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    <title>Seeing Both Sides</title>
    
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    <id>tag:typepad.com,2003:weblog-114714</id>
    <updated>2009-11-14T10:43:18-05:00</updated>
    <subtitle>VC Perspectives From A Former Entrepreneur</subtitle>
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        <title>Time for Massachusetts to Pass Education Reform</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/qjeql_50_fA/heres-the-call-to-action---write-your-state-rep-or-senator-and-send-them-the-message-that-you-are-in-favor-of-education-refor.html" />
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        <published>2009-11-14T10:43:18-05:00</published>
        <updated>2009-11-14T10:43:18-05:00</updated>
        <summary>I've been blogging for five years about the start-up, innovation economy and I almost never write about politics. But this week is different. This week, the Massachusetts Legislature is about to vote on a bill to (finally) reform education in...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>I've been blogging for five years about the start-up, innovation economy and I almost never write about politics.  But this week is different.  This week, the Massachusetts Legislature is about to vote on a bill to (finally) reform education in Massachusetts - to lift the cap on charter schools, empower commissioners to reform the worst-performing schools and create "Readiness Schools" that get around the usual bureaucracy and drive towards academic excellence.</p>
<p>The importance of passing this legislation cannot be over-stated.  I've been somewhat involved with education reform through my activities at <a href="http://www.facinghistory.org">Facing History and Ourselves</a> and my role on the Governor's <a href="http://www.mass.gov/?pageID=eoemodulechunk&amp;L=1&amp;L0=Home&amp;sid=Eeoe&amp;b=terminalcontent&amp;f=Readiness_Finance_Commission_Report&amp;csid=Eeoe">Readiness Finance Commission</a> and I am passionate about its importance to our state's future.  Local business leaders are all over this issue.  Recently, a large coalition formed (including the <a href="http://www.pbln.org">Progressive Business Leaders Network</a>) and organized by The Boston Foundation called the <a href="http://www.bostonfoundation.org/Content.aspx?ID=11702">Race to the Top coalition</a> has been hammering on this issue and building momentum.  A strong education reform bill is now in front of the Legislature for a vote this week.  The teacher's union is against the reform - no surprise - as it will reduce their power.  And those of us who are passionate about the Innovation Economy in Massachusetts are too busy to hang around the State House and lobby.</p>
<p>So here's what you can do.  Read this <a href="http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2009/11/13/education_reform_is_in_for_a_big_test/">editorial in the Boston Globe by Scott Lehigh</a> that summarizes the bill.  If you agree with it, take action.  Take two minutes to click on the link below and write your state rep or senator and send them the message that you are IN FAVOR of education reform and that they shouldn't give in to pressure from the teachers' unions.  We desperately need to move forward on this issue and seize the moment.</p>
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<p>And if you have a blog or tweet, spread the word!  I'll tweet this from <a href="http://www.twitter.com/bussgang">www.twitter.com/bussgang</a> and you can retweet away.  If you want, you can even use this Twitter list of the 17 state legislators who are on Twitter to send them the message. <a href="http://bit.ly/2VtWU7" title="blocked::http://bit.ly/2VtWU7"><font color="#810081">http://bit.ly/2VtWU7</font></a>.</p>
<p>Take action - get engaged.  Now is the time where the pro-reform voice needs to be heard.</p></div>
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    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/11/heres-the-call-to-action---write-your-state-rep-or-senator-and-send-them-the-message-that-you-are-in-favor-of-education-refor.html</feedburner:origLink></entry>
    <entry>
        <title>What Makes Boston's Start-Up Scene Special?</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/f1qqfr4sZD0/what-makes-bostons-startup-scene-special.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/11/what-makes-bostons-startup-scene-special.html" thr:count="12" thr:updated="2009-11-09T09:52:59-05:00" />
        <id>tag:typepad.com,2003:post-6a00d83424781853ef0120a6a68048970c</id>
        <published>2009-11-13T08:59:29-05:00</published>
        <updated>2009-11-13T08:58:45-05:00</updated>
        <summary>(follow me on Twitter at www.twitter.com/bussgang) A few weeks ago, Fred Wilson posted a presentation he delivered on What Makes the NYC Start-Up Scene Special. I was inspired to deliver a similar presentation today to a group of Harvard Business...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p><strong><em><span style="FONT-FAMILY: ; FONT-SIZE: 12px"><span style="FONT-FAMILY: ; FONT-SIZE: 11px">(follow me on Twitter at </span></span></em></strong><a href="http://www.twitter.com/bussgang"><strong><em><span style="FONT-FAMILY: ; FONT-SIZE: 12px">www.twitter.com/bussgang</span></em></strong></a><strong><em><span style="FONT-FAMILY: ; FONT-SIZE: 12px">)</span></em></strong></p>
<p>A few weeks ago, Fred Wilson posted a presentation he delivered on <a href="http://www.avc.com/a_vc/2009/09/the-nyc-web-startup-sector.html">What Makes the NYC Start-Up Scene Special</a>.</p>
<p>I was inspired to deliver a similar presentation today to a group of Harvard Business School students who are interested in entrepreneurship in Boston. There's been alot of chatter in the community about a start-up renaissance in Boston.  Don Dodge of Microsoft had a great post listing out all the amazing <a href="http://dondodge.typepad.com/the_next_big_thing/2009/10/boston-startup-events-resources-people-you-need-to-know.html">start-up resources in the Boston community </a>that's worth reviewing as well.</p>
<p>Yahoo's ex-president (and fellow HBS EIR) Susan Decker was there to serve as a good foil for my Boston vs. Silicon Valley quips. </p>
<div id="__ss_2416701" style="TEXT-ALIGN: left; WIDTH: 425px"><a href="http://www.slideshare.net/bussgang/what-makes-the-boston-startup-scene-special-2416701" style="MARGIN: 12px 0px 3px; DISPLAY: block; FONT: 14px Helvetica,Arial,Sans-serif; text-decoration: underline" title="What Makes the Boston Start-Up Scene Special?">What Makes the Boston Start-Up Scene Special?</a>
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<div style="FONT-FAMILY: tahoma,arial; HEIGHT: 26px; FONT-SIZE: 11px; PADDING-TOP: 2px">View more <a href="http://www.slideshare.net/" style="text-decoration: underline">presentations</a> from <a href="http://www.slideshare.net/bussgang" style="text-decoration: underline">bussgang</a>.</div></div></div>
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    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/11/what-makes-bostons-startup-scene-special.html</feedburner:origLink></entry>
    <entry>
        <title>What Makes Boston's Start-Up Scene Special? - video</title>
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        <id>tag:typepad.com,2003:post-6a00d83424781853ef0128757a16da970c</id>
        <published>2009-11-11T05:50:50-05:00</published>
        <updated>2009-11-11T05:50:50-05:00</updated>
        <summary>Here's the video from the talk I gave at HBS on what makes the Boston start-up scene special.</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>Here's the video from the talk I gave at HBS on what makes the Boston start-up scene special.</p>
<p />
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    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/11/what-makes-bostons-startup-scene-special-video.html</feedburner:origLink></entry>
    <entry>
        <title>The VC Gender Gap - Are VCs Sexist?</title>
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        <id>tag:typepad.com,2003:post-6a00d83424781853ef0120a5c2ae78970b</id>
        <published>2009-10-05T23:31:43-04:00</published>
        <updated>2009-10-05T23:46:00-04:00</updated>
        <summary>I find the preponderance of males in VC an annoying and stubborn phenomenon. When I first entered the start-up game as an entrepreneur in the mid 1990s, I didn't think much of the "VC gender gap" as there were plenty...</summary>
        <author>
            <name>bussgang</name>
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<div xmlns="http://www.w3.org/1999/xhtml"><p>I find the preponderance of males in VC an annoying and stubborn phenomenon.  When I first entered the start-up game as an entrepreneur in the mid 1990s, I didn't think much of the "VC gender gap" as there were plenty of women executives around.  In fact, between one third and one half of the executive teams at my two start-ups (Open Market and Upromise) were women.</p>
<p>As the father of a capable, ambitious daughter, perhaps I'm over-sensitive to the issue, but since becoming a VC seven years ago, I find it amazing that only 5-10% of the VC industry is made up of women.  Only 25% of all VC partnerships have a single women partner and only 7-8% have more than one women partner.  Anecdotally, even fewer women are "management company GPs" as opposed to "employee GPs" - in other words, true owners of VC funds as opposed to deal partners.  What other major industry remains 90-95% male-dominated?  What's the deal?</p>
<p>An outstanding Kauffman Institute study, <a href="http://www.kauffman.org/research-and-policy/gatekeepers-of-venture-growth.aspx">“Gateways of Venture Growth”</a>, analyzes this issue and comes up with some thoughtful but unsurprising conclusions.  They point out that the industry remains very clubby, and the lack of female role models creates a self-perpetuating cycle. Professor Myra Hart of Harvard Business School writes, “Women trying to launch or further careers as VCs have fewer first-degree connections with those (men) in positions to hire or promote them.”</p>
<p>Another issue that holds women VCs back is the fact that the academic backgrounds of VCs tend to be in technical areas, such as computer science, engineering and biotechnology where, again, females are in the minority.</p>
<p style="FONT-SIZE: 12px"><span style="FONT-FAMILY: ; FONT-SIZE: 13px">In talking to my women VC friends, they reinforced these two major issues, but held out some cause for optimism going forward.  Irena Goldenberg of Highland Capital in Europe (an formerly an associate with us at Flybridge Capital before she went to HBS and then Geneva), believes there are more female VCs in life sciences as the medical field has a higher ratio of women to men then, say, engineering.  Our senior associate, Robin Lockwood, told me she thinks VC profiles simply lags entrepreneur's profiles.  As more women entrepreneurs emerge, more women will become VCs.</span></p>
<p>Here's a thought-provoking observation that an anonymous woman pointed out to me (and please do not accuse me of channeling Larry Summers on this - I'm just passing along what I heard):  she believes the VC industry is male-dominated because men are more wired to take risks than women.  Gambling, she points out, is more popular amongst men than women.  Thus, risk-taking with capital is more likely to be comfortable for men than women.</p>
<p>Some women have been able to break out as strong investors and industry leaders.  In my informal survey, a few experienced women VCs stood out as strong role models:  Venetia Kontogouris at Trident Capital, Annie Lamont at Oak, Patricia Nakache at Trinity and Nancy Schoendorf from Mohr Davidow.</p>
<p>I guess when you have a clubby, tightly-woven, self-perpetuating network, it's hard for women to break in.  It's a stubborn phenomenon, but I hope we can figure out how to correct it.  Otherwise, our industry is tragically losing out on 50% of the world's best talent!</p>
<p><em><strong>Follow me on twitter:  </strong><a href="http://www.twitter.com/bussgang"><strong>www.twitter.com/bussgang</strong></a></em></p></div>
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    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/10/the-vc-gender-gap-are-vcs-sexist.html</feedburner:origLink></entry>
    <entry>
        <title>Healthcare and Entrepreneurship</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/8NPKhEl3xGw/healthcare-and-entrepreneurship.html" />
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        <id>tag:typepad.com,2003:post-6a00d83424781853ef0120a5b68590970c</id>
        <published>2009-09-10T07:17:58-04:00</published>
        <updated>2009-09-13T21:56:24-04:00</updated>
        <summary>President Obama's compelling healthcare speech last night made the case for acting now. In a follow-up email that he sent to millions, he urged action to finally address this pressing issue, positing that we are "closer now than we have...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml">President Obama's compelling healthcare speech last night made the case for acting now. In a follow-up email that he sent to millions, he urged action to finally address this pressing issue, positing that we are "closer now than we have been in 60 years."

Here's my question - where can I find an analysis of the impact of the plan on entrepreneurship? Why has this major engine of job growth been silent or ignored in the debate - or have I just missed it?

Anything that creates friction in entrepreneurship is a bad thing for our innovation economy. I have seen aspiring entrepreneurs hold back in pursuing their start-up dreams because of fear of losing health coverage. Lowering the barriers to allow the flow of great talent to seek great opportunity needs to be a fundamental tenant of the new plan and I'm concerned that our leadership isn't focused enough on this lens. 

Has anyone seen any good data or dialog on this topic? Led by former venture capitalist Karen Mills, shouldn't the SBA be a strong, relevant voice here?</div>
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    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/09/healthcare-and-entrepreneurship.html</feedburner:origLink></entry>
    <entry>
        <title>Serving as an Entrepreneur in Residence at HBS</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/zcdEd4mRyes/serving-as-an-entrepreneur-in-residence-at-hbs.html" />
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        <id>tag:typepad.com,2003:post-6a00d83424781853ef0120a55ab7bc970b</id>
        <published>2009-09-08T23:54:19-04:00</published>
        <updated>2009-09-09T13:17:20-04:00</updated>
        <summary>When I was at Harvard Business School (HBS) in the early 1990s, entrepreneurship was an afterthought. When I joined the venture-backed Internet start-up Open Market in the spring of 1995, I was one of only a handful of graduates that...</summary>
        <author>
            <name>bussgang</name>
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<div xmlns="http://www.w3.org/1999/xhtml"><p>When I was at Harvard Business School (HBS) in the early 1990s, entrepreneurship was an afterthought.  When I joined the venture-backed Internet start-up Open Market in the spring of 1995, I was one of only a handful of graduates that joined a start-up out of business school (at a fraction of the salary of my classmates, I might add!)</p>
<p>Today, the entrepreneurship department is the largest department at HBS.  Students aren't just joining start-ups, they're creating start-ups.  The annual business plan contest is a huge draw and it is estimated that as many as 40-50 start-ups are created each year by students coming out of the school.  Today, 50% of all HBS alumni describe themselves as entrepreneurs 10-15 years after graduation.</p>
<p>I always love my visits back on campus, interacting with the students, judging business plan contests and hearing about the latest faculty research.  That's why, when one of my former professors invited me to join HBS as an <a href="http://www.hbs.edu/news/releases/entrepreneursinresidence2009.html">"Entrepreneur in Residence" at HBS</a>, I eagerly agreed.  It's a very part-time gig and will not take away from my day job in any way, but instead will give me a chance to learn from all the brilliant faculty and students running around campus.</p>
<p>I will be working, in particular, with Noam Wasserman, who runs a great course and blog about <a href="http://founderresearch.blogspot.com/">"Founder's Dilemma"</a>.  Noam's research in choices founders make and his very popular course will be a great learning environment for me as well.</p>
<p>So if folks have any answers to the question, "What would I advise HBS students who want to become entrperneurs", let it 'er rip!</p></div>
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    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/09/serving-as-an-entrepreneur-in-residence-at-hbs.html</feedburner:origLink></entry>
    <entry>
        <title>Should Entrepreneurs Be More Like Teenage Girls?</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/ttMEqLfY2nI/should-entrepreneurs-be-more-like-teenage-girls-when-setting-goals.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/08/should-entrepreneurs-be-more-like-teenage-girls-when-setting-goals.html" thr:count="18" thr:updated="2009-10-13T05:39:59-04:00" />
        <id>tag:typepad.com,2003:post-6a00d83424781853ef0120a5855b96970c</id>
        <published>2009-08-29T17:52:15-04:00</published>
        <updated>2009-09-01T13:30:25-04:00</updated>
        <summary>Even though I graduated from college (gasp) 18 years ago, I still think about the school season as my annual planning cycle rather than the calendar year. Having three school age kids reinforces this life rhythm. And so as I...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>Even though I graduated from college (gasp) 18 years ago, I still think about the school season as my annual planning cycle rather than the calendar year.  Having three school age kids reinforces this life rhythm.</p>
<p>And so as I was thinking through my personal goals for this coming year, and discussing individual goals with each of my kids (a recently adopted ritual I highly recommend for any parent), <a href="http://www.economist.com/sciencetechnology/displaystory.cfm?story_id=13899022">this article from The Economist </a>caught my eye.  The article's subtitle, tells it all:  "Depression may be linked to how willing someone is to give up his [or her] goals."  The article describes research published in the Journal of Personality and Social Psychology by Carsten Wrosch and Gregory Miller, where teenage girls who had strong "goal adjustment capacities" - the ability to disengage from unattainable goals and reset their attention onto new goals - avoid feeling down and depressed.  In contrast, girls who get stuck on their goals and can't reset are more susceptible to depression.  The implication is that if you aren't facile at adjusting your goals, and they're overly ambitious goals, it can lead to depression.</p>
<p>Applying this research to entrepreneurs is an interesting thought experiment.  As investors, we VCs are always attracted to entrepreneurs who set big, hairy audacious goals (BHAGs).  Who wants to invest in an entrepreneur whose pitch is, "I'm going to make a nice living in a small niche," as opposed to, "I aspire to achieve world domination"?  Yet are those entrepreneurs more susceptible to depression and defeatism when they're unable to achieve those outrageous BHAGs?</p>
<p>To reconcile these two views I am reminded of an excellent book I recently read by renowned <a href="http://www.mindsetonline.com">Stanford psychologist Carol Dweck, called Mindset</a>.  Dweck's research shows that successful people in business, sports and life have "growth mindsets" rather than "fixed mindsets".  The "growth mindset" is one in which a person believes that one's world view is less about ability and more about lifelong learning.  "Growth mindset" individuals feel they can always learn from experiences (failures and successes) and develop resilience because they're focused on personal growth rather than achievement tied to rigid objectives.  When a "growth mindset" individual faces adversity, they focus on the learnings and the self-improvement opportunities that come from adversity.</p>
<p>I have seen in my own work that the best entrepreneurs do set BHAGs, sometimes outrageous and unattainable ones (create a $100 million company in 5 years from scratch?  Is that really possible?), and push themselves to achieve excellence.  But the ones that really distinguish themselves are the ones who embrace the "growth mindset".  They embrace life long learning, no matter how great their achievements, and allow themselves to occasionally <a href="http://bostonvcblog.typepad.com/vc/2009/03/hitting-the-reset-button-the-silver-lining.html">hit the reset button and adjust </a><a href="http://bostonvcblog.typepad.com/vc/2009/03/hitting-the-reset-button-the-silver-lining.html"><span style="FONT-FAMILY: Trebuchet MS">their goals</span></a> <span style="FONT-FAMILY: Trebuchet MS"><span style="FONT-FAMILY: Trebuchet MS" /></span>without breaking stride when reality intrudes (such as, say, the greatest financial crisis since the Great Depression) are the ones that can blend the best of both worlds.</p>
<p>What kind of mindset have you seen work best?</p>
<p><strong><em>Follow me on twitter:  </em><a href="http://www.twitter.com/bussgang"><em>www.twitter.com/bussgang</em></a></strong></p></div>
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    <entry>
        <title>How Should VCs Say No - When It's The Team?</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/O6jEsTaeHag/saying-no-when-its-the-team.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/08/saying-no-when-its-the-team.html" thr:count="60" thr:updated="2009-11-02T16:11:51-05:00" />
        <id>tag:typepad.com,2003:post-6a00d83424781853ef0120a4c65958970b</id>
        <published>2009-08-04T16:37:17-04:00</published>
        <updated>2009-08-04T16:37:17-04:00</updated>
        <summary>One of the things I continue to struggle with as a VC is the unfortunate fact that I am in the business of saying "no" all the time. Saying "no" in the context of how you invest your time is...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>One of the things I continue to struggle with as a VC is the unfortunate fact that I am in the business of saying "no" all the time.</p>
<p>Saying "no" in the context of how you invest your time is one thing - fellow VC blogger Brad Feld did a <a href="http://www.feld.com/wp/archives/2009/06/say-no-in-less-than-60-seconds.html">good blog post</a> on this topic in the context of time management a few weeks ago as did Y-Combinator's <a href="http://www.paulgraham.com/makersschedule.html">Paul Graham</a>.  But I really struggle with saying "no" to entrepreneurs.  Entrepreneurs pour their hearts, souls and dreams into their start-up ventures and to summarily dismiss them remains the hardest thing about the job.  One of my entrepreneur buddies asks me whenever I see him:  "So - did you crush any entrepreneurs' dreams today?"  Very funny.  Ha ha.</p>
<p>One of the reasons for this dynamic is that VCs are in the business of trying to see everything (i.e., learn about and meet with all the best deals out there) but do nearly nothing (i.e., invest in only one or two companies a year).  My blog post on this topic a year ago was a bit tongue in cheek (<a href="http://bostonvcblog.typepad.com/vc/2008/05/vcs-and-deal-flow-seeing-everything-doing-nearly-nothing.html" title="Bussgang's Seeing Both Sides blog">VCs and Deal Flow</a>), but only a bit.</p>
<p>My dilemma becomes more acute when I try to explain why I am saying "no".  In particular, how do you say no when the reason for turning down the investment opportunity is the team?  It's easier to say no when you have concerns about the market, the business model or the price.  The entrepreneurial team is great, you would enjoy working with them, you think they are money-makers, but there's something in the general model that prevents you from pulling the trigger.  Those are the easy ones.</p>
<p>The hard ones are when you are saying no because of the team.  Successful start-ups typically follow Thomas Edison's genius formula:  10% inspiration (in start-up land, the vision or idea), 90% perspiration (in start-up land, the execution).  Whether you like the idea or not is irrelevant if you don't believe the team has the wherewithal to execute it successfully.  Sure, a team can evolve over time and new leaders can be brought in, but very few VCs invest behind teams they don't believe in.</p>
<p>One curmudgeonly VC I know used to say to entrepreneurs:  "I don't think is an opportunity that suits you." At Flybridge Capital, we try our best to be direct and honest in providing feedback to entrepreneurs to help them with their ventures and perhaps we should have the courage to give it to people between the eyes.  I'm just not sure this blunt feedback would pass the decency and respectfulness test.  After all, who am I to project such an unfair judgment based on a 45-60 minute meeting?  <a href="http://bostonvcblog.typepad.com/vc/2005/09/vcs_blink.html">VCs need to "Blink"</a> and make snap judgements after those 45-60 minutes in order to filter and prioritize how they spend their time, but why be mean about it?  So in the end, I often settle for a polite "it's just not a fit for us".  Is that the right approach?  Let me know what you think.  What's the meanest turn down you've ever received from a VC?</p>
