Information Security? What Security? Forget Prevention, says Venture Capitalist Ted Schlein, Focus on Limiting Damage

Information Security? What Security?

Forget Prevention, says Venture Capitalist Ted Schlein, Focus on Limiting Damage

Feb. 10, 2014 4:47 p.m. ET

Venture capitalist Ted Schlein from Kleiner Perkins Caufield & Byers discusses the effects of crowd funding and angel investors on venture capitalism. He talks at The Wall Street Journal‘s CIO Network conference in San Diego.

Investors may not always like what they hear from venture capitalist Ted Schlein. For example, the general partner at Kleiner Perkins Caufield & Byers says companies are fooling themselves if they think they can keep hackers out of their networks.

He and Scott Thurm, Wall Street Journalsenior deputy technology editor, discussed Web security and other topics. Edited excerpts follow.

Taming Big Data

MR. THURM: The entrepreneurs you’re seeing who are interested in the enterprise space, what are they bringing to you these days?

MR. SCHLEIN: I’d say there are four big areas going on in enterprise software right now.

Everybody loves to talk about big data this, big data that. I don’t think big data is all that interesting. I think important data is very interesting. How do you take the fact that 90% of the data created in the world today is completely unstructured, that we can gather gobs and gobs of it, more so than we’ve ever been able to do before. We’ve built layers of infrastructure to handle it. But how would we make it pertinent to you, to you, to you, to you, to do your job? And that’s going to spawn a whole new set of apps.

Another area being worked on a lot is the re-architecture of pretty much all your work flows. The mundane tasks going on in your organizations today are being redone, and that’s going to be done in this brand new SaaS architecture. [Software as a service is industry shorthand for corporate software delivered from shared computers over the Internet, rather than on a company’s own computers.]

That, by the way, is being enabled by the third main area, which is the re-architecture of your data centers. And this is my way of saying the cloud, I suppose. It will be the virtualization and re-architecture of your data centers so you can modernize them, i.e., make them more flexible, more cost-efficient, turn them into your own clouds.

Then finally, kind of my pet project, which is to make your organization safe, and new technologies in the world of security. We’re seeing innovation for those areas at a very rapid scale, quite honestly, faster than I’ve seen it in my previous 17 years.

MR. THURM: Can you foresee a time where we think we have secure online enterprises?

MR. SCHLEIN: I don’t think it’s a battle you necessarily win. It’s one you try and just get to a draw on. Your best days are when the bad guys go elsewhere.

MR. THURM: So every big retailer but Target succeeded over Christmas because the hackers got Target?

MR. SCHLEIN: No, no. Look, I’m a firm believer there are only two kinds of companies—those that have been breached and know it, and those that have been breached and don’t know it. Most of what we do in security is around prevention, prevention, prevention. Great. Just know it won’t work. Know that they’re going to get in. You ought to be thinking, “Hey, I want to find out where they are as fast as humanly possible, contain it and remediate it.”

MR. THURM: What do you think of valuations in the Valley now?

MR. SCHLEIN: I guess I have to believe in efficient capital markets at some point or another. And look, there are times where the valuations favor the entrepreneurs, and times where they favor the investor. Private valuations trail public stock markets by usually about six months. So you’re not going to see private valuations go down until the public stock market comes way down.

When you see a company that’s doing $500,000 in revenue valued at over $200 million, don’t ask me to come up with some discounted cash-flow model to prove that one out. There’s no proving it. But it’s what the market demands today.

Echoes of 2000?

MR. THURM: How does this environment feel to you compared to 1999-2000?

MR. SCHLEIN: First of all, we call that a boom. There were lots of great companies created out of those times. But there are some stark differences. The companies that are able to reach the capital markets [today] actually have pretty significant businesses where there’s a profit and loss you can look at. If you go back to ’98 and ’99, there were companies putting way too much risk on the public markets with no real discernible business.

The other thing is, a decade and a half ago, companies were not able to grow anywhere near as fast as they can today.

If you just look at the number of devices that you can now access the Internet from, you’re able to grow these companies in a much more rapid fashion, have a much larger addressable marketplace, thus leading to why you’re also seeing valuation inflation.