Last night, Ann Winblad (pictured), co-founder of software venture capital firm Hummer Winblad gave a very interesting keynote speech in honour of the companies awarded by the Red Herring.

"What hasn’t changed is any company that wins the Red Herring award tonight is a big award. Venture capitalists look at it. They comb through that list for award winners. They recognize it as a real badge of honor. So, it is a lasting testimony to a brand that takes a long time to build. The classic story of trying to spend straw into gold, which is what we all try to do", said Winblad.

The famed venture capitalist went on to describe her firm's stellar achievements during its 19 years of existence and reflected on some trends as the "fair-weather" corporate VC, the end of the client-server era, the role of VCs as "opportunists and pattern matching" and that customers finally value software as one of their crown jewels.

"We helped start 108 software companies. Eighteen of them have gone public and 50 of them acquired. Thirty five are still active, striving companies. So, it has been a little bit easier for us to raise our funds [...] when everything looks hot, everybody got a corporate venture capital funds. As soon as things look slightly tepid, no one has a corporate venture fund [...] if you are a stand-alone client server company today, you are probably a little petrified about where to go next if no one has acquired you [...] we are just the opportunists and you [entrepreneurs] are the visionaries. Our skills are only in pattern matching [...] Innovations is not linked to economic cycles, it is only linked to the opportunity to deliver disruptive innovation to customers who finally after 30 years value software as one of their crown jewels", Winblad added.

Here's our transcript for Ann Winblad's keynote:

Ann Winblad: Like many of us started, it was launched in May of 1993 by Christopter Alden and Zack Herlick. It was launched in Chris Alden’s house. I have met his mother and she is very proud that Chris actually started a company in their home. It also did another typical thing that a start up did. It was originally called Flipside Communications and when it didn’t work too well it went into the witness protection program and changed its name to Red Herring. How many companies out here changed the name of their company?

Audience: [Laughter]

Ann Winblad: Yes. I knew that result.

Things went kind of slowly. Then, it got popular in the Silicon Valley. Venture capitalists liked reading the Red Herring but it really needed something to happen. This big thing happened. It was called the Internet. So when the Internet boom came along, the Red Herring became bigger and bigger and bigger but founders sold the stakes to outside investors but when the dotcom bust happened the magazine struggled and the investors were nowhere to be found. And, there entered Alex Vieux with a company named DASAR that acquired the company’s assets. And this is the Red Herring we know today.

What hasn’t changed is any company that wins the Red Herring award tonight is a big award. Venture capitalists look at it. They comb through that list for award winners. They recognize it as a real badge of honor. So, it is a lasting testimony to a brand that takes a long time to build. The classic story of trying to spend straw into gold, which is what we all try to do.

As start up companies takes a while and the Red Herring is an example of that long lasting, a great brand, you are very fortunate to be winning this award tonight. I looked at the conference program. I wasn’t able to come to much of the conference today. And, there are a lot themes we have heard before. Cleantech seems to be a known theme here. Mobility, software as a service, how to raise money, how to get to your first million dollars. Again, the classic story of how to take the straw and spin it into gold.

There are some new topics. Women as CEO’s seems to be the topic of the year. CEO’s under 30 and who is the next generation and there are a lot of new names in this event today that will get a Red Herring award and be the new leaders for our industry. When we started our venture capital fund in 1989, we said we would invest in software. I had just sold my software company. I didn’t raise any capital because there weren’t a lot of venture capitalists around in 1975. That was the same year that Microsoft started and Apple started. I started my company. That TCP/IP was finished under a DARPA grant and was being coded by Vince Cerf at Stanford. There was 10% unemployment. You had to sit in the gas lines because there was inflation. The President of the United States resigned shortly after 1975. I was living in Minnesota and the Vikings lost the Super Bowl that year so there was nothing worse that could have happened.

Audience: [Laughter]

So, by 1975 everybody loved software companies and John Hummer who is my co founding partner said, “Come on Ann, don’t start another software company. Start a venture firm with me.” So, we went out to raise our first venture capital funds, focusing only on software. So we had 133 meetings before anyone committed a $1.00 to our funds. I had created 16 large PC software companies and John had all sorts of pedigrees: Princeton, Stanford, NBA Player, already an experienced venture capitalist but no one wanted to give us the money because they thought software companies were bad investments.

So, I really do have a deep understanding for everybody trying to get through A rounds, B rounds, C rounds and I hope for any of you out there that you won’t have 133 meetings to fund your company. The 19 years have gone by. We helped start 108 software companies. Eighteen of them have gone public and 50 of them acquired. Thirty five are still active, striving companies. So, it has been a little bit easier for us to raise our funds. We have just raised our sixth fund last fall.

