Storm is excited for the Qumu team’s recent combination with Rimage (Nasdaq: RIMG).  Rimage viewed this acquisition as transformational ,and clearly validates the vision Qumu (fka Media Publisher) had over 5 years ago about the importance of on demand and real-time video in the enterprise. Video assets have become increasingly important in the workplace, and the ability to deliver the right content to the right audience at the right time has become a strategic differentiator to several Fortune 100 companies. The market has shifted in Qumu’s direction, and we think this combination will help accelerate the rapid growth they have experienced over the last couple of years. Although the early vision was correct, the timing for the market to acknowledge this took longer and the Qumu team did a great job driving a “nice to have” to a “need to have” solution for several key customers.

We met the first generation of the Qumu team back in 2006, having been funded by a group of angel investor groups including The Halo Fund and Garage Technologies. We led the Series B in mid 2006 and by the end of the year realized that we needed to strengthen the team in order to grow the business. In 2007, Storm was actively involved in adding new customers and partners, one of which was Polycom, as well as changing our VP Sales, VP Business Development & Marketing, VP Engineering and also attracting a new CEO. Alex Mendez stepped in as interim CEO for a period of time.

In 2008 the focus changed to attracting new investors. We were fortunate to bring ATV and SAP on board in mid-2008. Qumu’s new VP of Engineering and founding CTO locked arms to revamp our product line while going after a market that had still not embraced the value of enterprise video management. Qumu continued to win key large customers that helped validate our value proposition as well as broaden our relationships with go to market partners (as well as losing some – Polycom acquired a competitor in early 2011).

Qumu started to experience sustainable growth in 2009 and 2010. The financing environment was challenging, and the existing syndicate continued to support the company because we believed that the market was finally shifting in our direction. We also started to realize that the market around us was consolidating. By now Qumu had assembled a great executive team and was clearly visible in the marketplace as a leader in our space. This combination led Qumu to Rimage and the rest is history.

Storm is thankful to the early founders for their vision of what Qumu could become and for the current management team for being able to execute and deliver on this vision. We think the upside lies ahead, combined with Rimage’s global footprint of customers. While Qumu took longer and was not a direct path to success, few things in life work out exactly according to plan.   We continue to be shareholders of Qumu through Rimage and are excited about their future. We are as committed as ever to funding companies looking to shake up the establishment with new digital media solutions.

This afternoon LSI Corporation announced that it is acquiring SandForce for $400 million in cash and assumed options.

We are excited for the team at SandForce and proud to have been a part of building a company that is helping to usher in a new era of storage. SandForce delivers solid state disk (SSD) processors that power volume flash memory in both high-end storage as well as consumer applications. The primary advantages of flash memory are that it is much faster, more reliable and consumes less energy than hard disk drives. Many of our limited partners and investors that have looked at investing at SandForce over the years will likely remember us saying that flash memory is the most disruptive force in storage since the floppy disk drive. We truly believed that when we made the decision to invest in 2006 as we saw the use of flash becoming more ubiquitous in devices like the iPod. We believed that as more consumer devices took advantage of flash, the price of flash would decrease and its uses in enterprise applications would increase. As the price of flash per GB came closer to hard disk drives, more applications would take advantage of all it had to offer including dramatically faster performance.

In many of the investments we make (and other venture investors) the focus of the product or service changes from first concept.  SandForce’s original vision is the same today as it was when we first invested.

We first met the founders of SandForce in early December 2006 and worked together with them to agree on a term sheet just before the holidays.  We agreed to invest $3 million and find another co-investor to invest the other $3 million along side us to get the company through its initial development efforts and prove out the technology. While we introduced it to several investors, most venture investors were completely uninterested in semiconductor investing (with some good reasons) and did not see the market opportunity with flash. Fortunately, Carl Amdahl and the team at DCM saw the opportunity and quickly made a decision to invest.  We signed the initial term sheet with DCM in March 2007. DCM has been a terrific partner at SandForce.

