Setting Menlo Ventures Straight On Siri

Shawn Carolan, Board Member at Siri and Partner at Menlo Ventures, wrote an article on PEHub related to the personal assistant software (in beta) on the new Apple iPhone 4S about Siri, called “The Prettiest Girl at the Ball,” which I need to correct.

Without using any proprietary information I had on this company, the overreaching description of the role of Venture Capital (VC) in this article is what percolates the Venture business. It creates the fog around the real merit of Venture Capital in producing returns for their investors. The integrity of the Venture Capital process matters because only real VC merit can produce sustainable returns and therefore be the investment thesis that can instill new confidence with Limited Partners, especially with Venture’s deplorable ten-year performance.

Specifically, I take issue with the following statement:

…the decision to sell was a tough call and there was lot of hand-wringing at the Board level. Siri had just raised a new round from Horizons and had close to $20 million the bank.

The original document on PEHub appears here, to which I add:

Oh please.

You are bending the truth quite a bit. Siri was great technology due to its inheritance from Calo developed at SRI but hardly a business success you seem to suggest that would prevent it from selling (everyone could see that from the App Store ranking). And $20M in the bank does not erase the fact that the business model as an independent iPhone app was flawed and underperforming.

So, the value of Siri was primarily related to the value of the intrinsic IP, not the business execution or the role of Venture Capital in that process.

I hate it when VC takes credit for what it didn’t achieve and doesn’t take blame for the things they (not entrepreneurs) did. Hence my need to set you straight.

And the future of adoption of Siri in the real world remains to be seen (voice recognition is still fraught with many false positives and false negative that will feed Siri incorrect input, and lack of foreign language support that will minimize its global practicality), but if anyone can turn it into a business success in the long haul it will be Apple.

Today it is a great marketing tool, a lot of water needs to go under the bridge before it can deliver incremental market access.

You got lucky on this one, let’s leave it at that. Just don’t confuse luck with strategy.

Much of the success of Siri was derived from the ability of SRI to harvest the knowledge from a government project into a commercial project. I would recommend SRI raise its funds so it does not need to lose future equity in other projects to the external guidance that has proven to deliver only nominal value.

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Shawn @ Menlo Ventures responds on PEHub (subscription required) with calling my opinions uninformed and conjecture, to which I respond:

Shawn, I didn’t rely on my conjecture; that is the flawed conjecture on your part instead. I am better informed than you think…people (not just VCs) in the Valley talk and the future of Siri as a Venture-backed company wasn’t as rosy as you described. The value of Siri didn’t come from Venture’s unique magic wand; in fact, Siri would have had a rough road ahead if it weren’t for Apple coming to the rescue. Driving the IP through an iPhone app may have helped Apple see the light. Still, it sure wasn’t a business strategy worthy of producing a viable independent company (few iPhone app companies taking $20M+ are).

So, you overstated the importance of Venture Capital in this deal. Siri is/was great IP, not a great company. And venture better be focused on the latter, if it wants to appease Limited Partners with viable returns for once.

The team executed on the IP redevelopment nicely, but the business strategy lacked a healthy horizon. And I wondered why SRI does not raise its funds to spin them out if the independent market traction remains negligible. They could have retained more equity and gotten the same result.

On changing the world, I think voice and its processing have a long way to go. The industry for years has struggled to make voice a reliable input method (producing many false positives and false negatives), and optimizing the understanding of voice is a small (but important) part of the complete “picture.” Siri is the only game in town for the latter part, but it will not change the fact that having conversations with a computer is still hokey at best. Siri, on the iPhone today, is like talking to your favorite help desk person over the phone. It understands and processes part of the conversation, but you never get your point across with the information you need. That is why people hate automated telephone systems, and they will keep using other computer inputs until it becomes reliable.

It is hard enough today to get out of a computer what you want, and now we’ve made it less consistent to get information in. I have seen great technology like this before, where when it works the marketing value is great, but in reality, the (even fewer) false positives turn users off. The lack of broad base adoption in the App Store was early proof of that. Great press from a great brand is drowning out the reality of what awaits Siri.

If I were in charge of Apple, I would not have released Siri in beta yet, and I first established some clear guidelines as to what technology around Siri needs to be developed to make it more reliable. Siri is just a small part of the value chain that makes voice input dependable.

The bottom line is you over-stated the strategic role of Venture in this deal in your article posted here, and that is why I stand to correct you. Not because I don’t think a little bit of luck is what everyone needs at times.

If we want Venture’s arbitrage in innovation to be more sustainable, we better clearly discern between luck and strategy, and just be honest.

Let’s lead the world by example with new rigors of excellence we first and successfully apply to ourselves.

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