<p><a href="http://bostonvcblog.typepad.com/.a/6a00d83424781853ef0120a4c657ed970b-pi" style="DISPLAY: inline"><img alt="Edison" border="0" class="at-xid-6a00d83424781853ef0120a4c657ed970b " src="http://bostonvcblog.typepad.com/.a/6a00d83424781853ef0120a4c657ed970b-800wi" title="Edison" /></a> </p></div>
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    <entry>
        <title>In VC deals, Price Doesn't Matter - But The "Promote" Does</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/KxfmfSOcAg0/in-vc-deals-price-doesnt-matter-but-the-promote-does.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/07/in-vc-deals-price-doesnt-matter-but-the-promote-does.html" thr:count="32" thr:updated="2009-11-03T03:45:05-05:00" />
        <id>tag:typepad.com,2003:post-6a00d83424781853ef0115711360f1970c</id>
        <published>2009-07-15T07:07:54-04:00</published>
        <updated>2009-07-15T07:09:59-04:00</updated>
        <summary>VCs have an unfair advantage when it comes to financings. They simply have more experience doing deals. A typical start-up company will do 2-4 venture capital financings before a successful exit (or, conversely, an ignomious ending). A typical serial entreprenur...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>VCs have an unfair advantage when it comes to financings.  They simply have more experience doing deals.</p>
<p>A typical start-up company will do 2-4 venture capital financings before a successful exit (or, conversely, an ignomious ending).  A typical serial entreprenur may lead 2-3 companies in their career before calling it quits (or checking themselves in to an insane asylum).  Thus, the universe of financings that even the most experienced entrepreneurs get directly exposed to is typically 5-10 financings over a 15-20 year career.  In contrast, the typical venture capitalist, either individually or across their partnership, will do 5-10 financings in any given year.  Year in, year out,</p>
<p>Thus, VCs and entrepreneurs are not operating on an equal playing field when it comes to negotiating financings and interpreting the impact of the terms involved.</p>
<p>One area that has always struck me where this assymetrical relationship comes into sharp focus is when there's a discussion around the price of the deal.  Entrepreneurs often mistakenly focus solely on the pre-money valuation while VCs look at multiple knobs in the negotiation to drive to a set of terms that, in total, they find acceptable.  And if they don't focus on the pre-money, they focus on their ownership position after the financing, irrespecive of the amount of capital that was raised.</p>
<p>In my partnership, we've come up with a new term (I think it's new - I don't see it written or talked about much) called the "promote" to help communicate with entrepreneurs the real value behind a particular deal so get them to step back from concentrating only on the pre-money valuation or post-money ownership.</p>
<p>What is the promote?  First, let me take a step back and define a few terms.  In the world of VC-backed financings, there are multiple terms that impact the ultimate price of the deal.  The first, and most focused on, is something called the pre-money valuation. That is, what is the company worth prior to the money being invested? This pre-money valuation is own known in shorthand as “the pre” and you will hear entrepreneurs and VCs discussing other company finances using this term (“You were able to raise money at a $9 pre?  I had to struggle to get to $6 pre and I have a prototype and real customers!  Life isn’t fair.”)</p>
<p>But the pre-money isn’t the only term that defines price, the amount of capital raised and the post-money plays a part as well.  The post-money is the pre-money plus the invested capital.  That is, if a company raises $4 million at a pre-money valuation of $6 million, then the post-money is $10 million.  The investors who provided the $4 million own 40% of the company and the management team owns 60%.</p>
<p>Another term that impacts the price is the size of the option pool.  Most VCs invest in companies that need to hire additional management team members and sales and marketing and technical talent to build the business.  These new hires typically receive stock options, and the issuance of those stock options dilute the other investors.  In anticipation of those hiring needs, many VCs will require that an option pool with unallocated stock options be created prior to the money coming in, thereby forming a stock option budget for new hires that will not require further dilution after the investment.  In our $4 million invested in a $6 million pre-money valuation example above (known in VC-speak shorthand as “4 on 6”), if the VCs insist on an unallocated stock option pool of 20%, then the investors still own 40%, there is a 20% unallocated stock option pool at the discretion of the board, and a 40% stake is owned by the management team.  In other words, the existing management team/founders have given up 20% points of their ownership in order to go towards future hires.</p>
<p>This relationship between option pool size and price isn’t always understood by entrepreneurs, but is well-understood by VCs.  I learned it the hard way in the first term sheet that I put forward to an entrepreneur.  I was competing with another firm.  We put forward a “6 on 7” deal with a 20% option pool.  In other words, we would invest (alongside another VC) $6 million at a $7 million pre-money valuation to own 46% of the company.  The founders would own 34% and we would set aside a stock option pool of 20% for future hires.  One of my competitors put forward a “6 on 9” deal, in other words $6 million invested at a $9 million pre-money valuation to own 40% of the company.  But my competitor inserted a larger option pool than I did – 30% – so the founders would only receive 30% of the company as compared to my deal that gave them 34%.  The entrepreneur chose the competing deal.  When I asked why he looked me in the eye and said, “Jeff – their price was better.  My company is worth more than $7 million”.  </p>
<p>At the time, I wasn’t facile enough with the nuances myself to argue against his faulty logic.  That's why we instituted a policy at Flybridge to talk about the “promote” for the founding team more than the “pre”.  The “promote”, as we have called it, is the founding team’s ownership percentage multiplied by the post-money valuation.  It represents the $ value in the ownership that the founding team is carrying forward after the financing is done.</p>
<p>In my example of the “6 on 7” deal with the 20% option pool, the founding team owns 34% of a company with a $13 million post-money valuation.  In other words, they have a $4.4 million “promote” in exchange for their founding contributions.  Note that in the “6 on 9” deal, the founding team had a nearly identical promote:  30% of a $15 million post-money valuation, or $4.5 million.  In other words, my offer wasn’t different than the competing offer, it just had a smaller pre and a smaller option pool.</p>
<p>Entrepreneurs negotiating with VCs should spend time making sure they understand all of the aspects of the deal, but particularly the elements of price - the pre-money, the post-money, the option pool - and do the simple math to calculate the "promote".  There are many other elements of the deal that affect price (participation, dividends) and control (board composition, protective provisions), but make sure you think hard about the value you're carrying forward, not just the price tag you think the VC is giving your company in the "pre".</p>
<p><em>Follow me on Twitter at <a href="http://www.twitter.com/bussgang">www.twitter.com/bussgang</a>.</em></p></div>
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    <entry>
        <title>Do VCs Take The Summer Off?  Entrepreneurs Say Yes.  The Data Says No.</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/bRFldzADoJs/do-vcs-take-the-summer-off-entrepreneurs-say-yes-the-data-says-no.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/06/do-vcs-take-the-summer-off-entrepreneurs-say-yes-the-data-says-no.html" thr:count="6" thr:updated="2009-11-02T12:52:43-05:00" />
        <id>tag:typepad.com,2003:post-6a00d83424781853ef0115706d5f80970c</id>
        <published>2009-06-26T10:53:46-04:00</published>
        <updated>2009-06-26T10:53:46-04:00</updated>
        <summary>With the 4th of July approaching, the unofficial summer is about to begin. In almost every board meeting with portfolio companies and other entrepreneurs who are raising money, I'm hearing the same refrain: "The VCs are about to shut down...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>With the 4th of July approaching, the unofficial summer is about to begin.  In almost every board meeting with portfolio companies and other entrepreneurs who are raising money, I'm hearing the same refrain:  "The VCs are about to shut down for the summer".  Phone calls and emails won't get returned, partners meetings won't be held, and you might as well put your head down and build your company as best you can and then show up after Labor Day rather than wasting time knocking on VC doors.</p>
<p>I admit this is only my 7th summer as a VC, so I'm still new to this thing, but I just don't get it.  I still work during the summer.  My partners work all summer.  My co-investors and their firms seem to be working all summer.  And even when I'm on vacation at the end of August, if there's a board meeting, a financing, or a crisis, I'm available to my CEOs.  So are all the other VCs I know in the industry.  When I switched from being an entrepreneur to becoming a VC, I remember my friend and mentor Ted Dintersmith telling me:  "Jeff, take as much time off as you can in before you start off, because when you're a VC, you're never really 'off'.  There's always some crisis in the portfolio, a transaction that needs to get done, a personnel issue that needs attention."</p>
<p>it got me wondering what the data showed on this topic.  If the urban legend was true that VCs took the summer off, you would expect Q3 deals to be meaningfully lower than other quarters in the year.  So I looked at the NVCA funding data by quarter (<a href="http://www.nvca.org">www.nvca.org</a>).  The quarterly chart was revealing - I saw no discernable quarterly pattern.  In fact, in each of the four years betwen 2005-2008, an eerily precise 25% of deals were closed in Q3 (25.0%, 24.6%, 25.1% and 25.0%, respectively)!</p>
<p>Some may argue that the quarterly data is misleading because Q3 covers September and many of these deals get closed after Labor Day.  But this argument seems specious given that all the hard work on both sides happens 30-60 days before a deal is closed, when the VC does their due diligence and term sheets are negotiated.  Rather than rejecting this counter argument prima facie, I decided to dig deeper.  So I looked at our own data at Flybridge Capital Partners and did a more micro seasonality analysis.</p>
<p>We have closed 42 new deals since we started the firm 7+ years ago.  Guess which month was our largest in terms of number and capital?  August, with 9 new deals closed!  December was second and July was third.  So much for taking the summer off.  Looking at the follow-on investments and new deals in aggregate (nearly 120 transactions), our data shows that December was the most active month and August second.  So much for that theory.</p>
<p>I'd be curious to hear what other VCs and entrepreneurs experience on this dimension, but I have to say that the data suggests the urban legend is false.  VCs simply do not take the summer off and aspiring entrepreneurs can get plenty of deals done, all else being equal.</p></div>
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    <entry>
        <title>Start-Up Mentoring Program - First Growth Venture Network</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/8L5haId07vo/startup-mentoring-program-first-growth-venture-network.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/06/startup-mentoring-program-first-growth-venture-network.html" thr:count="8" thr:updated="2009-08-04T14:18:26-04:00" />
        <id>tag:typepad.com,2003:post-68156179</id>
        <published>2009-06-16T07:49:15-04:00</published>
        <updated>2009-06-16T07:49:15-04:00</updated>
        <summary>We announced today a mentoring program for New York-based start-ups alongside a number of other VCs and Lowenstein Sandler. More information can be found at: www.firstgrowthvn.com. I was excited to be a part of starting this effort to provide more...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>We announced today a mentoring program for New York-based start-ups alongside a number of other VCs and Lowenstein Sandler.  More information can be found at:  <a href="http://www.firstgrowthvn.com">www.firstgrowthvn.com</a>.  </p>
<p>I was excited to be a part of starting this effort to provide more support and resources for fledging young start-ups in NYC and contribute to the start-up ecosystem.  I have been impressed with the quality of entrepreneurs and companies in NYC for a number of years now and have dedicated a day or two a month to get to know some of the players and leaders in the community.  When Ed Zimmerman of Lowenstein Sandler threw out this idea a number of months ago, it immediately resonated with me.  In many ways, it's taking a formula that has worked so well at MIT and Harvard - teaming former entrepreneurs, VCs and financial and legal advisors with young entrepreneurs - and applying it to NYC.</p>
<p>Anyway, very excited to be a part of it and it will be fun to see where it leads and to have a forum to collaborate with others to help contribute to the start-up ecosystem in NYC.  A nice article about the effort can be found at <a href="http://www.xconomy.com/boston/2009/06/16/boston-venture-firms-dominate-new-mentoring-program-for-new-york-startups/">Xcomomy</a>.</p>
<p>Anyone interested in joining the program can find information at the program's website at <a href="http://www.firstgrowthvn.com">www.firstgrowthvn.com</a>.</p></div>
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    <entry>
        <title>New England's Top 10 Innovators</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/OKJO2Yswtg0/new-englands-top-10-innovators.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/06/new-englands-top-10-innovators.html" thr:count="24" thr:updated="2009-11-03T09:17:18-05:00" />
        <id>tag:typepad.com,2003:post-67612557</id>
        <published>2009-06-03T22:55:30-04:00</published>
        <updated>2009-06-10T16:25:55-04:00</updated>
        <summary>June is innovation month in New England and it has started off with a bang. A few weeks ago, Business Week named Boston the 3rd most inventive city in the world. This week, The Deal declared that Route 128 is...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>June is innovation month in New England and it has started off with a bang.  A few weeks ago, Business Week named Boston the <a href="http://images.businessweek.com/ss/09/04/0422_inventive_cities/4.htm">3rd most inventive city in the world</a>.  This week, <a href="http://www.thedeal.com/newsweekly/features/route-128-revisited.php">The Deal declared that Route 128</a> is well-positioned to continue its leadership in innovation, despite the economic crisis, due to its diverse economy and robust enterpreneurial environment.  All month, there are numerous high-quality events going on, including an <a href="http://masstlc.homestead.com/events/2009springunconf.html">Unconference</a> run by Mass TLC,  <a href="http://web.mit.edu/deshpandecenter/ideastream2009/is09_index.html">MIT Deshpande Center's IdeaStream</a> and <a href="http://www.mitx.org/events/1897.cfm">MITX 2009 Awards night</a>.  Much thanks to Scott Kirsner for catalyzing this energy around innovation month (to learn more, see:  <a href="http://www.neinnovation.com">www.neinnovation.com</a>)!</p>
<p>With all this attention being put on innovation in New England, I thought I would throw out a top ten list.  If there were ever to be created an Innovator Hall of Fame, these 10 would get my vote for the first inductees.  With apologies to Edwin Land, Ken Olsen, and others, this is not a historical view.  These are currently active players in the innovation scene.  I solicited input via Twitter and Facebook on this and got great (and fairly consistent) responses.  In no particular order:</p>
<p>1) <a href="http://web.mit.edu/langerlab/langer.html">Bob Langer</a>.  With over 600 patents in his name, MIT Professor Langer is second only to Thomas Edison as the most inventive American in history.  Bob's work during his decades at MIT has resulted in the creation of 25 companies.  My partner, Michael Greeley, refers to Bob as a "National treasure" and New England is very fortunate to have him.  Harvard Business School did a wonderful <a href="http://harvardbusinessonline.hbsp.harvard.edu/b02/en/common/item_detail.jhtml?id=605017">case on the Langer lab</a>.</p>
<p>2) <a href="http://www.kurzweiltech.com/raybio.html">Ray Kurzweil</a>.  Ray is a controversial figure as a futurist but is an accomplished inventor and entrepreneur.  His latest book, "The Singularity", claims we will have multiple microchips and machines blended into our body over time to prolong life (which, given our investment in a Langer founded emerging leader in implantable biosensors and drug delivery, <a href="http://www.mchips.com/">MicroChips</a>, this may not be so far fetched!).  Newsweek had a wonderful <a href="http://www.newsweek.com/id/197812">profile of him last week</a>, describing him as "a legend in the world of computer geeks".</p>
<p>3) <a href="http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=bio&amp;facEmId=wsahlman">Bill Sahlman</a>.  Bill has been a professor of entrepreneurship at Harvard Business School for nearly 25 years.  When he began, he was one of two or three professors teaching this topic.  Today, the entrepreneurship department, which he chaired for many years, is the second largest department in the school with over 30 faculty members.  Bill has inspired and seeded countless entrepreneurs (including me!) and has taught his sold out Enterpreneurial Finance class (created in 1985) to over 5,000 students, including probably 20-30% of the VCs in the country.  He once told me he has been a private investor in over 100 start-ups and 70 VC funds - many of whom were former students (HBS profs aren't allowed to invest in current students)!</p>
<p>4) <a href="http://www.notablebiographies.com/news/Ge-La/Greiner-Helen.html">Helen Greiner</a>.  The founder and former CEO and chairwoman of iRobot, Helen has been the godmother of the robotics industry in Massachusetts.  Today, there are dozens of robotics start-ups that can trace their roots to iRobot, which pioneered both military and mainstream consumer applications for robots.  iRobot's Roomba vacuum is so mainstream, it was the subject of <a href="http://www.wired.com/dangerroom/2009/02/meet-irobots-ad/">this hilarious Jon Stewart piece</a>.  Helen  is starting another robotics company (currently in stealth mode) and serves as chair of the national Robotic Technology Consortium.</p>
<p>5) <a href="http://dmse.mit.edu/faculty/faculty/ychiang/">Yet Ming Chiang</a>.  MIT Professor Chiang is the technical founder of A123, the battery start-up that is shaking up how power is generated in the automobile, utility and tools industries.  A123 has become the poster child for the power of innovation in clean technology, both in Massachusetts and nationally.  Yet isn't resting on his innovation laurels.  He recently founded another company, Entra (currently in stealth mode), with fellow MIT Professor Michael Cima.</p>
<p>6) <a href="http://www.broad.mit.edu/about/bios/bio-lander.html">Eric Lander</a>.  Eric is the director and co-founder of the Broad Institute, the leading genomics research institute in the world.  With the help of the Broad family, other philanthropists, and your tax money via the NIH, he now presides over a research institution with a $240 million annual budget that is using cutting-edge genomics research to revolutionize medical knowledge and practice.  One of the leaders of the Human Genome Project, Eric was named one of "America's Best Leaders" by US News &amp; World Report and recently asked by President Obama to co-chair the President's Council of Advisors on Science and Technology.</p>
<p>7) <a href="http://www.akamai.com/html/about/management_ps.html">Paul Sagan</a>.  As CEO of Akamai, Paul has been there from the beginning in leading this pioneering start-up in Internet content delivery from inception (alongside now chairman George Conrades) to its current status as the $1 billion king of the Internet content delivery industry.  Paul's work in navigating the company through the IPO during the boom times of the 1990s and bubble crash has allowed it to emerge stronger than ever.  As a former media executive (Paul won three Emmy Awards as a broadcast journalist) teamed with brilliant MIT technical founders, Paul is proof positive that teaming up business minds with technical minds can create a revolutionary company.</p>
<p>8) <a href="http://www.bidmc.org/AboutBIDMC/Overview.aspx">Paul Levy</a>.  He may not be a company founder, but Beth Israel hospital CEO Paul Levy is an incredibly innovative and entrepreneurial leader.  He is the only hospital CEO in the country who regularly blogs (see:  <a href="http://runningahospital.blogspot.com/">Running A Hospital</a>) and uses Twitter (<a href="http://www.twitter.com/Paulflevy">www.twitter.com/Paulflevy</a>) to communicate with his employees and patients.  During the economic crisis, he was out in front in communicating with his eight thousand employees the impact on the hospital's budget and took a very public pay cut, alongside his senior team, <a href="http://www.boston.com/news/local/massachusetts/articles/2009/03/12/a_head_with_a_heart/">to save jobs</a>.  Paul may not be a technology entrepreneur, but as a leader who is using technology in an innovative way, he stands head and shoulders above his peers.</p>
<p>9) <a href="http://www.mass.gov/?pageID=gov3utilities&amp;sid=Agov3&amp;U=Agov3_Deval_Patrick_welcome_msg">Governor Deval Patrick</a>.  Deval has arguably done more to foster and support New England's innovation economy than any political leader in New England history.  He has demonstrated exemplary leadership both in words and deeds -- passing legislation in <a href="http://www.boston.com/news/local/breaking_news/2008/07/patrick_signs_l.html">clean energy</a> and <a href="http://www.boston.com/news/local/articles/2008/06/13/1_billion_life_sciences_bill_passes_senate/">life sciences</a> and travelling around the country as an effective <a href="http://www.xconomy.com/seattle/2009/02/04/massachusetts-gov-deval-patrick-visits-microsoft-to-build-ties-with-the-northwest/) as">Salesman in Chief</a>.  As a former business executive, he gets the power of innovation and technology and values it as a key asset in the Commonwealth.</p>
<p>10) <a href="http://en.wikipedia.org/wiki/Edward_Johnson,_III">Ned Johnson III</a>.  The very private and low key founder of Fidelity, one of the most important financial services firms ever created.  Johnson democratized mutual funds and the stock market, pioneered online brokerage and sophisticated call centers, and has created tens of thousands of jobs in Massachusetts, New Hampshire and Rhode Island.  Celebrating his 79th birthday at the end of this month and still firmly in charge, he is well deserving of a Hall of Fame inductee.</p>
<p>These 10 are awe-inspiring innovators and it is simply a gift to have them as members of our community.  Honorable mentions include: Josh Boger (Vertex), Michael Cima (MIT, MicroCHIPs, T2, Certus, Entra), Desh Deshpande (Cascade, Sycamore, Deshpande Center at MIT), Dean Kamen (Segway, Deka), Alan Khazei (City Year), Larry Lucchino (Red Sox), Mike Stonebraker (MIT, Illustra, Vertica, Streambase, Goby), Jeff Taylor (Monster).</p>
<p>Who did I miss?  What would you argue with?<br /></p></div>
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/06/new-englands-top-10-innovators.html</feedburner:origLink></entry>
    <entry>
        <title>Terry Time at the NVCA</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/OoX51Ya6O1s/terry-time-at-the-nvca.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/05/terry-time-at-the-nvca.html" thr:count="1" thr:updated="2009-05-27T11:23:34-04:00" />
        <id>tag:typepad.com,2003:post-67289791</id>
        <published>2009-05-26T15:17:28-04:00</published>
        <updated>2009-05-26T15:17:28-04:00</updated>
        <summary>Amid the hoopla a few weeks ago at the annual NVCA meeting, where the focus was rightly on improving liquidity, it was barely noticed that a new chairman was elected – Polaris co-founder and managing general partner Terry McGuire, one...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="html" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
