Here's What 6 Top VCs Are Saying About The Channel

The IT Soothsayers

More so than other types of investing, venture capital requires its practitioners to be skilled in the art of fortune telling. At least if they want to stick around for a while. To be successful venture capitalists have to be good at envisioning the future of technology -- and then do everything they can to make their vision pan out. CRN sat down with partners from some of the top venture capital firms, all of which focus on the enterprise IT space. And importantly, everyone we spoke with saw massive opportunities for the channel in the years ahead.

But there'll be some changes, too, amid the continued acceleration of the cloud and the software-defined data center, along with the rise of developers as key IT decision-makers within their companies (among other trends). The VCs also offered insights about which companies in their portfolios have been most successful with the channel and what sort of advice they're offering about working with partners in the current environment.

Here's what a half-dozen top VCs -- five from San Francisco and Silicon Valley and one from Boston--have been telling CRN about the channel.

Martin Casado, Andreessen Horowitz (Menlo Park, Calif.)

Casado, whose work at Stanford University formed the basis for software-defined networking, previously co-founded and served as CTO of Nicira, which VMware acquired in 2012. He went on to serve as a senior vice president at VMware as well as general manager of the company's networking and security business unit -- which provided him with plenty of exposure to the channel world.

Casado told CRN that one trend the channel should be watching closely is the rise of software developers as key decision-makers about what sorts of technologies are being deployed in their companies. "As developers get involved, there's a very different tech acquisition cycle," Casado said. Developers are more accustomed to downloading software online and aren't used to taking classes or certifications, he said. "I'm confident in saying the buying pattern is changing, and that will impact the channel," Casado said.

But, he added, "the channel will not be cut out." Instead, organizations within the channel that can bring technical expertise will have a major opportunity as buying becomes more developer-centric within enterprises, Casado said. "There'll be new models of channel selling and delivering" that arise as IT infrastructure continues to evolve, he said.

Michael Skok, Underscore.VC (Boston)

Skok's background has included funding a number of channel-focused software companies over more than a decade with North Bridge Venture Partners, including open-source software firm Acquia, which has a "huge" channel program, he said. Now, as co-founder of a new venture firm focused on the cloud, Underscore.VC, Skok said he's come to the conclusion that "in today's environment it's becoming more important, not less important, to have a really good channel" for vendors. "The more that we move to the cloud, and the more we have this challenge of ’doing more with less,' the channel only becomes more critical. Not for technology reasons, but for business reasons, to help cloud services get integrated into people's businesses."

"The channels that we're seeing really thrive are the channels that are thinking about, how do they really connect the dots between the technology and business," Skok said. "The new channel is what I call business integrators--the business-tech integration is their value add. If you're not participating in that way, then I think you're missing an opportunity."

Sunil Dhaliwal, Amplify Partners (Menlo Park, Calif.)

Like Skok, Dhaliwal departed a prominent venture firm -- in his case, Battery Ventures -- to launch his own. In Dhaliwal's case, the inspiration was the rise of what he calls Infrastructure 2.0 -- and he echoed a number of Skok's sentiments about the role of the channel as the new generation of IT infrastructure advances. "There's an interesting gap in the area of turning technologies into solutions," he said. "It's something a lot of companies are looking for."

Companies need partners who can understand their app, for instance, and are able to talk about which technologies can help meet their app's needs, Dhaliwal said. Partners who can bring expertise and tell customers, "'we understand how XYZ is needed for system automation, or for data analytics' – I think there's an opportunity for that," he said.

Enrique Salem, Bain Capital Ventures (San Francisco)

Formerly the CEO of cybersecurity powerhouse Symantec, Salem has brought a focus on investing in the category to his work at Bain Capital Ventures. Cybersecurity threats have become more sophisticated and complex -- and the number of vendors offering tools is "overwhelming," Salem told CRN. "Sorting through the complexity of all these things is an opportunity for the channel," he said. Meanwhile, many companies have "insufficient expertise" in the area of security to begin with, creating "an opportunity for the channel to bring expertise to the market," Salem said.

The backdrop to everything happening within cybersecurity is the migration from on-premise infrastructure to the cloud -- which is the "mega trend" in IT, he told CRN. "What are the issues? You've got to deal with security, you've got to deal with manageability, you've got to think about, ’Do you have the team and personnel to deal with those topics as you move forward?'" Salem said. "And I think it's a great opportunity for the channel, because as you look at how do you service customers, they need help as they make this migration."

Tim McAdam, Technology Crossover Ventures (Palo Alto, Calif.)

In his more than two decades in the venture industry, McAdam has backed a number of companies with a strong focus on indirect sales, among them two that have gone public in recent years--business analytics vendor Splunk and cybersecurity firm Rapid7. He remains on the board at Rapid7, which reports it generated 39 percent of its revenue in 2015 via channel partners, up from 30 percent in 2012.

As the cloud continues to influence the shape of IT, McAdam said channel sales models will continue to be relevant. One company in his current portfolio, for instance, is sales tax calculations software firm Avalara. "They're a true cloud business, focused on small and medium-sized customers, and they're using channel-style go-to-market strategies," McAdam said.

Matt Murphy, Menlo Ventures (Menlo Park, Calif.)

Following a 15-year tenure at one of the legendary firms of the VC world, Kleiner Perkins, Murphy last year joined up with Menlo Ventures, another titan of the sector. In his time investing in the IT industry, Murphy says companies such as hyperconvergence vendor SimpliVity, where he's on the board, have found huge success at working with the channel. Others, however, have not. "They all try to build a channel, but most don't do a great job of it," Murphy said.

When advising companies he's working with -- such as next-gen content-delivery network Instart Logic, which launched a partner program in December -- Murphy has a few things he emphasizes about how to find channel success in the current IT environment. For starters, companies must learn "what is the channel that has had success selling a product like theirs … The starting place is who knows your space, and what's their motivation for having a new product," Murphy said. He noted that one pitfall for companies is trying to sign up too many channel partners in the beginning. "Companies that do well have a narrower set of channel partners--and spend time with them, and train them, so the channel wants to keep selling" their product.