The hardest task in major league sports is hitting a baseball. Those who can successfully do this even three out of every ten times over the course of a career are likely to find themselves enshrined in Cooperstown at the Hall of Fame. Unfortunately, scientists who strive to discover new medicines can only fantasize about a 30 percent success rate for their efforts. Drug discovery is a remarkably complicated process, and the success rate for advancing any potential medicine through the first three stages of clinical trials alone is less than 10 percent. Even then, few potential drugs ever get to the clinical trial stage due to toxicity, poor absorption or distribution into tissues, or a host of other problems.

Why is drug discovery and the development of new medicines so difficult?

There are some 23,000 genes within the human genome that carry the instructions for making a wide spectrum of proteins, many of which interact with each other in an interwoven mesh of complicated networks. Trying to understand how all of these molecules work together to develop a human being is a future dream, but understanding the biological role of even a single protein recalls Churchill’s famous quote about “a riddle wrapped in a mystery inside an enigma”. Let me share a simplified summary of the biology of a single gene I used to work on named fms (rhymes with rims) to illustrate the arduous challenge that medical researchers face.

Back in 1971, a young veterinarian in Philadelphia was trying to figure out why a cat under her care had developed a sarcoma (a type of cancer). This biological question initiated more than 40 years of research studies, yielding novel and important insights in not just cancer but in at least five other fields of biology. Susan McDonough, the veterinarian, was able to isolate a virus from the cat’s tumor that, when injected into another cat, resulted in the formation of a new tumor. Eventually the virus, now known as a feline sarcoma virus, was found to contain a gene, designated v-fms, that conferred on the virus the ability to cause tumors. What was it about this gene that enabled it to cause malignant cancers to form? Would there be the potential here for the development of an anti-cancer treatment for cats, and maybe humans as well?

Years later, my late colleague Joe Woolford showed that the v-fms gene in the virus was actually a modified version of a fms gene that is normally present in all cat cells (and many other vertebrate species as well, including humans). Somehow the virus had “captured” and integrated part of this gene, a process that turned the virus from a relatively benign state to one that could transform a normal cell into a cancerous one. The protein encoded by the normal fms gene is a member of a family of tyrosine kinase receptors, which are expressed on the surface of different types of cells. These proteins normally function by activating various intracellular pathways in response to binding a specific signaling molecule, which at the time was unknown for fms. The identification of the molecule that bound to and activated the fms receptor was finally determined in 1985. It turned out to be a previously identified blood cell growth factor known as CSF-1. This protein had previously been shown to stimulate the growth and development of blood cells known as monocytes and macrophages, which are important components of the immune system. The scientific finding raised an important new question: Would there be potential here to develop a drug that stimulated the production of these cells as a way to fight infections?

The story didn’t end here. As it turns out, if you remove the gene that encodes either the fms or CSF-1 proteins from developing mice using molecular biology techniques (the popular “knock-out” approach), the animals that develop have not only a deficiency in certain blood cells, they also suffer from a rare bone disorder known as osteopetrosis. This manifests itself as bones that are abnormally thick and heavy, which also makes them relatively brittle. Results of the knock-out experiment suggested that CSF-1 binding to fms played a role in normal bone development. Osteopetrosis is not just seen in these bioengineered mice; it afflicts humans as well. Again, this result raised a provocative question: Would there be potential here for the development of one or more drugs that could either block the development of osteopetrosis, or conversely, stimulate bone production in people with osteoporosis, the much more common bone-breakdown disorder ?

The fms knock-out mice also showed clear evidence of … Next Page »

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The day is coming when a single carrot, freshly observed, will set off a revolution.” –Paul Cezanne

A couple of years ago my sister told me a story about how she came home from work to find her husband and then 5-year-old daughter playing “house” with her dolls and dollhouse. They were deep into the imaginary play and her daughter was visibly annoyed to be interrupted by my sister’s arrival on the scene. My sister asked if she could play with them and the daughter looked at her skeptically.

“I could be the mommy,” offered my sister.

“No, I’m the mommy,” said the kid.

“How about if I am the baby then?” says my sister, wanting in on the action.

“No,” says the kid, “I’m also the baby. And Daddy is the daddy.”

Kid pauses, thinks for a minute, then says, “OK mommy, you can be a carrot growing in the garden.”