&lt;div xmlns="http://www.w3.org/1999/xhtml"&gt;&lt;p class="MsoNormal"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Amid the hoopla a few weeks ago at the annual NVCA meeting, where the focus was rightly on improving liquidity, it was barely noticed that &lt;a href="http://nvcatoday.nvca.org/index.php/terry-mcguire-of-polaris-ventures-partners-elected-nvca-chairman.html" title="http://nvcatoday.nvca.org/index.php/terry-mcguire-of-polaris-ventures-partners-elected-nvca-chairman.html"&gt;a new chairman was elected&lt;/a&gt; – Polaris co-founder and managing general partner Terry McGuire, one of the leading life sciences investors in the industry.&amp;#0160; In normal times, the NVCA chairman is hardly an earth-shaking position (although certainly of higher value than FDR’s Vice President John Garner felt about &lt;font color="navy"&gt;&lt;span style="COLOR: navy"&gt;his office&lt;/span&gt;&lt;/font&gt;).&amp;#0160; But these are hardly normal times and the NVCA chairman is bound to find himself in the middle of many interesting policy debates in the coming year. &amp;#0160;I was therefore intrigued by Terry’s election and so talked to him the other day about his new role.&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p class="MsoNormal"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;/span&gt;&lt;/font&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Terry co-founded Polaris in 1996 after seven years as a VC at Burr Egan.&amp;#0160; His focus on life sciences emerged over the last 10 years, although he started in the business as a generalist and has had no formal medical training or education.&amp;#0160; In addition to his impressive life sciences portfolio (including Sirtris, GlycoFi and Cubist), Terry was the initial investor in one of the most successful VC deals of all time, Akamai, a company that Polaris invested in (alongside Battery) with an $8m Series A in 1998 and then went public in 1999 and commanded a peak market capitalization of over $20 billion shortly after the IPO (the market capitalization is now $3.5 billion, as the company has successfully “grown into its valuation” and become the leading in the content delivery market).&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p class="MsoNormal"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;/span&gt;&lt;/font&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Terry’s ascension to chair of the NVCA comes at an interesting time, to say the least.&amp;#0160; In our conversation, he made a few observations in his usual soft-spoken but pointed way&lt;font color="navy"&gt;&lt;span style="COLOR: navy"&gt; &lt;/span&gt;&lt;/font&gt;that I found particularly interesting:&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p class="MsoNormal" style="MARGIN-LEFT: 0.5in; TEXT-INDENT: -0.25in; mso-list: l0 level1 lfo2"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;span style="mso-list: Ignore"&gt;(1)&lt;font face="Times New Roman" size="1"&gt;&lt;span style="FONT: 7pt &amp;#39;Times New Roman&amp;#39;"&gt;&amp;#0160;&amp;#0160;&amp;#0160;&amp;#0160; &lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;strong&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Small Ball.&amp;#0160; &lt;/span&gt;&lt;/font&gt;&lt;/strong&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;At $20-30 billion per year, the venture capital industry as a whole remains a “drop in the bucket” in terms of capital deployed relative to the over trillion dollars sitting in private equity firms.&amp;#0160; Yet the impact is enormous, with 18% of GDP provided by venture-backed companies.&amp;#0160; Thus, there is great (positive) leverage in the VC model and, as a result, policy makers should be paying more attention to it and demonstrate an interest in how to accelerate it.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p class="MsoNormal" style="MARGIN-LEFT: 0.5in; TEXT-INDENT: -0.25in; mso-list: l0 level1 lfo2"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;span style="mso-list: Ignore"&gt;(2)&lt;font face="Times New Roman" size="1"&gt;&lt;span style="FONT: 7pt &amp;#39;Times New Roman&amp;#39;"&gt;&amp;#0160;&amp;#0160;&amp;#0160;&amp;#0160; &lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;strong&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Wanted:&amp;#0160; Grumpy Old Men.&amp;#0160; &lt;/span&gt;&lt;/font&gt;&lt;/strong&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;There is a tremendous need for “old guys” to stick around in the VC business rather than fade off into the sunset.&amp;#0160; In the private equity world, the industry leaders hang around forever well past their 50s and 60s.&amp;#0160; In VC, it’s considered more naturally a young person’s game (perhaps because we’re always dealing with waves of new technology, young founders).&amp;#0160; Yet, the VC business takes a long time to figure out.&amp;#0160; The industry needs the investors who were around in the pre-bubble era (1980s and first half of the 1990s) to stick around and impart their wisdom on the next generation, who has grown up in the business during unusual times.&amp;#0160; It is scary to reflect on how few of the 7,000 professionals active in the industry today were general partners before Netscape’s IPO in 1995.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p class="MsoNormal" style="MARGIN-LEFT: 0.5in; TEXT-INDENT: -0.25in; mso-list: l0 level1 lfo2"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;span style="mso-list: Ignore"&gt;(3)&lt;font face="Times New Roman" size="1"&gt;&lt;span style="FONT: 7pt &amp;#39;Times New Roman&amp;#39;"&gt;&amp;#0160;&amp;#0160;&amp;#0160;&amp;#0160; &lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;strong&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Life sciences.&lt;/span&gt;&lt;/font&gt;&lt;/strong&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&amp;#0160; With the incredible advancements in genomics, computational power and miniaturization, we are arguably entering into a golden age of innovation in life sciences (which encompasses healthIT, medical devices, diagnostics, and touches adjacent areas such as materials science and robotics.&amp;#0160; Having an NVCA chairman steeped in that world, at a time when the US Government is looking to perform a top-down re-engineering of the health care system, which is projected to make up 20% of GDP in a few years, is good timing indeed.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p class="MsoNormal" style="MARGIN-LEFT: 0.5in; TEXT-INDENT: -0.25in; mso-list: l0 level1 lfo2"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;span style="mso-list: Ignore"&gt;(4)&lt;font face="Times New Roman" size="1"&gt;&lt;span style="FONT: 7pt &amp;#39;Times New Roman&amp;#39;"&gt;&amp;#0160;&amp;#0160;&amp;#0160;&amp;#0160; &lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;strong&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Boston&lt;/span&gt;&lt;/font&gt;&lt;/strong&gt;&lt;strong&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;.&lt;/span&gt;&lt;/font&gt;&lt;/strong&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&amp;#0160; With 14 teaching hospitals and world-class research and entrepreneurship factories like MIT and Harvard, Boston has arguably emerged as the top life sciences start-up environment.&amp;#0160; With related technology advancements in energy technology and &lt;a href="http://www.boston.com/news/local/breaking_news/2008/07/patrick_signs_l.html" title="http://www.boston.com/news/local/breaking_news/2008/07/patrick_signs_l.html"&gt;&lt;font color="#800080"&gt;strong legislative support from the state of Massachusetts&lt;/font&gt;&lt;/a&gt;, it is arguably uniquely positioned there as well.&amp;#0160; Admittedly it is a distant second to California in software and Internet innovation, but as a proud Boston-based VC, I was pleased to see Terry brimming with confidence in Boston as an entrepreneurial hub.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt; 
&lt;p&gt;&lt;/p&gt;
&lt;p class="MsoNormal"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;It will be a year of both challenges and opportunity for the VC industry, but&lt;font color="navy"&gt;&lt;span style="COLOR: navy"&gt; &lt;/span&gt;&lt;/font&gt;Terry was eager to dig in during the year ahead.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p&gt;&lt;/p&gt;&lt;/p&gt;&lt;/div&gt;
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/05/terry-time-at-the-nvca.html</feedburner:origLink></entry>
    <entry>
        <title>What Rehab Is Teaching Me About Making Bad Investments</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/g8oUWxnPHAs/what-rehab-is-teaching-me-about-making-bad-investments.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/05/what-rehab-is-teaching-me-about-making-bad-investments.html" thr:count="8" thr:updated="2009-08-30T07:30:25-04:00" />
        <id>tag:typepad.com,2003:post-66578865</id>
        <published>2009-05-09T15:13:02-04:00</published>
        <updated>2009-05-09T15:15:02-04:00</updated>
        <summary>For as long as I can remember, I have been an enthusiastic participant in sports. To be clear, I'm not a great athlete (in fact, I'm the only one of the five Flybridge General Partners that wasn't a varsity athlete...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>For as long as I can remember, I have been an enthusiastic participant in sports.  To be clear, I'm not a great athlete (in fact, I'm the only one of the <a href="http://www.flybridge.com/team">five Flybridge General Partners</a> that wasn't a varsity athlete in college), just good enough to participate passionately and aggressively like the prototypical weekend warrior.  During any of my amateur sports efforts -- whether competing in mini-triathlons, tackling hard ski runs, or trying to jump the wake while Water-skiing -- I've always enjoyed pushing myself and approaching the task fearlessly.</p>
<p>This week, for reasons that will become clear shortly, I was reflecting on why it is that I am so fearless as a competitor, even as I've gotten older.  I came up with two reasons.  First, I'm not afraid of losing or failing and, second, I'm not afraid of getting hurt.  The former is probably because winning has never my ultimate objective, but rather the fun of competing and the enjoyment of achieving some level of mastery.  </p>
<p>And I've probably never been afraid of getting hurt because I've never gotten hurt.  I've been simply very lucky.  That is, until 6 weeks ago when a collision during a Saturday morning pick-up basketball game caused my ACL tendon to rupture.  My luck ran out.</p>
<p>That's why I'm typing this blog from bed, with my left leg strapped into a continuous motion machine, barely able to propel myself on crutches, and in excruciating pain.</p>
<p>During my recuperation period this week, one question I've been contemplating is - when I'm back to full strength, will I return to sports with the same aggression, or will I have lost some of my fearlessness?</p>
<p>Ironically, it is the identical question I struggle with as an investor.  Vinod Khosla once said it takes 7 years and $30 million in losses to train a venture capitalist.  Although I haven't lost $30 million of my LPs' and partners' money in my 7 years as a VC, I have made my share of bad investments.  When I look back on my struggling deals and do my post-mortem with my partnership (something we do during our annual strategy offsite), I point to the mistakes I made and errors I'll try to correct the next time.</p>
<p>But I think I now appreciate that Vinod's point is something broader than being a good VC requires learning from failure.  It also requires the fearlessness to pick yourself up after failure and take high risks again and again.  Not losing confidence in your ability to judge good people, good opportunities and good markets is the key to transforming those early failures into more consistent successes going forward.  Vinod and other legendary VCs still make their own investment mistakes 20 years later, but they remain fearless in willing to plunge forward to back the next big idea and great entrepreneur.  </p>
<p>With this challenging economic environment, VCs are facing more than their share of failure - and there's more to come.  Let's hope for our industry's sake that we VCs all bounce back with the same spring in our step that I intend to have 6 months from now on the basketball court.</p></div>
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/05/what-rehab-is-teaching-me-about-making-bad-investments.html</feedburner:origLink></entry>
    <entry>
        <title>First 100 Days:  Washington Has Become the New, New York</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/urXTDJXBAJQ/first-100-days-washington-has-become-the-new-new-york.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/04/first-100-days-washington-has-become-the-new-new-york.html" thr:count="4" thr:updated="2009-05-06T08:22:43-04:00" />
        <id>tag:typepad.com,2003:post-66188203</id>
        <published>2009-04-30T00:42:58-04:00</published>
        <updated>2009-04-30T00:42:58-04:00</updated>
        <summary>It used to be that anyone in the entrepreneurial world had to be keenly cognizant of what was going on in New York City. If you were funded by VCs in Silicon Valley, Boston, or Bombay, it still paid to...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>It used to be that anyone in the entrepreneurial world had to be keenly cognizant of what was going on in New York City.  If you were funded by VCs in Silicon Valley, Boston, or Bombay, it still paid to have your CEO and sales team have eyes and ears in NYC for two main reasons.  First, that's where the customers were.  CIOs of financial services companies were viewed as gods by many in the start-up community, controlling billions of dollars in IT spending and often willing to experiment with young companies and the next, new thing.  The large media companies, too, were seen as great early customers and hotbeds of innovation (I remember how thrilled we were when we secured Time Warner's ground-breaking Pathfinder division as a customer at Open Market back in 1995, thinking we had landed what would be the 800 lb gorilla of the Internet age).</p>
<p>And, secondly, NYC is where the big capital was - that is, after the company had matured past the VC financing stage.  The rules of the game for the start-up's ultimate goal, accessing the public market through an IPO, were set by the investment bankers and sales desk traders on Wall Street.  CEOs of pre-IPO companies were always shuttling into New York to talk up their companies, tell their story and get feedback to prepare for the public markets.</p>
<p>My how things have changed.  New York City feels increasingly irrelevant to most start-ups as both a source of customers and large amounts of capital.  Instead, Washington DC has in many ways become the New, New York.</p>
<p>This new dynamic was evident when I joined 100 CEOs from Massachusetts in a pilgrimmage to our nation's capital as part of my role as co-chair of the <a href="http://www.pbln.org">Progressive Business Leaders Network (PBLN)</a>.  Frankly, I was worried that our fate would be similar to all the other conferences I've attended since the economic crisis - that attendence would be down 20-30% from the previous year.  Instead, it was up 50%.  </p>
<p>As you would expect, the CEOs were keen to hobnob with the Washington elite and their peers.  But more importantly they were interested in how the new paradigm that the Obama administration is going to affect their businesses.  And like all good entrepreneurs (the bulk of our membership are CEOs of mid-sized and small young companies, not Fortune 1000), they were looking for insights and opportunities.  If you are playing in the $6 trillion energy sector, the $3 trillion health industry or even large parts of the $1 trillion IT industry that touch regulations (e.g., broadband, wireless), then what's going on in Washington DC matters to you.  Senator John Kerry repeated what has now become a common refrain from politicians:  "The next Google will emerge from the energy sector".  And it seems the US Government is determined to facilitate this by pouring billions to stimulate the sector.</p>
<p>To be clear, I'm not saying that there aren't many VCs in New York doing good work.  In fact, it is encouraging to see the NY-based entrepreneurial community flourish as much as it has, centered mainly around the transformation and digitization of the native advertising and media industries.  But for companies outside of NY, it is simply less relevant, whereas Washington has gone from being irrelevant, to suddenly centrally relevant.</p>
<p>Personally, I don't believe this power shift to Washington DC is entirely a good thing.  In truth, it makes me very nervous that we are entering an era where public opinion and public officials are against what has made this country so great and unique in the world - the aggressive pursuit of open markets, free trade and a strong distate for regulation and government intervention in business affairs.  Governments have never been good at picking winners and losers in the free market (see:  Japan, collapse of).  But, the reality is that this administration's ambitions are breathtaking and transformative.  Business leaders have never had a stronger reason to care more about following what's going on in the halls of Washington.</p>
<p>One of our portfolio company CEOs is amazing at spending all his time running around with clients and chasing new business.  Lately, we find ourselves coaching him to spend more time in Washington DC.  Last night, I was at a dinner with the founder of one of the most promising cleantech companies in the country and he observed that in 2008, he visited China and NYC ten times each.  In 2009, he has already been to Washington DC ten times.  It's a sign of the new reality, like it or not.</p></div>
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/04/first-100-days-washington-has-become-the-new-new-york.html</feedburner:origLink></entry>
    <entry>
        <title>VC Rightsizing</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/kLWN8viiQOU/vc-rightsizing.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/04/vc-rightsizing.html" thr:count="4" thr:updated="2009-05-02T18:21:50-04:00" />
        <id>tag:typepad.com,2003:post-65799301</id>
        <published>2009-04-21T07:21:19-04:00</published>
        <updated>2009-04-21T13:40:14-04:00</updated>
        <summary>The news came out yesterday that VC funding in the US was down in Q1. Really down. VC funding into start-ups averaged roughly $20 billion a year for many years since the bubble crashed and recently (2007 and 2008) had...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>The news came out yesterday that VC funding in the US was down in Q1.  Really down.  VC funding into start-ups averaged roughly $20 billion a year for many years since the bubble crashed and recently (2007 and 2008) had creeped up to $30 billion a year.  The Q1'09 figure was $3.0 billion, suggesting we are on a $12 billion runrate.</p>
<p>Although new financings may pick up a bit in the second half of 209, I would predict that VC funding for 2009-2011 doesn't exceed $20 billion per year and probably stays closer to $15 billion per year.</p>
<p>And guess what?  VC downsizing is ok.  In fact, it's a good thing. Frankly, I'm not sure the VC industry should be much above this range.  It's not that there are a lack of great entrepreneurs chasing great ideas.  It's simply the lack of good exit prospects.  We don't have input constraints.  Instead, we have output or exit constraints.</p>
<p>Clearly, the lack of attractive exit prospects is choking the industry right now.   VC fund after VC fund can point to portfolio companies that are growing rapidly, taking market share, even achieving profitability in many cases, but have no place to go.  The IPO market remains completely irrelevant to VCs.  Yes, Rosetta Stone had a successful IPO - the first one since March 2008 to be priced above the range.  And there are a few other interesting filings in the pipeline.  But don't be fooled by bankers bearing gifts and snake oil.  The IPO market may return modestly for some large, profitable companies will not return anytime soon for VC-backed companies.  You know it's a bad young company IPO market when the case studies the bankers cite are Visa and Mead Johnson</p>
<p>I attended a breakfast last week where JP Morgan's vice chairman, David Topper, gave his review of the macroeconomic picture, including the IPO market.  Although he was too polite to say it outright, his data clearly showed will be irrelevant to VCs for the foreseeable future.  He laid out the three criteria that are required for an IPO candidate:</p>
<p>1) IPO size of $200 million (implying a market capitalization north of $700 million). Without this level of float, there isn't enough liquidity in the stock to attrack investors.</p>
<p>2) Profitable, established business (i.e., not "approaching profitable" but proven profitable over many quarters if not years).</p>
<p>3) Minimal leverage.</p>
<p>Of these three, #1 is the real killer for venture-backed start-ups.  When I was an executive at Open Market and did our IPO in 1996, we executed an $80 million IPO - at the time, that was considered mid-sized.  In today's environment, where Google is trading at a 6-8x EBITDA multiple and typical revenue multiples are 2-3x, an IPO candidate would need to be throwing off $100 million in cash flow and/or generating north of $200-300 million in revenue while still growing fast.  These are incredible numbers for venture-backed start-ups less than 10 years old.</p>
<p>There are complaints about reforming Sarbanes Oxley - <a href="http://bostonvcblog.typepad.com/vc/2009/02/friedman-figuratively-speaking.html">and I have added my voice to those complaints in the past</a> - but I walked away from this breakfast with a greater appreciation for why one of the NVCA policy leaders recently said to me, "SOX reform is important, but no one is going to focus on that until restructuring the financial system as a whole is done."</p>
<p>I also appreciated why my friend and mentor, HBS Professor of entrepreneurship Bill Sahlman, told me last week that he thought the VC industry needed to shrink in half.  Going from $30 billion per year in outflow to $15 billion per year would mean just that - and it will mean more VC personnel departure and fund shut downs.  And, again, that's ok.  It's worth noting that the last time annual VC funding dipped below $20 billion was in 2003, which saw $19 billion in VC investment.  2003 was one of the best vintage years in the last decade, as many are arguing 2009-2010 will be.</p>
<p>Maybe I'm simply a rose-colored glasses optimist, but at the end of the day, an industry that quickly adjusts to new realities is a healthy sign.  Until we figure out an alternative exit vehicle (and maybe someday the overall public market health will allow some liquidity to filter down to the VC-backed world, but don't hold your breath), we can't absorb more than $15-20 billion in annual VC investments anyway.  So let's get the industry back to that level and vigorously deploy those dollars in as productive and rewarding a fashion as possible.</p></div>
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    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/04/vc-rightsizing.html</feedburner:origLink></entry>
    <entry>
        <title>Top 5 Take-Aways From CTIA</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/HWYofBzSyYQ/the-annual-wireless-industry-trade-show-ctia-had-some-interesting-trends-this-year-putting-aside-the-fact-that-las-vegas-f.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/04/the-annual-wireless-industry-trade-show-ctia-had-some-interesting-trends-this-year-putting-aside-the-fact-that-las-vegas-f.html" thr:count="3" thr:updated="2009-04-12T18:30:54-04:00" />
        <id>tag:typepad.com,2003:post-65007085</id>
        <published>2009-04-02T17:08:31-04:00</published>
        <updated>2009-04-02T17:08:31-04:00</updated>
        <summary>The annual wireless industry trade show, CTIA, had some interesting trends this year. Putting aside the fact that Las Vegas feels like a ghost town, cab lines are uncharacteristically short, and my personal frustration that I find myself agreeing with...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="html" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
&lt;div xmlns="http://www.w3.org/1999/xhtml"&gt;&lt;p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;The annual wireless industry trade show, CTIA, had some interesting trends this year.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Putting aside the fact that Las Vegas feels like a ghost town, cab lines are uncharacteristically short, and my personal frustration that I find myself agreeing with an arch-conservative economist &lt;a href="http://online.wsj.com/article/SB123863067877680693.html"&gt;Arthur Laffer’s editorial in today’s WSJ&lt;/a&gt; on how Obama’s estate tax policy creates perverse Vegas incentives (!), here were my top 5 Take-Aways from CTIA:&lt;/span&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;
&lt;ol&gt;
&lt;li&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-weight: normal"&gt;The Lights Are Still On.&lt;/span&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt; &lt;span style="mso-spacerun: yes"&gt;&amp;#0160;&lt;/span&gt;The wireless industry is clearly a bright spot:&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;secular trends for the industry’s growth and innovation remain strong.&amp;#0160; That said, the show was meaningfully affected by the recession.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;On the positive side, 2008 saw 1 trillion text messages (up 3x from previous year) and double-digit growth in revenue and subscribers.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Content and applications are exploding as everyone is trying to follow iPhone’s pioneering moves and (finally) smart phones and the mobile Internet are becoming mainstream in the US.&amp;#0160; That said, conference attendance was down 20% as compared to last year&amp;#0160;by some estimates and show floor had a much, much emptier feel than usual.&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&amp;#0160; 
