Category Archives: Sequoia

Thoughts on MongoDB’s Humongous $150M Round

Two weeks ago MongoDB, formerly known as 10gen, announced a massive $150M funding round said to be the largest in the history of databases lead by Fidelity, Altimeter, and Salesforce.com with participation from existing investors Intel, NEA, Red Hat, and Sequoia.  This brings the total capital raised by MongoDB to $231M, making it the best-funded database / big data technology of all time.

What does this mean?

The two winners of the next-generation NoSQL database wars have been decided:  MongoDB and Hadoop.  The faster the runner-ups  figure that out, the faster they can carve off sensible niches on the periphery of the market instead of running like decapitated chickens in the middle. [1]

The first reason I say this is because of the increasing returns (or, network effects) in platform markets.  These effects are weak to non-existent in applications markets, but in core platform markets like databases, the rich invariably get richer.  Why?

  • The more people that use a database, the easier it is to find people to staff teams so the more likely you are to use it.
  • The more people that use a database, the richer the community of people you can leverage to get help
  • The more people that build applications atop a database, the less perceived risk there is in building a new application atop it.
  • The more people that use a database, the more jobs there are around it, which attracts more people to learn how to use it.
  • The more people that use a database, the cooler it is seen to be which in turn attracts more people to want to learn it.
  • The more people that use a database, the more likely major universities are to teach how to use it in their computer science departments.

To see just how strong MongoDB has become in this regard, see here.  My favorite analysis is the 451 Groups’ LinkedIn NoSQL skills analysis, below.

linkedinq31

This is why betting on horizontal underdogs in core platform markets is rarely a good idea.  At some point, best technology or not, a strong leader becomes the universal safe choice.  Consider 1990 to about 2005 where the relational model was the chosen technology and the market a comfortable oligopoly ruled by Oracle, IBM, and Microsoft.

It’s taken 30+ years (and numerous prior failed attempts) to create a credible threat to the relational stasis, but the combination of three forces is proving to be a perfect storm:

  • Open source business models which cut costs by a factor of 10
  • Increasing amounts of data in unstructured data types which do not map well to the relational model.
  • A change in hardware topology to from fewer/bigger computers to vast numbers of smaller ones.

While all technologies die slowly, the best days of relational databases are now clearly behind them.  Kids graduating college today see SQL the way I saw COBOL when I graduated from Berkeley in 1985.  Yes, COBOL was everywhere.  Yes, you could easily get a job programming it.  But it was not cool in any way whatsoever and it certainly was not the future.  It was more of a “trade school” language than interesting computer science.

The second reason I say this is because of my experience at Ingres, one of the original relational database providers which — despite growing from ~$30M to ~$250M during my tenure from 1985 to 1992 — never realized that it had lost the market and needed a plan B strategy.  In Ingres’s case (and with full 20/20 hindsight) there was a very viable plan B available:  as the leader in query optimization, Ingres could have easily focused exclusively on data warehousing at its dawn and become the leader in that segment as opposed to a loser in the overall market.  Yet, executives too often deny market reality, preferring to die in the name of “going big” as opposed to living (and prospering) in what could be seen as “going home.”  Runner-up vendors should think hard about the lessons of Ingres.

The last reason I say this is because of what I see as a change in venture capital. In the 1980s and 1990s VCs used to fund categories and cage-fights.  A new category would be identified, 5-10 companies would get created around it, each might raise $20-$30M in venture capital and then there would be one heck of a cage-fight for market leadership.

Today that seems less true.  VCs seem to prefer funding companies to categories.  (Does anyone know what category Box is in?  Does anyone care about any other vendor in it?)  Today, it seems that VCs fund fewer players, create fewer cage-fights, and prefer to invest much more, much later in a company that appears to be a clear winner.

This, so-called “momentum investing” itself helps to anoint winners because if Box can raise $309M, then it doesn’t really matter how smart the folks at WatchDox are or how clever their technology.

MongoDB is in this enviable position in the next-generation (open source) NoSQL database market.  It has built a huge following, that huge following is attracting a huge-r (sorry) following.  That cycle is attracting momentum investors who see MongoDB as the clear leader.  Those investors give MongoDB $150M.

By my math, if entirely invested in sales [2], that money could fund hiring some 500 sales teams who could generate maybe $400M a year in incremental revenue.  Which would in turn will attract more users.  Which would make the community bigger.  Which would de-risk using the system.  Which would attract more users.