I love that story. First of all, it’s damn funny (although my sister wasn’t amused at the time). Second of all, it so reminds me of how I feel sometimes when I walk into the Board room at companies, particularly the first meeting I attend after we invest anew and when the board members who have already been there for a while see me coming for the first time. “Oh lord,” I’m sure some of them think, “can we just make her a carrot in the garden and not one of the key players in our game of house?” A carrot is a perfect metaphor for these situations because it’s not just any old garden vegetable, but one that’s way underground where it can’t be seen or heard.

Last week I gave a presentation at Rock Health’s XX Retreat, (more info below) about what it’s like to be the only woman on a Board of Directors and what experiences I have had in that position. I have been on many boards now in my 14 years as a VC and am currently on four of them. On two of them I am chairperson, or as I like to call myself, chairchick. It is a really hard job because you are always pissing somebody off, but on the other hand it can also be very rewarding. I remember well the very first time I was appointed to a Board seat; I was excited and nervous about being able to contribute. All of the existing Board members were highly accomplished VCs and CEO types (all men, average age around 50) and I was in my early 30′s and it was my first time. There are definitely times when men want to be there for your first time, but when it comes to Board membership that rule doesn’t apply.

As women we are taught that men are tougher than we are, but I say it’s not true. It is often true that men have more actual experience running companies. We women do far less of that than we should. However, I do not think that necessarily means that we have less experience taking charge and doing the right thing for companies, and toughness comes in many forms.

Being an excellent board member means being strategic, objective, fair, expeditious, clear-headed about money matters and willing to make tough decisions and critical trade-offs under pressure. Sounds a heck of a lot more like being a mom and not so much like being a carrot, if you ask me.

In fact, on the boards of directors of which I have been a member, it has frequently been the case that hard decisions, and particularly those that relate to people, are left to the woman in the room. But I find that women are sometimes more open than men to openly communicating about difficult issues and are frequently more expeditious about wanting to get the right thing done. Perhaps this occurs because women are not always as socially connected to the men with whom we share a table. Perhaps it is because women have a lower tolerance for B.S.–we’re just too damn tired to put up with it, and that is an asset on a board.

During the XX Retreat, one speaker pointed out a study done by University of Pennsylvania scientist Ruben Gur who, using functional MRI, discovered that when a man’s brain is in a resting state, at least 70% of its electrical activity is shut down. Scans of women’s brains in the same state however, showed 90% of their full activity, confirming that women are constantly receiving and analyzing information from their environment. No wonder we are so tired and eager to get things out on the table and checked off our list.

I used the following quote in an older post I wrote about how women can better succeed by effectively marketing themselves, but it feels very appropriate here. A female VC friend of mine once said, “Why would it make any sense for women NOT to be significantly represented in leadership and board positions where key decisions are made about the delivery of care and investment in innovation, when women represent half the population, control the healthcare dollar, and provide the majority of healthcare services?” Damn good question. In fact, if I had my way, all women would find inspiration in this quote,

“Be the kind of women who, when your feet hit the ground getting out of bed in the morning, causes Satan to say, “Shit, she’s awake!”

To backtrack, the XX Retreat at which I gave my talk was a fantastic event organized by the smart and spunky women who run healthcare IT incubator Rock Health (Halle Tecco, Leslie Ziegler, Clare Wylie, et al). There were numerous excellent presenters, many whom addressed the audience of about 120 accomplished women from diverse healthcare backgrounds by telling stories of an incredibly personal nature. My story was more “business-y” in content, but appeared welcome and relevant to most in the room, nonetheless. It was a pleasure for me to have an opportunity to exhort my fellow attendees to capitalize on their strengths and, particularly in the case of the younger attendees, to remind them that they are just as worthy as their male counterparts to hold positions of power and influence at the organizations with which we engage. Bottom line: never let anyone make you a carrot!

These women’s professional conferences are always quite different from the usual gender-nonspecific professional conferences. For one thing, there is a line for the ladies’ room, never a problem at HIMSS or JP Morgan’s Healthcare Conference. For another thing, there is always a mix of very professional business issues and references to empathy, empowerment, work/life balance, personal passion, collaboration and cooperation, themes that just don’t come up elsewhere, although there is no good reason for that. These themes apply equally well to men and women and should be more integrated into our business discourse in my opinion.

An interesting mention at the XX Retreat was a 2011 study done by the World Economic Forum that showed quite conclusively that the success of national economies worldwide is highly correlated with how women are educated and integrated into the workforce. The research shows that greater the equality among men and women, the better a country’s economic output, as measured by per capita GDP and a variety of other measures. The study is well worth perusing, which you can do by clicking HERE.