&lt;li&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-weight: normal"&gt;Innovation is happening, but VC investment isn&amp;#39;t.&lt;/span&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Analyst firm Rutberg &amp;amp; Co reports that overall VC investment in wireless was down 30% in 2008 as compared to both 2006 and 2007, sharper than the 15-20% average VC investment decline in technology.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;I predict 2009 will also be a bad year for wireless VC investments.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The conversations I had with VCs all rhymed:&lt;/span&gt;&lt;/font&gt;&lt;/span&gt; 
&lt;ol&gt;
&lt;li&gt;&amp;#0160;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;“There are very few big ideas left in wireless”.&lt;/span&gt; 
&lt;li&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;/span&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;“We already have a number of chips on the table and don&amp;#39;t see the need for more&amp;quot;.&lt;/span&gt; 
&lt;li&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Symbol" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol"&gt;&lt;span style="mso-list: Ignore"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;“The bar is very, very high right now”.&lt;/span&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt; 
&lt;li&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Symbol" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol"&gt;&lt;span style="mso-list: Ignore"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;(most damning) “The big guys (carriers, handset players, operating system owners) own too much of the value chain – there’s too little room for entrepreneurs”.&lt;/span&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt; &lt;/li&gt;
&lt;/li&gt;&lt;/li&gt;&lt;/li&gt;&lt;/ol&gt;
&lt;li&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Symbol" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol"&gt;&lt;span style="mso-list: Ignore"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-weight: normal"&gt;Device fragmentation is here to stay.&lt;/span&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;iPhone’s explosion from nowhere over the last two years is impressive, but the entrenched competitors, Blackberry and Palm, are fighting back.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Blackberry’s open application store was a ho hum launch, but at least they recognize that a thriving, open application store is now table stakes and all the major content players are jumping on board.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;One carrier executive told me that every device manufacturer (think Nokia, LG, Samsung) is coming to them looking for help on their content and application store strategy.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;That’s not going to make things any easier on the leading application developers!&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt; 
&lt;li&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Symbol" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol"&gt;&lt;span style="mso-list: Ignore"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-weight: normal"&gt;Video is mobile’s Next Big Thing.&lt;/span&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Everyone is talking about delivering high-quality video on mobile.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;With 22 million consumers in January 2009 accessing the mobile Internet according to Comscore, double last year and likely to double again in 2010, rich content on the phone is clearly the next big thing, and video is a huge driver of that.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;GenY consumers are watching news, weather and sports on their phones as if it were the normal function of the device as opposed to a full-blown miracle as compared to only 5 years ago.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;(Full disclosure:&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;I’m an investor in mobile video leader &lt;a href="http://www.transpera.com"&gt;Transpera&lt;/a&gt; and so am highly biased here, but I’m also seeing the numbers explode!).&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt; 
&lt;li&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Symbol" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol"&gt;&lt;span style="mso-list: Ignore"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span style="FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-weight: normal"&gt;Carriers seem to finally get it, but it’s too late.&lt;/span&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Carriers are seeing their content revenue (ring tones, ring backs) flatten out and seeing voice minutes saturate, so they are all over applications and advertising.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;That said, it’s probably too late.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The industry is ripe for disruption.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The landline businesses are dragging the diversified players down and their entrenched, proprietary strategy will be hard to sustain as the world moves more open and off-deck.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The commoditization of communications infrastructure is a movie we’ve seen over and over again (see Railroads, Bankruptcy of) and it may take 10-15 years, but we will see it again here.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The communications companies are at risk at becoming the next Newspaper industry if they don’t adapt fast.&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt; &lt;/li&gt;
&lt;/li&gt;&lt;/li&gt;&lt;/li&gt;&lt;/li&gt;&lt;/ol&gt;
&lt;p&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;font face="Arial" size="2"&gt;&lt;span &lt;="&amp;lt;" li="li"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;Anyone else there have other observations?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Comment away or send me an email.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;You can also follow me on Twitter at &lt;a href="http://www.twitter.com/bussgang"&gt;www.twitter.com/bussgang&lt;/a&gt;.&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/span&gt;&lt;/font&gt;&lt;/span&gt;&lt;/p&gt;&lt;/span&gt;
&lt;p&gt;&lt;/p&gt;
&lt;p&gt;&lt;/p&gt;&lt;/p&gt;&lt;/div&gt;
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/04/the-annual-wireless-industry-trade-show-ctia-had-some-interesting-trends-this-year-putting-aside-the-fact-that-las-vegas-f.html</feedburner:origLink></entry>
    <entry>
        <title>Outraged by Executive Compensation?  Put Entrepreneurs In Charge.</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/za-EZ33Piws/outraged-by-executive-compensation-put-entrepreneurs-in-charge.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/03/outraged-by-executive-compensation-put-entrepreneurs-in-charge.html" thr:count="9" thr:updated="2009-05-07T15:30:30-04:00" />
        <id>tag:typepad.com,2003:post-64366673</id>
        <published>2009-03-19T13:08:50-04:00</published>
        <updated>2009-03-19T13:15:17-04:00</updated>
        <summary>Every time there’s an economic downturn, the spotlight shines on the super-rich and their out-of-touch lifestyles. The iconic moment of the 1991/1992 recession was then President George Bush looking bewildered at the supermarket checkout line during the 1992 “It’s the...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="html" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
&lt;div xmlns="http://www.w3.org/1999/xhtml"&gt;&lt;p class="MsoNormal" style="MARGIN: 0in 0in 0pt"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Every time there’s an economic downturn, the spotlight shines on the super-rich and their out-of-touch lifestyles.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The iconic moment of the 1991/1992 recession was then President George Bush looking bewildered at the supermarket checkout line during the 1992 “It’s the Economy, Stupid” presidential campaign.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;In 2001/2002, it was Tyco’s CEO Dennis Koszlowski spending $1 million of shareholder money on his wife’s 40&lt;sup&gt;th&lt;/sup&gt; birthday party (mine is coming up this summer, by the way, and I don’t think it will cost my LPs very much at all, really).&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;But this latest financial crisis has seen an unparalleled amount of grotesque behavior.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;First, we learn that auto industry executives flew into Washington DC to ask for taxpayer bailout money on corporate jets.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Then, it’s discovered that Merrill Lynch CEO John Thain spends $1.2 of his shareholder’s money redecorating his office (Michelle Obama’s redecoration efforts, using the same designer, is apparently only $100,000 for the entire White House!).&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;And most recently, we learn that AIG executives plan a junket with their bailout money and then seek to pay out bonuses to the tune of $165 million – and if Congress doesn’t intervene, we taxpayers are going to end up getting stuck with the bill.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;
&lt;p&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;Why is it that so many Fortune 500 CEOs simply don’t get that they are simply agents of their shareholders, not Masters of the Universe that deserve to be put on a pedestal?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; Harvard &lt;/span&gt;Business School professor &lt;a href="http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=bio&amp;amp;facEmId=mjensen"&gt;&lt;font color="#800080"&gt;Michael Jensen&lt;/font&gt;&lt;/a&gt; has written about this time and time again in his seminal work on &lt;a href="http://www.business.uiuc.edu/~shelley1/Readings/Self-Interest.pdf"&gt;&lt;font color="#800080"&gt;Agency Theory&lt;/font&gt;&lt;/a&gt; and &lt;a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=5471"&gt;&lt;font color="#800080"&gt;human nature&lt;/font&gt;&lt;/a&gt; – the shareholder is the boss.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The CEO is merely a well-paid agent.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Can anyone imagine this behavior if the money they were throwing around was actually their money, as opposed to some collective of nameless, faceless shareholders?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;And yet time and time again, corporate boards with their cozy inter-relationships don’t seem to get it.&lt;/span&gt;
&lt;p&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;I have a simple solution.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Have every Fortune 500 compensation committee run by a start-up CEO.&lt;/span&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;Perhaps the most successful venture capitalist in history, Sequoia’s Mike Mortiz (backer of Google, Yahoo,&amp;#0160;Paypal, to name a few reasonable wins), said in a &lt;a href="http://www.nytimes.com/2009/03/15/business/15talent.html"&gt;&lt;font color="#800080"&gt;recent interview&lt;/font&gt;&lt;/a&gt; that one of the ways he decides whether to invest in an entrepreneur is how much they plan on paying themselves.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Moritz views high salaries with immense suspicion.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;If the founder takes a modest salary (in start-up land, that’s typically $100-200k per year – well below even President Obama’s $500k cap), he knows they believe in the future value of their business.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;We at Flybridge Capital Partners are currently looking at a new deal with DFJ and one of the general partners there reported that her best CEOs are proactively, voluntarily dropping their annual salaries to $75-100k in this environment.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Last month, one of my CEOs informed me that he has decided to forgo his 2008 bonus, which he earned by beating plan (how many Fortune 500 companies beat their plans this year?).&lt;/span&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;Why this seemingly irrational behavior from entrepreneurs?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Remember, entrepreneurs aren’t saints or selfless do-gooders.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;They typically work 80-100 hours per week for two reasons.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;First, they are PASSIONATE about their venture for the sake of the business and its impact on the world more than the money (“Ask me about my business and you can’t shut me up,” confessed my friend Scott Savitz, CEO/founder of Shoebuy.com, the other day).&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Reid Hoffman, CEO/founder of LinkedIn and an early executive at PayPal, told me last week that his whole motivation in life has been to create products or services that impact millions and millions of people.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Second, when it comes to the formula for making money, they care only about the value of their equity – current cash is to pay the bills (in some cases, not even that).&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;They want every possible dollar to go towards building shareholder value.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;They want to prove to their investors and employees that the risk they took in investing in them and joining their cause will pay off.&lt;/span&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;Why don’t Fortune 500 CEOs feel the same way?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Why is it that they don’t view their role in life to prove to the shareholder that buys their stock in the public market that they took a worthy risk and they’ll be darned sure it pays off?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Instead, they think it’s culturally acceptable to take outsized pay packages and perks that no educated, rational shareholder would ever approve if given the chance.&lt;/span&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA"&gt;The behavior is in such stark contrast to what’s going on in the small business, job-creating end of the economy, it’s absurd.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The public is understandably outraged.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;I am too.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;That’s why I’d fire all the compensation committee heads and turn the reigns over the start-up CEOs.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;After forgoing a $50k annual bonus, can you imagine my portfolio CEO’s reaction if he were the chairman of the compensation committee on the board of Merrill Lynch and learned that John Thain spent $1,400 on a wastebasket?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;But do me a favor – if this actually gets implemented – please don’t choose any of Flybridge Capital’s portfolio CEOs.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;They’re too busy working 80-100 hours a week trying to build equity value for our investors that we &lt;a href="http://bostonvcblog.typepad.com/vc/2005/10/accountability_.html"&gt;&lt;font color="#800080"&gt;VCs are accountable&lt;/font&gt;&lt;/a&gt; to: &lt;span style="mso-spacerun: yes"&gt;&amp;#0160;&lt;/span&gt;our own shareholders/limited partners!&lt;/span&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 9pt; FONT-STYLE: italic; FONT-FAMILY: Arial; mso-fareast-font-family: &amp;#39;Times New Roman&amp;#39;; mso-bidi-font-size: 10.0pt; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-style: normal"&gt;FYI:&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;you can follow me on Twitter at &lt;a href="http://www.twitter.com/bussgang"&gt;www.twitter.com/bussgang&lt;/a&gt;. &lt;/span&gt;&lt;/p&gt;&lt;/p&gt;&lt;/p&gt;&lt;/div&gt;
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/03/outraged-by-executive-compensation-put-entrepreneurs-in-charge.html</feedburner:origLink></entry>
    <entry>
        <title>Hitting the Reset Button:  The Silver Lining</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/j1ztdmr2emg/hitting-the-reset-button-the-silver-lining.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/03/hitting-the-reset-button-the-silver-lining.html" thr:count="5" thr:updated="2009-03-20T17:04:01-04:00" />
        <id>tag:typepad.com,2003:post-63822637</id>
        <published>2009-03-09T06:37:25-04:00</published>
        <updated>2009-03-09T06:39:02-04:00</updated>
        <summary>When I was a kid, I was obsessed with the newly invented personal computer. In 1982, I used my paper route and Bar Mitzvah money to purchase an Apple II+ PC (my parents did subsidize the purchase somewhat, I confess)....</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="html" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
&lt;div xmlns="http://www.w3.org/1999/xhtml"&gt;&lt;p class="MsoNormal" style="MARGIN: 0in 0in 0pt"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;When I was a kid, I was obsessed with the newly invented personal computer.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;In 1982, I used my paper route and Bar Mitzvah money to purchase an Apple II+ PC (my parents did subsidize the purchase somewhat, I confess).&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;I was mesmerized by the magic of the personal computer and all its possibilities:&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;games, programming, communications and more.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;But what I really fell in love with was this new, magical thing called the &lt;strong style="mso-bidi-font-weight: normal"&gt;&lt;span style="FONT-WEIGHT: bold; mso-bidi-font-weight: normal"&gt;reset button&lt;/span&gt;&lt;/strong&gt;.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Don’t like where you find yourself in the middle of Space Invaders?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Hit the reset button.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Frozen out in the midst of trying to log on to a bulletin board?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Hit the reset button.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Mad at your older sister for messing with your top score in Asteroids?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Hit the reset button.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;This magical button represented a unique opportunity to erase the past and begin anew with a clean slate.&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;
&lt;p&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;27 years later, the theme of hitting the reset button has come back in spades.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Moody&amp;#39;s Economy.com projects 15 million homeowners are underwater – that is, their homes are worth less than what they owe on their mortgages.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;President Obama’s latest piece of legislation in front of Congress is aimed at allowing these homeowners to hit the reset button with their lenders.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Similar debt work outs are happening across corporations.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Throughout VC-backed portfolios (i.e., small companies) and large companies, CEOs and CFOs are in discussions with lenders to renegotiate their debt and attempt to hit the reset button on a new set of terms in light of the current economic turmoil.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;In foreign affairs, a similar tone is being struck.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;A few weeks ago, Vice President Joe Biden declared it was &lt;a href="http://www.reuters.com/article/newsOne/idUSTRE5161GC20090207"&gt;&lt;font color="#800080"&gt;“time to hit the reset button”&lt;/font&gt;&lt;/a&gt; in Washington&amp;#39;s&amp;#0160;relationship with Russia and&amp;#0160;Iran, among others.&amp;#0160;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p&gt;&lt;/p&gt;&lt;/span&gt;&lt;/font&gt;
&lt;p&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Will these efforts work?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;On the economic front, there are pernicious, cascading effects to these “resets”.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;A rather depressing but insightful recent Merrill Lynch report, titled &amp;quot;&lt;a href="http://imgsrv.kfwb.com/image/kfwb/UserFiles/rosenberg.pdf"&gt;&lt;font color="#800080"&gt;Some Inconvenient Truths&lt;/font&gt;&lt;/a&gt;&amp;quot;, suggests there is $6 trillion in private sector (household and corporate) debt that needs to be eliminated before we can embark on a fresh credit cycle.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;To date, there has been “only” $1 trillion in write downs.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The implication?&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;We are nowhere close to hitting bottom, and hitting the reset button is a necessary but painful part of the process.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p&gt;&lt;/p&gt;
&lt;p&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;That’s the macro picture.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;At the micro level, I am seeing people hitting the reset button all over the place as well.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;For many, the wealth trajectory they thought they were on is no longer the case.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;The expectations they may have had for themselves or their children are being re-examined.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Many are sitting down and revisiting all the assumptions they had made a year ago about their assets, retirement and job security.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;My portfolio companies are all questioning their old assumptions and making tough choices about how much to invest ahead of revenue, and how many products and markets they can pursue in parallel.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;But my rabbi made an interesting point to me this weekend.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;He pointed out that there is a silver lining in hitting the rest button.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Rather than simply wallow in the bad news, people can view hitting the reset button as an opportunity, rather than a burden.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;It allows them to let go of unrealistic expectations and focus on reality in a new way.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;It allows them to reset priorities, zoning in on what really matters to them and eliminating distractions.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;An economist’s view of this sage rabbinical advice would be to observe that when your opportunity cost to pursue alternative paths has plummeted around you, anything is possible.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;As a result of the opportunity for deep personal growth and new direction, hitting the reset button all around the world should mean more entrepreneurship everywhere.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;This trend appears to be playing out.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;I met with the co-head of Harvard’s Entrepreneurship Forum last week and she couldn’t have been more excited to tell me about the burgeoning entrepreneurial culture that’s emerged at Harvard.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;“The current economic environment has freed people up to do what they really want to do,” she observed, “not just follow a certain path that they think they ought to follow.”&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;She reports that submissions to Harvard’s business plan competition are double this year as compared to last year.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Similarly, participation at the &lt;a href="http://www.mit100k.org/"&gt;&lt;font color="#800080"&gt;MIT $100k competition&lt;/font&gt;&lt;/a&gt; was stronger than ever.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Many economists are pointing to the &lt;a href="http://m.apnews.com/ap/db_7731/contentdetail.htm?contentguid=Qj2JgXRU"&gt;&lt;font color="#800080"&gt;parallels between our current recession and that of the one in 1982&lt;/font&gt;&lt;/a&gt;.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;That was the year I learned the magic benefits of the reset button.&lt;span style="mso-spacerun: yes"&gt;&amp;#0160; &lt;/span&gt;Hopefully others will as well.&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p&gt;&lt;span style="FONT-SIZE: 9px; FONT-FAMILY: Arial"&gt;&lt;span style="FONT-SIZE: 10px; FONT-FAMILY: Arial"&gt;Follow me on Twitter at:&amp;#0160; &lt;a href="http://www.twitter.com/bussgang"&gt;&lt;strong&gt;&lt;em&gt;www.twitter.com/bussgang&lt;/em&gt;&lt;/strong&gt;&lt;/a&gt;&lt;/span&gt;&lt;/span&gt;&lt;/p&gt;&lt;/p&gt;&lt;/div&gt;
