On Monday, the company is officially taking the wraps off its plans. Nicira — which I’m told is pronounced like “nice era” — aims to be the vendor of a new networking technology that’s built specifically for the age of cloud computing.

One of the most important enabling technologies of the age of the cloud is something called “virtualization”: As computers have gotten more powerful, thanks mainly to the progress of Moore’s law and ever-better chips — a single computer can, with the aid of software like that created by VMware, act like it’s 10 or 20 or 40 different computers, all at once. Each “virtual machine” has, to its user, all the properties of a physical computer, and ensures that a single machine is used in the most efficient and cost-effective way possible. Customers who use cloud services can quickly “spin up” new virtual machines as needed to meet new demands, usually within minutes.

But generally speaking, networking hasn’t kept up. The pipes through which bits pour in and out of data centers have gotten faster, but they haven’t gotten much smarter. Where cloud servers are flexible, precise and easy to manage, networks are, by comparison, blunt instruments. Meeting new demand means adding new capacity, and that usually means adding new hardware to the mix, and that usually takes weeks, if not longer.

If you’ve ever wondered if it were possible to “spin up” a virtual network as readily as you do a virtual machine, wonder no more, for that is precisely what Nicira wants to offer you, without the addition of a single new piece of hardware, but rather only some software that runs on your existing server. You don’t even need to have especially advanced networking hardware.

Its the kind of thing that could give big enterprises some new flexibility in managing their network infrastructure, particularly as need and demand peaks and drops, whether by the day or because of a seasonal change that happens just once a year.

The company already has customers: AT&T, eBay, Fidelity Investments, Rackspace and the Japanese telecom giant NTT are all using Nicira, the company says.

Nicira calls its product an NVP, or network virtualization platform, and it is being described as the sort of advance that comes along perhaps once every quarter-century. That’s a bold claim, but the argument on which the company is making it holds water. On a day-to-day basis, where you deploy an application in a data center is as much a function of how much networking capacity you have available as it is one of computing capacity.

Virtualization on servers allows you to spread a single app over as many physical machines as needed, but the network connecting those machines is what it is, and if it isn’t up to snuff, you can either enhance it by adding new routers and switches, or live with it. The result is that you can’t be as flexible with deploying apps as you’d like, and that certain machines end up being underutilized by as much as one-third, which is costly over time. You end up having to buy more servers, then pay to run them and cool them.

The Nicira NVP, as CEO Stephen Mullaney told me, “decouples” a virtual network from the physical network hardware. “All of the intelligence, all of the control, all of the services now get done in the virtual space.” The result, what was once a dumb networking pipe carrying bits into two different virtual machines running on the same one, can now be programmed to act in vastly different manners, according to rules in the virtual realm. In much the same way a single computer gets turned into a dozen, a single network can be subdivided and act like a dozen individual networks. Or the reverse: Several networks can be cobbled together to act like one. And a virtual network can be created on the fly in minutes, just like a virtual machine.

A network you can deploy in minutes saves a lot of money, because it allows you to move quickly as your networking needs change. Most big companies who demand the heaviest network loads have agreements with their service providers — usually big telecom companies — that a request for new capacity requires a week or more, because it requires the physical presence of technicians who have to install and provision new gear. But what if you can reconfigure your network in 30 seconds to meet the needs of some new application? That’s exactly what eBay’s Cloud Architect JC Martin found he could do after installing Nicira’s software on the company’s servers. EBay is a Nicira reference customer.

Other reference customers had other interesting experiences and uses to report. Japan’s NTT uses cloud data centers to run some 10,000 virtual desktops — think PCs that are all virtual machines — and found that it was easier to quickly switch between data centers during the rolling blackouts that have become the norm since that country’s earthquake last year.

There is, of course, a great deal more technical detail, but the point you have to get is that this company is out to disrupt the networking industry in a way that it hasn’t been disrupted in a long time. The traditional solution to networking problems is more, better, faster hardware, and companies like Cisco, Juniper, and Hewlett-Packard, among others, are constantly on the lookout for opportunities to sell more of that hardware.

But what if you could look a sales rep from one of those companies in the eye, and tell them that their latest million-dollar router or switch isn’t needed? Once upon a time, before the days of virtualization, if you needed a new server, you had to buy one and have it installed somewhere. Now you can, in most cases, rent space on one within minutes, or literally provision another with a few clicks of a mouse. It changed the expectation and much of the calculus of the IT industry. Many companies never buy their own servers at all, and rent space from cloud providers like Amazon, Rackspace and Joyent.

Exactly what a similar disruption might mean for networking vendors is a little hard to imagine, but if the folks at Nicira are right about the potential this technology of theirs has, it looks like that disruption is coming, one way or another.

And the idea is catching on. While the company doesn’t say exactly how many customers it has, it did disclose today that the number of companies using Okta has tripled in the year and change since AllThingsD first talked to Okta CEO Todd McKinnon, a former engineering VP at Salesforce.com. Also, the number of total users has multiplied by a factor of six. New customers include Nestlé Purina, SRS Real Estate Partners, ShoreTel, Jazz Pharmaceuticals, Engis Corporation, Informatica and LegalZoom, among others.

Okta is also staffing up. Today it announced it has hired two new executives, one from BMC Software and the other from the Hewlett-Packard-owned IT security firm ArcSight.

Adam Aarons is joining Okta as senior VP of sales. His last gig was VP of sales at BMC. He got to BMC via its acquisition of BladeLogic. He’s been doing enterprise software sales for 15 years.

Hector Aguilar will be Okta’s new VP of engineering. He’s ArcSight’s former CTO and VP of software development. He joined ArcSight early, and did some of the early R&D work that led to its growth and ultimate acquisition by HP. He’s been doing networking and security development work for more than 16 years, and has a few patents to his name.

When we last heard from Okta, the outfit had just landed a $16.5 million B round from Greylock Partners and Khosla Ventures. Workday CEO Aneel Bhusri, also a Greylock partner, joined Okta’s board as part of that deal. Prior investors include Andreessen Horowitz, which led Okta’s $10 million A round.

That was July. Wednesday, Domo will announce that it has raised another batch of money, and is bringing in a new investor. The company has closed a $20 million round led by Institutional Venture Partners.

IVP, which had invested in Omniture and so has a history with James, is joining an all-star cast of investors including Benchmark Capital; Andreessen Horowitz; Ron Conway and David Lee of SV Angel; and Hummer Winblad, plus a bunch of personal investments. The round — which is being described as an A-1 round, brings Domo’s total capital raised to date to $63 million.

IVP general partner Todd Chaffee said Domo is an example of a dynamic management team going after a high-growth market. “We know Josh has the experience to build Domo into a disruptive and dominant player in a growing $10 billion market,” he said in a statement. Aside from Omniture, IVP has backed HomeAway, MySQL, Twitter and Zynga.

James wouldn’t tell me the implied valuation, but he did concede that it’s upward of “a couple hundred million.” And if that’s not surprising enough, what’s equally surprising is one possible use for the money: Acquisitions. Well, maybe.

“Let’s just suppose, and this is 100 percent supposition,” he told me over the phone Tuesday, “that we want to buy someone. We’ve thought about it. We’ve had potential targets cross the email threads. It’s not the right time to do that stuff just yet. But it’s nice to know we have the flexibility when the time comes.”

So where’s Domo, the business intelligence software-as-service play he was building? It’s running as a demonstration with a few early customers, he says. And he’ll have more to say about it publicly in about three to four months.

“We have a few thousand people who say they want to see a demo, and we’re working through that list,” James says. “The feedback has been more positive and at a higher rate than I would have thought possible. I think we’re going to have to figure out how to do a lot of installations all at once.”

That’s what we call a good problem to have.