And, quoting Vonnegut, so it goes.

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Disclaimer:  I own shares in several of the companies mentioned herein as well as competitors who are not.  See my FAQ for more.

[1] Because I try to avoid writing about MarkLogic, I should be clear that while one can (and I have) argued that MarkLogic is a NoSQL system, my thinking has evolved over time and I now put much more weight on the open-source test as described in the “perfect storm” paragraph above.  Ergo, for the purposes of this post, I exclude MarkLogic entirely from the analysis because they are not in the open-source NoSQL market (despite the 451’s including them in their skills index).  Regarding MarkLogic, I have no public opinion and I do not view MongoDB’s or Hadoop’s success as definitively meaning either anything either good or bad for them.

[2] Which, by the way, they have explicitly said they will not do.  They have said, “the company will use these funds to further invest in the core MongoDB project as well as in MongoDB Management Service, a suite of tools and services to operate MongoDB at scale. In addition, MongoDB will extend its efforts in supporting its growing user base throughout the world.”

Mark Logic Highlighted in San Jose Mercury News Story on Venture Capital

I’m pleased to report that Mark Logic was highlighted in a San Jose Mercury News story published yesterday about the resurgence of VC-backed startups one year after the famous Sequoia Rest in Peace Good Times meeting.

The story was published as part of the Mercury New’s quarterly venture capital survey.

The story begins:

When Dave Kellogg arrived at Sequoia Capital on that day in early October 2008, “the last chair in the room was in the front row,” he recalled. “My penance for being a little bit late.”

Kellogg is the CEO of Mark Logic, a startup that helps business clients make sense of the chaos of unstructured data. He wound up with an excellent seat for an auspicious moment in Silicon Valley lore — the “R.I.P. Good Times” briefing that drove home the severity of the financial industry crisis for the startup economy. Initially intended exclusively for leaders of companies backed by Sequoia’s investments, it would be inadvertently leaked by one CEO and sail around the Web like an early Halloween ghoul.

Not only has the story received great visibility in Silicon Valley, a quote of mine from it was picked up by the Wall Street Journal’s Venture Capital Dispatch blog, here.

The full story is available here. The Mercury News quarterly venture capital survey is here. Another recent piece of Mark Logic business press coverage, from the San Jose Buisness Journal, is here.

Mark Logic Closes $15M Third-Round Financing

I’m pleased to announce that Mark Logic has closed a $15M third-round financing, lead by Sequoia Capital with participation from Lehman Brothers.

The official press release is here.

As mentioned in the press release, this means that Mark Logic now has plenty of fuel in the tank to fund its future growth, specifically:

  • To expand our presence in our existing core segments of media (aka publishing) and government
  • To expand both domestic and international distribution channels (did you know we have created a UK subsidiary and already have 4 staff on board?)
  • To develop new vertical markets including financial services and life sciences

I’m coming up on 3 years at Mark Logic and when you compare our expected sales this quarter (3Q07) to the quarter I joined (3Q04), we will have multiplied the company 8-fold — that’s a 100% compound annual growth rate (CAGR) during that time period.

I’d like to thank Mark Logic customers for their business, belief, and support and to thank all Mark Logic employees for their contribution to this success.

I’d like to thank our investors for participating in this financing and say that it has been a pleasure to be associated both with Sequoia Capital (which has been behind so many of Silicon Valley’s great successes, and whose companies now account for something like 10% of the value of the NASDAQ) and with Lehman Brothers which has provided support in many ways, both financial and operational.

Finally, I’d like to thank Bob Clarkson and the team at Jones Day who supported us in closing this transaction.

Moritz Tops Forbes Midas List

Forbes has published its Midas List, an annual ranking of top venture capitalists. Topping the list this year is Mike Moritz of (Mark Logic investor) Sequoia Capital. Moritz beat out John Doerr of Kleiner Perkins for the top slot.

By virtue of running Mark Logic, I’ve had the opportunity to meet Mike a few times, and I’d say he merits all the positive press he’s getting. He strikes me as one of those guys who doesn’t say too much, but when he does talk, you should listen to each and every word.

While Sequoia and Kleiner Perkins still rank in most surveys as the top two VC firms in the valley, I’d say that momentum appears to be on Sequoia’s side. In fact, the Silicon Valley gossip blog, Valleywag, recently called for Doerr to step down from Kleiner Perkins arguing that he’s missed Web 2.0 and over-committed to clean technology.

The full Midas List story is here.