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2009/03/hitting-the-reset-button-the-silver-lining.html</feedburner:origLink></entry>
    <entry>
        <title>Friedman Figuratively Speaking</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/jvrpkBdHiJ4/friedman-figuratively-speaking.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/02/friedman-figuratively-speaking.html" thr:count="5" thr:updated="2009-03-03T08:18:01-05:00" />
        <id>tag:typepad.com,2003:post-63198209</id>
        <published>2009-02-22T20:50:34-05:00</published>
        <updated>2009-02-24T06:45:24-05:00</updated>
        <summary>I love Thomas Friedman. I was first exposed to him when he was the NY Times Jerusalem bureau chief and wrote a terrific book on the Middle East, From Beirut To Jerusalem. Since then, he's become more famous and influential...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>I love Thomas Friedman.  I was first exposed to him when he was the NY Times Jerusalem bureau chief and wrote a terrific book on the Middle East, From Beirut To Jerusalem.  Since then, he's become more famous and influential in economic matters through his book, The World is Flat.</p>
<p>So I was perplexed and dismayed when I read his editorial in today's NY Times:  "<a href="http://www.nytimes.com/2009/02/22/opinion/22friedman.html?_r=1">Start Up The Risk-Takers</a>".  In it, he suggests a silly stimulus idea - "Call up the top 20 venture capital firms in America, which are short of cash today...and make them this offer:  The US Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way."</p>
<p>There are numerous reasons this is a dumb and impractical idea.  Friedman threw out another dumb idea a few weeks ago in an editorial titled "<a href="http://www.nytimes.com/2009/02/11/opinion/11friedman.html?em">The Open Door Bailout</a>".  In this article he opines:  "I would have loved to have seen the stimulus package include a government-funded venture capital bank to help finance all the start-ups that are clearly not starting up today — in the clean-energy space they’re dying like flies — because of a lack of liquidity from traditional lending sources." </p>
<p>Government funds for the VC industry is simply unnecessary.  At $30 billion per year, there is no lack of VC capital being deployed in America.  The bottleneck in the VC-entrepreneurship equation isn't in the inputs of capital, it's in the outputs.  The lack of exits and the dearth of the IPO market is what needs to be fixed to open the floodgates of innovation.  </p>
<p>But then I thought - let's not go overboard with our criticism by taking Friedman literally.  The guy's a huge fan of global entrepreneurship (I loved it when he referred to the worthy work of the global non-profit, Endeavor, as the "<a href="http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&amp;newsId=20070725005902&amp;newsLang=en">best anti-poverty program of all</a>").  His heart and priorities are in the right place.</p>
<p>So before folks get up in arms about "bailing out VCs", let's take Friedman's comments figuratively.  He's dead on when he points out that entrepreneurship is what is going to get us out of this mess.  The government shouldn't focus on silly notions of VC subsidies that nobody wants.  Instead, the policy agenda to foster entrepreneurship and the flow of capital to entrepreneurs is very clear.  The National Venture Capital Association (NVCA) laid it out nicely in a <a href="http://www.nvca.org/pdf/NVCA_Transition_team_ltr_12-08.pdf">crisply worded memo to the Obama transition team</a>.  Policy makers need to focus on three things:</p>
<p>1) <strong>Reform Sarbanes-Oxley</strong>.  We need to fix this terrible piece of legislation which has created a terrible IPO bottleneck.  If VCs can't get good companies public, they will dramatically slow down their investment pace.  In my view, this is the single largest issue in hindering American entrepreneuship.</p>
<p>2) <strong>Increase the number of H1-B Visas</strong>.  This was Friedman's main point, by the way, in his earlier editorial when he called for the VC bailout, so let's give him his due as he's been beating the drum on this important issue for years.  Let's allow ourselves to continue to be a talent magnet for the world's best talent.</p>
<p>3) <strong>Keep capital gains taxes low</strong>.  The government should look elsewhere for incremental revenue sources.  Gas taxes are smart because they have the dual benefit of reducing gas consumption (Governor Deval Patrick is appropriately pushing this forward in Massachusetts).  Increasing capital gains taxes will reduce productive capital investment and should be avoided like the plague.</p>
<p>So let's not slam Friedman, but instead let's harness his passionate support for innovation and entrepreneurship and, as Rahm Emanuel famously observed, not let a good crisis go to waste.</p>
<p>By the way, I'm now using Twitter with great enthusiasm.  You can follow me at <a href="http://www.twitter.com/bussgang">www.twitter.com/bussgang</a>.</p>
<p><a href="http://www.nvca.org/pdf/NVCA_Transition_team_ltr_12-08.pdf" /> </p></div>
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    <entry>
        <title>Revenge of the Nerds?  Why Madison Avenue Is Going Tech</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/VbKIophApqY/revenge-of-the-nerds-why-madison-avenue-is-going-tech.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/02/revenge-of-the-nerds-why-madison-avenue-is-going-tech.html" thr:count="1" thr:updated="2009-09-20T21:49:34-04:00" />
        <id>tag:typepad.com,2003:post-62710121</id>
        <published>2009-02-11T15:36:17-05:00</published>
        <updated>2009-02-11T15:36:17-05:00</updated>
        <summary>In that 1984 classic, Revenge of the Nerds, a group of outcasts and misfits fight back against their better-looking, "cool" rivals, ultimately winning the girls and glory. I was reminded of the movie over breakfast this morning with the CEO...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>In that 1984 classic, Revenge of the Nerds, a group of outcasts and misfits fight back against their better-looking, "cool" rivals, ultimately winning the girls and glory.</p>
<p>I was reminded of the movie over breakfast this morning with the CEO of one of the major ad agencies.  Just as you'd expect a high-powered agency executive to be, he was smooth, smart, suave and urbane.  But his industry is under siege from the Nerds.  On one side, he has techno-media companies like Google, Yahoo and MSN using technology and data to eat into the traditional ad agency value chain.  On the other side, he has advertisers like P&amp;G, Ford and Coca Cola demanding more sophisticated targeting and effectiveness for their incremental ad dollars - no longer accepting the old way of doing business over a three martini lunch.  The stakes are getting higher:  Think Equity estimates the global online advertising market will be north of $40 billion in 2009 and still growing at 15-20% per annum while TV remains flat and radio and newspapers suffer.</p>
<p>And so Madison Avenue's chic "Mad Men" are under siege.  And the Nerds seem to be winning.</p>
<p>But the cool guys are fighting back.  If you can't beat 'em, join 'em.</p>
<p>They are buying technology companies (witness WPP's acquisition of 24x7 and Publicis' acquisition of Digitas) and embracing the digital world in spades.  This CEO, for example, talked to me about three Nerd-like priorities:  striking the right technology partnerships (typically with start-ups, like the new one I'm funding in this space), hiring the right in-house technical resources, and wresting control of the data from the publishers.</p>
<p>This final point struck me as a very intersting one.  <a href="http://adage.com/digital/article?article_id=134414">Ad Age reported this week</a> on the gauntlet that has been thrown down by GroupM, WPP's major media buying organization.  The agencies are wising up to the value of the data in online advertising and are trying to regain control over it.  In many cases, the data can be more valuable than the actual served ad itself.  Thus, Group M and other agencies are changing their contracts to tighten up the ownership of the data and prevent ad networks, publishers and the techno-media firms to use the data for their own profit purposes.<br />Soon, agencies may disaggregate buying media from buying data - in other words, there may be data insertion orders placed right next to media insertion orders.  This would put a specific price and explicit rights control on the data.</p>
<p>But the cultural change required is perhaps the most difficult one for these large ad agencies.  How will the agencies compete for great technical talent and recruit and retain innovative entrepreneurs?  Will they be able to outsource some of the technical capabilities that their clients are demanding (e.g., with the likes of <a href="http://www.digitalarbor.com/">digitalArbor</a>)?  And who will win in this battle to own all this incredible data being collected on consumer behavior?</p>
<p>If I remember correctly, the Nerds won in the first movie, as well as in Revene of the Nerds II.  Maybe Madison Avenue needs to make a third sequel:  "Revenge of the Mad Men".</p></div>
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    <entry>
        <title>Live From Always Up...I Mean Always On</title>
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        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/02/live-from-always-upi-mean-always-on.html" thr:count="1" thr:updated="2009-02-05T12:49:50-05:00" />
        <id>tag:typepad.com,2003:post-62347100</id>
        <published>2009-02-03T22:23:20-05:00</published>
        <updated>2009-02-03T22:23:20-05:00</updated>
        <summary>Billed as "Silicon Valley meets Madison Avenue", today's AlwaysOn conference in NYC was somewhat reassuring. Attendence was up from previous years and attendees were there to do business - raise money, look for deals, develop partnerships. A few highlights: Ad...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>Billed as "Silicon Valley meets Madison Avenue", today's AlwaysOn conference in NYC was somewhat reassuring.  Attendence was up from previous years and attendees were there to do business - raise money, look for deals, develop partnerships.</p>
<p>A few highlights:</p>
<ul>
<li><strong>Ad Networks 3.0</strong>:  panelists argued that there remained a huge opportunity, despite investor fatigue in yet another ad network.  Elizabeth Blair, CEO of Brand.net, pointed out that although 30% of direct response advertising dollars had already moved online, only 5% of brand dollars had made the shift, despite consumer reporting that they spend 40% of their time online.  That said, there was clamoring for some way to use data to improve CPMs, particularly for non-premium inventory.</li>
<li><strong>Mobile Advertising</strong>:  panelists laid out the case for why the iPhone was transformational for mobile advertising and that early trials suggest mobile advertising actually works.  That said, they were realistic about the slow growth ahead as mobile works its way into the marketing mix, particularly as a component in cross-platform campaigns.</li>
<li><strong>Brian Wieser of Magna</strong> gave a great keynote, providing overwhelming data to suggest TV isn't dead yet.  "TV dwarfs other media in reach and frequency," he argued.  The data was compelling.  For example, 97% of adults 18-49 turn on the television every week, the same as 10 years ago, and viewing hours is actually growing, now standing at 500 billion person hours (side note:  who the heck is watching 4 hours of TV / day??  That's the AVERAGE consumption!).  Further, even if online video grows at a rate of 35% (roughly the current rate), TV will still represent 100x more hours in 2011!  A sobering view in the world of, as Wieser put it, "Web 2.0%".</li>
<li><strong>Online Advertising</strong>:  Jeff Lanctot, Chief Strategy officer at Razorfish, predicted flat spending, lower CPMs, and argued that the "print dollars turning into digital pennies" simply was not working for publishers.  Perhaps massive publisher consolidation will rebalance supply and demand, but unlikely.</li>
<li><strong>Smartphone</strong>:  this panel was simply an hour long raving lovefest for the iPhone.  Favorite iPhone apps mentioned ranged from the sublime (Amazon, Pandora) to the ridiculous (iFart, iThrow, iFu Kung Fu).  Eric Litman, CEO of Medialets, amusingly pointed out that there are 20 million Windows Mobile devices, but application discovery is such an awful experience that the download rates are a fraction of the iPhones.</li>
<li><strong>VC Outlook</strong>:  Jonathan Miller (Velocity, ex-CEO AOL), Woody Benson (Prism) and I did a panel on the VC outlook.  We tried to provide a balanced view - I think we were all relatively balanced as short-term bears, but long-term bulls.  As Woody pointed out, "You can't do what I do unless you're an optimist.  Otherwise, you'd jump out the window!"</li>
</ul>
<p>But the real highlight of the day for me personally was <a href="http://www.nyse.com/events/1233659711785.html">closing the New York Stock Exchange (NYSE)</a> - an honor that Tony Perkins was kind enough to make available to me.  Lucky for me the market was up today (Tony quipped that he should change the name of the conference to Always Up)!</p></div>
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    <entry>
        <title>Sway and Irrational VCs</title>
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        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/01/sway-and-irrational-vcs.html" thr:count="4" thr:updated="2009-01-31T10:36:51-05:00" />
        <id>tag:typepad.com,2003:post-62016360</id>
        <published>2009-01-27T22:12:48-05:00</published>
        <updated>2009-01-27T22:12:48-05:00</updated>
        <summary>I recently read Malcolm Gladwell’s new book, Outliers, with great interest and delight. Gladwell is a fantastic author: always thought-provoking on human behavior and a quick, entertaining read. But I confess this book did not resonate with me or strike...</summary>
        <author>
            <name>bussgang</name>
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<div xmlns="http://www.w3.org/1999/xhtml"><p>I recently read Malcolm Gladwell’s new book, Outliers, with great interest and delight. Gladwell is a fantastic author:  always thought-provoking on human behavior and a quick, entertaining read.  But I confess this book did not resonate with me or strike me as relevant for the VC-entrepreneur dance in the same way his previous book, Blink, did (see:  <a href="http://bostonvcblog.typepad.com/vc/2005/09/vcs_blink.html">VCs Blink</a>).  It was intellectually interesting, but not professionally illimunating.</p>
<p>Instead, I have been even more taken by another book, which also analyzes human behavior in a thought-provoking way called <strong>Sway</strong>. Written by Ori and Rom Brafman, Sway was recommended to me by my friend and co-investor Howard Morgan at First Round Capital.  It is a fascinating analysis of why human beings naturally fall into irrational behavior.  The book has very relevant implications for venture capitalists and entrepreneurs, particularly in today’s environment, as VCs are likely to allow irrational behavior to seep into their portfolio management decisions in the coming years. </p>
<p>Sway points to three central psychological tendencies that cause human beings to behave irrationally, despite the preponderance of facts pointing in another direction.  The first is <strong>loss aversion</strong>, defined as our tendency to go to great lengths to avoid possible loss – even when it means taking outsized risks relative to the actual loss impact.  The second is <strong>value attribution</strong>, where we imbue a person with certain qualities based on our initial impressions (or desired impressions!).  And the third is the <strong>diagnosis bias</strong>, where we allow our initial assessment of a person or situation cloud any further judgment and, in effect, cause us to filter out any contradictory data.</p>
<p>As I look back on the good and bad investment decisions that we have made as a partnership, I see each of these three tendencies factoring into our discussions.  It is not uncommon for a polished, confident entrepreneur to benefit from value attribution, when in fact a deeper analysis of their skills and previous experiences as a result of exhaustive reference checking will reveal a very different prognosis.  We have tried to be more cognizant of identifying these tendencies in the partnership as we contemplate our future investment decisions with our (relatively) new fund.</p>
<p>As I look forward to managing the portfolio during the challenging times that we all face, I can see where loss aversion, in particular, holds sway in a VC partnership. Human beings prefer to avoid a loss, even if that loss is more costly than the price of continuing forward. One of the dangers in the coming years for the VC business is whether VCs are going to continue supporting companies in order to avoid admitting defeat and taking losses. In many partnerships, the culture may naturally encourage covering things up.  Many VC partners are eager to brag about their portfolio successes, but slow to admit when they have made mistakes or when they are in the midst of dealing with a poorly performing portfolio company. Further, partnerships as a whole are going to be loathe to admit problems and failures with their investors, the Limited Partners.  Without any malice, portfolio “cover ups” will be common throughout 2009 and 2010.</p>
<p>Loss aversion will thus cause VCs to throw good money after bad in 2009 and 2010.  Loss aversion will also cause VCs to report overly optimistic quarterly valuations.  I would estimate that many portfolios have valuations that are overstated by 20-30%.  And, as I have discussed before (see:  <a href="http://bostonvcblog.typepad.com/vc/2008/11/why-flat-is-the-new-up-and-vc-funds-are-underreserved.html">"Why 'Flat is the New Up' and VC Funds Are Under-Reserved"</a>), it is also the reason why I think many VC firms are grossly under-reserved.  These factors will be exacerbated by most portfolio companies failing to attract outside financings in the coming years and VCs, loathe to admit losses, continuing to support them well beyond the length that a rational investor would.</p>
<p>To be clear, it is not only VCs who are induced into irrational behavior due to loss aversion. Entrepreneurs clearly suffer from this tendency as well, particularly when it comes to hiring and firing key executives. How often have you heard an entrepreneur say that they should have acted 6-12 months earlier in firing an employee that was not working out?  The reason – loss aversion. Entrepreneurs are loathed to admit their own hiring mistakes and are fearful of the impact and magnitude of losing even a poorly performing team member. I know I certainly fell into this trap when I was an entrepreneur, and I see it is repeated time and time again. </p>
<p>Thus, I think the lessons of Sway are ones that all VCs and entrepreneurs would benefit tremendously from when evaluating how they make decisions. In an upcoming blog I might dive into the question of value attribution and the diagnosis bias, which are also a thought-provoking concepts that drive irrational behavior in VC partnerships.  One entrepreneur identified another book for consideration on this topic called Predictably Irrational by Dan Ariely, which I have not yet read.</p>
<p>What are other examples can folks think of that fall into these irrational categories?<br /></p></div>
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    <entry>
        <title>Why Do "Asshole VCs" Survive?</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/cFMkotT2ZCo/why-do-asshole-vcs-survive.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/01/why-do-asshole-vcs-survive.html" thr:count="14" thr:updated="2009-03-19T22:12:10-04:00" />
        <id>tag:typepad.com,2003:post-61416706</id>
        <published>2009-01-15T13:25:06-05:00</published>
        <updated>2009-01-15T13:25:06-05:00</updated>
        <summary>One of our portfolio companies is raising money this year. It's a great company, run by a great CEO, and it will get funded in a competitive process. The CEO was briefing our partnership the other day and listed the...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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<div xmlns="http://www.w3.org/1999/xhtml"><p>One of our portfolio companies is raising money this year.  It's a great company, run by a great CEO, and it will get funded in a competitive process.  The CEO was briefing our partnership the other day and listed the firms he is talking to.  In another start-up a number of years ago, he had been backed by an unamed firm in Boston, led by an unamed partner, and made them money.  "Why aren't you going back to [insert name] at [insert firm]?" I asked innocently.  "Life's too short," he replies pointedly, "to work with assholes."</p>
<p>At a time when there is likely to be some shakeout in the VC industry, a question that perplexes me is:  Why do asshole VCs continue to survive?</p>
<p>Now don't get me wrong, I don't think the VC business is unique in its profile or behavior.  According to the NVCA, there are 700 or so VC firms and 8,000 industry professionals (including associates, principals, etc).  The vast majority of these folks are decent people.  There are always a few bad apples in every barrell and an industry with type A, competitive people operating with very high stakes is likely to have its fair share.  Talk to any entrepreneur who has gone through an extensive fundraising process and they will eagerly share some their favorite, colorful horror stories.  So why do these VCs continue to succeed?  Why isn't there a stronger, self-correcting feedback loop?</p>
<p>Here's the logic thread:  the best entrepreneurs have choices, particularly those that have been successful before.  They tyipcally seek out the top VCs who are both smart/successful/value-add/relevant AND who are respectful/decent/good to work with (you can see my BCG roots coming through in the imaginary 2x2 matrix).  Even if a VC is charming during the courting process, with minimal effort, reputations can be investigated and references carefully checked as to how they behave when things don't go according to plan.  So why is it that Asshole VCs are able to persist?  Shouldn't the best entrepreneurs avoid working with them and therefore shouldn't they be less successful over time?</p>
<p>One of my VC friends from Silicon Valley suggested one explanation:  "Entrepreneurs get blinded by firm reputations and look past individual reputations.  They don't do their due diligence on partners and check references carefully on the individual board member."</p>
<p>"If I were an entrepreneur given the choice between banging my head against a cinderblock wall for a year or taking money from [unamed partner from unamed firm]," observes one VC friend, "I'd opt for the cinderblock wall."</p>
<p>Ouch.  With fewer financing choices for entrepreneurs likely in 2009, I hope they aren't faced with that sort of painful choice!</p></div>
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    <entry>
        <title>CES Quote of the Day - "We Will Be Very Supportive Of Your Down Rounds This Year".</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/kIA1h0NZdxA/ces-quote-of-the-day-we-will-be-very-supportive-of-your-down-rounds-this-year.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/01/ces-quote-of-the-day-we-will-be-very-supportive-of-your-down-rounds-this-year.html" thr:count="0" />
        <id>tag:typepad.com,2003:post-61098322</id>
        <published>2009-01-09T09:55:52-05:00</published>
        <updated>2009-01-09T09:55:52-05:00</updated>
        <summary>I dodged the snowflakes and made the trek out to Sin City for this year's Consumer Electronics Show (CES). Although attendence was down, it is still an insanely large audience of 130,000 attendees and 2,700 companies. CEA head Gary Shapiro...</summary>
        <author>
            <name>bussgang</name>
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<div xmlns="http://www.w3.org/1999/xhtml"><p>I dodged the snowflakes and made the trek out to Sin City for this year's Consumer Electronics Show (CES).  Although attendence was down, it is still an insanely large audience of 130,000 attendees and 2,700 companies.  CEA head Gary Shapiro reported in his keynote that industy sales were up over 5% and that 2009 will be flat or slightly down.  Not bad if true.  His speech, by the way, was as much a political speech as it was an industry overview, further underscoring the importance of government activities in business affairs in the coming years.  Two areas he hammered on were immigration policy ("expand H1B visas") and shooting down the ridiculous union-sponsored "card check" law (every large company business leader I have spoken to in the last 6 months is apoplectic over this bill and view it as a litmus test for Obama's centrist economic policies).</p>
<p>Tom Hanks appeared with Sony CEO Howard Stringer to pump Sony products and were very funny.  But by far the funniest line of the day was heard from the very dour and serious head of Intel Capital.  Seeking to assuage the nervous entrepreneurs amongst the portfolio companies that were in attendence at his networking lunch reception, he assured them, "We [Intel Capital] intend to continue forward and be very supportive of your down rounds this year".  Ouch.  He was probably just grumpy from the miserable results Intel announced to Wall Street the day before, with an unheard of 23% forecasted drop in revenue.  That wasn't so funny.</p>
