Revenge of the Nerds, the Sequel: Silicon Valley Wallflowers Now Hot
As Web Darlings See Stocks Fall, Spotlight Hits Business Tech; ‘Sexy Again’
By PUI-WING TAM And BEN WORTHEN
Phil Fernandez was used to being a Silicon Valley wallflower.
His start-up makes software for marketing departments, and for years, he toiled in obscurity as the tech spotlight shined on hip Web arenas like social networking and their young Internet entrepreneurs, such as Facebook Inc.’s FB -9.67%Mark Zuckerberg.
Sequoia Capital partner Jim Goetz with Nir Zuk of Palo Alto Networks.
But now it is Mr. Fernandez’s turn in the limelight. His firm, Marketo Inc., is generating buzz among investors as an initial-public-offering candidate. He says he is getting daily invitations to baseball games, lunches with investment bankers and fancy society dinners.
“I’ve gained 20 pounds this year,” says the 51-year-old. “It’s the side effect of being cool in Silicon Valley.”
In the nation’s technology capital, entrepreneurs like Mr. Fernandez in heretofore unsexy business-tech start-ups are having their “revenge of the nerds” moment.
For the past few years, the tech frenzy has concentrated on young-gun Web guys including hoodie-wearing Mr. Zuckerberg and Groupon Inc. GRPN -3.31% Chief Executive Andrew Mason, who run easy-to-grasp companies touching millions of consumers.
Now that those newly public Internet companies’ stocks have cratered, attention has shifted. Even as Facebook, Groupon and social-games maker Zynga Inc. ZNGA -8.81% struggle in the public market, tech companies with names like Splunk Inc. SPLK -2.77% and ServiceNow Inc. NOW -1.06% that make harder-to-understand products for businesses are snagging attention with stellar IPOs and strong growth.
Suddenly, the most in-demand tech guys often wear conservative dress shirts and slacks instead of the Web uniform of shorts and flip-flops. Some drive 10-year-old Honda Civics. Many are downright ancient by Silicon Valley standards—at least in their mid-30s.
Venture capitalists are now inundating these business-tech types with offers. Conference planners are deluging them with invitations to talk about topics such as “How Enterprise Got Sexy Again.”
In some cases, they are even landing ahead of Web entrepreneurs in speaker lineups. At a dinner that venture-capital firm Sequoia Capital plans to host next month, called “Sequoia Supper,” partner Jim Goetz says business-tech entrepreneurs will talk first instead of the Web CEOs who dominated the event for the past few years. The business-tech guys “have gained more cred,” says Mr. Goetz. “This year, we’re putting them front-and-center. Many of them have become mini-Zucks.”
Some of the once-ignored entrepreneurs are experiencing celebrity moments. When Todd McKinnon tried to get funding for his business-oriented tech start-up in 2009, he says many potential investors wouldn’t even return his calls.
But this month, the 40-year-old was a featured speaker at a popular tech conference in San Francisco along with the founders of Twitter Inc. and new Yahoo Inc. YHOO 0.00% CEO Marissa Mayer. He says venture capitalists who previously avoided him are calling frequently to try to invest in his company, Okta Inc., which helps companies keep track of employees’ online software programs.
Strangers are starting to recognize Mr. McKinnon in public. At a San Francisco restaurant recently, a diner approached and asked: “Are you Todd? I’ve been following you guys,” the CEO recalls. “It was cool until he told me I looked a lot younger in my picture.”
Business-tech parties have become hot tickets. This month, Varun Mehta and Umesh Maheshwari, founders of a San Jose, Calif., storage-technology company called Nimble Storage Inc., co-hosted a reception in San Francisco to mingle with other techies. They couldn’t fill the room at the same party a year ago; this time they sent 300 invitations and the event was filled almost immediately.
“For the first time, there was a lot of recognition of our names,” says Mr. Mehta. Adds Mr. Maheshwari: “Storage is definitely hot.”
Marketo’s Mr. Fernandez says this year he began getting offers for free luxury box seats from bankers, venture capitalists, potential auditors and business partners to San Francisco Giants’ baseball games. “You gradually get into a club, word spreads, and then it’s just relentless,” he says of his social calendar.
Venture capitalist David Sze at Greylock Partners, who invested in Facebook and LinkedIn Corp., LNKD +0.40% says he felt the change last month in meetings with engineers and tech executives to discuss future projects. Mr. Sze says everyone politely asked what he was up to—before revealing that what they were really interested in was technologies for businesses.
Some asked for introductions to his colleague, Asheem Chandna, who specializes in investing in start-ups that sell geeky enterprise-tech products around security and the data center. “Six months ago, that didn’t happen,” says Mr. Sze. “Asheem is like the rock star now.”
The recipient of all the attention, Mr. Chandna, says he “can’t keep up with my email anymore,” particularly after one of his investments, security-tech company Palo Alto Networks Inc., PANW -0.95% made a strong stock market debut in July. Palo Alto Networks’s stock has since soared more than 50%, even as Groupon and Zynga shares have plunged more than 65% and Facebook’s stock is off around 40% since their respective IPOs.
Spokespeople for Facebook, Groupon and Zynga declined to comment.
Some business-tech types say it is about time they got respect. When Marcus Ryu took his company, Guidewire Software Inc., GWRE -1.04% public in January, he says some investment bankers told him he couldn’t hope to land a similar valuation to Groupon’s or Zynga’s—even though his firm, which makes software for insurance companies, was increasing revenues by double digits to around $175 million a year and was profitable.
The bankers said “there’s magic in those [Internet] names,” says Mr. Ryu, 38 years old, who is based in Foster City, Calif. “We got the feeling we were a second-tier name.”
Since its IPO, however, Guidewire has soared to above $30 a share, more than double its $13 offering price. Guidewire’s market capitalization of around $1.7 billion is catching up to Zynga’s $2.46 billion valuation.
Mr. Ryu says Guidewire is getting a dozen calls a week from investors. He says it is nice to get validation, especially since he secretly harbored a “long-simmering low-grade resentment of consumer Web guys.” To celebrate, he says he is considering upgrading from his 10-year-old Honda Civic.
But Mr. Ryu says he doesn’t plan to change other ways he has always done things. “You’ll never see me in a hoodie,” he says.