Chart: Relationship between the Global Competitiveness Index 2011-2012 and the Global Gender Gap Index 2011

The report’s bottom line is that the economic and national security of a country is entirely correlated with the empowerment of women in education and the workforce. The report concludes that, “This Report highlights the message to policy-makers that, in order to maximize competitiveness and development potential, each country should strive for gender equality—that is, give women the same rights, responsibilities and opportunities as men.” If you are one of those people who believe that men’s decisions are more “fact-oriented,” the comprehensive data from this report should drive men to the indisputable conclusion that equality of opportunity for both sexes is better for all. Unfortunately, since not all men have quite come to that conclusion, we still have women’s conferences. And carrots.

Among the very cool things they did at the XX Retreat was to highlight women’s critical role in advancing the healthcare field by naming each of the 12 tables after women who had made significant contributions throughout history. I was delighted to hear that when they polled the attendees to nominate names for the tables, they received far more names of incredibly accomplished female figures than there were tables. Because women like these have been such an inspiration to those that have come after them, I thought I’d close this post by providing you with the list of names chosen to grace the tables:

• Virginia Apgar (1909–1974) was an American pediatric anesthesiologist. She is best known as the developer of the Apgar score, a method of assessing the health of newborn babies that has drastically reduced infant mortality over the world.
• Clarissa Harlowe Barton (1821 – 1912) was a pioneer and humanitarian. She risked her life when she was nearly 40 to bring supplies and support to soldiers in the field during the Civil War. Then, at age 60, she founded the American Red Cross, which she led for the next 23 years.
• Elizabeth Blackwell (1821 – 1910) was the first woman to graduate from medical school. A pioneer in promoting the education of women in medicine in the United States, she was a global social reformer.
• Rachel Louise Carson (1907 – 1964) was an American marine biologist whose book Silent Spring and other writings are credited with advancing the global environmental movement.
• Rosalind Elsie Franklin (1920 – 1958) was a British biophysicist and X-ray
  crystallographer who made critical contributions to the understanding of the
  fine molecular structures of DNA and RNA.
• Bernadine Patricia Healy (1944 – 2011) was a physician, cardiologist, academic and the former head of the National Institutes of Health (NIH).
• Henrietta Lacks (1920 – 1951) was an African-American woman who was the unwitting source of cells (from her cancerous tumor), which were used to create an immortal cellular line for medical research.
• Florence Nightingale (1820 – 1910) was a celebrated English nurse, writer and statistician. Nightingale laid the foundation of professional nursing.
• Dr. Antonia Novello (1944 – present) is a physician & public health administrator. She was the first woman and first Hispanic to serve as Surgeon General.
• Margaret Higgins Sanger (1879 – 1966) was a sex educator, nurse, and birth control activist. Sanger coined the term birth control, opened the first birth control clinic in the United States, and established Planned Parenthood.
• Maxine Frank Singer (1931 – present) is known for her contributions to solving the genetic code, her role in the ethical and regulatory debates on recombinant DNA techniques, and her leadership of the Carnegie Institution of Washington.
• Rosalyn Sussman Yalow (1921 – 2011) was a medical physicist, and the co-winner of the 1977 Nobel Prize in Physiology or Medicine for development of the radioimmunoassay (RIA) technique.

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The recent Facebook IPO has brought to the front pages an issue that many ordinary investors have been asking themselves for a long time: “Is the system fair?” In Facebook’s case, legitimate questions have arisen about why Morgan Stanley, Goldman Sachs, and J.P. Morgan, Facebook’s lead underwriters, all reduced their internal revenue estimates for that company prior to its IPO while investors outside of these three banks were told nothing about it. As Henry Blodget explains here, these circumstances raise serious questions about the practice on Wall Street of selective disclosure and the fairness of the overall system. In other words, were these banks (and subsequently their clients) told something that other investors were not?

This question, and an experience that happened to me this week, bring to mind another long-held practice on Wall Street that I think is equally questionable and seriously outdated. It’s the practice of banks holding private calls with company management teams for a select group of investors. Here is what happened:

This week, a website called theflyonthewall published an alert that Dendreon CEO John Johnson would be participating in a conference call hosted by J.P. Morgan as part of their “CEO/CFO Conference Call Series.” While I follow the company very closely, this was the first I had heard of this. I wasn’t even sure at that point if it was just a rumor or not. Subsequently, I learned that J.P. Morgan also previously distributed a schedule of such calls, presumably to their private clients.