When we look back at the venture headlines, it has been a tumultuous year in venture capital. If you looked at the headlines in February, they said the following, “driven by U.S. enthusiasm, Global VC investment in Clean technologies jumps 43% in 2007 to $3 Billion. Young social networks, leading innovators, DTL, the Internet bright future at Web ventures of 2008. Venture capital investment in India reaches a record of $928 million. Venture capital in China up 5% in 2007 to 2 ½ billion. European venture capital up slightly, 4.56 billion Euros. United States venture capital climbed 8% to 29.9 billion in 2007, highest levels since 2001.” That was February.

Headlines in April 2008: “after nearly three years in steady growth, US venture investment pushed back 7% in the first quarter to 6.84 billion.” Subheadline: “San Francisco Bay area remains the venture capital strongholds as investment climbed 10% to 2.56 billion invested in 213 deals.” So entrepreneurs are trying to figure out what does this mean. Is ita great time to raise money or are people funding new deals or are they holding back for funds or are they hoarding their funds for existing deals. What does this really mean? Well, fortunately we don’t have the same kind of boom in 2007 as we had in 1999. What it does mean is that there are always some fair-weather investors in venture capital.

Most of that pull back, by the way, was corporate investors who when everything looks hot everybody got a corporate venture capital funds. As soon as things look slightly tepid, no one has a corporate venture fund other than long lasting investors, such as Intel. So most of that pull back was not the hardcore VCs, it really was the fair weathered friends. And the same time something else was happening specifically in the Bay area and this is really a next generational thing. There are a lot of new institutional C Funds: companies that fund companies their first half a million to a million or maybe take less on their pro-rata on the next rounds. But they are not just out there investing as clubs or bands of angels. They are really investing as venture capitals funds hoping that some of there first investments turn out great and they can grow their way to be an institutional venture capital fund.

So all in all what this means for you is that there has really been a steady state of investing in the last year, since effectively 2003. So those headlines are really episodic relating to an episode that means nothing to you. It does mean that if you are having a conversation with a corporate investor it is probably going to take a long time to get to the finish line. Software investing, even though we hear a lot about Cleantech, and other investing, really is most where the money has gone. It is been the top area for venture capital investing consistently since 2003. It is consistently 40% of overall financing and 30% of overall dollars. Just remember that software companies are more capital efficient.

So, we are on a really interesting enterprise software timeline right now. We had a couple of big things that happened that had a lot of dimensions: software as a service, open source, open standards to go along with that.

And, we really have one big theme here. If you see what we all have in common, whether you are a consumer company, consumer technology, it really is the consumerization of the enterprise meaning that probably the most exciting social networking company are companies like Lithium and Jive that are doing social networking for the enterprise. The most interesting collaboration companies are the ones that are doing it for the enterprise because, guess what, it is because they are actually selling their software for money. So, we had a seminal event that happened in this extraordinary era of innovation and disruption. We tend to think of it as creative destruction. Sometimes, it happens when companies get acquired and release more room on the market map so we have lots of that, the aggregation of all the client server companies. It is almost over. So, if you are a stand-alone client server company today, you are probably a little petrified about where to go next if no one has acquired you. We were the original investors in a company that was called Hyperion. We funded two people as Arbor software that was Jim and Bob. That was the beginning of the new BI area. There is really, other than Micro-Strategy, not a stand-alone BI company today but all in all for innovators that’s only a sideshow because why is there so much consolidation. People are buying bulk. At the same time where is the innovation? In start ups. I’ve been in the software industry for 30 years and most of the time what we’ve experience is we had to wait for a platform shift. First, it was client server. That’s when we started our firm. Then, it was distributed computing. Then, some Internet effects on the enterprise. Then, there would be a bunch of companies that would jump on the market map and say maybe we would be the survivors. But we’ve never had in the history of the software industry so many different disruptors.

We have software as a service, service oriented architecture extending into cloud computing, the current bright shinning theme that venture capitalists like. We don’t have business intelligence anymore. We have actual analytics and data intelligence. We have companies that really want to operate with data in real time and make decisions on it. We have open source and open standards, virtualization, collaboration and social networking, data center architecture and optimization. Who would have thought that British Telecom would be a player in the software marketplace or that the greatest hoarder of new innovative companies would be Amazon because they have optimized there data center, virtualized it and brought in cloud computing infrastructure in a public cloud.

Service oriented architecture, we talked about. Global distributed development, deployment, and security. The more we innovate the more we need secure. The more we innovate the more our development tools change. Every piece of the technology stack is up for grabs and this is very, very challenging for the incumbents.

