VC Corner: Sean O'Sullivan of SOS Ventures & Dragon's Den (MapInfo, Harmonix, Netflix, Leap Motion)

Sean O’Sullivan is founder and Managing Director of SOSV. Sean got his entrepreneurial start as a founder of MapInfo, bringing street mapping technology to personal computers. MapInfo went on to become a $200 million public company with over 1,000 employees. In another startup, he and George Favaloro from Compaq invented the term “cloud computing.” Sean has continued as a visionary entrepreneur and investor, creating and supporting a range of businesses, humanitarian and educational endeavors, including JumpStart International, CoderDojo, Mathletes and Khan Academy.

Sean graduated from Rensselaer Polytechnic Institute in 1985 with a degree in electrical engineering.

Watch SOS Venture's Sean O'Sullivan full interview at Startup Grind Ireland, and get our highlights below.

 

VC Corner is loving crafted with our partners at Pivotal, the wizards of code bringing companies like Ford, GM, and Humana into the Silicon Valley state of mind.

 

Tell us about the early years.

I did a Bachelors in Engineering and I played the guitar a little bit, and the piano. I started as an engineer and started programming at an early age - about really got into it when I was 14.

I was working professionally as a programmer since the age of 14, went to college at 16 or 17, and started a company after I graduated college. I worked for IBM in Brookland, Florida. I had some commercial application experience and worked in the government before I graduated - like any really good engineer, I had some work experience before I got out.

But I got enough experience working commercially that I decided I didn’t want to work for a big company by the time I graduated so I started my own right out of the gate.

Building the Infrastructure of the Web

That was MapInfo, right?

Yes, it was MapInfo. The bright idea was taking street maps and putting them onto computers, which had not been done yet. It was 1985, and we created the technology. We invented it and it became a very popular company with thousands of employees and a couple of million in revenues.

It was a great start. I was there for the first 7 years, as the president and co-founder, with 3 college friends as co-founders, 2 programmers, and another engineer. We build the company up, went public, and then I went on to do other things.

One of those things you did was becoming part of a rock band, right?

Yep, part of Janet Speaks French, and also a documentary filmmaker in Iraq during the war, and then founded another tech company.

Staying with MapInfo, what made you decide to gravitate to business and technology given all the diverse experiences?

When I worked at IBM in North Carolina, it was a pivotal moment for me. I saw the coolest group of engineers working at IBM - they were doing video conferencing, phone systems, and more back in the 80’s. When it worked, it was wicked cool and had this really big impact on technology - and the engineers there, they were pulling all kinds of hours. Then IBM bought the company, called Rome Systems, and they cancelled the project. IBM just said to these 8 engineers, who were doing some kick ass work, “Sorry, guys - the last 7 years of your life are now out the window.”

You know, I don’t really love the vagaries about that. I’d rather be a little more in control of my own destiny if I’m going to pour my heart and soul into something. I want it to be my mistakes that cause it to crash and burn, rather than some corporate decision that is out of my control. That’s one of the benefits of doing startups.

Here’s what’s important to me: every engineer puts so much work and passion into creating a design that’s going to be used by people - and that is the purpose: to have everyday people use your products and designs - and have millions of people, hopefully, using the technologies that you create. What’s important is to have that kind of impact on the world. That’s the pride we get as engineers: creating new things and having them just be practical. But you know, you don’t have the impact in a bigger organization to that. That’s why startups are so appealing to many of us here in the room.

I started with friends and family money and we took credit card loans out, because when you graduate college in the US and they’ll send you these credit card applications. We filled out every single credit card application and then ran out the credit limit, and just used that to fund the business.

And I was from an Irish Catholic family in the United States - so like a good Irish Catholic family, each and every one our 8 brothers and sisters put some money into the company. My sister Res, put in $5,000 - which was a lot - but it was good for her in the end, because it turned into over $1 million dollars for her several years later.

It was a life changing event for me, but we helped a lot of investors out.  That’s the kind of thing you want to do. You don’t want to screw your investors, you want to make sure that they’re making money and invest. Even if they have just a small piece of it, you want to make that pie as big as you can and have everybody make money.

The company was doing well, and you actually chose to change direction, right?