Now before I go any further, let me make a few important disclosures. 1) I have been extremely critical of Dendreon’s management team and their disclosure practices in the past, so much so that I publicly lobbied for the ouster of its prior CEO and Chairman. 2) In this case, I do not mean to pick on Dendreon or its new CEO specifically because this is a practice that is rampant in the industry. Dendreon is just one of many companies who participate in these calls. In fact, I think Mr. Johnson is very honorable, ethical, and a breath of fresh air at Dendreon. I believe the company has a bright future with him at the helm. I only bring up this case for illustrative purposes because it specifically happened to me this week, and in light of the recent Facebook news. 3) J.P. Morgan is a great bank and they have a world-class biotech team. This is an industry problem, not a J.P. Morgan one.

After seeing this investor alert, I emailed Dendreon’s investor relations team, asked them if it was indeed true that the CEO would be holding an investor call and, if so, may I please have the dial-in number. Like many investors, I was interested in hearing what kind of updates or advice Mr. Johnson had to report. Dendreon Investor Relations replied with the following message, “Hi Brad, this is true, however the call is for clients of JPM and I’m not at liberty to provide the call info.” It does not get any more straightforward than that. Dendreon’s CEO had an hour of his time to give to investors, but apparently only investors who are clients of a specific institution. J.P. Morgan, by the way, has been either the lead or joint underwriter of multiple debt and equity offerings for Dendreon in the recent past.

Now let’s set Dendreon aside, because again, this is a practice that many, if not most companies participate in. As an individual investor, I believe these types of selective and private calls need to be opened up to all comers because otherwise they are blatantly unfair. In truth, it is impossible to know in advance if material information will arise during a call. It is one thing to hold a private call with an outside expert who has a relationship with the bank, but it is something entirely different to hold one directly with a company’s management team.

In fact, I believe it is so unfair that in my opinion even the banks themselves recognize this. For example, if you are ever awarded the “privilege” of being invited to one of these calls, you will notice the sleight of hand the banks sometimes use to cover their legal tracks. In the case of this J.P. Morgan event, during an opening legal remark they ask you to voluntarily jump off the call if you are not an “analyst.” However, clearly the call is for clients too because 1) Dendreon directly acknowledged that in their email to me and 2) the first thing the J.P. Morgan operator asks you upon calling in is, “Who is your J.P. Morgan salesperson?” They also forward you directly into the call after you have told them you are an investor. Why not just block “non-analysts” right from the start if it is so important?

Additionally, I would like to point out that other companies who have in the past participated in this same “CEO/CFO Conference Call Series” did see the value in full-disclosure and were motivated to put out a press release alerting everybody about it. For example, here is a link to a press release by Regeneron Pharmaceuticals. They were motivated to make sure that all of their investors could equally participate in their call. Bravo, Regeneron…this is the right thing to do. Unfortunately though, they are the exception, not the rule. In my opinion, other companies would be very wise to follow suit. Private meetings throughout the 1990s tech bubble led to so many material disclosures behind closed doors that it prompted the SEC to enact Regulation Fair Disclosure (FD) in 2000. The regulation is supposed to ensure all investors get material information at the same time.

The bottom line is that in this day and age, the practice of publicly-traded management teams holding private investor calls for only a select few should stop. All investors, no matter who they bank with or how much money they have, deserve as much of an equal footing in the market as possible…especially when it comes to information straight from a CEO’s mouth. This is not overly burdensome for the companies or the banks, and might actually even increase their business. All you would be doing is distributing the phone number of a call that is already happening in the first place, as Regeneron and others have done. A small investor’s money is just as good as the big guys, so they deserve to hear what is on a CEO’s mind as well.

Calls such as these are just one of the many reasons why so many individual investors feel that the system is unfair. Make no doubt, this is an important issue because it is this perceived unfairness that is keeping many people out of the market. At the end of the day, this hurts both trading volumes (which are at multi-year lows) and the veracity of our overall system. Let’s level the playing field. What is good for one set of investors should be good for all.

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Very few people in the mobile industry will disagree that mobile payments are today’s biggest challenge for developers. In the Apple universe, there is a strong solution to the problem: Apple simply requires users to register their credit cards before they can use any services. But this approach only works for a very small segment of high end users in the developed world. For ecosystems outside of Apple’s, mobile payments simply do not work. Inconvenient credit card forms that are impossible to complete on the mobile device, fragmented carrier billing solutions, and tons of other methods have been tried without any real success. As a result, developers on platforms like Android are able to make much less money per user than they are making in Apple’s ecosystem.

