VCs Seek Scalable Technologies
Lately, I’ve been spending time trading information with one of the most powerful groups in our industries: VCs. They spur innovation by injecting funding into startups, help fuel those that need an accelerated path, and work many deals in the background to connect their investments with the right folks.

Yet despite their power I’m often concerned about one of goals that VCs have of their investments is finding and investing in a company that will quickly scale an an exponential rate then exiting. Their vision is for technology to go from 1 person to 10 people to 100, 1000, 10k and so forth. Then the opportunities for monetization and exit strategies are more at hand.

Yet Enterprises Often Need Service Offerings
I understand why this model makes sense to VCs, but this is often the opposite model that enterprise class companies may need. Some analysts approach the same industry from a different perspective. I’m looking for companies that just won’t scale to reach millions of users, but companies that will help brands and users make a difference, yet often, this requires offering non-scalable offerings, like services.

The Conundrum of the Solution Startups
Take for example the community platform market, a space I’ve been covering for over a year and a half. These vendors sell to large enterprise companies, yet the business case is far different. To be successful in selling to the enterprise, vendors need to have a solution offering that includes services like: education, implementation, custom development, support, analytics services, and community management services. When you couple these services with a technology offering (called a ’solution sell’), you’re now able to provide value to large brands.

What’s the challenge when vendors offer a solution to enterprises? Services don’t scale in terms of revenue, it’s only an incremental growth in the top line incomes (2-10X). As a result, some VCs may shy away from investments that are heavy services focus, and may instead encourage their portfolio companies to instead focus on scalable technologies.

80/20 Rule of Services/Technology
In the end, you’re going to need both types of companies (scalable technology and solution partners) to help both businesses and users, in fact the most successful companies will often have both. I often encourage my clients (large brands) to look at vendors beyond technology, in fact, most enterprise deployments of social media are only 20% technology and 80% process and labor. So when you’re selecting a vendor, be sure to understand their roadmap, how their investors perceive the direction of the company, and take a long hard look at the services and support they can offer you.

Note: I’ve also heard that some VCs are scaling back their investments in startups, while you continue to hear of funding happening for vendors.

Speaking of community platform vendors, I’ve submitted the community platform wave report to editing, and am anticipating a publish date in early Jan.

I’m extremely busy these past few weeks, and you’ve noticed a slow down in my posting (have you met our other analysts?), so I’m going to do a series of short blog posts, unlike my longer meaty posts.

I met with Ali Partovi, CEO of iLike today, who told me about a recent trend of what I call “Transplant CEOs” that have addresses in Silicon Valley, are often here for meetings, but their company is located in other tech hubs like Seattle, Portland, Texas, Canada and beyond. Why this pseudo address? two reasons:

1) Running a company in silicon valley is expensive, talent tends to be flighty, and cost of living is high. In other cities, take Seattle for example there’s only a handful of web companies, keeping churn to a minimum.

2) Clients, investors, and prospects tend to want their leaders to be connected to silicon valley so having the CEO in the area makes sense, even if he or she just has a second house here.

It’s amazing that even in this day an age of the digital natives, that location still is important. Well for some this isn’t anything new, way back in 2006 (I know many of you weren’t even born then) the NYTimes had a article showing that most startups had to be 20 minutes driving distance from VCs.

Left: Scale Venture Partners brought VPs of Marketing, CMOs and founders portfolio clients to meet with me last week.

When we think of influencer groups in the social media space, we often think of top bloggers like Techcrunch, RWW, GigaOm, Fast Company, Cnet, yet there’s a whole ‘nother influence group that rarely gets ink –I’m starting to spend more time with them as it helps me to better understand the space.

An inconspicuous influencer group . The last seven business days have been intensive full day sessions with vendors for my upcoming Forrester Wave research on community platforms. I’m always energized by the fire in the eyes and the passion that comes through when talking to founders and entrepreneurs. Sadly, a problem for entrepreneurs is that they often get tunnel-vision and forget to look up outside of the lab at the greater market, fortunately, they should have VCs (who often sit on their board) that help them to see further, connect deals, and provide guidance.

The interesting thing about VCs is how incredibly powerful they are in our space. Compared to the excessive noise in our industry, tou don’t hear too much out of the mouths of VCs, but believe me they are extremely powerful. Aside from the obvious power from control of funding for investments, they can influence the direction of their portfolio companies, and foster relationships between different companies. VCs influence the sellers, in my market, these are the startups.

On the other hand, industry analysts, while do have some influence over startups, have an even stronger relationships with the buyers, (and media) in this case is the the Fortune 5000 companies that seek help to make decisions on how to organize their company, staff, budget and deploy social computing.

VCs and Analysts are on a quest to answer the same questions
Despite these different takes on the same market, VCs and industry analysts are answering the same questions: 1) What’s going to matter in the future? 2) Who’s going to do it? In fact, while the methodology differs slightly, both analysts and VCs are conducting research, taking in pitches and briefs, and finding out what others think of companies before they fund or recommend them.

Given the similiar goals, last week, my long term friend Jennifer Jones, a marketing expert who is known for her work with VCs such as Mayfield, Versant Ventures, Scale Venture Partners, and Levensohn is my go to guide to meeting these folks. In fact she helped coordinate a dinner between myself and Scale Venture Partners with a handful of their web portfolio companies (VPs, CMOs, CEOs and founders) and potential investments. So what did we talk about?

Over dinner we discussed that:

We all see the same direction of the social web, the social graph is going to separate and be available from many different websites.
Micromedia tools are powerful for support and marketing, but monetization is still a mystery.

Jokingly, Microsoft and Yahoo aren’t known for innovation and flexibility, yet we are in awe with Google, Apple, and Facebook.
There are too many players in the space due to commodity technology, the need for segmentation and stratifcation is needed.

Funding for social media in the marketing space slowly grows as it gets pulled from other traditional marketing channels, many are looking at where other buckets of money can come from within the enterprise in IT, HR, and maybe even Sales.

There’s a need to bring the varying vendors together for roundtables to discuss how data will be shared from site to site as the entire web becomes more social.

Analyst/VC dinners
As you can tell, we all learned alot from this trifecta of entrepreneurs, VCs and industry analysts; it was healthy to bring forward a larger part of the ecosystem to share with each other. VCs also want to demonstrate to their investments and investors that they’re highly connected, influential, and have a broad set of connections. Jennifer is setting up some future VC/Entrepreneur/Analyst dinners, if you’re a VC firm and want to participate, I recommend you contact her, as I’ll be spending more time with this powerful influence group as I move forward, it gives me a greater viewpoint to how the market is shaping for my research as well as providing portfolios with access to brief analysts on what they’re working on.