<p>Also not so funny were the general buzz and complaints bemoaning the lack of innovation.  The next generation of flat screen displays and Blu Ray devices just isn't that exciting any more.  Further, I was shocked at how empty the casinos were.  I can see why the casino moguls are sweating it right now.  The consumer electronics industry may be in for a stagnant year, but coming off a record year that would be a victory.  But one look at all the frozen cranes up and down the strip is all you need to know that Sin City is in for a tough run in 2009 and 2010.  But Intel Capital will be happy to invest in their down rounds.</p></div>
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    <entry>
        <title>2009 Predictions:  What Sayeth the Maestro?</title>
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        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2009/01/2009-predictions-what-sayeth-the-maestro.html" thr:count="2" thr:updated="2009-01-03T04:22:30-05:00" />
        <id>tag:typepad.com,2003:post-60732222</id>
        <published>2009-01-02T17:19:23-05:00</published>
        <updated>2009-01-02T17:19:23-05:00</updated>
        <summary>Among my holiday reading this year was Alan Greenspan's biography cum economic analysis, "The Age of Turbulence". In retrospect, the book's publishing date of mid-2007 preceded almost precisely the unravelling of the housing market in mid-2007 that eventually led to...</summary>
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            <name>bussgang</name>
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<div xmlns="http://www.w3.org/1999/xhtml"><p>Among my holiday reading this year was Alan Greenspan's biography cum economic analysis, "The Age of Turbulence".  In retrospect, the book's publishing date of mid-2007 preceded almost precisely the unravelling of the housing market in mid-2007 that eventually led to 2008 becoming the year of the largest market crash since the Great Depression.  The book is thus a fascinating glimpse into Greenspan's brain on the eve of the crash.</p>
<p>In short, the erstwhile "Maestro" (as Bob Woodward tagged him in his 2000 book) clearly "missed it".  One quote that really jumped out at me:  "I was aware that the loosening of morgage credit terms for subprime borrowers increased financial risk, and that subsizdized home ownership initiatives distort market outcomes.  But I believed then, as now, that the benefits of broadened home ownership are worth the risk."  Ouch.</p>
<p>To get a glimpse of his current views, read his <a href="http://www.economist.com/finance/displaystory.cfm?story_id=12813430">guest article in The Economist</a>.  At the end of the article, he points out that, to date, there has been $7 trillion in global sovereign credit pumped into the system ($1 trilion presumably from the US, which doesn't include the additional $1 trillion stimulus planned).  This staggering amount of money is going to have to be inflationary at some point.  With US Treasuries at 0%, it appears the market is more worried about deflation.  But many economic commentators are very worried about inflation in years 3-10 (<a href="http://online.wsj.com/article/SB123086035502948067.html">today's WSJ</a> had a good range of interviews with some of them, so called "Doomsayers").  Greenspan himself points to long-term inflationary risk as "the rate of flow of new workers to competitive labor markets will eventually slow, and as a result, disinflationary pressure should start to lift".</p>
<p>So my big prediction for 2009 is that we will begin the year nervous about deflation, and end the year nervous about inflation returning.  Interest rates will need to go up again in 2010 and 2011 to choke off the inflationary stimulus.  </p>
<p>What impact all this will have on venture capital and entrepreneurship, I'm still sorting out.  One thing is true, venture capitalists and entrepreneurs are operating at a very different end of the economic spectrum, creating new products and services that never existed and thereby creating value.  Hence, I remain a <a href="http://www.bostonvcblog.typepad.com/vc/2008/09/vc-take-on-market-crash-short-term-bear-long-term-bull.html">long-term bull about entrepreneurial prospects</a>.  As Greenspan points in one section that really resonated with me:  "[The 1990s] technology boom came along and changed everything.  It made America's freewheeling, entrepreneurial, so-what-if-you-fail business culture the envy of the world."  I guess I'll keep that photo of me and Alan on my desk after all...</p>
<p><a href="http://bostonvcblog.typepad.com/.a/6a00d83424781853ef010536acac53970c-pi" style="DISPLAY: inline"><img alt="Pic of bussgang-greenspan" border="0" class="at-xid-6a00d83424781853ef010536acac53970c image-full " height="251" src="http://bostonvcblog.typepad.com/.a/6a00d83424781853ef010536acac53970c-800wi" style="WIDTH: 84.25%; HEIGHT: 233px" title="Pic of bussgang-greenspan" /></a> </p>
<p><a href="http://bostonvcblog.typepad.com/.a/6a00d83424781853ef010536a44b2c970b-pi" style="FLOAT: left" /></p></div>
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    <entry>
        <title>Stay in MA - A Call To Arms</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/qhDD-BoQTY8/stay-in-ma-a-call-to-arms.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/12/stay-in-ma-a-call-to-arms.html" thr:count="5" thr:updated="2009-10-21T05:48:56-04:00" />
        <id>tag:typepad.com,2003:post-60167174</id>
        <published>2008-12-18T07:58:29-05:00</published>
        <updated>2008-12-18T07:58:29-05:00</updated>
        <summary>My firm, Flybridge Capital Partners, launched a new program last week that was inspired by Scott Kirsner's blog post earlier this year on the tragedy of Massachusetts students not remaining in the state after they graduate. Scott called to task...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>My firm, <a href="http://www.flybridge.com">Flybridge Capital Partners</a>, launched a new program last week that was inspired by <a href="http://http://www.innoeco.com/2008/11/student-brainstorming.html">Scott Kirsner's blog post</a> earlier this year on the tragedy of Massachusetts students not remaining in the state after they graduate.  Scott called to task some of the industry associations who, in theory, should be welcoming to students but, in practice, create barriers by charging them for attending the critical industry events that would help weave them into the business community.</p>
<p>We call the program, "<a href="http://www.stayinma.com">Stay in MA</a>" and it's a student scholarship program that allows students who want to attend industry events with participating associations (and nearly every major "innovation economy" association is participating in the program) to attend these events for free.</p>
<p>To learn more, check out <a href="http://www.stayinma.com">www.stayinma.com</a>.  And thanks to all the associations who are participating!</p></div>
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    <entry>
        <title>The Government Is Here To Help? (MIT VC Conference panel)</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/HC-uY08gI90/the-government-is-here-to-help-mit-vc-conference-panel.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/12/the-government-is-here-to-help-mit-vc-conference-panel.html" thr:count="2" thr:updated="2009-10-22T08:06:15-04:00" />
        <id>tag:typepad.com,2003:post-59623608</id>
        <published>2008-12-07T13:36:24-05:00</published>
        <updated>2008-12-07T13:36:24-05:00</updated>
        <summary>Many pundits and economists observe that we are in the midst of the greatest financial crisis since the Great Depression. What they haven't fully yet processed is that we are in the midst of the greatest wave of government intervention...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>Many pundits and economists observe that we are in the midst of the greatest financial crisis since the Great Depression.  What they haven't fully yet processed is that we are in the midst of the greatest wave of government intervention in business since the New Deal.  Across massive, diverse industries such as energy, health care and life sciences, financial services and automotive -- to name just a few -- we are embarking on arguably the most business-focused, activist US government in history.  </p>
<p>I moderated a very timely panel yesterday at the MIT VC Conference on the new role of government in business in general, and entrepreneurship in particular.  MIT is one of the central cradles of American innovation and entrepreneurship.  The fact that they asked me to focus on this theme is clearly a signal that entrepreneurs are focused on better understanding the New World Order of government as the "third wheel" in the VC-entrepreneur equation.</p>
<p>Joining me on the panel were a group of four very talented leaders whose careers have spanned both sectors.  In effect, these four were uniquely experienced at "seeing both sides" of the private sector-public sector partnership:</p>
<ul>
<li><strong>Dan O'Connell</strong>, Massachusetts Secretary of Economy and Housing under Governor Patrick.</li>
<li><strong>Ranch Kimball</strong>, former Massachusetts Secretary of Economy and Housing under Governor Romney and now CEO of the Joslin Diabetes Center.</li>
<li><strong>Phil Giudice</strong>, Massachusetts Commissioner of Energy and former SVP at EnerNOC.</li>
<li><strong>Paul Afonso</strong>, former chairman of the Department of Telecommunications and Energy under Governor Romney and now a partner at Brown Rudnick.</li>
</ul>
<p>A few themes/observations that were shared:</p>
<ul>
<li>Dan O'Connell observed that, at least in Massachusetts, when government leaders say, "We're from the government and we're here to help," it's not the old Ronald Reagan punchline.  Instead, it's an earnest attempt at striking a helpful partnership with the Patrick administration -- led by a governor who himself was a former business leader.  He also pointed out that business leaders need to appreciate that government's involvement in business has a different goal:  local job creation, not capital return, requiring some compromises on both sides when embarking on collaboration.</li>
<li>Phil Giudice observed that from his recent visits to Washington DC this last week, it is clear that the Obama administration is preparing for a massive, long-term, strategic effort around energy independence from which billions of dollars will flow.  Phil led the passage in MA of a landmark Energy Bill in partnership with business leaders from the New England Clean Energy Council (Flybridge Capital is a sponsor and member of the council).</li>
<li>Ranch Kimball expressed his belief that NIH funding will grow again and that MA is incredibly well positioned for the surge in private and public life sciences spending that will flow to MA, citing with pride the extraordinary talent in Massachusetts (and not just in Cambridge and Boston, Dan noted, but throughout Worcester, Lowell, Springfield and elsewhere).</li>
<li>Paul Afonso observed that when business wants something out of government (a growing trend as there is more that is being "given"), they need to not just send their lobbyists with their hands out, but rather encouraged CEOs to get to know government leaders when they don't need anything so help lay the groundwork for collaboration.</li>
</ul>
<p>Massachusetts has pioneered many of the initiatives in teaming business and government (health care reform, life sciences and clean energy being three salient recent examples).  It will be fascinating to watch the new administration embrace, copy and adapt some of these initiatives over the next few months, and perhaps take them further still.</p></div>
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    <entry>
        <title>Why "Flat Is The New Up" and VC Funds Are Under-Reserved</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/GnpEK12pBDw/why-flat-is-the-new-up-and-vc-funds-are-underreserved.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/11/why-flat-is-the-new-up-and-vc-funds-are-underreserved.html" thr:count="5" thr:updated="2008-12-04T17:38:05-05:00" />
        <id>tag:typepad.com,2003:post-59275470</id>
        <published>2008-11-30T22:02:52-05:00</published>
        <updated>2008-11-30T22:02:52-05:00</updated>
        <summary>Everyone in the VC business is looking hard at their fund reserves right now. Very hard. That's because the two key assumptions regarding how much money a portfolio company would require from start to finish (the exit) have changed: (1)...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>Everyone in the VC business is looking hard at their fund reserves right now.  Very hard.</p>
<p>That's because the two key assumptions regarding how much money a portfolio company would require from start to finish (the exit) have changed:  (1) the length of time before exit; and (2) the number of portfolio companies that would attract outside capital to lead follow-on financing rounds.</p>
<p>The new planning assumpion VC fund CFOs and senior partners are embracing is that each portfolio company's exit forecast should be pushed out two to three years and, further, funds should assume that inside rounds will be the prevailing method for raising additional capital within the portfolio.  For the strongest portfolio companies, it will be a privilege to close a flat round with an outsider.  In other words, "flat is the new up".</p>
<p>Let me first "pull back the camera" for a minute and explain how VCs think about "reserves".  When a VC invests in a company, they set aside "reserve capital" for follow-on rounds of financing.  For example, if a VC invests $5 million in a round of financing, they pencil in an additional, say, $10 million of capital that they set aside in their fund for the company to cover additional rounds of capital in the years.  They calculate this number based on their assumptions of total capital required before exit and the amount of that capital they will be responsible for -- as opposed to other investors who may be investing alongside them.  So, if you assume the company will require $40 million in total capital before exit, then other investors will need to be found to put in the additional $25 million (i.e., above and beyond the initial VC's $5 million plus $10 million in reserve).  Reserves become an important number because VCs need to plan their entire fund structure around them.  If a $400 million VC fund makes 20 investments of $10 million each (for a total of $200 million in capital out the door) and then sets aside $10 million for each investment in follow-on capital (for a total of $200 million in reserves), then when investment #21 walks in the door, they need to have a new fund raised to invest out of - the previous fund is "tapped out".  </p>
<p>When things were going well, VCs could comfortably assume their portfolio companies would achieve their exits 4-6 years after investment and would assume that the good companies would attract outside investors and higher and higher prices.  For the last five years, it was not atypical for a high-quality Series A company that raised an initial round of capital priced at, say, $5 million on a $5 million pre-money valuation to hit a few important milestones (e.g., hire the team, build an initial prototype, identify a few initial customers) and they expect to raise a Series B at a meaningful step-up from their $10 million post-money valuation from the Series A - say, $10 million on $15-20 million pre.</p>
<p>Today, those financings are simply not happening.  Series A prices have come down a bit, but the initial management team needs some reasonable ownership level to stay committed.  Where prices are really getting hammered in the VC-backed world is in Series B and Series C rounds.  Outside of a few notable, and particularly promising exceptions, almost no one is paying up for pre-revenue companies never mind fast growth revenue companies.  If you have a high quality company and it can simply attract outside capital at the same price as the previous round, it's a great outcome.  Hence, flat is the new up.  </p>
<p>Now, back to the reserves analysis.  If your exit timing assumption is pushed back 2-3 years, then you need to raise more like $50-60 million, not $40 million.  And if you thought you could attract most of that from outsiders, you are mistaken.  VC funds need to plan to shoulder a larger part of the load.  So now you're looking at needing $20 million in reserve capital rather than $10 million.  Across one or two companies, a fund can sustain this level of replan.  Across the entire portfolio, it's a bigger problem.  Remember my example of the $400 million fund above with 20 portfolio companies?  If all 20 double their reserves, the fund is way underwater.  And woe to the portfolio company whose VC fund gets tapped out too soon.  It's a bit like pension funds for...er...auto makers.  If the VC fund has under-reserved for the portfolio companies, then everyone gets squeezed.</p>
<p>Entrepreneurs need to get up to speed on this important issue that's echoing through the halls of VC firms and engage their VC partners in open dialog about their reserves.  I've suggested to each of my CEOs that they systematically poll their investors and directly ask, "what do you have reserved for us in your fund?" so that there is no confusion on this point.  </p>
<p>There is no shame for VCs in changing the planning assumptions underlying their funds.  The tragedy would be if VCs don't do it quickly in light of the new facts on the ground - and, in turn, if entrepreneurs aren't aware of the issue early enough to make the necessary adjustments to preserve the value creation opportunity in their companies.</p>
<p>As John Maynard Keynes famously observed when flip-flopping on an important economic policy matter, "When the facts change, I change my mind - what do you do sir?"</p></div>
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    <entry>
        <title>Trust the VC (Famous Last Words?)</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/GhEUuEO5qTk/trust-the-vc-famous-last-words.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/11/trust-the-vc-famous-last-words.html" thr:count="0" />
        <id>tag:typepad.com,2003:post-58375476</id>
        <published>2008-11-11T19:44:41-05:00</published>
        <updated>2008-11-11T19:44:41-05:00</updated>
        <summary>Alan Blinder (former vice chairman of the Federal Reserve) is one of my favorite economists. His book, Hard Heads, Soft Hearts, outlines a compelling philosophy in economic policy - whereby a tough-minded, analytical approach is applied to solve difficult social...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>Alan Blinder (former vice chairman of the Federal Reserve) is one of my favorite economists.  His book, <em><a href="http://www.amazon.com/Hard-Heads-Soft-Hearts-Tough-minded/dp/0201145197/ref=pd_cp_b_2?pf_rd_p=413864201&amp;pf_rd_s=center-41&amp;pf_rd_t=201&amp;pf_rd_i=0300100876&amp;pf_rd_m=ATVPDKIKX0DER&amp;pf_rd_r=0P3NXM305036ZVN8SXWP">Hard Heads, Soft Hearts</a></em>, outlines a compelling philosophy in economic policy - whereby a tough-minded, analytical approach is applied to solve difficult social issues.</p>
<p>Thus, I read his recent NY Sunday Times article on the central role that trust plays in capitalism with great interest.  "The new president's most fundamental job," he writes, "is to restore the people's confidence that the economy will perform -- for them".</p>
<p>Translating this mantra to the start-up world is a thought-provoking exercise.  Do the principals in the start-up economy -- the entrepreneur and the VC -- trust each other?  In these economic times, tensions can flare over strategy, burn rate and performance.  Tough conversations and arguments over tough issues is natural, but if there isn't a foundation of trust between these two parties, the start-up ecosystem fails, just as our markets fail.</p>
<p>Trust often breaks down in the VC-entrepreneur relationship when either side senses that the other isn't being straight with them.  The telltale signs for a VC to not trust the entrepreneur is when they see an entrepreneur:</p>
<ul>
<li>Get more defensive during tough times, rather than more transparent.</li>
<li>Avoid confronting tough issues, rather than forcefully raising them early and often.</li>
<li>Blame poor performance on others, rather than embrace accountability.</li>
<li>Focus on their own situation and wealth equation, rather than focus on shareholder value.</li>
</ul>
<p>On the flip side, the entrepreneur worries that their VC isn't being straight with them when they see a VC:</p>
<ul>
<li>Disengage in the details during tough times, rather than engage more vigorously.</li>
<li>Be a pollyana when things aren't going well, rather than providing realistic assessments and tough feedback on performance.</li>
<li>Seek to apply general formulas (e.g., let's implement the <a href="http://bostonvcblog.typepad.com/vc/2008/10/in-the-long-run-we-are-all-dead.html">Sequoia Manifesto</a>!), rather than cater their response to the specific situation.</li>
<li>Focus on their VC fund's situation and agenda, rather than the portfolio company's.</li>
</ul>
<p>Successful corporate chieftans turned philosophers, such as Jack Welch (GE) and <a href="http://www.truenorthleaders.com/book.htm">Bill George</a> (Medtronic), have identified authenticity as the key success factor to leaders.  I would suggest entrepreneurs VCs (not often necessarily thought of as leaders!) face a similar standard.  If your VC or entrepreneur can't pass the "Authentic Leadership" test, you are in trouble.  Bill George points out authentic leaders are those that:</p>
<ul>
<li>Are true to themselves and their beliefs.</li>
<li>More concerned with serving others than their own personal success or recognition.</li>
<li>
<p>Engender trust and develop geniune connections with others.</p></li>
</ul>
<p>Restoring trust in our economy and government for Americans and the broader world community is a monumental task for President-elect Obama.  We VCs have the (admitedly smaller but still critical) task of navigating these tough times by demonstrating to our two major customers - our entrepreneur and our investors - that we are worthy of their trust.</p></div>
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    <entry>
        <title>Due Diligence Reveals All - To The VC</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/iWkq1-rCI9o/earlier-this-year-i-wrote-a-blog-about-how-to-prepare-for-the-financing-process-some-readers-have-pointed-out-to-me-that-i.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/10/earlier-this-year-i-wrote-a-blog-about-how-to-prepare-for-the-financing-process-some-readers-have-pointed-out-to-me-that-i.html" thr:count="6" thr:updated="2009-01-15T15:20:23-05:00" />
        <id>tag:typepad.com,2003:post-57184419</id>
        <published>2008-10-19T08:21:41-04:00</published>
        <updated>2008-10-19T08:21:41-04:00</updated>
        <summary>Earlier this year, I wrote a blog about how to prepare for the financing process, focusing in particular on follow-on financings. Some readers have pointed out to me that I left out a very key element of the due diligence...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>Earlier this year, I wrote a blog about <a href="http://bostonvcblog.typepad.com/vc/2008/02/follow-on-finan.html">how to prepare for the financing process</a>, focusing in particular on follow-on financings.  Some readers have pointed out to me that I left out a very key element of the due diligence process:  what the process itself reveals about the nature of the entrepreneur to the VC.  Many entrepreneurs I know underestimate the importance of their small and large actions during due diligence and the signals their behavior send to the VCs.  In truth, the due diligence process itself is a gauntlet that tests the entrepreneur and informs the VC about their mettle and whether they have the character and skills to build a great company.</p>
<p>VCs don’t typically enter a true due diligence process until after the 2nd or 3rd meeting.  That’s when they start talking to experts in the field, customers, management team members, conducting technical reviews and combing through financial models.  Broadly speaking, there are three stages to the process:</p>
<p>1) <strong>Sniffing around</strong>.  During the “sniffing around” phase, the VC has decided they like the company enough to make it one of their top 3-5 “new deal” priorities, spending proactive time on the company squeezed in alongside the time they spend on their portfolio.  This typically involves the following activities:</p>
<ul>
<li>Conducting follow-up meetings with the team to identify and probe on the key issues 
<li>Putting the team in front of “friends of the firm” who have expertise and can provide insight into the opportunity 
<li>Making 3-5 reference calls with analysts, customers or management team members to get an initial read. </li>
</li></li></ul>
<p>In addition to the substantive questions around market size, competitive advantage, technology and team qualifications, the VC will ask themselves a few key questions about the entrepreneur during this phase:</p>
<ul>
<li>Is the entrepreneur defensive when I probe on important questions or are they thoughtful, earnest, insightful and authentic in their answers? 
