The Accidental Entrepreneur: David Skok of Matrix Partners Talks Marketing Lessons, VMware Killers, and VC Missteps
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making money, in my view, you don’t make money. When you’re really completely passionate about what you’re doing, you accidentally make money because you build the right things that customers love, and you’re doing something that you love as well.”
Another lesson from Xionics: “In every other company, I’d done every hire in the company and built the culture the way I wanted to. You can’t bring the right culture if you’ve done the wrong hiring.”
So, Act II ends with Skok running Watermark as a separate company and winning venture funding from Matrix Partners and others around 1993. But it’s not smooth sailing. The startup would get sued by tech giant Wang, and a fierce battle would ensue…
Act III: Return of the VC
The Wang lawsuit taught Skok a lot about the inner dynamics of VCs. While Matrix stuck it out and was supportive, he says, some of Watermark’s other investors were putting on the brakes.
“There are a heck of a lot of VCs out in the world,” he says. “Some of them have the very best intentions to try to help you, but don’t necessarily help you.” So if you’re courting venture investors yourself, he says, do research on the dynamics of each firm, and reference-check each partner. “Having the right partner is hugely helpful.”
In the end, Watermark survived, did well, and was acquired by FileNet in 1995. Skok went on to lead another company, SilverStream, in its battles with Weblogic over Java application servers through the late ’90s and the dot-com bubble. He then joined Matrix Partners in 2001 and started working on his VC game, investing in young startups.
He has had his share of successes there (notably JBoss), but the struggles didn’t end, of course. One outcome in particular still eats away at him. “I’m still really upset about it actually,” he admits.
One of his early investments at Matrix, Virtual Iron Software, was looking to fix a big problem in data centers—how to virtualize servers for business customers. This was 2003-2005, before VMware was fully tackling the problem. Virtual Iron had great technology, Skok says, but the company ultimately failed in the marketplace because its cost of acquiring customers was too high. “I wanted Virtual Iron to be open source [like JBoss], and make the whole thing free,” he says. “I believe that was the way to make that thing really work and be disruptive. I still believe to this day that if we’d done that, we could have made that company incredibly relevant. So that was a failure, one that hurt.”
Virtual Iron was bought by Oracle in 2009, and Matrix got some of its money back, but VMware remains the dominant force in virtualization. So, I wondered, does Skok have another potential VMware killer brewing?
That would be CloudBees, a small Woburn, MA-based startup led by Sacha Labourey, formerly of JBoss. “It’s like the operating system for the cloud,” Skok says. “It’s the layer above what Amazon provides, which is machines and storage. That is a very potent concept. If they do well with that concept, they may wipe out the need for people to even worry about whether it’s VMware or whatever, because most people will end up just using the cheapest open source virtualization layer.” (The approach is related to OpenStack, an open source system for configuring corporate data centers as clouds; there are a few OpenStack companies now, and they all see VMware as the enemy.)
So, the end of Act III is being written as we speak. Skok has plenty more thoughts about the Boston tech ecosystem, the rise of consumer-focused startups, and the role of local companies like HubSpot, TripAdvisor, and Kayak as anchors and training centers for young talent. But we’ll have to save those thoughts for the sequel.