Everything about The Fabric in 3 answers [Interview by SandHill.com]

I enjoyed answering M.R. Rangaswami’s questions where we summarized The Fabric’s birth, our approach in co-creating companies with entrepreneurs, and differences between The Fabric and accelerators, VC firms.

The interview in full:

M.R. Rangaswami is the co-founder of Sand Hill Group and publisher of SandHill.com.

What do you do after you’ve sold your fifth tech startup to Juniper?

If you’re Rajan Raghavan, you start more companies.

At a career stage when most successful tech entrepreneurs are making the rounds of local golf courses, Raghavan has been making the rounds of cloud infrastructure startups.

Since co-founding his co-creation foundry in the cloud/IoT infrastructure space, The Fabric, with Prabakar Sundarrajan and Sumant Mandal in 2012, the team has launched eight companies and raised a total of $41 million toward their development, including a $20 million round last month with initial investment from Verizon Ventures and March Capital Partners.

The result? The Fabric’s formula works: Three of the Fabric’s ventures have already been acquired: VeloCloud by VMware, Perspica by Cisco, and Appcito by A10 Networks.

I spoke to Rajan about The Fabric’s mission, the contribution of “nature vs. nurture” in his startups, and the part he doesn’t miss about being a startup CEO.

M.R. Rangaswami: You’ve mentioned The Fabric’s aim to fulfill a five-year vision for cloud infrastructure. How important is having a common goal for your startups?

Rajan Raghavan: When Prabakar and I left Juniper to start The Fabric in 2012, there were multiple trends we predicted would disrupt the infrastructure space. First and foremost was the advent of the cloud. We were watching the cloud disrupt the application world so we knew it would disrupt infrastructure as well.  And when you put applications in the cloud, you must have the infrastructure to go along with them. The idea that companies would rent cloud services rather than building out onsite data centers told us there was significant potential in infrastructure.

Second, we realized the infrastructure elements that were currently delivered in the form of proprietary hardware boxes would eventually be delivered from the cloud just like apps. We saw the cloud as the new “operating system” and that infrastructure elements, such as security, would be consumed in the form of software running on the cloud.

Third, we recognized that not only is IT changing but how companies consume IT is changing as well. Technology vendors had successfully deployed new business models. No longer were they selling “boxes.” Remember people used to buy a box of word processing software? Soon we switched to Microsoft Word and then to Google Docs and now all those boxes have disappeared. Infrastructure-as-a-service will follow the model of SaaS vendors – buyers will pay based on usage volume rather than paying a large amount up front.

And finally, we saw that people wanted to connect devices that were never before connected. IoT could deliver remote management and connectivity of air conditioning systems and elevators and door locks – you name it.

Taking all these trends together, we saw the opportunity to create multiple companies to solve the new problems and deliver the new infrastructure needed to power the next wave of cloud computing – rather than launch a single company that tried to do it all.

This vision is what launched The Fabric and keeps it focused. What separates us from other incubators, accelerators and VC firms are our 20-plus-years in infrastructure. We leverage that knowledge to identify “white spaces” of opportunity in the market. We didn’t want to stand back and simply provide funding, office space and access to our network, we wanted to actively co-create and influence The Fabric’s startups.

M.R.: How much of your startups’ success is “nature” vs. “nurture?” What part of their success do they walk in the door with, and what part does The Fabric contribute?

Rajan: I think it is very hard to delineate the relative contribution of “nature” and “nurture” so clearly.

What The Fabric does well is identify opportunities. For example, we looked at the market from a 12,000-foot view and saw the potential for a new way to connect and deliver to the cloud. This resulted in VeloCloud and its eventual acquisition by VMware.

However, a startup’s success is not all “nature.” Even when a significant “white space” opportunity is identified, a startup’s leaders must have the drive and passion to fulfill its mission. And the CEO must have a truly entrepreneurial spirit. The Fabric’s team has been through the process of building companies on our own and we know how tough it can be. In other words, we have been to business school – the business school of hard knocks.

Where some startups are focused on recruiting CEOs or finding talent with money to invest, we are looking for co-founders. Money and execs are everywhere in The Valley today. What we need is mutually compatible, driven entrepreneurs who share our vision.

The “nurture” part comes when The Fabric’s team provides guidance to the startup leadership. We serve as hands-on co-founders with them. We bring in expertise and they bring in expertise, so there are nature and nurture involved on both sides. I believe this process of listening to each other builds the most successful startups.

M.R.: How easy was it for you to step away from heading up your own ventures in 2012 and start The Fabric? Which aspects of being a CEO do you miss and which are you happy to have behind you?

Rajan: The reason we started The Fabric was that we didn’t want to be a pure investor. We knew we could raise money and be another venture fund but we felt others had great records in investing. We realized the fun part for us involved leveraging our domain expertise to come up with ideas, put teams together, and raise funds to bring companies to life.

As a CEO, I also enjoyed serving as the chief salesperson and vision missionary to customers and investors. At The Fabric, I occasionally participate in this evangelism, connecting our startups to our ecosystem of important buyers and influencers.

So I am lucky to still get to do the parts of the founder/CEO job that I enjoyed most. And I don’t miss having to operationally run my startup for the next seven years – or more – and the day-to-day stress of managing a fast-growth venture.

At the end of the day, The Fabric allows me to create successful companies and not have to deal with everyday operational headaches.  It’s the best of both worlds