Google is primarily a search and advertising machine, but the company has made forays into internet service provision, online phone services and now, the cellphone business. (AP Photo/Paul Sakuma)

Chris Sacca spearheaded Google's bid on wireless spectrum in a U.S. auction, now under way.

Google Inc. devotes about 70 per cent of its attention to its core business of internet searching and advertising. The rest, up until a few weeks ago, was the domain of employees such as Chris Sacca, Google's head of special initiatives.

Under Sacca's leadership, the search company branched out into such efforts as the Google Talk messaging platform, building out free Wi-Fi wireless internet access in Mountain View, Calif., and most recently, a foray into the U.S. cellphone industry with a bid in the country's auction of 700 megahertz wireless spectrum, now underway.

Sacca, 32, left Google at the end of December to concentrate on finding and investing in small technology startup firms, including companies such as micro-blogging site Twitter.

He was in Toronto on Tuesday to speak about technological innovation at a Deloitte-sponsored conference and, while prohibited from speaking about the U.S. auction by anti-collusion rules, Sacca discussed the state of the wired and wireless internet — as well as venture capital investing — with CBCNews.ca.

You speak very fondly about Google. Why did you leave?

A couple of things. I came into my main stock grants so the financial incentives weren't there anymore, but subsequently, I'm a generalist. By interest and by trade, I like doing many things, and as companies get bigger they increasingly encourage folks to specialize. Whereas in the early days at Google I was working on data centres and then on Google Talk, business development and all kinds of stuff, my last year there was devoted almost exclusively to wireless. I love wireless, but it's not the only thing I love. And so, starting a couple years ago, I started doing some things independent of Google and I was learning about some things that were really exciting.

With the U.S. wireless auction just now beginning, do you feel like you left halfway through the process? Why did you not stay and see it through?

It's because there's a great team in place. What started as an individual effort just over a year ago now has a big team with great leadership. There are folks there to drive the auction as well as a lot of parallel efforts. The group was called the "alternative access" group and it was multi-dimensional, well beyond the 700 megahertz auction, well beyond the United States, so I'm pretty confident they have the leadership to move the needle in technology in the commercial space with great products as well as in the policy space.

Are you able to give a prediction as to what you think is going to happen with this auction?

I can't.

What about Google's Android mobile phone operating system — how separate is its development from what is happening in the auction? Does one have to happen for the other to develop?

While the Android guys worked very closely with us within Google and are great personal friends; I don't think they're mutually dependent. What we've seen is that there's been a movement within wireless — the resurgence of the device has been the most powerful factor. There's definitely some sensitivity among AT&T's competitors in the United States — AT&T has the iPhone — to find big cool disruptive devices with all sorts of new functions that are going to be able to compete. You're going to see some hunger from some of the other carriers to carry the Android platform.

You've moved on from Google to investing in technology startups. What sorts of things do you look for and what gets you excited?

I like very small teams, I tend to work with [teams] who are four people. These days, instead of pitching business plans, they're pitching URLs — they've already coded up something. I like consumer internet, there's a lot of room left to grow there. I like teams that are lean, that are very capital efficient. I like to work with products where I feel I can personally impact the outcome.

In the case of stuff like Twitter, their headquarters is, like, a block from where my house is so we can get together and do great things.

There have been alarm bells sounded about the lack of venture capital, particularly in Canada, for technology startups. Is that the case?

There's more venture capital than ever in California. Official numbers confirm that. By some estimations, there's a bubble of venture capital in the U.S. With that said, I work on the thesis that these funds are too big and they're trying to force deals in sizes that don't make any sense for the entrepreneurs themselves. The cost of building the software has come down from '98-'99, yet the size of the investment hasn't. Venture funds, they raise this money, and the partners of these venture funds collect fees based on the total amount of money they've raised, so they have a disincentive to change the size of the fund down to what's appropriate.

There's been a shift in the venture capital industry, where we've seen the rise of savvy angel investors as well, smaller funds such as Fisher Lynch Capital, who have raised tens of millions instead of hundreds of millions of dollars. They can deploy it a lot more efficiently.

How different is raising capital today than it was 10 years ago?

Back then, you pitched a business plan and it was written by an MBA. It would propose ideas about what you were maybe going to do. Now, instead of pitching a business plan written by MBAs, it's engineers who are actually coming right to you and showing you a URL of a product that they've built themselves. The engineers have resurged into a leadership position.

Also, the coding environment back in 1998 and 1999 required a few million dollars to get going. You needed specialized machines, specialized licences, you needed some innovation help to build a lot of these engines. Nowadays, it's almost entirely open source. As long as kids have a functioning computer and an internet connection, they can obtain all the tools they need for coding without paying anything.

