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Dawntreader Ventures’ Ed Sim – The a:c IMterview

February 15, 2005

Ed Sim is a Managing Director with New York-based Dawntreader Ventures. We first met with him back in 1997 when he was cutting his teeth at the Prospect Street New York City Discovery Fund, a firm with a mandate to invest only within the five boroughs of New York. This was no easy task back in the early days of the Web – when most of the action was in California – but it helped Sim hone his skills as a discerning investor.
Dawntreader is now in its second fund, totaling $270M. The firm focuses on early stage companies. Dawntreader has had a few IPOs and good acquisitions, but has not yet chalked up a smash hit. However, we know Sim to be a capable investor and, if and when the smash hit comes, we want to be able to say that we knew him back when.
edsim photo.jpg
The a:c: Hi, Ed. We are wondering
how the New York VC environment
is currently shaping up in contrast to
what is going on out in Silicon Valley?
Ed Sim: I would say that across the
board things are heating up again. The
environment for funding is certainly
better and many of the entrepreneurs
who were on the sidelines for the last
couple of years are starting to
resurface. The New York community, I
would say, is not as hard-core tech as
the Valley so you will not see chip
deals here for example. However, with
the resurgence of the web and corporate
spending, there are many more
interesting companies today versus a
couple of years ago.

The a:c: New York seems to be a more
level playing field for VCs where you
don’t have decades of prestige built
up as you see here with Kleiner Perkins
or Sequoia Capital. Would you agree
with that?
Ed Sim: Absolutely. Boston also is
quite competitive. Both areas have
history on their side, lots of venture
funds working on Funds 8 and 9. On the
flip side, we also have less
entrepreneurs working on companies 3
and 4. Luckily, many of the new plans I
am seeing today are entrepreneurs
working on their second company so
that is a great plus for New York.
The a:c: Some of the new themes that
we continue to hear are:
globalization, the online advertising
boom, search, blogging, alternative
energy to some extent, the return of
consumer investments, and increasing
VC competition with angels. Is this
list similar to what you are hearing
and are there other
investment themes that seem more
pervasive in New York?
Ed Sim: Yes, these are many of the same
themes. As you know the return of
consumer investments really started to
happen early in 2004. As for other
themes, I would also say convergence
with the IP network-television,
telephony, etc.
The a:c: In one post you did indicate
“Given the amount of time VCs are
spending on global and consumer
investments, I believe it is the right
time to continue investing in
enterprise start-ups developing product
12-24 months ahead.” Can you elaborate?
Are there any good reasons VCs haven’t
been investing in the enterprise as much?
Ed Sim: Yes, I did indicate that.
Remember the key
to any investing is buying low and
selling high. When the crowd is
running in one direction it is also
important to look the other way. Given
the interest in consumer and China
plays, for example, I believe it is a
good time to look in the enterprise.
Companies are flush with cash and are
averse to spending it now. The purse
strings are slowly loosening and there
are many areas that the big vendors are
not covering well. When we look at the
enterprise we are also looking at
alternative business models. We started
funding hosted software companies selling
into enterprises in 1998 and continue to
like the momentum there. In addition, it
is impossible to ignore the rise of open
source and how companies can leverage
these commodity inputs to reduce the costs
to develop a scalable product and get to
The a:c: You described in another of your
posts how two of your portfolio companies,
Moreover and were able to squeeze
through the market collapse and are in
good shape today. Many VC firms
decided to just shut down portfolio
companies during that lean period. How/why did
you keep these afloat?
Ed Sim: Investing in early stage
companies means that you have to accept
failure and be diligent about shutting
your losers down early and backing your
winners. The other key component is to
eat when dinner is being served. In
other words, when people want to fund
your business and even though you may
not want cash, you take the money if you
can. Luckily both of those companies
raised substantial rounds in 1999 and
2000 and we were able to use that cash
to survive the downturn. That being
said, we were also quite diligent in
cutting expenses early and focusing on
real business metrics like revenue.
Given the cash, the team and their
passion, and the market opportunity for
both, we believed that if we could make
it through the hard times that we would
be in great shape.
The a:c: You might have seen a debate
online with Jason Calcanis and Fred
Wilson where Wilson insisted that it’s
not true that VCs spend most of their
time on their winning companies. What
is your take on this?
Ed Sim: Of course I agree with Fred
100%. First, we have a fiduciary
responsibility to manage our investor’s
money diligently. Secondly, it takes
time to build companies. Backing the
right team is incredibly important as
management teams need to adapt to the
market in early stage companies. So
often times, you may invest in an early
stage company with an initial idea of
where it is going and who you are
selling to and then it morphs a little
and becomes a winner. Look at AOL and
Veritas – I believe both of those
companies struggled early on as well,
and eventually produced nice returns
for the investors.
Ed Sim: One more thought
Ed Sim: Even one of our big winners
Expertcity (GoToMyPC) started in one
market and leveraged its technology to
sell a hosted remote access play which
was sold to Citrix for $225mm last year.
The a:c: If you have to single out a
couple of your investments that are
hitting their strides, which ones would
they be?
Ed Sim: DeepNines Technologies continues to
be in a hot space and the company has one
of the only security platforms that
sits in front of the router. Secondly,
consolidation of security functions into
one box is a big deal so the fact that
Deepnines offers anti-spam, anti-virus,
IPS, and firewall in front of the router
makes it quite compelling. Another
company doing well is Visible World which
allows advertisers to deploy customized
and dynamically driven television
commercials over cable and broadcast
networks. Television advertising is a
$60b industry and the advertisers are
looking for any technology that can
make their ads more effective and
relevant. Finally, Xora is doing great.
Xora provides mobile workforce
management solutions for wireless
phones on a hosted basis. While not
terribly sexy, all of those truck
drivers and service repairmen need a
better way to interface with their
supervisors and the supervisors need a
better way to track activity. By
deploying applications on GPS-enabled
mobile-phones, we believe we have
found a sweet spot in the market.
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