This VC has a deep technical background, and helped make VMware the giant it is today. Here's why he thinks that helps him score deals and sift through the hype.

Troy Wolverton

Nov 1, 2019, 04:07 IST

This VC has a deep technical background, and helped make VMware the giant it is today. Here's why he thinks that helps him score deals and sift through the hype.

General Catalyst

General Catalyst managing director Steve Herrod

Steve Herrod thinks he has an advantage over other venture capitalists - he's got a deep background in technology.
Herrod has a PhD in computer science and was the chief technology officer of VMware before joining General Catalyst as a managing director.
His experience building the technology department at VMware has helped him offer advice to founders about how to build their tech teams.
His knowledge of technology has helped him to evaluate startups, particularly those touting their use of artificial intelligence.
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Steve Herrod, by his own admission, focuses on the "nerdy" stuff.

But even in Silicon Valley, where it's long been said that nerds rule, Herrod's found that being able to understand and offer advice on the technical challenges startups face has given him an edge over other venture capitalists. His technical acumen and experience has helped him establish a rapport with the companies' founders and get into deals, he told Business Insider in a recent interview.

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"I think that that's been something that's been attractive to a lot of these founders as I'm going in and looking to invest with them," said Herrod, a managing director at General Catalyst.

Herrod came by his technical expertise honestly. He has bachelor's, master's, and PhD degrees in computer science. He worked in software engineering for more than 15 years, spending the last five of them as VMware's chief technical officer.

But beyond his degrees and titles, he has also plenty of practical experience. At VMware, he learned how to build a large technical team as he helped the company grow its engineering staff from 20 people to 2,000. As its CTO, he learned how to guide VMware's developers to anticipate problems years in advance and to make sure they assigned particular issues to the engineers and groups that were best suited to tackle them.

During his time there, the company acquired more than 20 startups - including Nicira, which would go on to form a cornerstone of VMware's strategy - so he developed a good sense of how to work with nascent companies and integrate them into a larger corporate parent.

"I certainly made plenty of mistakes and learned lots of lessons," he said.

Herrod's tech background has helped him ignore the hype

When he decided to make the switch to being a venture capitalist six years ago, helping establish General Catalyst's West Coast presence in the process, he figured those lessons would come in handy. Many of the investors behind the startups that he met with as VMware's CTO didn't have his level of technical expertise. He thought that he could be a resource to the types of companies he planned to focus on - very early-stage startups that were developing software products that would be sold to corporate technology departments.

At that stage, the companies are "almost always [just] a technical team and a general idea," he said.

From his experience, he said, he can help them with hiring and building teams and focusing on the right problems.

Herrod's engineering background has proved helpful in another way in his second career - sussing out the puffery from the reality when it comes to the technologies startups are working on. A few years ago, lots of firms were touting themselves as big data companies, he said. Then a bunch of them claimed to be cloud companies. Now the big thing startups are saying their working on is artificial intelligence.

Much of what people claim to be AI is really just calculating basic statistics or doing elementary data processing, Herrod said. When founders say their company is working in or on AI, it's often just marketing, he said.

"AI gets a ton of undue hype," he said. "But also there's a lot of real stuff going on there. And so being able to separate those two and hope the investment's a good one has been a big focus."

He's having fun

Real AI essentially involves computing systems learning from patterns, experiences, or examples and applying that understanding to future problems, Herrod said. Where AI gets exciting - and what Herrod looks for - is when it has the potential to make a process 10 times better, faster, or less costly.

One company whose technology has that potential is Espressive, he said. The Silicon Valley firm as developed an AI-powered virtual assistant for corporate help desks. The assistant, dubbed Barista, is designed to automatically field help desk calls and inquiries from employees. The system learns from past interactions to improve how it responds to future ones.

Companies are interested in the system not because it has AI, but because it promises to greatly improve their ability to handle help desk cases.

"At the end of the day...AI is a means to an end," Herrod said. "It's not why anyone buys any product."

AI isn't the only technology he concentrates on. He also looks at companies involved in cybersecurity, networking, and the handling of data. This summer, he led General Catalyst's investment in Securiti.ai, which uses AI to help companies comply with the growing number of privacy regulations around the world, including Europe's General Data Protection Regulation and the California Consumer Privacy Act.

Herrod may no longer be leading an engineering team, but he still enjoys geeking out with the companies and founders he meets with.

"It's been fun," he said, continuing, "You just get to see so many cool ideas and interesting people."

Got a tip about venture capital or startups? Contact this reporter via email at twolverton@businessinsider.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.