Memo to the world from Silicon Valley legend and power-VC Marc Andreessen: “I think that this is more of the theme that software is going to be eating all other industries.”

More like chomping through them with renewed gusto, with the announcement today that his venture firm, Andreessen Horowitz, has raised a huge new $1.5 billion fund to continue to fund “extending our capabilities to more disruptors,” according to Andreessen’s longtime partner Ben Horowitz.

And by capabilities, the pair means handing from $10,000 to $100 million to Internet entrepreneurs in all kinds of arenas — such as its previous investments in Airbnb, Pinterest and a plethora of others — from its new third fund.

This large amount brings Andreessen Horowitz’s total in just three years to $2.7 billion, which Andreessen said took about the same amount of time to raise as the previous one. The new fund is made up of largely the same limited partners.

“It is almost double, but it sets us up well,” said Andreessen, who said the LPs urged them to raise more. “Our first fund was, as it turns out, undersized in terms of the growth opportunity we found.”

The interest from the firms’ LPs aligned, said Horowitz, noting that he thinks their interest was because investors are becoming more selective about firms.

“I think a lot of LPs have begun to think that there are too many VCs not worth investing in,” he said. “Many of them want to then invest in what they consider the best, and if they can’t get in, to not invest at all.”

To be able to give them the kind of returns those investors are expecting, Andreessen said that the investments — which will still be pretty much limited to the Internet arena and in California — will be stepped up to keep the rate of innovation going.

“The opportunities continue to be very, very good, and we find that that continues to be true,” he said. “And there is a big supply of money, and that’s very good from a company standpoint.”

What Andreessen and Horowitz said they will do to continue to differentiate themselves will be to keep on focusing on backing founder/CEOs over all.

“We have a lot of respect for our peers, but we have a different philosophy,” said Horowitz. “The majority of the companies we fund will be run by their founders.”

Andreessen said that philosophy is a bit of a throwback.

“It’s kind of like venture capitalists were in the ’60s and ’70s, in a way,” he said. “We are operators who back operators.”

Man, have you ever really wondered
Like why are we here? What the meanin’ to all of this?
– OutKast, “Church”

Since Marc and I founded Andreessen Horowitz three years ago, we have raised $2.7 billion. That statement begs a few questions. The two most obvious are:

• Why did such a new venture capital firm raise so much money?
• How did such a new venture capital firm raise so much money?

To get to the answers, it’s useful to go back to the original motivation for starting Andreessen Horowitz.

After raising our first round of funding for Loudcloud in 1999, we went to visit our new venture capital firm and meet their full team. As founding CEO, I remember being quite excited to meet our financial backers and talk about how we could partner to build a great company. That excitement took a sharp downhill turn when one of the top partners said to me, in front of my co-founders, “When are you going to get a real CEO?”

I was completely stunned — the comment knocked the wind out of me. Our largest investor had basically called me a fake CEO in front of my team. I said, “What do you mean?” — hoping he would revise his statement and enable me to save face. Instead he pressed on: “Someone who has designed a large organization, someone who knows great senior executives and brings prebuilt customer relationships, someone who knows what they are doing.”

I could hardly breathe. It was bad enough that he undermined my standing as CEO, but to make matters worse, I knew that at some level he was right. I didn’t have those skills. I had never done those things. And I did not know those people. I was the founding CEO, not a professional CEO. I could almost hear the clock ticking in the background as my time running the company quickly ran out.

Could I learn the job and build my network fast enough, or would I lose the company? That question tortured me for months.

In the years that followed, I remained CEO, for better or worse. I worked incredibly hard to close the gap between what the partner had described and where I was at the start. Thanks to a lot of effort and help from friends and mentors, especially Bill Campbell, the company survived and ultimately became quite successful and valuable.

However, not a day went by when I didn’t think about that interaction. I always wondered how long I had to grow up, and how I could find help to build my skills and make the necessary connections along the way.

Marc and I discussed this often. We wondered aloud why, as founders, we had to prove to our investors beyond a shadow of a doubt that we could run the company, rather than our investors assuming that we would run the company we’d created. This conversation ultimately became the inspiration for Andreessen Horowitz.

Marc and I share a simple belief that became the basis for our new venture capital firm: In general, founding CEOs perform better than professional CEOs over the long term, and a venture capital firm that enables founding CEOs to succeed would help build the best companies and yield superior investment returns.

As we set out to design a venture capital firm that would enable founders to run their own companies, we began by asking: In what ways are professional CEOs superior to founder CEOs?

Professional CEOs bring two core advantages to the table:

• Superior skill set — Being CEO requires vast know-how that is very difficult to gain without extensive experience actually being CEO. Founders with no CEO experience naturally make many critical mistakes during their “on the job training” period. Excellent professional CEOs already have those skills.
• Superior network — Great professional CEOs know lots of outstanding executives and employees. They also know key reporters and analysts, important potential customers and top industry players. Founders tend not to have enough industry experience to know all these people, and need to build their networks almost from scratch.

Next, we asked: How might a venture capital firm help close those gaps?

Addressing the skill-set issue proved to be difficult because, sadly, the only way to learn how to be a CEO is to be a CEO. Sure, we might try to teach some skills, but I know from experience that learning to be a CEO through classroom training would be like learning to be an NFL quarterback through classroom training. Even if Peyton Manning and Tom Brady were your instructors, with no experience, you’d get killed the moment you took the field.

We decided that while we would not be able to give a founder CEO all the skills she needed, we would be able to provide the kind of mentorship that would accelerate the learning process. As a result, our first requirement for General Partners is to be an effective mentor for a founder striving to be a CEO. This is why so many of our General Partners are former founders or CEOs or both, and they are all highly focused on helping founders become outstanding CEOs.

Of course, not all founders want to be CEO — there are companies for which the right thing is to bring in a professional CEO. For those companies, we focus on helping the founders identify the right CEO, and then helping the CEO successfully integrate into the company and partner with the founders to retain their unique strengths.

Next, we went after the network.

Existing venture capitalists with whom we had worked had important industry relationships, but we found them to be lacking in the following ways:

• Siloed — As an entrepreneur, you can often count on the General Partner on your board to introduce you to customers or executives, but you can’t count on the venture capital firm itself. Each General Partner has his own distinct network, and it’s not really feasible or practical to access the other partners’ networks because those partners prioritize their own companies, and in practice you will never see them — they are not available to help you. So, there is no firm-wide network you can plug into.
• Hard to access — As CEO, it’s always a bit weird to say to your VC, “Please introduce me to some potential customers.” First, it seems like an inconvenience — VCs are clearly busy people, with many other things to do. Second, there isn’t any easy process to execute that introduction. Where will this introduction take place? Will the VC set up the meeting? Will you have to fly out to see the prospect? Will the VC come with you? Will the prospect be qualified well enough to do that? If not, then should you even ask? To make matters worse, the need to meet customers is not a one-time event. How do you ask your VC the second, third and tenth times? And at what point does your VC start to judge you as incapable of reaching customers (or partners, distributors, suppliers, investors or acquirers) on your own?
• Incomplete — Finally, VC networks tend to be incomplete. A certain General Partner might know a certain type of customer, like telecom carriers; but not others, like pharmaceutical companies or government agencies. They may know customers, but not have deep relationships with key reporters. They may know key reporters, but not know executives you would want to hire. They might know executives, but not engineers. As founding CEO, one tends to be busy. If you spend time trying to tap a network and come up empty, you probably won’t bother trying again.

To address these issues, we designed Andreessen Horowitz’s network to be firm-wide, dead simple to access, and comprehensive — supported by operating partners who work full-time to develop and manage each branch of the network.