The company really got to work in the spring of 2007 to validate the technology and expanding the team. SandForce closed its Series B financing in February 2008 with some strategic investors who Storm introduced to the company and were early to recognize the potential impact of flash on the market. Storm participated in this round as well. We focused on many strategic partners to help us bring the solution to market including introducing SandForce to Smart Modular which ultimately became our first publically announced customer in late 2009.

Everything did not come easily. We struggled with our development efforts including having to replace our VP engineering twice during our early days which could have been devastating had it not been for strong founders and a committed team of early engineers. We also were slower to deliver revenue. Originally we had planned to deliver revenue in 2008 but ultimately were not able to get product out until 2009. As the company started to clearly show its potential and the market for SSDs became much clearer, SandForce raised its Series C round led by Jackie Yang of Translink Partners in October 2009.  The team at Translink gave the company critical insight into customers and partners in Asia.

The company also went through a difficult transition period in early 2010 as we had to make some changes with respect to management, but we were able to begin to execute to SandForce’s potential in 2010 delivering over one million parts that year. The company has continued to grow and add many key executives and team members which enabled the company to deliver over one million parts in Q3 2011. Storm introduced the company to Sundi Sundaresh in early 2010 as an additional outside board member. Sundi has a tremendous amount of storage experience including most recently having been CEO of Adaptec. SandForce closed its Series D financing in September of 2010 with Eric Young of Canaan Partners leading the investment who clearly saw the vision as well as some compelling evidence from customers.

Storm has certainly done well financially, and we are happy to be able to return more than one-third of our fund to our limited partners. We are grateful for the founders who had the vision and especially grateful to have worked with such a great team that executed so well. While almost five years later, it seems like only yesterday we were busy trying to get our first product out the door. We cannot say enough great things about the team at SandForce. We were fortunate to have worked with so many talented individuals.  We are sure LSI will take the opportunity at SandForce and expand on it successfully with such a fantastic group of people and growing market.  We are just at the beginning of some amazing new markets with flash memory and exciting days are ahead for new applications. As many know, we have been predicting that within the next five years it is likely that the next laptop you buy will have an SSD. Apple proved us somewhat on the right track with the introduction of the MacBook Air. The windows-based Ultrabooks just coming to market all have SSDs. Once you use an SSD in a laptop – you will not want to go back to a hard disk drive – ever.  We would not be surprised if many servers shipped in the next five years begin to have flash drives as standard configurations. If you need the name of a good SSD – We know a company that makes the storage processor and can point you in the right direction. Just make sure it is SandForce Driven. ☺

Congratulations to the EchoSign team starting with Jason Lemkin, the founder and CEO!  Here is a link to the EchoSign blog that has more of the specific details regarding the transaction. Jason started EchoSign as a Storm EIR with a vision to transform how all contracts get signed using SaaS.  Five years later after Storm provided the initial funding, Echosign has grown to almost 1m contracts a month. Great job team Echosign.

EchoSign is a typical Storm early stage investment. Jason put together a note about Storm’s involvement and, in particular, my partner Tae Hea which I included below:

“In my career as a repeat founder, and 4x start-up exec, I’ve pitched over 150 venture firms, taken money from over a dozen — and made money for all of them.  Storm was the only one that made a true difference to me as a founder and management team member, and the only one that truly positively impacted the outcome of my company.  Due to my prior exits and success, I had options.  I chose Storm, and it was one of the best and most important decisions we made at EchoSign.

Storm brought me in as an EIR originally and sponsored a number of my ideas.  Once the stars aligned for EchoSign, we closed the Series A round without drama in one week.  We had VCs that wanted to invest, and we chose to go solo with Storm in the Series A.

Storm stood by us in the challenging times.  First, we were substantially early to a great market — Web 2.0 signatures and contracts.  When things took longer to scale up than anticipated, Storm didn’t throw in the towel — they doubled down when they saw our early traction with leaders like BT and GE and knew what that could scale to, even when the absolute numbers were still small.  Second, we went through our share of personnel challenges.  Storm understood the issues and stood by management’s tough decisions, added value in diffusing tough situations and didn’t kibbitz when they didn’t need to.  Third, after the credit crunch hit, many VCs fled to the hills.  Storm by contrast never forwarded me the Sequoia memo in 2008.  Instead, they said you’re doing well, stay the course — and 2011 will be a great year for tech companies.  They were right, and 2011 lead to a great acquisition for us with a terrific acquirer and partner.