With all the money we earned, in all those drunken years after I’d gone public - let’s see, there’s a 10 year gap in my memory. No, actually, I went and started a rock band - Janet Speaks French - and we put out a couple of albums. We got a Top 40 on about 80 radio stations, but in the US market, we never made any impact.

It wasn’t the resources. It was the environment. What Microsoft had, in the early 90s, was basically a monopoly. They basically had monopoly power at the time, and used it to stifle all the other competitors in the market. We can’t blame Microsoft people individually, but it just became less of an exciting time. You couldn’t do much of a grab to change the world, though the company was still growing and doing very well.

But I just felt that it was time to do something different.

So what you did, then, was start cloud computing?

So, everyone in those days was using dial-up internet, and while still in the rock band, my brother in the tech field said I had to see this Internet thing. I got hooked up to a high speed connection, and got to experience really early days of the Internet, before Netscape even incorporated. People were using the web for email and network activities, mostly - nothing advanced.

Cloud computing was just a logical extension of the idea of local area network computing: you have all these services, like printing or faxing or whatever, and you load them up on your hard drive. But then you put your hard drive into some central server, and all these services and other local area networks, would just end up within the network. It’s kind of obvious that you’d end up with the cloud doing all the network services that you’d done previously on your local computer, but then all these network services would be done by the cloud.

But the only thing that we really did was put the term together. I created a fairly big startup in Boston and Cambridge at the time, and we promoted this concept and got the backing. There were dozens of companies that started writing to this format, for the inter-changing format that we created to do these network services over the Internet.  And that’s when we started talking about cloud computing.

We were at the very, very early days of it. This is the funny thing; I’d totally forgotten that I came up with the term about computing. An IT technology called me and they say, “hey, we are digging around and we think you’re the guy that came up with the term cloud computing.” I was on my way out to a party and I totally didn’t remember - I said “I’ll get back to you later,” or whatever. They tracked me down because I actually trademarked the name Cloud Computing back in January of 1996. We came up with the term and also put the concept together.

Investing in the Next Great Technologies

Now, looking to SOS Ventures, tell us about the companies you invest in.

We’re really ramping up our investing these days. This year, we’ll probably invest in about 50 companies through different accelerator companies we run.

We have a portfolio of maybe 60 companies, some going way back. We started the first accelerator in China, which is called Chinaccelerator.

We started the world’s first hardware accelerator program in China and San Francisco called Hax.

And just those two programs by themselves have brought in 20 companies a year, plus we’re funding the companies that we truly believe in on top of that. We kick off individual investments as well.

We’re very small as it relates to capitalism: we have a $180 million fund, which is small when you think know the big guys who have billions of dollars in management.

That’s because we start really early and stay with the companies, but it’s not that much money compared to Perkins or any of those guys.

What’s your strategy in the next 5 years?

Big trends are clearly connecting devices. I think the time for hardware is re-emerging. One I love is called the Mizio - it’s a work EEG band that wakes me up at the right time in my sleep cycle. I wake up refreshed. But that’s just one device.

There’s another device - now we didn’t fund that one - but the guy that did that device is a mentor on one of our programs in China. Has anyone seen the Leap Motion? It’s so freaking cool. It’s a really accurate motion capture device, and in terms of manufacturing cost, is like 15-20 times cheaper to make than Microsoft’s Kinect. It’s being built into everything: into TVs, into cars, into laptops. It’s a whole new interface for technology.

They sold, with a viral video, like 70,000 developer units in the first 3 days. That’s $5 million in orders in the first 3 days. It’s so transformative.

It takes a lot to do hardware right, right?

I like hardware - there’s a lot of cool stuff to do there. But even for companies that set records on Kickstarter, you have to be a little weary. Kickstarter is like the vaporware channel of the current day.

Say you have a PowerPoint of what your software is going to do, you sell that, and with the money say it’ll be ready in 6 months. That’s what’s happening in the hardware sector. The prospect for innovation there is huge, though.

You see many funding applications here in Ireland. What do we do well in the startup arena here, but what could we do even better?

Ireland is full of people with enthusiasm, ideas and the capability to sell. That is a skill that we have, and anyone that re-locates here gains that skill very quickly - or else they’re out of the problem.