This approach has already lead to some stunning results:

• In 2011, we hosted over 600 portfolio presentations to corporate customers and partners at our office in Menlo Park. These presentations resulted in more than 3,000 introductions between portfolio companies and prospective Fortune 500/Global 2000 senior executives.
• We’ve built relationships with over 4,000 engineers, designers and product managers, and we’ve made more than 1,300 introductions to our portfolio companies, resulting in 130 hires within the portfolio.
• We added over 550 executives to our network in 2011, and made more than 300 executive introductions to our portfolio companies.
• We’ve had nearly 400 interactions with media on behalf of our portfolio companies.

Through these practices, we’ve been able to help founders develop critical CEO skills and wield networks as broad and powerful as the best professional CEOs. And that is why we have become a popular firm among founders.

Our reputation with founders has then enabled us to invest in great entrepreneurs building the great new technology companies. Interestingly, the demand from entrepreneurs has come in all stages and sizes. From seed-stage entrepreneurs like JR Rivers at Cumulus Networks, to entrepreneurs with fast-growing enterprises like Brian Chesky at Airbnb, great founders everywhere want to be the best CEO that they can be, and work with us to help them do that.

And that’s both how and why we raised $2.7 billion. We are uniquely positioned to help the greatest technology entrepreneurs in the world build the best technology companies in the world, and that’s just what we’re going to do.

How green is Silicon Valley? Very, it seems.

As expected, and as has been widely reported (including here), Andreessen Horowitz finally announced its latest venture fund, raising $1.5 billion for venture investments. The huge amount is the Silicon Valley firm’s third.

Its investments in its previous two funds have included such high-profile start-ups as Airbnb and Pinterest.

Here’s the official press release:

Andreessen Horowitz Announces $1.5 Billion Fund III
Continues Focus on Helping Great Entrepreneurs Build Great Companies

MENLO PARK, Calif., Jan 31, 2012 (BUSINESS WIRE) – Andreessen Horowitz ( www.a16z.com ) today announced that it has raised $1.5 billion for its Fund III, continuing its mission of helping great entrepreneurs build great companies.

“a16z’s Fund III is all about extending our capabilities to more disruptors and pioneers,” said Co-founder and General Partner Ben Horowitz. “We’re remaking the modern venture capital firm, and entrepreneurs are responding to our unique approach.”

a16z has raised $2.7 billion since its founding in June 2009 and currently has a portfolio of 90 consumer and enterprise technology companies across all stages, including Airbnb, Box, Fab, Facebook, Foursquare, GoodData, Lookout, Lytro, Magnet Systems, Nicira, Pinterest, Silver Tail Systems, Tidemark and Zynga.

“Software is the catalyst that will remake entire industries during the next decade. We are single-mindedly focused on partnering with the best innovators pursuing the biggest markets,” said Co-founder and General Partner Marc Andreessen.

a16z provides entrepreneurs with direct access to six general partners — Jeff Jordan, Peter Levine, John O’Farrell, Scott Weiss, plus Horowitz and Andreessen — all of whom are experienced operators and company builders. a16z also enables entrepreneurs to utilize expertise from operating partners who specialize in business development, technical talent, executive talent, market intelligence, and marketing and brand building, plus the economics expertise of Special Advisor Larry Summers.

Fund III is available to be deployed immediately. Further detail about the firm’s new fund is available on Ben Horowitz’s blog: www.bhorowitz.com.

I’m told Nicira has just made another key hire, again from Cisco Systems. Bruce Davie, a longtime Cisco employee and a Cisco Fellow, has joined Nicira as its Chief Service Provider Architect.

Davie is pretty well known in networking circles, and is one of the co-inventors of MPLS, or multiprotocol label switching, which is a fundamental basis for the high-end business class Internet service that many carriers deliver.

Davie joined Cisco in 1995, and has been a Cisco Fellow since 1998. Since 1997, he has worked in the Internet Technologies Division at Cisco, and leads a group that represents the company before the Internet Engineering Task Force. If there’s anyone who truly understands how the Internet’s pipes really work, he’s probably among them.

Before Cisco, Davie worked at Bellcore, a.k.a. Bell Communications Research, the old research and development arm of the regional phone companies, or “Baby Bells,” that resulted from the 1982 court-ordered breakup of the old AT&T. Bellcore is still around; it eventually became Telcordia and ended up in the hands of Swedish telecom concern Ericsson, in a deal that closed earlier this month.

Davie has a B.E. from Melbourne University, and a Ph.D. in Computer Science from Edinburgh University. He is the author of three books on networking, and lots of technical papers. He is also an active participant on both the Internet Engineering Task Force and the Internet Research Task Force; a senior member of the IEEE; and has, in recent years, been a visiting lecturer at the Massachusetts Institute of Technology.

Davie would appear to be the eighth person at Nicira (by my likely incomplete count) with a Cisco connection. Its CEO is Steve Mullaney, a veteran networking executive who has worked at Palo Alto Networks, ShoreTel and Cisco. Its CTO and co-founder, Martin Casado, did his Ph.D. on the technology the company plans to bring to market. Its other founders, Nick McKeown and Scott Shenker, are electrical engineering profs at Stanford and Berkeley, respectively. Last January, the outfit also hired Rob Enns, a veteran of Juniper Networks, as its VP of engineering.

There’s still no official word about what Nicira is doing, but all these hires are making it look ever more interesting by the day. Nicira is working on technology aimed at “virtualizing the network.” Data center networks today are too inflexible, complex and costly, especially in the age of the cloud, when everything is on-demand, flexible and cheap. Nicira’s Web site says the product is a software solution that runs on existing networks, requires no new hardware and is aimed directly at large-scale cloud data centers. Interesting, indeed.

It is now the new year, and you are faced with the rather undesirable task of hiring a new VP. Upon reflection, you realize that the SpiderNet hiring process failed. Given the issues (laziness, lack of leadership ability) surrounding the VP you just fired, you realize that your process (or lack thereof) did not properly vet prospective job candidates.

So before you move on to hiring again, you take an inventory of the current process in order to better understand how to correct things in the future. Here’s what you find:

1. You identified the requirements of the position and developed a comprehensive job specification on your own. Since the position reported to you, you did not see the need to ask for other input.
2. You hired a search firm and saw a number of good candidates. You felt that the candidate pool was adequate, but not exceptional.
3. The interview meetings were always with you, your co-founder and one or two other people from the executive team. Everyone exchanged emails on the candidates after their meetings.
4. The search firm did the bulk of the reference checks, which significantly helped your schedule and time.

What mistakes do you think you made and how can you better go about interviewing future candidates?

I have often considered the ability to hire great people as being analogous to a batting average in baseball. A player who hits .300 is near the top of their game. While I have certainly had a much better than 30 percent success rate in my hiring overall, I’m not sure that I’ve topped 30 percent for truly exceptional hires. Hiring phenomenal employees, like hitting in baseball, is difficult. I must admit that only recently did I come to realize that there is a set of steps that a company can follow that will significantly increase the hit rate.

With respect to the SpiderNet situation, there were several mistakes made with the current process. First, there was no input from either the board or the other executives on the job specifications. It is particularly important to gain agreement on the position and have the interviewing team help develop the requirements. Second, there wasn’t a defined interview team and the results of the interviews felt a bit ad hoc. Having a defined interview team should be part of the process. Finally, the CEO left reference checking to the search firm, which was a huge error in judgment, and probably the biggest mistake of the entire process.

I took the liberty of asking Jeff Stump, our partner responsible for Executive Talent at Andreessen Horowitz, and he outlined the following steps that should be taken when hiring an executive:

1. Develop the candidate profile and expected qualifications
2. Lay out the compensation framework
3. Craft a set of questions to be used in the interview process
4. Identify your interview and recruiting methodology
5. Perform reference checks

Let’s look at each of these in more detail.