I think the best example of how this has shifted is a venture fund called Y Combinator, run by a guy named Paul Graham. Paul invests $12,000 to $15,000 in companies that consist of two kids and can build a company in 12 weeks, and they don't need any more money. I've invested in a Y Combinator company that has taken in about $100,000 of investment and is entertaining position offers from the high to the low single-digit millions of dollars. That's amazing capital efficiency to get to the point where people are using their products.

Have you looked at any Canadian startups?

I haven't looked at Canadian companies specifically. One thing that has been interesting about Canada is that it's an easier country for coders to immigrate to. The U.S. has very restrictive immigration policies so I see a lot of intelligent engineers go to Toronto and Vancouver, which are auxiliary wings of great startups. It's a real hotbed of talent.

Companies tend to get funded around informal social networks. For me, so much depends upon the team I'm investing in that I tend to invest in guys who [I'm familiar with]. Ideas are cheap but execution is everything. It's hard to do venture investing remotely.

One of the rising Canadian companies you mentioned in your presentation was Sandvine. You said during your presentation they were one of the most evil companies out there …

I said they had the potential to be evil. I think that technology can be misused to controvert the entire purpose and intent of the internet. Once operators start picking and choosing what you should be seeing, that's an incredibly slippery slope. Sure, there are some social norms that we've all built around various types of extreme content, but other than that, we see political regimes that are increasingly oppressive. I worry about technology such as this being used to supplant a user's judgment for what is appropriate. I don't think this is hypothetical at all; it's happening today.

Sandvine's stock seems to have plummeted ever since U.S. internet service provider Comcast started taking heat in October for shaping and interfering with its customers' internet traffic. Are companies such as Sandvine in for shaky times?

I don't think they're in for shaky times. There's going to be increasing sensitivity by some of the bandwidth-challenged networks to try and prioritize some traffic over others, but I think that's the wrong path to go down. Do I think there will be more orders placed for Sandvine's technology? Sure, but I fundamentally disagree with this approach to try and rationalize the network.

Strangely enough, Google is an ISP in Mountain View [California] to thousands of people a day and we've had guys who have used BitTorrent and saturated the connections, so we've had to walk the walk. We can't on the one hand be plugging for net neutrality and transparency of packet flows, while on the other hand [try to interfere] with BitTorrent. So we had to structure the network so that we allocated a maximum amount of bandwidth to each user and not otherwise interfere with their packet flow, and not make judgments about one technology over another. That's where things can get a little bit dangerous.

I was encouraged by the whole Comcast thing because the blogosphere and the press brought so much visibility to it. Net neutrality has been an academic issue up until now and we're heading to the tipping point, where it's going to be very real.

Net neutrality is often painted as a clear black-and-white issue — we're either going to let you access Google or not access Google. The way it's actually going to play out in the physical sense is a willful neglect of connections. Peering connections aren't going to be upgraded, preferred customers are going to appear faster. It's too much of a lightning rod to drop connectivity altogether.

Up here in Canada, one of the frightening things was when Rogers started subverting the Google home page. I don't speak on behalf of Google but to me as a user, that was frightening — to see Rogers insert itself into that white space. That's tough. For any of us who have our own page on the internet or a publisher, that an operator [would do that], that was shocking.

This debate has been so academic for so long, it's been hard to get people excited about why they need to care. Every time these carriers do something like this, it really fans the flames and allows that spark to become a fire. While we were talking about the openness principles for spectrum in the United States, Verizon went and denied an SMS short code to a pro-choice organization called NARL. It was just amazing — we'd been searching for tangible examples and right there, in the middle of discussions, it happened. I think sometimes these guys shoot themselves in the foot.

To get back to wireless, what really needs to happen for the mobile internet to become like the fixed internet? Is it going to be one big event or will it be a domino effect of smaller ones?

It's going to be dominos. On the one hand, I'm excited for startups in this space because for so long they've had to go through the carriers to even get their applications downloadable to consumers. The carriers need to see that incremental revenue [that these applications will generate]. With Twitter, which is a messaging company I've invested in, for example, the minute you become a user of Twitter, there's a direct incentive for you to upgrade your plan to get unlimited messaging, which leads to upselling and higher average revenue per user for the carrier, and more money in their pockets, so they're excited by it. We're going to see more and more of that.

I don't know if there's going to be one catalytic event. While the open access principles in the upcoming 700 megahertz spectrum auction were less than what we advocated for when I was at Google, I do think they are a good starting point for thinking about this. They give consumers transitive ability with their device, which is technologically possible today anyway, and choice of what applications they download and how they use their devices.

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