I guess where we haven’t done well is scaling businesses here, and keeping them here as the headquarters. It would be cool if we had a couple more $100 million Irish companies.

I care about fixing Ireland’s education system, because that’s going to drive out ability to create these businesses in the long term. If we’re going to scale in 8 years, I’m going to need to see programmers developing products now. And there’s 3,000 every weekend, aged between 3 to 17, learning at CoderDojos. It’s really great, and it’s really fun. We need that technical flow in Ireland. We’ve got a huge problem with the tutor education system.

You need the brightest engineers - you need the brightest and the best engineers.

You’ve gotten very involved with accelerator programs, including TechStars. How do they work?

Here’s the dirty little secret of accelerators I’m glad to share with everyone. The best accelerators, generally, are funded by multiple parties - so there’s 10 different major capitalists in Boston that funded TechStars and on Demo Day, not only are the people investing, but they have laos been mentors for the program. They’ve been following these companies for a while, and are therefore more likely to take out their checkbooks and sign up.

From the investor’s point of view, it’s a really cool thing that you get to track a company over three months and see how well people keep their promises. What’s important is not the pitch - it’s what people deliver over time, how companies are consistent with communication and in developing the minimal viable product and really sticking to the knitting, doing whatever it takes to get their product to a stage in just a tiny little window of time.

You get a lot of experience working with entrepreneurs and they get a tremendous amount of life changing advice in an accelerator program. I highly recommend them.

You guys typically invest on the very micro seed level. What’s your strategy?

What my partner Bill would call it is iterate investing or agile investing. The traditional venture capital investing style is backing a fantastic, well-proven team, with a VP of Engineering that has done 3 other companies. With a great idea and this and that and the other thing, they’ll fund him with $3 million for 18-24 months of runway. That’s not the lightweight way we do things today, in the day of agile development and scrum meetings, of getting the product out every week, putting it into the hands of customers, seeing what they do with it, and getting traction.

Everyone thinks their idea is worth tens of millions - but it’s not. It’s execution that makes it worth it to investors, and that shows up in traction.

To me there’s a fundamental flaw in understanding about what it takes to build a business - and yet companies would want us to value them at tens of millions of dollars. Often, without a team! You need a technical team, and you need a marketing team. You need a sales capability - and that’s all boiled into 2 or 3 different people.

If you want to see that kind of valuation, show me what you’ve done. Show me the working prototype. If you’ve got the skills to do the website, surely you’ve got a working prototype. Don’t show up asking for $50,000 to outsource it to other developers saying, “Trust me, it’ll be great!”

Show me what you’ve done with nothing. Creating something from nothing is the most challenging part of what an entrepreneur does. That’s what we do all the time and that’s what actually builds value. That’s what entrepreneurs are doing: they’re always leveraging their own capabilities to be worth something from nothing.

That leads me to one of your companies, Harmonix. They spent 10-12 years developing technology, never really succeeded with something in the market after 3-4 tries. Then, all of a sudden, they come up with something that totally takes over the world. How’d that happen?

They have always had cool stuff. I was working in Cambridge when I met them - they were wildly passioante about music and about allowing people to create it.

I love this group of entrepreneurs because of what they could do with very little. I was one of the many people that backed them early, within the first year, before they had any sort of material sales.

Though they raised many rounds of equity to produce Guitar Hero, they actually did extremely well - they’re very rich. Though they kept raising rounds without a breakthrough, they were always working, always had some interest from bands that would be working with them. They always had some buzz, and they were always passionate.

It did take them 10 years, and they did not make any money for 10 years - but they never gave up. And that’s exactly what it takes to be an entrepreneur: to never give up, to know that your vision and direction is the right one. It is a hard path.

These guys kept at it and then suddenly they were the number one band in the world. And suddenly they were selling $1-2 billion dollars worth of product a year.

Tell us about how you got involved with Netflix.

For Netflix, I was an limited partner of another VC fund - that’s how I originally got into Netflix. I just kept buying more and more of it - same as Harmonix - and it became some of the best return I’ve ever had. It’s about having that patience and persistence in things.

With Netflix they launched and went public very quickly, and I kept buying more even when they went public, racking up a huge run over the years.