Candidate Profile and Qualifications: There should be a universal understanding of what the profile is and why the company is looking for this new hire. What is the charter of this hire over the next six months to one year? What does the company/hiring manager expect this person to deliver during this timeframe and what does success look like for this hire one year out?

The focus in this phase should be on developing a set of non-negotiable attributes as input to the interview process. Make sure to include input from anyone who is going to have a say in the interview process, including the Board and the management team. There does not need to be universal alignment, but this process will help identify any differences of opinion that can be addressed up front. This first step will drive consistency in the interview process and candidates will take notice.

Compensation and Reporting Framework: Determine the title, reporting structure and compensation of the position. Not doing this up front can often lead to misalignment late in the recruiting process.

Interview Questions: Once the profile and qualifications have been identified and agreed upon, develop a set of questions that are going to be used in the interview process. These can also be used by the search firm to screen candidates. Questions should be crafted to gauge motivation, fit and expectation.

During this phase, the hiring manager also should identify the interviewing team and start the selection of a search firm. In most cases, the company’s internal network will not be sufficient to identify the absolute best candidate and a search firm is recommended. There are exceptions to this, but in most cases, thinking that the company has enough contacts often results in a substantial delay.

Interview and Recruiting Methodology: High-level items to consider:

• Decide on the appropriate team members to be involved in the search process.
• Determine who is running point on the management team. Tasks may include interview coordination, candidate follow-up, feedback collection, reference coordination, compensation, negotiation, etc.
• Who from the board of directors will be involved?
• Define the sequence of interviews and meetings. Who needs to meet when and what is the strategy/objective during a first round vs. a second round of interviews? I also recommend spending a great deal of the first meeting on determining “fit.” Can you work with this person? Nothing else matters if you can’t check this box.
• Have the team interview for different attributes to create a better experience for the candidate and to avoid overlapping questions in the interview process.
• Define the feedback loop: What info gets captured and recorded and how/when is it shared?

Reference Checking: One of the most important — and overlooked — parts of the recruiting process is reference checking. When you make an offer to a candidate, you should feel as though you really know the person, warts and all. Reference checking is the best way to really understand what a candidate is like to work with.

Often your search firm will offer to do reference checks. While it is fine for them to do some investigation, do not leave all of it to them. You need to do a large part of the reference checking yourself. Compare notes with the search firm but handing it off to someone else is a huge mistake.

In general, you should do between 10 to 15 reference checks and they should have a 360-degree approach (i.e., 1/3 bosses, 1/3 peers, 1/3 subordinates). At least one-third of these queries should be backchannel references.

Finally, when you have settled on the final two candidates, you should have the finalists come in to present a 100-day plan with your executive team at your staff meeting. This will give you a very good sense of how the person responds to an assignment and the nature of their work.

Hiring takes planning and time, and the process is often ad hoc or simply non-existent. Don’t make hiring a batting average. Take the time, develop a clear process, and you will see much better results in your overall hit rate.

Peter Levine has been a lecturer at both MIT and Stanford business schools and CEO of Xensource. Prior to Xensource, Peter was EVP of Strategic and Platform Operations at Veritas Software where he helped grow the organization from no revenue to more than $1.5 billion, and from 20 employees to over 6,000.

When you base your life on credit
and your loving days are done
checks you signed with love and kisses
later come back signed insufficient funds.
– Funkadelic

Thanks to Ward Cunningham, the metaphor “technical debt” is now a well-understood concept. While you may be able to borrow time by writing quick and dirty code, you will eventually have to pay it back — with interest. Often this trade-off makes sense, but you will run into serious trouble if you fail to keep the trade-off in the front of your mind.

There also exists a less well-understood parallel concept, which I will call management debt.

Like technical debt, management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence. Also like technical debt, the trade-off sometimes makes sense, but often does not. More importantly, if you incur the management debt without accounting for it, then you will eventually go management bankrupt.

Like technical debt, management debt comes in too many different forms to elaborate entirely, but a few salient examples will help explain the concept. For this post, I chose three of the more popular types among start-ups:

• Putting two in the box
• Overcompensating a key employee because she gets another job offer
• No performance management or employee feedback process

Putting two in the box
What do you do when you have two outstanding employees who logically both fit in the exact same place on the organizational chart? Perhaps you have a world-class architect who is running engineering, but she does not have the experience to scale the organization to the next level. You also have an outstanding operational person who is not great technically. You want to keep both in the company, but you only have one position. So, you get the bright idea to put “two in the box” and take on a little management debt. The short-term benefits are clear: a) you keep both employees, b) you don’t have to develop either because they will theoretically help each other develop and c) you instantly close the skill set gap. Unfortunately, you will pay for those benefits at a very high rate of interest.

For starters, by doing this you will make every engineer’s job more difficult. If an engineer needs a decision made, which boss should she go to? If that boss decides, will the other boss be able to override it? If it’s a complex decision that requires a meeting, does she have to schedule both heads of engineering for the meeting? Who sets the direction for the organization? Will the direction actually get set if doing so requires a series of meetings?

In addition, you have removed all accountability. If schedules slip, who is accountable? If engineering throughput becomes uncompetitive, who is responsible? If the operational head is responsible for the schedule slip and the technical head is responsible for throughput, what happens if the operational head thrashes the engineers to make the schedule and kills throughput? How would you know that she did that? The really expensive part about both of these things is that they tend to get worse over time. In the very short term, you might mitigate these effects with extra meetings or by attempting to carve up the job in a clear way. However, as things get busy the mitigation will fade and the organization will degenerate. Eventually, you’ll either make a lump sum payment by making the hard decision and putting one in the box or your engineering organization will suck forever.

Overcompensating a key employee because she gets another job offer
An excellent engineer decides to leave the company because she gets a better offer. For various reasons, you were undercompensating her, but the offer from the other company pays more than any engineer in your company, and the employee in question is not your best engineer. Still, she is working on a critical project and you cannot afford to lose her. So you match the offer. You save the project, but you pile on the debt.

Here’s how the payment will come due. You probably think that your counteroffer was confidential because you’d sworn her to secrecy. Let me explain why it was not. She has friends in the company. When she got the offer from the other company, she consulted with her friends. One of her best friends advised her to take the offer. When she decided to stay, she had to explain to him why she disregarded his advice or lose personal credibility. So she told him and swore him to secrecy. He agreed to honor the secret, but was incensed that she had to threaten to quit in order to get a proper raise. Furthermore, he was furious that you overcompensated her. So, he told the story, but kept her name confidential to preserve the secret. And now everyone in engineering knows that the best way to get a raise is to generate an offer from another company then threaten to quit. It’s going to take awhile to pay off that debt.

No performance management or employee feedback process
Your company is now 25 people and you know that you should formalize the performance management process, but you don’t want to pay the price. You worry that doing so will make it feel like a “big company.” Plus, you do not want your employees to be offended by the feedback, because you can’t afford to lose anyone right now. And people are happy, so why rock the boat? Why not take on a little management debt?

The first noticeable payments will be due when somebody performs below expectations:

CEO: “He was good when we hired him, what happened?”
Manager: “He’s not doing the things that we need him to do.”
CEO: “Did we clearly tell him that?”
Manager: “Maybe not clearly …”

However, the larger payment will be a silent tax. Companies execute well when everybody is on the same page and everybody is constantly improving. In a vacuum of feedback, there is almost no chance that your company will perform optimally across either dimension. Directions with no corrections will seem fuzzy and obtuse. People rarely improve weaknesses that they are unaware of. The ultimate price you will pay for not giving feedback: systematically crappy company performance.

In the end
Every really good, really experienced CEO I know shares one important characteristic: they tend to opt for the hard answer to organizational issues. Faced with giving everyone the same bonus to make things easy or sharply rewarding performance and ruffling many feathers, they’ll ruffle the feathers. Given the choice of cutting a popular project today because it’s not in the long-term plans or keeping it around for morale purposes and to appear consistent, they’ll cut it today. Why? Because they’ve paid the price of management debt and they would rather not do it again.

