What Will Venture Capitalists Fund Next?

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In the Wild West of the Internet boom days, venture capitalists were the high-rolling gamblers who swept into town and threw cash at even the riskiest scheme if there was a glimmer of a potential gold rush.

Those days are gone, and so are many of the shoot-from-the-hip VCs. The investment environment is also a lot more cautious, as startups look for funding and the people who control the purse strings look for the next big thing. But, that doesn’t mean the next Microsoft or Google isn’t tucked away in a garage somewhere just waiting for the capital to set the world on fire, said Jeff Glass, an investment partner at Bain Capital Ventures in Boston.

Glass has the experience to back up his opinions. He was previously president and CEO of mQube, Inc., a company funded by Bain Capital and a leader in mobile media content management. He was also founder and president of Transactive Solutions and COO at Travelers/NETPlus. In 2006, Glass was also voted Ernst & Young “Entrepreneur of the Year” in New England.

At Bain Capital Ventures, he is part of a team that manages more than $600M in investments, operating under the large umbrella of the $37B Bain Capital organization. Internetnews.com recently talked to Jeff Glass about the investment climate in the U.S. and where VCs are looking for the next corporate success story.

Q: What characteristics do you look for in a company as an investment target, especially as the industry moves toward Web 2.0 environments?

No. 1 always is a strong team. In a dynamic environment, so much changes, and your initial business plan is very unlikely to be the business plan that works and scales. You need a strong team that is able to think dynamically and think on their feet and be able to respond quickly.

You also need a large market potential, so the area that you are going after has to be worth going after. There are a lot of businesses out there that are niche businesses that make wonderful companies, but relatively small companies and not the types that require venture capital investment.

Q: Are investors a lot smarter and perhaps more cautious in terms of where they are channeling their money — especially with the constant threat of yet another “correction” in the tech industry?

I don’t think we are heading toward a correction. Technology-oriented businesses have transformed our economy and our world and will continue to do so. Companies like YouTube motivate entrepreneurs, venture capitalists and investors to keep looking for the next big idea and next big opportunity.The next Google, Yahoo, Microsoft, and Cisco are out there today.

I think the overall environment is quite good and I don’t think there is an unhealthy level of cautiousness by investors right now. There are many prudent investments being made that will bring much success for entrepreneurs and investors.

Q: Will the next great company come out of a garage somewhere, or are those days pretty much gone?

It likely is in some garage, and it’s quite a challenge trying to open up all those garage doors without having the remote. I don’t think there’s a magic formula.

What we believe is that great entrepreneurs make great businesses, so we spend a lot of time trying to cultivate relationships with smart, energetic and passionate entrepreneurs. Where do we go to find them? We go to industry events, spend time networking both locally and outside our geographic area, and get referrals from our portfolio companies, which is probably the best source of new deal flow.

Q: Will most of the new technologies and companies that we see over the next year or so have technologies and services that are more evolutionary than revolutionary?

No, I think we’ve always seen both. It’s hard to predict and invest in revolutionary ideas because you don’t know in advance whether they will work or not, but when they do, they are big. I think you’ll continue to see a strong appetite from early-stage investors to make those investments.

The evolutionary ideas are a little more predictable but tend to be less exciting with smaller outcomes.So, it’s a tradeoff between risk and return, both from an investor standpoint, as well as from an entrepreneur’s standpoint.

I think there are plenty of brave and talented entrepreneurs out there who are trying to build revolutionary ideas, and I think there is sufficient capital to take a chance and bet on those ideas.

Q: Are advances in mobile technology and the introduction of new mobile devices and technologies driving the industry right now? Also, are we dealing with another “pet rock” scenario with mobile, where the future industry is highly dependent on the latest fads and whims of the consumer?

I think it’s a chicken and egg situation. There is a tendency to see a little bit of a seesaw with the technology on one end and consumers on the other, because it’s hard for consumers to initially drive where things eventually go, as they are not fully aware of what is possible technically.

There is always a leap of faith when you try to determine what consumers will want and try to build a new marketplace. You have to put that technology out there in order to have a shot at developing a market.

You have to take your best shot at understanding consumers, and you’ve got to stick your neck out a little bit and build some technology that you think people will find good uses for. That’s the front-end of the seesaw, but the second end is, once that enabling infrastructure is out there, you have to be much more marketing-oriented and consumer-oriented to figure out what applications work and how consumers use them, and with a little luck, pay for them.

This article was first published on InternetNews.com. To read the full article, click here.