Probably for the first time in 2008, Microsoft’s acquisition’s budget will exceed there research budget. That is because there is more going on in the venture capital area that you can possibly do in the research area, even the best of the best companies. What this also means is that the pace of growth has changed dramatically. Until 2006, only 28 software companies have reached a billion dollars in sales. This is frequently a test question that I ask. In 2007 the 29th company was VMware. Historical for a number of reasons. It took only nine years. That seems long. It took Sybase 12 years, Oracle 13 years, McAfee 13 years, Adobe 17 years to reach a billion dollars in sales. SAP, 22 years to reach a billion dollars in sales. Autodesk took 22 years. Companies that you don’t care much about anymore, Compuware 24 years. So, the younger companies. It took Google five, VMware, 9. This year we’ll probably add Salesforce. It took them about 6 ½ years. So, the ability to scale and to scale rapidly has really dramatically changed. The customers are smarter. The engagements of customers are different. The pricing models are different. How we develop software is different. No one talked about Agile Development two or three years ago. Now anybody who has a big PERT chart on their wall, puts their head down for a year, and now looks up to no customers being there. And again we talked about the Enterprise 2.0. Competing expectations from employees, partners and customers are now in locked step with the consumer. This is a beautiful thing. It really increases the scale and pace of innovation as well. The consumerization of the enterprise is in full stride and enterprises know they can be intelligent.

We are fortunate to be the investors in a company called Omniture, which is the fastest growing software company in the US right now. Predictive is the word. Real time and not rear view vision. Just having the data and being able to crunch it is not adequate. We have one company here called Star Analytics, Hyperion graduates. One of their customers, one of the largest pharmaceutical companies has the largest 4200 hyperion cubes. It took 27 hours each day to do their aggregation of their data and see where they are. With the new piece of software, they could do that in about 30 minutes. So this ability for us to be fast not only in the way we build our software, the difference in the way we price our software, as you use it, subscription pricing and also offer our customers the opportunity to really run there enterprises not to actually run there plants. It is really a big difference. And all of these things we talked about, as stand-alone changes, are starting to mash up. We take Amazon, for example and Amazon’s web services. That is at least three of these drivers we have talked about, virtualization, data center optimization and also software as a service, since no one is installing the stuff on Amazon’s thing. If you look at Cloud computing, what is that? That's software as a service plus virtualization plus data center optimization and this allows you to run applications on even a more granular level. This truly is the beginning of what we thought about as utility computing.

So as we honor the companies tonight and I’m sure all of you can put yourselves into one of these buckets and what is the disruptor that is driving what you do. The other thing that happens to the incumbents in this industry is that by the time we can talk about these drivers, it is already the main event. We invested in our first software as a service company in 1998. In 2005 the famous Ray Ozzie’s memo was leaked to the Wall Street Journal that said software as a service might be disruptive. We are pattern matchers that is what we do as venture capitalist. We have to find these disruptors as they lurk far below the surface. We really have found that for the first time, companies can sneak up on the market. Also, they can do that because of customers. There is no major corporation in the world that does not view software as part of their competitive pallet and the competitive advantage. They have in the first time in 30 years in the software industry in the last five years want to make sure they also are locked in with the innovators, not just the venture but the innovators.

So they are participants in the development of the software and in you building a fully realized strategy. So, if you look at the 200 finalists that are chosen for the Red Herring here tonight, there are promising start ups from the promising thousands that were nominated. Google, Yahoo, Skype, Salesforce, and YouTube have all been past winners when they were much younger companies before they hit that billion dollar mark. Some of them may never hit the billion dollar mark but most of those have. So, for you tonight, the things that I would say to you to take away are that for a venture capitalists, we are just the opportunists and you are the visionaries. Our skills are only in pattern matching. We look for that lethal combination when intellect meets opportunity and builds very large companies. And for the first time, we really think that in this industry, unlike when we invested in companies in the early 90’s in our firms we would always say hey, what would the big guys going to do. That’s not what we say today. We say, hey, what is the market going to do. The market bats last. The incumbent don't anymore. You can no longer sell software to anyone and the customers buy it. And, that dramatic change of locking in all these innovative and disruptive drivers with the intelligence that is in this room has lead to spontaneous combustion of the greatest number of successful start ups that we as venture capitalists and myself as a 30 year veteran of the software industry has ever seen so I wish you all luck. I hope that if you are living in the State other than California and your football team is going to the Super Bowl next year, that even if they loose, it will have no affect on your company, even if the economy goes bad. Innovations is not linked toeconomic cycles, it is only linked to the opportunity to deliver disruptive innovation to customers who finally after 30 years value software as one of their crown jewels. So good luck to you all. Thanks.