Special thanks to my friend Joanne Bradford who came up with the idea for this post and coined the term “management debt.”

In the past seven months, Fab has grown rapidly, registering 1.65 million users, who have purchased 750,000 products.

It now plans to grow even faster, with the help of this acquisition.

Both companies have a similar mission: To bring independent artists and craftsmen, who make aesthetically appealing and sometimes out-of-the ordinary items, to a large marketplace.

Fab.com does this mostly for home decor, and New York-based FashionStake does it mostly for fashion and apparel. The sites have the flavor of a Gilt Groupe, which sells high-end fashion at a discount, except they offer more undiscovered brands, at more reasonable prices.

In a blog post, Fab CEO Jason Goldberg said FashionStake co-founders Vivian Weng and Daniel Gulati will join the Fab company.

Goldberg did not disclose terms of the deal, but it’s possible that he tapped into a large cash reserve, which includes a $40 million round of capital raised last month from Andreessen Horowitz and others.

FashionStake, which launched in September 2010, has received investments from a number of players, including Battery Ventures, Forerunner Ventures and Gilt Groupe co-founder Alexis Maybank.

Last year, FashionStake acquired Moxsie, another retailer of independent fashion.

Since participating in a $112 million funding of Web darling Airbnb Inc. in July that valued the online room-rental company at more than $1 billion, Mr. Andreessen said his venture-capital firm Andreessen Horowitz has “taken a step back.”

With some deals for private companies “definitely on the expensive side” amid a choppy stock market and concerns over a European debt crisis, Mr. Andreessen said he is looking to invest in fast-growing tech start-ups that aren’t as well known and where “pricing is still under control.”

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The move to beef up communications expertise at the prominent Silicon Valley venture firm continues: Sequoia Capital has hired Andrew Kovacs, a well-regarded senior manager from Google, for a new job to help its portfolio companies with public relations and other related issues, sources said.

Google’s top flack Rachel Whetstone told staff about the move this past week, sources said, which will take place in mid-January.

Kovacs (pictured here, looking very GQ), who has been at the search giant for five years, has most recently headed PR for its apps unit.

His appointment comes after competing firms, including Andreessen Horowitz and Kleiner Perkins, bolstered talent to the comms areas of their firms, in order to better service the companies they invest in.

This is especially important to early-stage start-ups and their often young entrepreneurs, who usually have little experience with the media or with marketing. But such expertise is increasingly important in the crowded and ever-noisier tech sector, as companies try to rise above the fray.

Sequoia already has a longtime marketing partner, Mark Dempster, to whom Kovacs will be reporting, serving the firm’s companies in the U.S. and Israel. Kovacs will not be working on PR for Sequoia itself.

Some of Sequoia’s better-known start-ups include Dropbox, Tumblr and Eventbrite.

As compared to other social networking sites, Pinterest’s users are more frequently from the Northwest and the Southeast, with strong presences in states that seem to have large hobby-and-crafting populations, Hitwise said. That’s all very logical, but it makes the growth no less impressive.

Pinterest also shares the wealth, since its pins are linked to content sources, which are often e-commerce sites. Sites like Etsy and Nordstrom say Pinterest is a significant and growing traffic referrer.

Pinterest closed $27 million in funding led by Andreessen Horowitz in October, in a round that many other VCs would have liked to pin down.

Foursquare co-founder Dennis Crowley sold his company, Dodgeball, to Google in 2007, but he left two years later complaining about the lack of resources devoted to his start-up by the search giant.

Crowley called the experience the “perfect storm of bad timing.”

But that sentiment has apparently shifted considerably. Now, Crowley looks back on his Google tenure as valuable — and said that he’s feeling a lot friendlier toward Google these days.

“You know when people leave a job and they say they didn’t know what they came away with after two years? That’s how I felt when I first left Google,” Crowley said in an interview with AllThingsD. “But I’ve been able to spend time with the folks at Google and reconnect with people there. And now when things come up at Foursquare, [they're] all the challenges and issues I realize I already encountered at Google.”

Could that mean even closer relations in the future?

Crowley declined to elaborate on the substance of his talks with Google, which, in some cases, are with business development teams.

But what about the possibility of another acquisition?

“I wouldn’t disqualify anything,” he said. “The thing that’s important to us is doing the things we want to do, which could be partnering with someone, or it could be continuing to grow the product independently.”

While that’s appropriately vague enough, what is clear is that where Foursquare goes from here is a big question going forward.

Most especially, while it still remains the cool kid at the check-in party, especially as more competitors are checking out — is the party dying down?

Foursquare now claims 15 million users, adding the last five million in just the last six months, a fact it often points to as a sign of success rather than to its aggregate number of downloads.

As a basis for comparison, the popular mobile photo-sharing app Instagram recently touted it had attracted between 14 and 15 million users, amassed in just over a year.

There is no doubt, though, that Foursquare started with a similar bang. Based in New York, the start-up first launched in 2009 as a mobile social networking site that tapped into the inherent GPS capabilities of smartphones.

It was not that unlike the idea behind Dodgeball. But this time, Crowley, along with Naveen Selvadurai, created a fast-growing mobile app that allowed users to broadcast to their friends where they were, while also earning badges and mayoral bragging rights for visiting certain locations.

It took off from there, with Crowley and Foursquare featured in splashy magazine takeouts and even in an ad for the Gap, portrayed as the toast of New York’s entrepreneur scene.

By the spring of 2010, the hot company was reported to be weighing offers from both Yahoo and Facebook, which shortly afterward introduced its own check-in function called Places.

Neither of those deals happened, and this past summer, the company raised $50 million in funding from Andreessen Horowitz, O’Reilly AlphaTech Ventures and others.

That move sent a clear message: We’ll grow ourselves, thanks very much.

Still, despite the cash, Crowley is careful to note that he realizes that times have changed in the location space.

While he said he believes that social media is moving away from the idea of just one news feed, the growing popularity of apps such as Twitter, Tumblr, Instagram and Path imply that consumers have an appetite for multiple apps.

And while data shows that consumers are becoming increasingly aware of geolocation services, it also indicates that the location-based craze hasn’t really caught on yet.

Crowley said he doesn’t put much stock in the most recent Forrester Research report on location-based services. He noted that three years ago Twitter was known as the online network for broadcasting what people had for lunch, before it became recognized as a game-changing technology tool.

That said, a handful of other location-focused companies — Hot Potato, SimpleGeo and early Foursquare competitor Gowalla, as well as Pelago, which was bought by Groupon — have all been absorbed by bigger tech companies in the past 18 months, their value less than expected by eager investors. Instead, they were bought mainly for their entrepreneurial and engineering talent rather than their product or user base.

That’s left Foursquare standing tall, but largely alone.

Crowley said that if the company had to focus on one area right now, it would be nearby discovery, fed by the database that’s been built up over the past two and a half years. He even went as far as to say there’s been a de-emphasis on the flagship “check-in” feature, citing evidence that more people are using the app to get tips without actually checking in.

Within the app, which is available on iOS, BlackBerry and Android, users can also follow friends, get tips on local venues and make to-do lists. Its most recent feature, Radar, pings users when they’re near venues they’ve indicated they want to check out, or in this case, check into.

And, with regard to Foursquare’s other high-profile feature — badge-earning — Crowley likened the whole element to the movie “The Karate Kid.”

“It’s like Mr. Miyagi having Daniel paint the fence, and later he realizes he’s been practicing karate,” Crowley said. “Badges are an important onboarding tool, but from the beginning we’ve said the important thing was data, and now we’ve gotten our users to leave all of these data signals.”