As a lot of app makers gravitate towards freemium business models driven by in-app transactions, the lack of payment mechanisms becomes even more of a problem. There is, however, one emerging solution. If you look at the average revenue per user (ARPU) for social games powered by in-app transactions, such as OMGPOP’s Draw Something, it’s clear that the most powerful way to make big money is through what I call nanotransactions. Microtransactions in the range of $1-$5, usually implemented via carrier billing services such as premium SMS, provided the monetization basis for the Mobile 1.0 era of ringtones, wallpapers and Java/Brew games. In nanotransactions, the values exchanged are a few pennies only, but the high number of these small in-app transactions makes up for the size, often leading to much higher revenues overall per user of $10 and higher.

The only big problem with nanotransactions is that the value of the transaction is way less than the effort of actually doing it (completing credit card authorization, sending a premium SMS or even typing a PIN code to access your wallet). Unfortunately, given the very nature of money (which requires security, fraud, data protection, and proper regulatory compliance), it is just physically impossible to improve the user experience much.

But I think this problem can be solved with the help of virtual currencies that are not directly linked to real money. Bear with me as I explain.

As money theory suggests, a currency can successfully function if it satisfies two criteria: It must be backed by real value (just as old currencies were backed by gold) and it must be liquid (meaning it could at any time be freely exchanged into that value). Now, in the global mobile ecosystem, there are a lot of valuables that could be used to back virtual currencies, the most notable of which is consumer attention and engagement.

Already, billions of dollars per year are being spent on mobile marketing, which means that mobile users are generating value for advertisers simply by doing things on mobile, like using social networks, browsing websites, or downloading apps. In fact, if an advertiser pays an ad network or another promotional channel $1 per promoted app download, the assumption is that the user installing that app will generate at least that much value just by choosing to download the app, or in other words just for his or her own willingness to try it out. From that perspective, every aspect of user engagement has value to it—from checking the weather on a website to browsing an app store and downloading apps.

Now, if a portion of that value were passed back to the user (just like all traditional loyalty programs do with points, airline miles, etc.), and if it were stored and made available for the user to freely spend, it would create a currency solution that is not linked to real money at all. From the example above, even if 50 percent of the $1 value were passed on to the user himself, downloading just one promoted app would top up the balance by $0.50. In the nanotransactions economy, where individual items are priced at a few pennies each, that’s real money.

The best part is that the virtual nature of the currency would solve all the problems of the traditional money, like regulatory security requirements, high carrier taxes, inconvenient payment data collection forms, and so on. Transactions would be as simple as pressing one “buy” button, without any registrations and PIN codes—even simpler than on iTunes, where you still have to type your password.

My company, GetJar, launched just this kind of consumer loyalty based virtual currency platform, GetJar Gold, earlier in the year. The program rewards GetJar users with Gold “coins” for app downloads. We also provided developers with a software development kit that they can use to incorporate GetJar Gold into their apps and accept Gold coins as a way of payment for in-application items. Across the board, developers using the solution have seen 100 percent increases in conversions when augmenting the traditional payment options with the virtual currency.

I believe all the conveniences of virtual currencies are forcing a major shift in the near future and that this mechanism will account for as much as half or more of all in-app transactions. I will be very curious to see the dynamics between “local” (i.e. supported in one app only) and “global” (supported across a range of apps and developers) virtual currencies evolve. While each type does have specific advantages to an individual developer, I personally believe that ultimately, a few global currencies will become dominant. In any case, the mobile industry will benefit massively from much improved monetization for the developer and better user experiences with a greater choice for the consumer.

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We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win…

—John F. Kennedy, September 1962

I teach entrepreneurship to about 50 student teams a year from engineering schools at Stanford, Berkeley, and Columbia. For the National Science Foundation Innovation Corps this year I’ll also teach roughly 150 teams led by professors who want to commercialize their inventions. Our extended teaching team includes venture capitalists with decades of experience.

The irony is that as good as some of these nascent startups are in material science, sensors, robotics, medical devices, life sciences, etc., more and more frequently VCs whose firms would have looked at these deals or invested in these sectors, are now only interested in whether it runs on a smartphone or tablet.

And who can blame them.