<li>Is the entrepreneur on top of the details of the business or do they appear to be flying by the seat of their pants? 
<li>Has the entrepreneur done their homework about the market and really researched deeply the customer need and competitive set or do they appear naïve and uninformed about the challenges ahead? </li>
</li></li></ul>
<p>2) <strong>Digging deep</strong>.  During the next phase, the lead VC partner has decided to make the company a top 1 or 2 priority and begins thinking deeply about the company and the opportunity during shower time and drive time.  For the VC, this typically involves the following activities:</p>
<ul>
<li>Briefing their partners in some detail on the pros and cons of the investment opportunity and the important financial terms of the deal 
<li>Mapping out a detailed due diligence plan to probe on the key diligence issues and risks 
<li>Exposing some if not all of their partners to the company to get other informed opinions around the table 
<li>Making 15-20 reference calls with customers, management team references, perhaps even competitors and others who can provide insight into the market </li>
</li></li></li></ul>
<p>During this process, the VC will ask themselves the following questions about the entrepreneur:</p>
<ul>
<li>Are they open in revealing customer references and management team references or are they hesitant and defensive? 
<li>Do they provide thoughtful, detailed responses to the key diligence questions promptly or do they appear to take the posture that the VC simply “doesn’t get it”? 
<li>Does good news and momentum continue to build as the process wanes on or do they seem frozen in time? </li>
</li></li></ul>
<p>3) <strong>Making the case and negotiating the deal.</strong>  Once the lead VC has decided he or she is convinced, they now have the obligation to convince their partners, or “make the case”.  The entrepreneur must answer whatever the hot buttons of the other partners are as well as make it through the dreaded Monday morning partners meeting, where the fate of the deal is decided based on their performance in a tight 60 minute presentation.  In parallel, the lead VC partner will typically be negotiating the main business terms of the deal with the entrepreneur.  Again, you learn a lot from someone during this process.  In particular:</p>
<ul>
<li>Is the entrepreneur cool, thoughtful and confident in how they present to the partnership or do they seem nervous and anxious in a “step up” moment? 
<li>Is the entrepreneur persuasive and mature in making the case for their important business points during negotiations or do they seem immature and irrational as they make their arguments? 
<li>Is the entrepreneur quick to pick up on sophisticated deal terms by bringing in good advisors or do they seem commercially naïve and unable or unwilling to bring in helpful expertise? 
<li>Finally, do you complete the process and still say to yourself:  “I’m excited to do business with this person and jump into the roller coaster with them for the next 5-7 years” or “boy am I glad that’s done, I can’t wait to get to the next deal!”? </li>
</li></li></li></ul>
<p>In these trying economic times, entrepreneur should expect that the due diligence process will become more rigorous.  Further, the competitive power has shifted to the sources of capital (i.e., VCs), which means deals will likely move slower and more deliberately than in the past.  Remember, the deal isn’t done until the money is wired and the VC will be evaluating you and your actions all along the way.  </p></div>
</content>


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    <entry>
        <title>In The Long Run, We Are All Dead</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/9t24c8SCjZA/in-the-long-run-we-are-all-dead.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/10/in-the-long-run-we-are-all-dead.html" thr:count="3" thr:updated="2008-11-09T01:31:58-05:00" />
        <id>tag:typepad.com,2003:post-56792449</id>
        <published>2008-10-09T22:23:45-04:00</published>
        <updated>2008-10-09T22:23:45-04:00</updated>
        <summary>Every start-up board is having the same conversation these last few weeks: how will this economic crisis affect us and what should we do in our own business? We had our annual investor meeting this week and warned our investors...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>Every start-up board is having the same conversation these last few weeks:  how will this economic crisis affect us and what should we do in our own business?</p>
<p>We had our annual investor meeting this week and warned our investors that it was going to get ugly over the next year or two (surprisingly, they indicated that some of their other VC investors had sounded positively pollyanna during this annual season).  For all the reasons I described in my recent blog, <a href="http://bostonvcblog.typepad.com/vc/2008/09/vc-take-on-market-crash-short-term-bear-long-term-bull.html">"Short-Term Bear, Long-Term Bull"</a>, we remain a fan of the start-up economy in the long run.  That said, CEOs need to take swift action to make sure they survive to see the long run.  For as economist John Maynard Keynes observed, "In the long run, we are all dead."</p>
<p>My partner, David Aronoff, wrote a <a href="http://www.geekvc.com/geekvc/Blog/Entries/2008/9/18_And_the_Walls_Came_Tumbling_Down_..._.html">good blog</a> outlining what CEOs should be doing to ensure survival.  TechCrunch reports a <a href="http://www.techcrunch.com/2008/10/08/angel-investor-ron-conway-adresses-his-portfolio-companies-over-financial-meltdown/">similar note</a> that angel investor Ron Conway has sent out to his portfolio companies.  GigaOm reports that Sequoia Capital called an all-hands, <a href="http://gigaom.com/2008/10/08/sequoia-rings-the-alarm-bell-silicon-valley-in-trouble/">emergency meeting</a> with its portfolio CEOs to walk through a recommended plan of action.  I have received copies of emails from a few other funds alerting their CEOs with similar messages.  Take action now.  Don't dither.  Cut costs, cut projects, raise incremental capital, be proactive and plan for the worst.</p>
<p>If you don't, you might be watching Kenesyian economic policy being implemented from the vantage point of six feet under.</p></div>
</content>


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    <entry>
        <title>Microsoft VC Conference - Steve Ballmer's View On The World</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/bNs0gVzk7N4/microsoft-vc-conference---steve-ballmers-view-on-the-world.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/09/microsoft-vc-conference---steve-ballmers-view-on-the-world.html" thr:count="0" />
        <id>tag:typepad.com,2003:post-56360883</id>
        <published>2008-09-30T21:17:52-04:00</published>
        <updated>2008-09-30T21:17:52-04:00</updated>
        <summary>Every year, Microsoft bigwigs trek down to Silicon Valley and brief the VC community on their view of the world and plans for the future. They are kind enough to invite East Coast VCs, not just locals, and so I...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="html" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
&lt;div xmlns="http://www.w3.org/1999/xhtml"&gt;&lt;p&gt;Every year, Microsoft bigwigs trek down to Silicon Valley and brief the VC community on their view of the world and plans for the future.&amp;#160; They are kind enough to invite East Coast VCs, not just locals, and so I flew out last week to partake in the annual event alongisde a few hundred of my VC brethren.&amp;#160; Just as when I had attended &lt;a href="http://bostonvcblog.typepad.com/vc/2005/05/microsofts_vc_c.html"&gt;the event in the past&lt;/a&gt;, the highlight was Steve Ballmer&amp;#39;s address.&lt;/p&gt;
&lt;p&gt;I personally think Steve Ballmer is the CEO of the century.&amp;#160; When he joined college buddy, Bill, the company&amp;#39;s revenues were $2.5m.&amp;#160; This year, they crossed $60 billion.&amp;#160; Yet, when you meet him in person, he remains incredibly down-to-earth and accessible.&amp;#160; I remember a few years ago he gave out his email address.&amp;#160; For fun, I sent him an email.&amp;#160; I was&amp;#160;stunned when he replied right back.&amp;#160; I love watching him speak as he is full of fire and brimstone, but also very insightful.&lt;/p&gt;
&lt;p&gt;A few of the highlights from this year&amp;#39;s discussion:&lt;/p&gt;
&lt;p&gt;&lt;span&gt;
&lt;ul&gt;
&lt;li&gt;&lt;span&gt;Ballmer claims he thinks of himself like a VC (ok, he was probably playing to the crowd a&amp;#160;bit)&amp;#160;- and tries to have a similar mindset as he makes decisions to prioritize and direct their $9 billion R&amp;amp;D budget. 
&lt;li&gt;He couldn&amp;#39;t have been more bullish about the tech industry (which, he pointed out, feels as if it&amp;#39;s in a different world than the CNBC crowd we&amp;#39;ve all been watching lately) - very excited about all the innovations in cloud computing, mobile, search, the enterprise and elsewhere. 
&lt;li&gt;Interestingly, he identified his top competitors as Google, Apple and Linux.&amp;#160; Secondary foes included IBM, Oracle, Amazon and SAP.&amp;#160; It goes to show how consumer focused Microsoft has become that two of their top three competitors are essentially consumer companies and brands.&amp;#160; Amazingly, almost all of these companies are doing well - in large part thanks to innovation and global expansion. 
&lt;li&gt;He admitted that they screwed up the Yahoo acquisition but vowed to get better at such transactions.&amp;#160; With their recent issuance of debt, clearly there is more to come. 
&lt;li&gt;In times like these, Ballmer indicated, he wants to be the guy with his foot pushing hardest on the pedal, implying that some of his competition might be thinkig of letting up due to the economic situation. &lt;/li&gt;
&lt;/ul&gt;
&lt;p&gt;&lt;/span&gt;Microsoft clearly remains a force to be reckoned with, particularly with an executive as talented as Ballmer at the helm.&lt;br /&gt;&lt;/p&gt;&lt;/span&gt;&lt;/div&gt;
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2008/09/microsoft-vc-conference---steve-ballmers-view-on-the-world.html</feedburner:origLink></entry>
    <entry>
        <title>Help Fight Brain Tumors in Kids - Take Two Minutes To Click</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/xpGSH8zvThM/help-fight-brain-tumors-in-kids---take-two-minutes-to-click.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/09/help-fight-brain-tumors-in-kids---take-two-minutes-to-click.html" thr:count="0" />
        <id>tag:typepad.com,2003:post-56135890</id>
        <published>2008-09-25T15:04:32-04:00</published>
        <updated>2008-09-25T15:04:32-04:00</updated>
        <summary>One of my closest friends is Andrew Janower of Charlesbank Capital. His eight year old daughter, Samantha, has a brain tumor, and AJ has created a non-profit to find a cure called the Pediatric Low Grade Astrocytoma Foundation. Their story...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>One of my closest friends is Andrew Janower of Charlesbank Capital.  His eight year old daughter, <a href="http://janower.net/">Samantha</a>, has a brain tumor, and AJ has created a non-profit to find a cure called the <a href="http://www.fightplga.org">Pediatric Low Grade Astrocytoma Foundation</a>.  Their story was recently featured in <a href="http://www.janower.net/070130-WSJ-Team-Samantha-web.pdf">the WSJ</a>.</p>
<p>American Express has named the foundation one of the finalists its considering providing a $2.5 million grant to.  They will make their decisions on September 29th based on cardmembers' votes.</p>
<p>If you are a card member, please take two minutes to VOTE (no donation required, just a click).  Here's what you do:</p>
<p>1. Go to <a href="http://www.membersproject.com/project/view/NN934A" title="blocked::http://www.membersproject.com/project/view/NN934A"><font color="#810081">http://www.membersproject.com/project/view/NN934A</font></a> <br /><br />2. Scroll down to "Vote for this Project" (located under the video/photo window)<br /><br />3. Click on "Vote for this Project"<br /><br />4. Click on "Log In"<br /><br />5. Log in using either your American Express Card number* or your on-line account information<br /><br />6. After logging in, you should have returned to the Project Brain Child description page -<br /><a href="http://www.membersproject.com/project/view/NN934A" title="blocked::http://www.membersproject.com/project/view/NN934A"><font color="#810081">http://www.membersproject.com/project/view/NN934A</font></a> <br /><br />7. Scroll down AGAIN and click on "Vote for this Project"<br /><br />8. You're done!<br /></p>
<p>Thanks for your consideration!</p></div>
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2008/09/help-fight-brain-tumors-in-kids---take-two-minutes-to-click.html</feedburner:origLink></entry>
    <entry>
        <title>VC Take On Market Crash:  Short-Term Bear, Long-Term Bull</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/Lo9sBnsgRew/vc-take-on-market-crash-short-term-bear-long-term-bull.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/09/vc-take-on-market-crash-short-term-bear-long-term-bull.html" thr:count="4" thr:updated="2008-12-14T00:03:30-05:00" />
        <id>tag:typepad.com,2003:post-55850964</id>
        <published>2008-09-21T20:57:42-04:00</published>
        <updated>2008-09-21T20:57:42-04:00</updated>
        <summary>I don't need to repeat the facts behind last week's financial turbulence - from Lehman Brothers to Merrill Lynch to AIG and beyond. To paraphrase Jon Stewart, it's a good thing the audience can't see me cry during the commercial...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
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&lt;div xmlns="http://www.w3.org/1999/xhtml"&gt;&lt;p&gt;I don&amp;#39;t need to repeat the facts behind last week&amp;#39;s financial turbulence - from Lehman Brothers to Merrill Lynch to AIG and beyond.&amp;#160; To paraphrase Jon Stewart, it&amp;#39;s a good thing the audience can&amp;#39;t see me cry during the commercial breaks.&amp;#160; Beyond the obvious coverage in the Wall Street Journal, Business Week, The Economist&amp;#160;and the Financial Times, a few of the sites I&amp;#39;ve found insightful are&amp;#160; &lt;a href="http://www.seekingalpha.com"&gt;Seeking Alpha&lt;/a&gt;&amp;#160;and the &lt;a href="http://www.prudentbear.com"&gt;Prudent&amp;#160;Bear&lt;/a&gt;.&lt;/p&gt;
&lt;p&gt;Watching the carnage on Wall Street has been a spectator sport for most of us in the VC and start-up community.&amp;#160; The rough going our investment banking cousins are experiencing has caused us to put down our popcorn and soft drinks and ask ourselves:&amp;#160; how am I impacted?&amp;#160; What will all this mean to the entrepreneurial economy?&lt;/p&gt;
&lt;p&gt;In the dozens of meetings and conversations&amp;#160;I&amp;#39;ve had with entrepreneurs and VCs this last week, it is clear that everyone is shell-shocked at the macro level, but surprisingly sanguine on the micro level.&amp;#160; &amp;quot;Our traffic numbers keep going up and up,&amp;quot; pointed out one B2C CEO, shaking his head in disbelief.&amp;#160; &amp;quot;Our portfolio is basically not affected,&amp;quot; claimed one VC with a tinge of hubris.&lt;/p&gt;
&lt;p&gt;Yet everyone is clearly affected, it&amp;#39;s just a matter of degree.&amp;#160; Henry McCance, one of history&amp;#39;s great venture capitalists and chairman of Greylock, was quoted by my partners (three of whom are ex-Greylock) as saying in the midst of the 1998 Long Term Capital crash (which some say was &lt;a href="http://www.businessweek.com/1998/38/b3596001.htm"&gt;worse than the 1987 market crash&lt;/a&gt;), &amp;quot;We know our portfolio is down 30%, we just don&amp;#39;t know where&amp;quot;.&lt;/p&gt;
&lt;p&gt;But it&amp;#39;s better to be down 30% than 300%.&amp;#160; In truth, most early-stage companies are not that affected by the stock market gyrations or even a general recession.&amp;#160; Yes, some consumer-based &amp;quot;if you build it, they will come&amp;quot; businesses will be more susceptible to the inevitable pullback in advertising spend.&amp;#160; But most venture-backed start-ups are technology-driven with deep Intellectual Property (IP).&amp;#160; If the technology works, value is created.&amp;#160; With only a few customer proof points, a few million of revenue can be generated from scratch and even more value can be created.&amp;#160; The holding period for early-stage start-ups is typically 6-8 years, and so an episodic recession shouldn&amp;#39;t materially affect long-term value creation, so long as follow-on financing is available.&amp;#160; One VC observed that his partnership had done an analysis and realized that, &amp;quot;we have 20 companies in our portfolio seeking follow-on financing this year.&amp;#160; They&amp;#39;ll nearly all get done, but none of them will be meaningfully up rounds.&amp;#160; Instead, there will be many flat and down rounds ahead&amp;quot;.&lt;/p&gt;
&lt;p&gt;But the VC and entrepreneurial community went through a far rougher period only a few years ago and most firms are run by executives who remember those times and remember the prudent actions required:&amp;#160; cust costs, but don&amp;#39;t cut to the bone; raise more capital than your plans suggest you need to cover the dry period; in general, increase fund reserves and assume longer holding periods; with employees and investors, set expectations for patience and long-term business building rather than quick hits and quick flips.&amp;#160; &lt;/p&gt;
&lt;p&gt;Further,&amp;#160;I would observe that many of the macro-trends that the entrepreneurial economy is based on remain very positive.&amp;#160; For example, I would argue that the following trends are inevitable:&lt;/p&gt;
&lt;ul&gt;
&lt;li&gt;The $600 billion advertising industry will shift to online (particularly search) and mobile --&amp;#160;an area that is still growing north of 20% per year. 