Crowley hinted at more differentiating products coming down the pipeline, and said he wouldn’t be surprised to see more consolidation and sharing among social networking apps, as well as more acquisitions within the industry.

With more than 800 million active users in Facebook’s network, Foursquare might become even more interesting to Google, which has jumped into the social networking space with Google+. Now Foursquare and Google share a common rival in Facebook, which may also help them make up their past differences.

Whether Foursquare could be the buyer, or one of those acquisitions, remains to be seen.

I was fired from my first job as a programmer after college, and I’ve agonized over terminations ever since. The day I was fired was one of the worst days of my life, and no matter how it was presented, I felt like my world had collapsed. The event had a profound impact on my career and on my actions as a manager. For me, there’s nothing easy about firing someone.

That said, I’ve had to fire many people in my years as a manager and CEO. My worst days were when I knew I had to have “the conversation.” While firing anyone is hard enough, the most difficult terminations were people whom I had recruited and hired as direct reports. I find it disappointing to see my “rock star” fail — and having a vested interest in the person makes the decision quite difficult. There is usually a long period during which the decision process loops: fire, coach, keep, fire, coach, keep, (repeat). As a result, termination day often happens long after I’ve internally decided that the person needs to go.

Industry wisdom suggests that you fire someone immediately after recognizing that a person must be let go. I agree with this — I’ve never looked back on a termination thinking, “I should have waited longer to do something” — but it is way easier said than done.

Earlier in my career, I always wanted to spend the time to work things out for my employees, especially the folks I hired and managed directly. Unfortunately, I was rarely able to change the outcome of the situation, and I would often waste precious time not moving forward with the termination and subsequent re-hire. As I tried to work things out (and inevitably put off making a decision), the impact on the organization and the reflection on me as a manager all took its toll. I’ve since learned that moving forward quickly is the best overall approach. Still, firing someone sucks.

Let’s look at the SpiderNet case and break down some of the pros and cons of each choice.

• Find him a different job in the company. It is very rare in a start-up that you will actually have a job opening for another role that can be filled by a person with a different skill set whom you also want to terminate. This may be easier in larger companies, but not at a start-up. You need to be brutally honest with yourself before making a lateral move and ask, “Is the new position needed and is this person best for that job?” If yes, then move the person. Otherwise, terminate.

  In the SpiderNet case, you are also dealing with a person who is lazy. In my experience, character flaws cannot be corrected, regardless of where you put the person. Once lazy, always lazy. There are additional downsides to creating a new position: how does the rest of the team feel when you “protect” a non-performer? Are you seen as wasting money creating a “non-job”? Are you not stepping up to deal with the problem?

• Put him on a performance plan. Performance plans are generally useless for executives. These plans are nothing more than negotiated action items that are a problem to manage and never get at the core of the issue. My philosophy is that a senior executive is expected to bring a level of expertise and job performance to where you don’t need to hand-hold them with a list of negotiated action items. Do the job or leave. At the end of the three-month plan, the executive usually makes the most of the pre-negotiated goals, but you’ve not made the person less lazy or any more competent. They’ve simply made it through a set of hoops and you still want to get rid of them. Human Resource directors in larger companies always want to put people on plans but I have never seen a three-month plan change the long-term outcome for an executive. Plans only prevent you from making an important change today.
• Fire him and re-hire. As you might imagine, this is my preferred outcome. Do it and move on. Get the new hire process going and don’t screw around. Always treat the person you are terminating with dignity, put together a respectable termination package, and never make the termination personal. In the SpiderNet case, I might ask the co-founder to step back in to run engineering on an interim basis while I searched for a new VP.

When running a software company, hiring is one of the most leveraged activities we can do. The higher the position is, the more impact and importance that hire has on the success of the company. At an executive level, hiring the wrong person can result in months or years of delay, and hiring the right person can help to accelerate the business to entirely new levels.

When a critical hire needs to be made, I have often made the mistake of focusing on managing the department that has the opening, rather than focusing on making the right hire. I have since learned that prioritizing hiring first and managing the department second yields a much more successful hire.

Finally, I’ll say it again: Firing someone sucks, so take the time to hire correctly and you’ll never have to be in a position to have “the conversation.” Let me know the secret when you achieve 100 percent success.

Peter Levine has been a lecturer at both MIT and Stanford business schools and CEO of Xensource. Prior to Xensource, Peter was EVP of Strategic and Platform Operations at Veritas Software where he helped grow the organization from no revenue to more than $1.5 billion, and from 20 employees to over 6,000.

Case in point: investors led by venture firm Andreessen Horowitz have just plowed $40 million into flash-sale website Fab.com Inc. The round values New York-based Fab.com at more than $200 million, people familiar with the matter said.

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In the previous vignette, you (as the CEO of SpiderNet) were trying to decide on how to organize the engineering unit. Your decision was to hire a new VP of engineering. Your co-founder, who previously oversaw engineering, agreed to become the CTO and chief architect. Everything seemed to have worked out with the transition and your new VP is on the job. You were certain you had a rock star on the team — references from the recruiter came back great, and he had exactly the right profile against your hiring objectives.

A few weeks later, though, at a dinner meeting with a close business associate and CEO of another company, you mention that you’ve hired an incredible new engineering VP. Your dinner friend tells you that he knows your new hire, and you’ve made a big mistake. “He’s really lazy. He has little real domain knowledge, despite the pedigree. You should have called me.” Crap.

Several months later, the laziness starts to show. Your “rock star” now becomes a “project,” and you have to manage his weekly performance and deliverables. He is just not working very hard and does not have the strategic insight into the nuances of your business. He also does not have the team’s respect. They don’t think he is a total lost cause, but they also don’t pay much attention to him. That said, he’s certainly okay — and he’s better than nobody. He puts together decent schedules, brings much-needed process to the team and always says the right things when you have your one on ones. But you don’t feel good about him, and the engineering team is not delivering at the level you’d like. You talk with your board and put together a few options: find a different job for this person and reinstate your co-founder as VP; put him on a plan and reassess in three months; or fire and re-hire.

What now?

Chime in on the comments below, and tune in Friday for Peter’s answer.

Peter Levine has been a lecturer at both MIT and Stanford business schools and CEO of Xensource. Prior to Xensource, Peter was EVP of Strategic and Platform Operations at Veritas Software where he helped grow the organization from no revenue to more than $1.5 billion, and from 20 employees to over 6,000.

Last night, the New York Times dropped a juicy little tidbit into its everything-but-the-kitchen-sink daily update of the board mishegas at Yahoo around the deliberations yesterday over two competing private equity bids to buy a partial stake in the company.

No, not the one about Jeff Jordan — former eBay exec, OpenTable CEO and now VC at Andreessen Horowitz — possibly taking a big role at Yahoo if the firm’s bid with Silver Lake prevailed — which was mysteriously removed very soon after it posted (’cuz he will not, so good move, NYT!)

I mean the one about the venture firm’s big-kahuna partner, Marc Andreessen — who will indeed take a board seat and play a strong role in Yahoo’s future if his bid wins — getting a possible competitor in the Silicon Valley savior section of the ongoing show.

That would be in the form of Reid Hoffman, the well-known entrepreneur, VC and angel investor, who the Times said had talked with TPG Capital, Silver Lake’s rival in the Yahoo bidding, about becoming a possible partner.

Wrote the Times:

“TPG has held discussions with Greylock Partners, another venture capital firm, about a possible alignment, two people said. TPG is hoping to draw on the expertise of Reid Hoffman, one of Greylock’s partners and the founder of the professional social network LinkedIn, these people said.”

Translation: If Silver Lake has a tech icon of substance on its team to give uber-geek appeal to its offer — dagnabbit — then TPG was going to raise with another one, whom the very same Times reporter who wrote last night’s article recently nicknamed “The Start-Up Whisperer” in a recent glowing profile of Hoffman.