Facebook and Social Media

Facebook has adroitly capitalized on market forces on a scale never seen in the history of commerce. For the first time, startups can today think about a Total Available Market in the billions of users (smartphones, tablets, PCs, etc.) and aim for hundreds of millions of customers. Second, social needs previously done face-to-face (friends, entertainment, communication, dating, gambling, etc.) are now moving to a computing device. And those customers may be using their devices/apps continuously. This intersection of a customer base of billions of people with applications that are used/needed 24/7 never existed before. The potential revenue and profits from these users (or advertisers who want to reach them) and the speed of scale of the winning companies can be breathtaking.

The Facebook IPO has reinforced the new calculus for investors. In the past, if you were a great VC, you could make $100 million on an investment in 5-7 years. Today, social media startups can return hundreds of millions or even billions in less than 3 years. Software is truly eating the world.

If investors have a choice of investing in a blockbuster cancer drug that will pay them nothing for fifteen years or a social media application that can go big in a few years, which do you think they’re going to pick? If you’re a VC firm, you’re phasing out your life science division.

As investors funding cleantech watch the Chinese dump cheap solar cells in the U.S. and put U.S. startups out of business, do you think they’re going to continue to fund solar? And as clantech VCs have painfully learned, trying to scale cleantech past demonstration plants to industrial scale takes capital and time past the resources of venture capital. A new car company? It takes at least a decade and needs at least a billion dollars. Compared to iOS/Android apps, all that other stuff is hard and the returns take forever.

Instead, the investor money is moving to social media. Because of the size of the market and the nature of the applications, the returns are quick—and huge.

New VCs focused on both the early and late stage of social media have transformed the VC landscape. (I’m an investor in many of these venture firms.) But what’s great for making tons of money may not be the same as what’s great for innovation or for our country.

Entrepreneurial clusters like Silicon Valley (or New York, Boston, Austin, Beijing, etc.) are not just smart people and smart universities working on interesting things. If that were true we’d all still be in our parents’ garages or labs. Centers of innovation require investors funding smart people working on interesting things—and they invest in those they believe will make their funds the most money. And for Silicon Valley the investor flight to social media marks the beginning of the end of the era of venture capital-backed big ideas in science and technology.

Don’t Worry We Always Bounce Back,

The common wisdom is that Silicon Valley has always gone through waves of innovation and each time it bounces back by reinventing itself.

[The idea of each of these waves of having a clean beginning and end is a simplification. But it makes the point that each wave was a new investment thesis with a new class of investors as well as startups.]

The reality is that it took venture capital almost a decade to recover from the dot-com bubble. And when it did, Super Angels and new late stage investors whose focus was social media had remade the landscape, and the investing thesis of the winners had changed. This time the pot of gold of social media may permanently change that story.

What Next

It’s sobering to realize that the disruptive startups in the last few years not in social media—Tesla Motors, SpaceX, Google driverless cars, Google Glasses—were the efforts of two individuals, Elon Musk and Sebastian Thrun (with the backing of Google). (The smartphone and tablet computer, the other two revolutionary products were created by one visionary in one extraordinary company.)

We can hope that as the Social Media wave runs its course a new wave of innovation will follow. We can hope that some VCs remain contrarian investors and avoid the herd. And that some of the newly monied social media entrepreneurs invest in their dreams. But if not, the long-term consequences for our national interests will be less than optimal.

For decades the unwritten manifesto for Silicon Valley VCs has been: We choose to invest in ideas, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win.

Here’s hoping that one day they will do it again.

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So here is my obligatory post on Facebook…which will be the most spectacular IPO of a venture-backed company in the history of mankind…and it just priced tonight.

The shares priced at $38 giving the company a market cap of $104 billion fully diluted, raising $16 billion in proceeds. Of the 421 million shares being sold, 57 percent (or 241 million shares) are being sold by insiders; in the past few years only LinkedIn and Pandora had a higher percentage of shares coming from insiders. Assuming the “green shoe” over-allotment option is exercised, the total amount of proceeds will exceed $18.4 billion. And this is where I want to focus.