&lt;li&gt;Advances in nanotechnology and materials science will yield valuable medical technologies and devices - with health care spending still 18% of GDP, this is a big sector of the economy ripe for innvoation and value creation. 
&lt;li&gt;Advances in energy technology will yield profitable new approaches in solar, wind, LEDs, batteries, and numerous other renewables - revolutionizing this massive industry (see Tom Friedman&amp;#39;s inspiring NYTimes magzine:&amp;#160; &lt;a href="http://www.nytimes.com/2007/04/15/magazine/15green.t.html?_r=1&amp;amp;oref=slogin"&gt;&amp;quot;The Power of Green&amp;quot;&lt;/a&gt;). 
&lt;li&gt;Globalization (reported thoughtfully in &lt;a href="http://www.economist.com/specialreports/displayStory.cfm?story_id=12080751"&gt;a special report in this week&amp;#39;s Economist&lt;/a&gt;) continues to accelerate, making it easier for young companies to attract capital and deploy resources in the most efficient locations, irrespective of geographical barriers. &lt;/li&gt;
&lt;/ul&gt;
&lt;p&gt;At the same time that these macro-trends are bubbling along, the fundamentals of the start-up ecosystem remain strong -- seasoned (and novice!) entrepreneurs are enthusiastically tackling these issues.&amp;#160; Venture capital funding remains plentiful - almost everyone in the industry will tell you there is still too much money chasing too few ideas (good for entrepreneurs, but more challenging for individual fund returns!).&amp;#160; The ecosystem has modest dependency on the debt markets, inflation or commodity prices.&lt;/p&gt;
&lt;p&gt;For all these reasons, although I am a short-term bear (yes, it will continue to be an ugly year or two for the global macroeconomy), I remain a long-term bull when it comes to the entrepreneurial economy and the potential for start-ups to impact the world and create value.&lt;/p&gt;&lt;/div&gt;
</content>


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    <entry>
        <title>The World Is Flat, Stupid:  Time for America to Hire a CTO</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/zjJNu9_4LBg/the-world-is-flat-stupid-time-for-america-to-hire-a-cto-1.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/09/the-world-is-flat-stupid-time-for-america-to-hire-a-cto-1.html" thr:count="3" thr:updated="2009-11-03T03:25:00-05:00" />
        <id>tag:typepad.com,2003:post-55339470</id>
        <published>2008-09-09T02:51:22-04:00</published>
        <updated>2008-09-09T02:51:22-04:00</updated>
        <summary>The role of a Chief Technology Officer (CTO) in a company is an incredibly critical, but poorly understood one. Unless a member of the founding team is a strong technology visionary that occupies that role, many start-ups neglect the position....</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>The role of a Chief Technology Officer (CTO) in a company is an incredibly critical, but poorly understood one.  Unless a member of the founding team is a strong technology visionary that occupies that role, many start-ups neglect the position.  Instead, they assume the CIO or VP of Engineering can be responsible for setting technology strategy as well as delivering on it – an impossible burden even for the most talented technology manager.  Within our portfolio, I have always been an advocate of separating the two positions:  an internally-facing VP of Engineering or CIO, who is responsible for delivering the goods on time and on budget on an operational, quarterly and annual basis; and an externally-facing CTO, who is looking over the horizon to set strategic direction and establish the priorities of where to invest taking into account how the world will look in 3-5 years.</p>
<p>Therefore, I read Lotus founder, Mitch Kapor’s call for <a href="http://www.technologyreview.com/qanda">the next President to hire a CTO for America </a>in MIT’s Technology Review with great interest.  Historically, America has never had a CTO.  The President’s Science Advisory Committee, which had great prominence when it was first established in 1957 during America’s “Sputnik moment” under Presidents Eisenhower, has had little influence and visibility since Nixon abolished the committee in 1973 and it returned under President Ford in a weakened form.  Yet technology strategy and policy permeates so many of the critical issues the country faces today:  from energy policy to defense, from education to homeland security and obviously the big elephant in the room in any budget debate – health care.</p>
<p>During Bill Clinton’s 1992 campaign, his campaign manager James Carville famously drummed home the mantra, “It’s the Economy, Stupid”.  After taking office, President Clinton elevated the Council of Economic Advisors chairman to a cabinet-level position and appointed the highly respected Wall Street heavyweight, Bob Rubin (who later became Treasury Secretary and arguably one of the most influential stewards of our economy in recent memory). </p>
<p>With a nod to Thomas Friedman, I might submit that an appropriate election theme this time around may be “The World is Flat, Stupid”.  More and more of America’s success in the global competitive environment depends on our knowledge economy and government is playing a large role in shaping this.  For example, ethanol subsidies appear to be a narrow and short-sighted way to spend billions of tax-payer money, yet they persist because no credible voice provides Congress and the cabinet with an authoritative technology perspective.</p>
<p>No matter who wins in November, I hope they bring with them to Washington the technology version of Bob Rubin to help steer our course.  Our needs seem more urgent than the mere challenge of putting a man on the moon.</p></div>
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2008/09/the-world-is-flat-stupid-time-for-america-to-hire-a-cto-1.html</feedburner:origLink></entry>
    <entry>
        <title>Back To School Exits</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/l9f6l6MBdXE/back-to-school-exits.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/09/back-to-school-exits.html" thr:count="0" />
        <id>tag:typepad.com,2003:post-55037136</id>
        <published>2008-09-02T16:44:32-04:00</published>
        <updated>2008-09-02T16:44:32-04:00</updated>
        <summary>Everyone said the 2008 summer doldrums were going to result in the worst exit environment since the Internet bubble crashed. After the first half of the year produced one of the worst 6 months for VC-backed IPOs in recent history,...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="html" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
&lt;div xmlns="http://www.w3.org/1999/xhtml"&gt;&lt;p class="MsoNormal" style="MARGIN: 0in 0in 0pt"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Everyone said the 2008 summer doldrums were going to result in the worst exit environment since the Internet bubble crashed.&lt;span style="mso-spacerun: yes"&gt;&amp;#160; &lt;/span&gt;After the first half of the year produced one of the worst 6 months for VC-backed IPOs in recent history, the anemic results were bound to trickle down into the M&amp;amp;A market during the slow summer months.&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p class="MsoNormal" style="MARGIN: 0in 0in 0pt"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;/span&gt;&lt;/font&gt;&amp;#160;&lt;/p&gt;
&lt;p class="MsoNormal" style="MARGIN: 0in 0in 0pt"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;/span&gt;&lt;/font&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;I spent the last few weeks in Israel (pleasure, not business) and so left a pile of non-urgent emails from PE Week, VentureWire, etc. in the “post-vacation” reading folder.&lt;span style="mso-spacerun: yes"&gt;&amp;#160; After reading through them in one sitting (something I don&amp;#39;t recommend trying at home), I was surprised to piece together the data.&amp;#160; &lt;/span&gt;To my surprise, there have been a good number of summer exits, providing some optimism during an otherwise grim economic picture as we head &amp;quot;Back to School&amp;quot;.&lt;/p&gt;
&lt;p&gt;&lt;/span&gt;&lt;/font&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;It appears that high-quality corporate buyers are still trolling for acquisitions and opening up their pocket books where start-ups with traction can be found.&lt;span style="mso-spacerun: yes"&gt;&amp;#160; &lt;/span&gt;Here’s my accounting of the situation (blend of public and private data):&lt;/span&gt;&lt;/font&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;/p&gt;
&lt;ul&gt;
&lt;li&gt;SBA Communications acquires Optasite for $430m&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt; 
&lt;li class="MsoNormal" style="MARGIN: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Microsoft acquires DATAllegro for $240m&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt; 
&lt;li class="MsoNormal" style="MARGIN: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Cisco acquires PostPath for $215m&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt; 
&lt;li class="MsoNormal" style="MARGIN: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Nuance acquires SNAPin for $180m&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt; 
&lt;li class="MsoNormal" style="MARGIN: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Belden acquires Trapeze for $133m&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt; 
&lt;li class="MsoNormal" style="MARGIN: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Comcast acquires Daily Candy for $125m&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt; 
&lt;li class="MsoNormal" style="MARGIN: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Cisco acquires Pure Networks for $120m&lt;/span&gt;&lt;/font&gt; 
&lt;li class="MsoNormal" style="MARGIN: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;BT acquires Ribbit for $105m&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt; 
&lt;li class="MsoNormal" style="MARGIN: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Monster acquires Trovix for $72.5m&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt; 
&lt;li class="MsoNormal" style="MARGIN: 0in 0in 0pt; mso-list: l0 level1 lfo1; tab-stops: list .5in"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;Publicis acquires Performix for undisclosed amount, but likely north of $100m&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt; &lt;/li&gt;
&lt;/ul&gt;
&lt;p class="MsoNormal" style="MARGIN: 0in 0in 0pt"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p class="MsoNormal" style="MARGIN: 0in 0in 0pt"&gt;&lt;font face="Arial" size="2"&gt;&lt;span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"&gt;This isn’t to say that many VC-backed companies aren’t affected by the economic environment – of course they are. &lt;span style="mso-spacerun: yes"&gt;&amp;#160;&lt;/span&gt;As a VC mentor of mine once said – when the NASDAQ is down 30%, I know I’m down 30%, I just don’t know where!&amp;#160; That said, it was nice to see a few glimmers of light in the dark tunnel of 2008.&amp;#160; Perhaps we&amp;#39;ll see more of the same between now and year-end?&lt;/span&gt;&lt;/font&gt;&lt;/p&gt;&lt;/div&gt;
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2008/09/back-to-school-exits.html</feedburner:origLink></entry>
    <entry>
        <title>Think Like a VC, Act Like an Entrepreneur</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/kWQ2eSfsvDI/think-like-a-vc-act-like-an-entrepreneur.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/08/think-like-a-vc-act-like-an-entrepreneur.html" thr:count="5" thr:updated="2008-09-25T16:57:59-04:00" />
        <id>tag:typepad.com,2003:post-54719032</id>
        <published>2008-08-26T15:35:09-04:00</published>
        <updated>2008-08-26T15:35:09-04:00</updated>
        <summary>BusinessWeek asked me to write an article for them on entrepreneurship in their latest issue At Work. You can read it here: "Think Like a VC, Act Like an Entrepreneur". It was fun for me to try to aim something...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="xhtml" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
<div xmlns="http://www.w3.org/1999/xhtml"><p>BusinessWeek asked me to write an article for them on entrepreneurship in their latest issue At Work.  You can read it here:  <a href="http://www.businessweek.com/magazine/content/08_34/b4097042749532.htm?chan=magazine+channel_special+report">"Think Like a VC, Act Like an Entrepreneur".</a></p>
<p>It was fun for me to try to aim something at a more general business audience than my tyipcal entrepreneurial audience.</p>
<p>It was also very fun for me to see who they put on the cover of the issue:  Dwight Schrute, who has to be one of the funniest television characters ever.  While I was on vacation last week, I finished Season 3 of The Office and am looking forward to Season 4!</p></div>
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2008/08/think-like-a-vc-act-like-an-entrepreneur.html</feedburner:origLink></entry>
    <entry>
        <title>Should VCs Hold the Key to Access Government Money?</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/iRJDtpOfkTk/should-vcs-hold-the-key-to-access-government-money.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/07/should-vcs-hold-the-key-to-access-government-money.html" thr:count="6" thr:updated="2009-03-16T09:12:28-04:00" />
        <id>tag:typepad.com,2003:post-52767114</id>
        <published>2008-07-16T08:39:30-04:00</published>
        <updated>2008-07-16T08:39:30-04:00</updated>
        <summary>There is a controversy brewing in the world of government grant money to start-ups that is trickling into the VC community. The Small Business Association (SBA) of the US government administers Small Business Innovation Research (SBIR) and Small Business Technology...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="html" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
&lt;div xmlns="http://www.w3.org/1999/xhtml"&gt;&lt;P&gt;There is a controversy brewing in the world of government grant money to start-ups that is trickling into the VC community.&amp;nbsp; The Small Business Association (SBA) of the US government administers Small Business Innovation&amp;nbsp; Research (SBIR) and Small Business Technology Transfer (STTR) provides grants to small businesses (defined as fewer than 500 employees) to the tune of $2 billion per year.&amp;nbsp; This compares to $20-30 billion per year in VC money that flows to start-ups, so a meaningful figure in the entrepreneurial economy.&lt;/P&gt;
&lt;P&gt;But the two worlds of VC-backed start-ups and SBIR grants have mixed like oil and water historically due to a key restriction in grant eligibility:&amp;nbsp; start-ups that are 51% or more owned by VCs do not qualify for SBIR or SBTR grants.&amp;nbsp; Thus, a young start-up in a field relevant to the government grant world has a conundrum when it considers taking VC money - it no longer will be eligible to receive non-dilutive government grants.&lt;/P&gt;
&lt;P&gt;Many VCs argue this is a ridiculous exclusion that is fostering an adverse selection problem.&amp;nbsp; The economy is awash in VC money and so only the less promising start-ups aren't getting it.&amp;nbsp; Instead, they get taxpayer-funded government money.&amp;nbsp; The most promising start-ups who can get VC money are not eligible for government money.&amp;nbsp; Hence, the government is serving as a funder of last resort to companies who the invisible hand of the market has rejected.&lt;br&gt;&amp;nbsp; &lt;br&gt;That may sound like an overly harsh view, but it is one that the NVCA (National Venture Capital Association) is arguing as they try to get the Senate and House to agree to loosen the restriction.&amp;nbsp;Mark Hessen of the NVCA points out that "Venture capitalists have funded well over 90% of all the biotech firms in the United States".&amp;nbsp; It is an interesting debate and the House and Senate are in the midst of it.&amp;nbsp; &lt;/P&gt;
&lt;P&gt;I confess to being sympathetic to both views.&amp;nbsp; My father was an entrepreneur in the 1960s and 1970s who received government grant money to foster his innovations in the defense electronics community.&amp;nbsp; At the time, though, the VC community was miniscule compared to today.&amp;nbsp; In 1980, the VC industry comprised of under 100 firms with a mere $4 billion under management.&amp;nbsp; Today, there are 700 firms with over $250 billion under management.&amp;nbsp; It's hard to argue that just because a firm is successful in attracting VC money, it is unworthy of government support.&amp;nbsp; The fact that SBIR applications have been dropping sharply in recent years (down 12%, 15% and 21% in FY'05, FY'06, FY'07) is a clear signal that something in the system needs to change.&lt;/P&gt;&lt;/div&gt;
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2008/07/should-vcs-hold-the-key-to-access-government-money.html</feedburner:origLink></entry>
    <entry>
        <title>For Entrepreneurs, Recognition is the Reward:  Lessons From the Open Source Community and the NBA</title>
        <link rel="alternate" type="text/html" href="http://feedproxy.google.com/~r/typepad/nqcX/~3/ieEnksOus4c/for-entrepreneurs-recognition-is-the-reward-lessons-from-the-open-source-community-and-the-nba.html" />
        <link rel="replies" type="text/html" href="http://bostonvcblog.typepad.com/vc/2008/07/for-entrepreneurs-recognition-is-the-reward-lessons-from-the-open-source-community-and-the-nba.html" thr:count="2" thr:updated="2008-07-17T09:31:48-04:00" />
        <id>tag:typepad.com,2003:post-52398102</id>
        <published>2008-07-08T11:19:56-04:00</published>
        <updated>2008-07-08T11:19:56-04:00</updated>
        <summary>Anyone following the open source phenomenon can’t help but be amazed at what appears to be volunteerism on a massive scale for corporate gain. Almost every company in the world has some strands of open source code floating around their...</summary>
        <author>
            <name>bussgang</name>
        </author>
        
        
<content type="html" xml:lang="en-US" xml:base="http://bostonvcblog.typepad.com/vc/">
&lt;div xmlns="http://www.w3.org/1999/xhtml"&gt;&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;Anyone following the open source phenomenon can’t help but be amazed at what appears to be volunteerism on a massive scale for corporate gain.&amp;nbsp; Almost every company in the world has some strands of open source code floating around their company.&amp;nbsp; Whether it is the Linux operating system, Apache web server, the IP protocol or database programs such as MySQL, open source software has permeated corporations around the globe.&amp;nbsp; According to one estimate from start-up &lt;A title=http://www.ohloh.net/ href="http://www.ohloh.net/"&gt;&lt;font color=#800080&gt;Ohloh&lt;/font&gt;&lt;/A&gt;, there are 11,000 open source software projects going on right now in the world and 70,000 devleopers contributing to those projects for free.&lt;?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /&gt;&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;Further, the impact and reach of open source extends far beyond businesses alone.&amp;nbsp; Mainstream consumers are participants in the open source phenomenon.&amp;nbsp; &lt;A title=http://www.wikipedia.com/ href="http://www.wikipedia.com/"&gt;Wikipedia&lt;/A&gt; is the most obvious example, which attracts 683 million visitors annually to its over 2 million articles (source:&amp;nbsp; Wikipedia, of course) – all written by volunteers throughout the world.&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;Clearly there is an explanation that goes to the heart of human behavior and motivation as to why so many people are inspired to contribute so much for free.&amp;nbsp; Any reader of philosophers from David Hume to Adam Smith to Ayn Rand would point out that there must be some underlying selfish motivation involved.&amp;nbsp; Open source participants aren’t getting paid, yet they must be motivated in some part out of self-interest.&amp;nbsp; So what exactly is going on?&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;MySQL CEO Marten Mickos seems to have the answer.&amp;nbsp; In a recent WSJ interview, he observes, “Those who contribute to us are as selfish as anybody else…[They are motivated by] their desire to build a reputation for themselves…it gives them a feeling of usefulness in the world.”&amp;nbsp; &lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;And I think therein lies the key insight.&amp;nbsp; Isn’t that what everyone wants?&amp;nbsp; To feel useful and recognized.&amp;nbsp; I would suggest that explanation is also at the heart of why entrepreneurship is such a powerful phenomenon.&amp;nbsp; The reward for the entrepreneur is not just about the money – although, sure, they are motivated by the money -- but what really drives great entrepreneurs is the ego, pride and feeling of recognition and respect.&amp;nbsp; When an entrepreneur sells their company or goes public, it’s that feeling of being a winner and having everyone notice that is most powerful.&amp;nbsp; Ask any entrepreneur if they’d rather own 1% of a $1 billion company that changed the world and makes the front cover of Business Week or 100% of a $10 million company that no one ever hears about and you’ll learn a lot about that entrepreneur.&amp;nbsp; &lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;The NBA Finals “&lt;A title=http://www.faniq.com/blog/Video-NBA-Finals-There-Can-Only-Be-One--Win-Blog-9563 href="http://www.faniq.com/blog/Video-NBA-Finals-There-Can-Only-Be-One--Win-Blog-9563"&gt;&lt;font color=#800080&gt;There Can Be Only One&lt;/font&gt;&lt;/A&gt;” advertisements with split screen images of Kobe Bryant and Kevin Garnett and other multi-jillionare stars said it all:&amp;nbsp; “We all want respect and there is only one way to earn the kind of respect we all want.&amp;nbsp; The kind of respect they can’t take away from you.&amp;nbsp; Win.”&lt;o:p&gt;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;
&lt;P class=MsoNormal&gt;&lt;font face=Arial color=navy size=2&gt;&lt;span style="FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial"&gt;&lt;o:p&gt;&amp;nbsp;&lt;/o:p&gt;&lt;/span&gt;&lt;/font&gt;&lt;/P&gt;&lt;/div&gt;
</content>


    <feedburner:origLink>http://bostonvcblog.typepad.com/vc/2008/07/for-entrepreneurs-recognition-is-the-reward-lessons-from-the-open-source-community-and-the-nba.html</feedburner:origLink></entry>
 
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