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A Bad Case of Google Envy

For eight years, Ray Lane made his name as president and chief operating officer of Oracle (ORCL). He served as the pragmatic yin to the sometimes rash CEO Larry Ellison's yang. After a well-publicized falling out with Ellison, Lane was forced out in July, 2000, and some expected him to quickly land in the corner office of another Silicon Valley company. After all, Lane had rebuffed offers to run high-tech outfits like Hewlett-Packard (HPQ) and Compaq Computer, while still at Oracle.

Instead, he landed at Kleiner, Perkins, Caufield & Byers -- perhaps the Valley's most storied venture capital firm. He has surprised many of those same industry gossips by staying there. His name still comes up whenever there's a CEO vacuum in techdom, including a second opening at HP earlier this year.

Lane not only says he's content in venture capital but also jokes that his old friends at Oracle and SAP (SAP) envy him. After all, he gets to see new technologies as they bubble up. He works and travels less. And he spends more time with his two young children, all the while keeping a toe in the enterprise-software world where he made his name.

YEARNING FOR A HIT. That's not to say Lane has pressure-free workdays. He entered the venture world just as the software market got considerably harder for small companies -- and good deals became harder to come by. So he has had to scramble, even doing deals in unfamiliar turf like podcasting.

He hasn't had a big hit yet, and he wants one -- badly. Among potential home runs, he counts Visible Path, a social-networking startup aimed at companies, and Virsa, which makes software that enforces real-time Sarbanes-Oxley compliance. Even on a lazy Friday before a three-day weekend, Lane has a hard time sitting still, frequently jumping up out of his chair to pace, lean against his desk, or illustrate his points by drawing graphs on the well-used whiteboard in his office.

Lane recently met with BusinessWeek Online reporter Sarah Lacy to talk about where he's placing his bets, what he likes about the venture business, and why all the consolidation in the software world will only continue. Following are edited excerpts of the conversation:

Q: How tough is it to be an enterprise-software startup these days?

A: Right now, the enterprise market is a tough place. [Companies have] consumed a lot of technology and want to consolidate a lot of the technology they've bought. They want a few platform players -- and innovation.

The challenge is: How do large enterprises hear about innovation? They used to have entire staffs who would spend thousands of hours listening to thousands of startups and trying to figure out which ones are the most innovative. They don't do that anymore.

If they can put out a fire by having one of the big vendors add a feature, they'll do that. If it's going to take a new company to come in, they'd like to hear how innovative it is and why the current vendor couldn't supply that feature. Then, they'll listen. If that new vendor has to turn their environment upside down, that's hard to do. It's not an easy environment.

Q: Where have you invested?

A: Security is huge, but all these [customers] have 10 or 15 products installed already, so you have to be clear what you're talking about.

A year-and-a-half ago, I invested in Visible path, a social-networking company totally dedicated to enterprise relationship management. I mention them, because they are part of a new category called search. Visible Path is built on search technology using algorithms to look at data, like Google (GOOG). Where Google looks at Web pages and links, Visible Path looks at people pathways. They'll be lots more applications developed using search the same way we used relational databases 25 years ago. It's a different way of looking at the network of data.

Open-source is a big deal. In fact, we incubated an open-source company. It was the only time I've felt like an entrepreneur. Two years later, that business has become SpikeSource, and Kim Polese is the CEO, and it's off and running. [Polese, a former Sun Microsystems (SUNW) manager, is a longtime software exec who also started Marimba.] They certify and test stacks of software in the open-source world, so I think that's going to be a big deal.

Q: What do you think about the consolidation going on in the software world?

A: No one should be surprised about this. It's probably long overdue. We had this renaissance period in the late 1990s driven by the Internet, where some enterprise-software companies really built big businesses. Once you come back to reality, if you're a $100 million software company trying to do what a $1 billion software company does, you're probably going to get consolidated out.

The numbers are unbelievable here. The top 15 software companies are 84% of the revenues in the industry. The top three generate 75% of the profit, and the top one generates 57% of the profit. [Underneath that] it's becoming a wasteland. Some of the more interesting ones are BEA Systems (BEAS) and Siebel Systems (SEBL). Do these companies have a value proposition that's interesting in the future, or do you just say, "I'll buy it all from SAP or Oracle"?

Q: Do you think there's any way they will stay independent?

A: Without a time frame on it, no.

Q: How do you like the venture business?

A: I like it. I went through about a year and a half to two years of saying, "This will bring sanity back to my life." I thought I'd come to work at nine and go home at five or six, and call entrepreneurs and say, "Hey buddy, how's everything going?" That's not how it works at all.

My wife would say I'm not telling you the whole truth on this, but I still say it's a different work schedule than I had at Oracle. At Oracle, I traveled 70% of my time, and I worked a good 16 to 18 hours a day, and I was on call all the time. Here, I do my e-mail and all of that, but I go home. If someone needs to call me on Saturday, he can call me on Saturday, but I don't travel, and I'm not on call. That, to me, is a big, big difference. I've got two young kids, a 6-year-old and a 4-year-old.

Q: Any desire to go run a public company?

A: In the first year-and-a-half to two years, you get all these calls saying, "You're not serious about venture capital. Why don't you come run this big public company?" I had to get that all out of my system, quite frankly. I had to ask myself: "Can I really say no?" I had to say no to some really outstanding opportunities. I said to myself, "Why am I saying no? Do I really like [venture capital]?"

And then I got it. I was always afraid I was entering into a new business, a new career -- venture capital. Well, I have no desire to learn venture capital. But I found that the entrepreneurs weren't looking for venture capitalists. They're looking for venture capital money, but they're looking for people who have operating experience. So I wondered, "Can I really do this business?" Well, yeah, I can, because that's what they really want: Someone who has experience and the contacts and all of that. So yeah, I like it.

Q: What made you hesitate when you would say no to CEO jobs? What was pulling you back?

A: Ego. It's all about ego. The way I look at it is: If you knew you had five years to live, would you give those five years to shareholders, would you give it to entrepreneurs, or would you give it to kids? How do you want to spend your time? I hope I live another 30 to 40 years, but if not, do I want to work real hard for 5 years? Maybe 10 years from now, when my kids are teenagers and they hate me, then I would consider maybe going back.

Q: You mention ego, and I imagine there's a good deal of that being a partner at Kleiner Perkins, too. Would you have joined any other venture firm?

A: No.

Q: Why not?

A: John [Doerr], it's really John. If John weren't here, I'd seriously think about something else to do. [Doerr is a Kleiner Perkins general partner, who funded Sun Microsystems and Amazon (AMZN), among other companies.] What I want to do now is: I want to have a Google. Virsa is a candidate. Visible Path is a candidate. I have about three or four candidates. I have some that never will be candidates. I want them to have a good transition to something, but it will not be a big, important billion-dollar company. I know that already.

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