Putting aside the potential negative signaling of all this insider selling—and General Motor’s voting with their feet (or tires) this week—what is the impact on the VC industry with all this liquidity? First—according to Fortune—some of the numbers:

—Individual shareholders (mostly Zuckerberg) are selling $3.2 billion of stock and will retain stock worth $27.7 billion

—Institutional shareholders are selling $8.3BN of stock and will still hold $15.8 billion

—This does not include the existing institutional investors (T. Rowe Price, Andreessen Horowitz) which hold about $1 billion of stock and are not selling, nor does it include all the other employees who are now fabulously wealthy

—Of the institutional investors, $5.1 billion of stock being sold is held by institutions which have traditional LPs and/or are themselves LPs. This same group of investors will still have $10.6 billion of Facebook stock yet to be sold.

For me what is most interesting is to speculate about what is to become of all this liquidity. The venture industry has struggled mightily to raise capital; in the past few years the VC industry has raised between $12 to $15 billion annually. As these proceeds are realized and distributed, do much of these dollars get recycled—that is, will underlying LPs begin to increase their allocations to VC as they start to see Facebook distributions? The math suggests that one year’s worth of VC fundraising is now in around half a dozen VC firms fortunate enough to have invested in Facebook!

Additionally, we are watching a very deep and wealthy pool of new angel investors get created and collectively they will play a powerful role in the next wave of great company formation. Much like the “PayPal Mafia” from the last decade which sponsored many of this cycle’s great companies, the Facebook Mafia should do the same over the course of the next decade. These individual investors themselves could become significant LP’s in many venture funds which, if that were to be the case, would further drive VC industry expansion.

Or is this just all wishful dreaming?

This essay originally appeared today on Michael Greeley’s blog, On the Flying Bridge.

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[This is the third in a series of posts about A New Kind of Science. Previous posts have covered the original reaction to the book and what’s happened since it was published. This post first appeared on Wolfram's blog---Eds.]

Today ten years have passed since A New Kind of Science (”the NKS book”) was published. But in many ways the development that started with the book is still only just beginning. And over the next several decades I think its effects will inexorably become ever more obvious and important.

Indeed, even at an everyday level I expect that in time there will be all sorts of visible reminders of NKS all around us. Today we are continually exposed to technology and engineering that is directly descended from the development of the mathematical approach to science that began in earnest three centuries ago. Sometime hence I believe a large portion of our technology will instead come from NKS ideas. It will not be created incrementally from components whose behavior we can analyze with traditional mathematics and related methods. Rather it will in effect be “mined” by searching the abstract computational universe of possible simple programs.

And even at a visual level this will have obvious consequences. For today’s technological systems tend to be full of simple geometrical shapes (like beams and boxes) and simple patterns of behavior that we can readily understand and analyze. But when our technology comes from NKS and from mining the computational universe there will not be such obvious simplicity. Instead, even though the underlying rules will often be quite simple, the overall behavior that we see will often be in a sense irreducibly complex.

So as one small indication of what is to come—and as part of celebrating the first decade of A New Kind of Science—starting today, when Wolfram|Alpha is computing, it will no longer display a simple rotating geometric shape, but will instead run a simple program (currently, a 2D cellular automaton) from the computational universe found by searching for a system with the right kind of visually engaging behavior.

This doesn’t look like the typical output of an engineering design process. There’s something much more “organic” and “natural” about it. And in a sense this is a direct example of what launched my work on A New Kind of Science three decades ago. The traditional mathematical approach to science has had great success in letting us understand systems in nature and elsewhere whose behavior shows a certain regularity and simplicity. But I was interested in finding ways to model the many kinds of systems that we see throughout the natural world whose behavior is much more complex.

And my key realization was that the computational universe of simple programs (such as cellular automata) provides an immensely rich source for such modeling. Traditional intuition would have led us to think that simple programs would always somehow have simple behavior. But my first crucial discovery was that this is not the case, and that in fact even remarkably simple programs can produce extremely complex behavior—that reproduces all sorts of phenomena we see in nature.

And it was from this beginning—over the course of nearly 20 years—that I developed the ideas and results in A New Kind of Science. The book focused on studying the abstract science of the computational universe—its phenomena and principles—and showing how this helps us make progress on a whole variety of problems in science. But from the foundations laid down in the book much else can be built—not least a new kind of technology.

This is already off to a good start, and over the next decade or two I expect dramatic progress in the application of NKS to all sorts of technology. In a typical case, one will start from some objective one wants to achieve. Then, either through knowledge of the basic science of the computational universe, or by some kind of explicit search, one will find a system that achieves this objective—often in ways no human would ever imagine or come up with. We have done this countless times over the years for algorithms used in Mathematica and Wolfram|Alpha. But the same approach applies not just to programs implemented in software, but also to all kinds of other structures and processes.

