The Only Thing That Matters

One of the advantages he brings to his VC work, says Novotny, is his motley background: He has dabbled in corporate management, marketing, sales, product management, international operations, and strategic planning. "I've had the big side and the smaller side," he says. "I've looked at VC work from the beggar's side of the table. I know what guys coming to me are going through."

After graduating from the University of Minnesota, where he majored in a salad bowl of engineering, business, math, and physics courses, he got a master's degree from Temple University in international marketing and finance, then studied Japanese business, language, and culture at Sophia University in Tokyo. Novotny did a long stint at Univac, then moved on to Storage Technology and Microsoft, before coming to the EnCompass Group as its investment officer. The firm was founded in 1995 by Yasuki Matsumoto, one of the founding members of Microsoft Japan.

The Japan connection is critical: EnCompass's deals almost always hinge on its ability to leverage the startup's product into the Far East. Typically, EnCompass can increase a startup's export sales by nearly 60%. Walk through EnCompass's suites of offices and you see rooms full of people at work on documentation in various languages for Compaq, Microsoft, NEC, Intel, SPRY, Visio, Asymetrix.

Novotny's office is simultaneously sparse and littered. His desk, a small table, and two chairs are piled high with company prospectuses and business plans, which pour into his office at the rate of more than 100 per month. Half the time Novotny is jumping between the telephone and the prospectus pile; the other half he's on the road.

It's an exhausting regimen characterized most often by delivering bad news to people, yet Novotny gives the impression that he has the best job in the world. "I've never had more fun in my life!" he says excitedly. "I don't sleep well at night. I'm always waking up to write notes to myself. But that's the way I like to live. My wife gets ticked off when I turn the PC on at night in the bedroom. But face it -- it's an exciting time, an exciting business, dealing with a lot of brilliant people."

Much of what you hear from Novotny is the standard VC line. His vision of an ideal corporate structure, for example, is almost universally held in the VC community. The first thing he looks for in a startup is business sense rather than technological vision. "What kind of management team do they have?" he asks. "A not-so-top product with a good team is better than a great product with a poor team." A good team, in his estimation, has a hardheaded businessperson running the company and a tight-fisted chief financial officer keeping the visionaries in check.

After the team, says Novotny, comes product and market specifications, with a nod to speed: "What's their time-to-sale?" Novotny asks. He looks for specifics that detail not only the petitioning company's product and plan, but also the products and plans of present and future competitors. "I want to know exactly how they will win the market battle," Novotny says. "I don't like hearing, 'They'll come to us because we're better' -- especially if they can't say why."

Novotny wants to see a startup with definite target dates not only for delivering products and making money, but also for an eventual exit strategy: taking the company public or being bought out by a larger company. "Startups today are almost like controlled substances!" he says. "With the kind of valuations they're getting you can make me more, sooner, with a merger or acquisition than with an IPO."

But for all the careful human and financial analyses, when you press him on how he makes decisions, Novotny ultimately falls back on the intangibles: "What does my gut tell me? I have to share the vision of these people, but I also want to feel a certain kind of excitement in the air when I tour their offices." One of his standard pieces of detective work from an office visit: the Dilbert cartoon count. "You can judge the morale of a company by the number of Dilbert cartoons hanging up," he says. "The more cartoons, the lower morale!"

Novotny's attitude suggests a man driven more by how much fun he hopes to have than how much money he expects to make. So far, the only payment he has earned from his investment in F5 Labs is emotional -- and he gives the impression that's a healthy return.

Having brought the visitors from Trans Cosmos to F5, Novotny joins in enthusiastically as Mike Almquist makes his presentation. The meeting ends with Trans Cosmos placing an order for a BIG/ip. "I mean, the Trans Cosmos people were really excited about the product when Mike was finished talking to them," Novotny says. "That's fun! You start with people who are very skeptical, and watch them come out true believers."

Fred Moody (fredmoody@msn.com) covers technology, social change, and rock 'n' roll from Seattle. He is author of "I Sing the Body Electronic: A Year with Microsoft on the Multimedia Frontier" (Viking, 1995).