, I have a short attention span.

Also, Polaris is the venture capital firm that’s done more MIT-based deals than any other venture capital firm, and I’m, as you’ve already detected, an MIT guy through and through. So that’s attractive, too.

What industries interest you? Are you focusing solely on technology?

I’m new at this, so I don’t have a very clear idea, but I’m planning to do more MIT-type technology spin-offs than say Harvard Business School business model innovations. I’ll be sticking to electrical engineering and computer science-based technology ventures. And in fact, I’m probably wise to start off in my own backyard by looking at companies in the Internet infrastructure business, since that’s where I come from, approximately.

I plan to be on four boards as part of my contributions here. I’m only on one now, but my agreement is to go on four. So I hope to find four companies over the next year or so and to make investments, personal investments in them , and to help them grow.

What do you mean my personal investments? Time and guidance?

Oh, money, too. Yeah, as a venture partner here I have some carry in the fund – certainly not as much as a general partner would have – but I’m encouraged to make investments side by side with Polaris and then to be on the board.

And since I’m new to investing, my rule of thumb is I’m probably not going to be investing in any companies that Polaris doesn’t invest in. In other words, if I can’t convince my partners here that a company is a good investment, I’d be stupid to go ahead and invest anyway.

What made you decide to try to your hand at VC?

Well, this is my fourth career so I’ve run out of alternatives. It was the only one left. Actually, I chose venture capital because it allows me to basically stay involved with my favorite kind of people, who are entrepreneurs, and to stay involved with people who I’ve known for a really long time in the industry and yet do something completely different. Those were exactly the criteria I had when I chose to be a technology journalist 10 years ago.

What are some of the things you hope to bring to the table at Polaris?

Well, I’m an engineer and so it looks like I’m going to be useful in assessing the efficacy of technology aspects of companies that we’re considering. And I’ve grown a company from zero to billions over a 13-year period so there’s a lot of the phases of growth of a company that I have had some experience with. And the first few phases of those are the ones likely to be valuable in this context.

Actually, it’s kind of fun to see how easy it is to be of help to young entrepreneurs, especially if they’re engineers, because they don’t know anything about starting a company. It’s so easy to be helpful.

Just to give you an example of hosts of things, like, don’t hire your spouse to be the chief financial officer. I’m sure there are counter-examples but it’s not a good bet. Doing business with family is not really something you should do a lot of. So that’s the kind of conventional wisdom that I’m full of.

Another one of my favorites is, no, you should not have engineering in Cambridge and sales and marketing in San Francisco. They often have dumb ideas like that thinking that, well, you just have to hop on a plane.

And then get there six, seven hours later, not counting delays.

And the culture gap and the animosity that build up even across 100 yards, let alone 3,000 miles. There’s a lot of that stuff I’m full of, which I’m anxious to share with aspiring entrepreneurs.

Is any of this personal experience?

I’m old you know.

Let’s rephrase, did you ever hire your spouse to be CFO?

Well, it turns out, my wife and I were married approximately the time I founded 3Com, and I was the only employee for a while. And she and I published a book, which was 3Com’s first product, and we published it together, and at the end of that project we decided that she wouldn’t work at 3Com anymore if we wanted to stay married.

It’s even questionable to hire your friends. Early in 3Com’s history I had the dubious pleasure of firing a fellow classmate from MIT who wasn’t working out. He was a perfectly fine fellow and everything, but he just wasn’t working out in the job I had foolishly recruited him into and then I had to let him go for the good of the company.

Another piece of advice I’m fond of giving is you have to recruit people to your company who are overqualified for the jobs that you have because in a big company, the people grow faster than the company, so they get promoted and stuff. But in a little company, the little company grows faster than the people, so you have to recruit ahead of your needs, which means you have to be really persuasive. You have to convince important people to take what seem like lesser jobs at the time in order to succeed. If you don’t do that properly, you’ll end up with either a broken company or a lot of damaging turnover.

You have all of this knowledge to disburse, but what do you hope to learn?

Well, my first problem is triage. I’m used to getting bombarded with proposals. As a weekly columnist, I got press releases by the thousands and requests for interviews and stuff, so I’ve been on the receiving end of that before.

Well, now that it’s coming out that I’ve become a venture capitalist, all these people and many more are now sending me tons of business plans. And since I’m old, I know a lot of these people for 30 years, so I have a personal connection.

Do you see anything on the horizon that’s the next big tech revolution, or the next big thing VCs should be on the lookout for?

Now if I knew something like that, I wouldn’t tell you.

I’m still an Internet guy, I’ve been an Internet guy since 1969, so I’m not gonna stop now.

So the next big thing is still the Internet. What’s likely to happen to the Internet is that it’s going to get faster [and] more people are going to use it – those are obvious right? So getting it to be faster and faster is a priority of mine. I believe more bandwidth is better. So just like microprocessors went from 1 bit to 4 bits to 8 bits to 16 to 32 and so on, the Internet is going to continue getting faster and faster and there’s a lot of opportunity in enabling that and then exploiting it.

And the next big thing is – this is controversial of course – commerce is the current driver of Internet growth but the next generation will be entertainment-driven. Not that commerce will stop, but that the next major impetus will be the proliferation of entertainment, which by the way, includes education.

Those who try to distinguish education from entertainment don’t have children. And most of what children learn, and I’m not the only who thinks this, they learn from television in a presumably entertainment medium. Traditional schools in America, which are broken – that’s no news – they’re losing market share to television. Market share in terms of where kids learn stuff. I think this will continue shifting to the Internet, especially if the Internet takes on higher production values of the kinds associated with entertainment. So there’s the next big thing.

So for a while, I was really hot to put the Internet in schools, now I’m hot to promote the use of the Internet instead of schools. Not entirely instead of schools, but more and more using the Internet as a substitute. A school is not a building, a school is a community of learners and sometimes they go to a building. More and more, they’re going to be able to meet, exchange and talk on the Internet. So there are opportunities there.

You just got into VC, but is there anything else you envision yourself doing, perhaps another five to 10 years down the road?

Well, I’m obviously not busy thinking about that right now. No.