While I am still trying to grok what a start-up whisperer exactly means (and how someone as self-effacing as Hoffman would react to such a twee moniker without snickering), it’s a move that has likely already irritated Silver Lake.

After all, TPG aiming at nabbing Hoffman is akin to two crazy neighbors trying to one-up each other in holiday-lighting lawn decor. (You have a singing Santa, so I’ll have a singing Santa — and I might even add a Lady Gaga-themed crèche for good measure!)

But it’s not a bad instinct, either, to get your own live-action Silicon Valley legend, even if it is only half true in Hoffman’s case.

Because, according to sources who know such things, while Hoffman and TPG have had conversations, there have been no commitments, and nothing is close to being agreed on to link the pair.

That could certainly change, and quickly, but Hoffman or Greylock aren’t currently in TPG’s proposal to Yahoo.

That’s in contrast to Andreessen, who is all in (I am not even going to bother with “sources said” here, since everyone and my mother has seen the proposal) with Silver Lake on the deal to purchase 19.9 percent of Yahoo for about $16.50 a share.

As I reported earlier this week, for Silver Lake’s money and expertise in fixing broken things, the bid includes: Silver Lake getting three board seats; cash going to a buyback of stock or granting of a dividend to shareholders; the ability to select a CEO; approval of its strategic plan for Yahoo, and its solution to come to terms with Yahoo’s unhappy Asian partners; and all the purple wearables you could ever hope for (perhaps Yahoo’s best asset, IMHO, especially worn by such obviously cool dudes, as seen here).

Also, controversial Yahoo co-founder Jerry Yang gets to stay around on the board (but only if he becomes very, very quiet, so as not to rile the activist shareholders).

TPG’s bid is less formed, although its price is slightly higher. And the PE firm has yet to check the “Big Geek Included” box.

Hence, the floating of Hoffman as a contender to take on Andreessen, who was once dubbed the “Golden Geek” by Time magazine.

I hope TPG does, soon, since what a matchup it would be!

But, for now at least, the pair — who share big investments in a range of Web companies, most especially Facebook (Andreessen is on the board of the social networking giant, and Hoffman was an early investor and adviser) — are at peace.

Dagnabbit.

As bidders ready their offers for all or parts of Yahoo this week, a lot of the eyes for one of the more aggressive ones will likely be on well-known Silicon Valley entrepreneur and powerful VC Marc Andreessen.

That’s because he’s deciding whether or not to play a significant role — as a key board member and even possibly as chairman — in an effort by private equity firm Silver Lake to buy part of the troubled Internet giant and attempt a dramatic reversal of its waning fortunes.

Andreessen, who now runs the Andreessen Horowitz venture firm with Ben Horowitz, has visited Yahoo execs, as I reported last week, part of a weighing of whether to deeply enmesh himself in turning around the iconic Web property.

He has been, as was also reported several months ago, allied with Silver Lake on a Yahoo effort since September and worked with the firm on its purchase and then sale of Internet communications service Skype.

For Andreessen — who serves on the board of Hewlett-Packard and has a lot on his plate running a major venture firm with investments at key companies throughout the tech sector — the decision to join with Silver Lake is a tough one, given that the possibility of failure is not unheard of.

“The question is whether Yahoo can be a growth company again,” said one person close to the situation. “And that is still unclear.”

In meetings with Yahoo execs, several sources noted that Andreessen was unusually blunt about the problems Yahoo faces and its mistakes in the past. They noted as well his reticence over the amount of work required to make a difference.

“He seemed very negative on the idea of whether anyone had what it took to turn it around,” said one exec.

Another factor: Possible friction with Yahoo co-founder and Andreessen friend Jerry Yang. The pair have discussed the issue on friendly terms. “Marc would not do this without Jerry being okay with it,” said one source.

That’s because observers expect the entrance of the Netscape co-founder — who has enormous clout with engineering talent across Silicon Valley, which Yahoo dearly needs — to overshadow and even minimize Yang’s involvement.

One thing is clear: Major shareholders, who are wary of any deal that would keep the current regime in place at Yahoo, told me in multiple interviews last week that the only way they would accept a partial investment by a private equity firm — called a PIPE — would be if there was new leadership in any deal.

And the first name mentioned by almost every Yahoo investor as a key get? Marc Andreessen.

Andreessen declined to comment on any of the 53 emails I sent him asking to.

It might not sound like much money, but the round comes from a top-notch list of investors, and has been entrusted in 19-year-old Joshua Buckley.

Investors participating in the round include Andreessen Horowitz, SV Angel, Y Combinator, Yuri Milner, General Catalyst, Ignition Partners, Raymond Tonsing and Alexis Ohanian.

Buckley sold his first start-up at the age of 15. That company was an online community that produced custom avatars. After that, he became an active angel investor at the age of 16, and entered the Y Combinator class 0f 2011.

Now he has replicated Nintendo’s hit game Pokemon for the iPhone — something Nintendo has been reluctant to do.

“Nintendo has dropped the ball on these people,” Buckley said. “They’ve focused on their declining consoles, and the eyeballs are moving to other platforms. We are targeting people in their early to mid-20s, who have a nostalgic feeling for Pokemon.”

Buckley has recruited TJ Murphy to help him out. Murphy, who will serve as president and co-founder, was most recently a product manager at Zynga, where he worked on some of the company’s hit titles, including FarmVille, CityVille and Adventure World.

Murphy, 25, says he left a considerable amount of stock on the table when he left the pre-IPO Zynga.

“It was a tough decision,” he said. “That’s not just Monopoly money. It was going to be liquid in a matter of months … But it came down to risk and control. I wanted a place where I was making the decisions, and the one responsible for the mistakes.”

Before Zynga, Murphy co-founded the Social Gaming Network (SGN), which was recently acquired by MindJolt, the game distribution company acquired earlier this year by Myspace co-founder and former CEO Chris DeWolfe.

With MinoMonsters, Buckley and Murphy believe they have an opportunity to build a megabrand like Angry Birds or Cut the Rope.

In the game, which will go live on iPhone Dec. 6 and will cost 99 cents, players have to care for their monsters by feeding, petting and spending time with them. Players can then pit their monster against other monsters in battles.

The Angry Birds playbook would say that the next step for MinoMonsters is to sell stuffed animals and other merchandise, and then bring the characters to life on TV and the big screen.

Score one for Yahoo, it seems, getting some key private equity firms to sign its restrictive non-disclosure agreement to allow them a special peek at its business.

And now that includes Silver Lake, which has already had several discussions with Yahoo management and its board members, including co-founder Jerry Yang.

Silver Lake, which has perhaps been among the more aggressive of the possible bidders for Yahoo, had been a significant holdout over the NDA, because of provisions it felt were too onerous.

That included restricting “cross-talk” among the variety of suitors interested. Sources said Silver Lake had been discussing various scenarios related to Yahoo that might take a consortium of players to realize.

It seems it will agree to none of that, for now at least, joining several others who have also signed on the dotted line of secrecy. While Yahoo could have agreed to changes in the NDA, sources said the one Silver Lake agreed to was the same as others previously signed.

Those NDA-ready PE firms include TPG Capital and KKR. As of today, other bidders — such as Providence Equity Partners, Bain Capital, Blackstone and Hellman & Friedman — have not yet signed the document.

Yahoo had extended a deadline for doing to into this week, but firms can also get involved in later rounds of talks.

In addition, signing the NDA is not the end of the road for those who do not — Yahoo is a prominent public company and there are plenty of sources to talk to about its prospects.

But getting cooperation of Yahoo management could be critical, unless a bidder is contemplating making an unsolicited offer.

And that would be a tough road — just ask Microsoft.