Venture capital has changed.  Great founders and companies have choices.  To me, it’s simple.  If you have the skills and the team to run with it, and what you need is some wind at your back — Storm is that wind.”

Thanks Jason! And Congratulations again on a great job at Echosign.

While I may sound obvious, passion for markets and technologies and ultimately for building a business is incredibly important to us as investors. Passion has a clear emotional connotation and I choose that word deliberately. Building a business is an emotional endeavor. It takes blood, sweat and tears and it seems just about impossible to me that one would be able to come out the other side without having had the experience been an emotional one in addition to all the other things like selling to customers, hiring a great team, raising money from venture investors and hopefully building a tremendous amount of value for all stakeholders.  Passion can also have a strong mix of (blind) faith and determination.

Entrepreneurs need to be passionate about their businesses to have the best chance of success. Passion is inspiring and contagious to others on the team (and sometimes important even for investors).  People (including me) want to work with others that are passionate about what they are doing.

Passion for a business keeps entrepreneurs focused on the potential and constructively working towards maximizing the business as compared to being paralyzed by the risks and obstacles in front of the company.  Determination is critical as well and it goes without saying that passion without determination is not going to lead anywhere interesting. I think it is also true that determination without passion probably also has a similar uninteresting outcome.

We meet at lot of entrepreneurs and teams at Storm. While I think my partners may value some qualities differently, I think we would all agree on a core set of qualities in entrepreneurs we invest in that we believe contribute to success. These qualities are all important and where we have made some exceptions, I think in general we have been disappointed. I will cover each one in some depth in separate posts and welcome comments.

The first is transparency.  I have been very fortunate to have worked with many entrepreneurs since starting Storm 11 years ago. I am convinced that having direct, open and honest conversations with management teams is part of the formula for success.  It goes for both venture investor and entrepreneur.  It reflects an attitude and an entrepreneurial style that sets a company’s culture of openness, abundant communication and most importantly accountability. Transparency is more than trust. The importance of trusting the entrepreneurs and founders we work with seems obvious. I would hope that we would never have to work with entrepreneurs we simply don’t trust. I also hope that entrepreneurs would never have to work with a venture investor that they don’t trust.

In the early stage investing that we do at Storm – especially seed investing – transparency is critical because it helps us better understand how best to contribute. Many founders are concerned about how much to share with their investors and for good reason.  I have heard many stories from founders where their investors spend all of their time being critical instead of being constructive.  Pointing out flaws and being critical is easy – execution and contribution are what matter most. Bad news is hard to deliver. No one wants to hear it. But it’s the bad news that completes the picture and puts into context the issues that are facing a startup.  Things are going to go wrong in a start up on both the path to success as well as the one to failure.

In my somewhat limited experience, success does not come by way of some sort of divine intervention. It is the result of a tremendous amount of iteration, focus and feedback whether it is about broad strategy, products, markets, financings etc. We have found that when teams are transparent with investors and have a culture of transparency, it makes for a more solid foundation for constructive interaction and contribution.  It’s also true that when investors are transparent with founders it helps calibrate and put the company on the rails to success – even though it may be hard to hear (and deliver) at times.

As investors, I think it’s important to respect the concept transparency. It means that we have a responsibility to act appropriately with information.  Regardless of the news, I need to be there to help in whatever way I can and sometimes it is just to be supportive and show the team I believe in them.  My job is to maximize returns and potential for all shareholders including founders.  Once I have made a decision to invest in a company, I have found supporting the company in any way that I can is the best way for me to contribute to the company’s success.  I don’t view myself as part of the executive team – most of all because I am not. I have a different role as an investor and board member. The founders hire great people (sometimes with our help) to operate companies. We have to be there to make them successful and their success is what will make me successful ultimately as an investor.

Let me know what you think.