Most of all, getting everyone to sign is important for Yahoo, which wants to control any sales or investment process and wants to avoid bidders taking control of its fate.

Thus, Silver Lake accepting the NDA is a big deal, since it had been considering hooking up with China’s Alibaba Group in a possible bid for all or part of Yahoo.

In addition, it has had success in a smaller but similar scenario around Internet telephony giant Skype, which it eventually sold to Microsoft for a lucrative upside.

As with Skype, Silver Lake is still working with Andreessen Horowitz, as I had previously reported. In fact, principal Marc Andreessen was present in a recent informational meeting Silver Lake had with Yahoo’s Yang.

I asked Silver Lake for comment about the NDA, bur it, um, deflected my swooping inquiry (inside joke alert!).

There was no question in my mind that allowing any of the founding team to leave would be a disaster for the company. There was also no question in my mind that scaling the organization was going to require hiring a VP of Engineering. Before the XenSource plane could take off, I needed to switch around a few parts. In hindsight, it all seems so simple.

SpiderNet (like XenSource) needs to keep its founder and hire a VP of Engineering. In both cases, a change of this sort needs to be done thoughtfully. Before I made any changes at XenSource, I needed to know more about the organization I was running. To help better make decisions, I did the following, and would recommend this to SpiderNet:

1. I engaged myself in the cadence of the business: product, sales, strategy, finance. I met with all our employees, asked questions, and tried to identify areas of weakness. But instead of stopping after I met with all our employees for the first time, I kept going, every day and every month afterwards, so that I felt what was happening in the organization. I understood our DNA, and as a result, I could make changes that were credible and respected.
2. I held everyone accountable to measurable quarterly objectives. While this may sound bureaucratic, I had each member of the team come up with three, four or five quarterly objectives. It became one of the easiest and most effective ways of managing and reporting on our business. The result was that I could objectively determine areas of strength and weakness and make necessary changes.

In the case of SpiderNet, there are several possible organizational outcomes. They are:

1. The co-founder moves to an individual contributor role (CTO, Architect, Evangelist). He may find this role more acceptable and will appreciate the suggestion that he move to a different position. This change augments and leverages his strengths as an architect or CTO. It is important for the co-founder to understand that he will continue to have a key role in shaping the company on a go-forward basis and will continue to report to the CEO. This move allows the company to hire a VP of Engineering, reporting to the CEO.
2. Keep the co-founder in the current role and hire an operational engineering VP under him. This organizational structure might work, though you need to be certain that the company can recruit a senior enough VP of Engineering, or whether the co-founder is capable of continuing to manage the entire engineering organization (even with the help). I would have the conversation with the co-founder about how, together, you will manage this structure and determine if in the future this situation is right for the company. The new engineering VP will need to feel comfortable working under the co-founder. I would have the engineering VP sit on the executive team, in any case.
3. Hire a VP of Engineering above the co-founder. Probably not a great outcome since the co-founder should have a place at the executive table and continue to have a direct reporting line to the CEO. I would consider this structure if the co-founder suggested it, though I could not imagine this situation working in the long term.
4. Leave things as they are. Bad outcome. This is the short-term easy way out and not a long-term solution. It simply moves the problem into the future. Product quality and scale in the engineering organization continue to suffer.
5. Co-founder leaves company. Really bad outcome. This is the least desirable outcome, given that the company was created by the vision and group dynamics of the founding team. Sometimes it is necessary to replace a co-founder, but only as an absolute last resort and only if the co-founder is disruptive to the growth of the company or has become a negative influence on the organization. The SpiderNet facts do not warrant co-founder replacement.

Once you have determined the optimal structure, having an open dialogue with the co-founder will be more helpful than not. Ideally, you want the co-founder to be excited about the change, and your leadership is key in making this transition seamless. Many times, a person who is struggling in a role may actually feel relieved that you’ve identified a new and better position.

Regardless of the new organizational structure, it would be advisable to ask your co-founder to help hire the new VP and stay in his current role until the new person is on board. You also want to make sure that you’ve made the right kind of communication to the company. My advice is that once the decision is made, you need to quickly communicate it to the company. It’s best for the information to come from you, rather than through the rumor mill.

Some might suggest “two-in-the-box management” as an option. I have found this structure easy to implement, but it never works. It is a nightmare to manage and is a weak organizational structure. Make the decision upfront, put in a simple line of management and don’t take the easy way out.

Remember also that your board can be helpful in a situation like this. In many cases, early board members and investors will know the founding team, and you may be able to use a specific board member to help with the transition and coaching required to effectively re-position the co-founder. Never feel bad about using your board to discuss key issues. In this specific example, your investors already highlighted the possibility of the change when they funded the company, so bringing it up with them is a relatively straightforward discussion.

As for XenSource, we went with an org structure that approximately mapped to option #1, and the rest is history.

Peter Levine is a general partner at Andreessen Horowitz. He has been a lecturer at both MIT and Stanford business schools and CEO of XenSource. Prior to XenSource, Peter was EVP of Strategic and Platform Operations at Veritas Software, where he helped grow the organization from no revenue to more than $1.5 billion, and from 20 employees to over 6,000.

Asana, the high-profile group collaboration start-up founded by former Facebook execs, is moving out of private beta after a year, and will launch to the general public.

Currently in use by thousands of users at hundreds of beta companies, Asana said it will now put its efforts at tweaking the product to a wider test.

In Sanskrit, “asana” means “sitting down,” and refers to strong but relaxed postures in yoga, presumably so frustrated workers can achieve a digital form of nirvana.

The product can be used for free by teams of fewer than 30 users.

“Our beta users have helped us in shaping our prioritization in the workspace,” said Asana co-founder Dustin Moskovitz.

Moskovitz said that the company — which raised $9 million in venture funding two years ago, and $1 million before that from Benchmark Capital, Andreessen Horowitz and angel investors — is not in need of more funds and will not yet release a paid product.

Co-founder Justin Rosenstein added that one future direction will be the growth of the mobile application arena for Asana, which already has offerings.

Here are some screenshots of the Asana offering:

SpiderNet has recently been funded $10M in an A round by two venture firms in the Valley. As part of the funding, you agreed to think about bringing on a VP of Engineering, though you are uncertain when this might occur. Currently, the company co-founder manages the engineering organization. You’ve made no explicit commitment to the timing, only that the company would assess when a new VP engineering might be needed. You sense that the time is coming.

The engineering group has 10 people at this time, and the co-founder has very little engineering management experience. He’s done a phenomenal job of hiring super-smart folks, and the group is generally working quite well. However, the company needs to double the size of the engineering team over the next several months and you are not at all sure how well the co-founder will scale.

While the engineering team is doing well, you’ve noticed some issues in product quality and some slipped dates, but nothing terribly out of the ordinary. Some of the engineers have come to you to suggest that they want more process and leadership in the engineering organization. Right now there is little process or organizational structure, which is what you’d expect in a start-up.

The bottom line is, you have this gut feeling that when you double the size of the engineering organization over the next several months in preparation for your product release, things will not run very smoothly. You are pretty convinced that you are going to need to change things around, but are very unsure when and how to go about making the changes.

What now? Some things you consider…

• Do you put a new VP above the co-founder? Do you put a new VP under the co-founder? Do you have two in the box leadership? Do you create a new job for the co-founder?
• And when you make the changes, what reaction will the co-founder have? Will he still be motivated or will he pack up and leave? How do you approach him on the topic? How will this impact your company’s culture?

Chime in on the comments below, and tune in Friday for Peter’s answer.

Peter Levine has been a lecturer at both MIT and Stanford business schools and CEO of Xensource. Prior to Xensource, Peter was EVP of Strategic and Platform Operations at Veritas Software where he helped grow the organization from no revenue to more than $1.5 billion, and from 20 employees to over 6,000.