Today our technological world is full of periodic patterns and other simple forms. But rarely will these ultimately be the best ways to achieve the objectives for which they are intended. And with NKS, by mining the computational universe, we have access to a much broader set of possibilities—which to us will typically look much more complex and perhaps random.

How does this relate to the kinds of patterns and forms that we see in nature? One of the discoveries of NKS is that nature samples a broader swath of the computational universe than we reach with typical methods of mathematics or engineering. But it too is limited, whether because natural selection tends to favor incremental change, or because some physical process just follows one particular rule. But when we create technology, we are free to sample the whole computational universe—so in a sense we can greatly generalize the mechanisms that nature uses.

Some of the consequences of this will be readily visible in the actual forms of technological objects we use. But many more will involve internal structures and processes. And here we will often see the consequences of a central discovery of NKS: the Principle of Computational Equivalence—which implies that even when the underlying rules or components of a system are simple, the behavior of the system can correspond to a computation that is essentially as sophisticated as anything. And one thing this means is that a huge range of systems are capable in effect not just of acting in one particular way, but of being programmed to act in almost arbitrary ways.

Today most mechanical systems we have are built for quite specific purposes. But in the future I have no doubt that with NKS approaches, it will for instance become common to see arbitrarily “programmable” mechanical systems. One example I expect will be modular robots consisting of large numbers of fairly simple and probably identical elements, in which almost any mechanical action can be achieved by an appropriate sequence of small-scale motions, typically combined in ways that were found by mining the computational universe.

Similar things will happen at a molecular level too. For example, today we tend to have bulk materials that are either perfect periodic crystals, or have atoms arranged in a random amorphous way. NKS implies that there can also be “computational materials” that are grown by simple underlying rules, but which end up with much more elaborate patterns of atoms—with all sorts of bizarre and potentially extremely useful properties.

When it comes to computing, we might think that to have a system at a molecular scale act as a computer we would need to find microscopic analogs of all the usual elements that exist in today’s electronic computers. But what NKS shows us is that in fact there can be much simpler elements—more readily achievable with molecules—that nevertheless support computation, and for which the effort of compiling from current traditional forms of computation is not even too great.

An important application of these kinds of ideas is in medicine. Biology is essentially the only existing example where something akin to molecular-scale computation already occurs. But existing drugs tend to operate only in very simple ways, for example just binding to a fixed molecular target. But with NKS methods one can expect instead to create “algorithmic drugs”, that in effect do a computation to determine how they should act—and can also be programmable for different cases.

NKS will also no doubt be important in figuring out how to set up synthetic biological organisms. Many processes in existing organisms are probably best understood in terms of simple programs and NKS ideas. And when it comes to creating new biological mechanisms, NKS methods are the obvious way to take underlying molecular biology and find schemes for building sophisticated functionality on the basis of it.

Biology gives us ways to create particular kinds of molecular structures, like proteins. But I suspect that with NKS methods it will finally be possible to build an essentially universal constructor, that can in effect be programmed to make an almost arbitrary structure out of atoms. The form of this universal constructor will no doubt be found by searching the computational universe—and its operation will likely be nothing close to anything one would recognize from traditional engineering practice.

An important feature of NKS methods is that they dramatically change the economics of invention and creativity. In the past, to create or invent something new and original has always required explicit human effort. But now the computational universe in effect gives us … Next Page »

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Prior to the mid 1700s (and long before the advent of GPS receivers in every smartphone), mariners at sea calculated their position by Dead Reckoning, a process in which you simply assume that whatever course and speed you are on can be straight-lined ahead with a ruler and pencil, day after day, regardless of wind, current, and human error. As its rather ominous name suggests, dead reckoning often ended in disaster, with ships hundreds of miles away from where they thought they would be. But while dead reckoning as a trans-global navigation tool fell out of use with the discovery of reasonably accurate ways to measure time (and therefore longitude), the concept is alive and well as applied to virtually every attempt to predict the future.

I suppose it’s only human nature; we got pretty far up the evolutionary chain by remembering what happened the last time and learning how to avoid or repeat the situation depending on the outcome. The last time we ate those awesome looking purple berries we all threw up and old Grunthead died. So let’s not eat them this year. The last time we used chunks of antelope fat on our hooks we caught some huge fat fish, so let’s definitely do that again! We survived because we noticed patterns and learned from them, and the easiest pattern of all is dead reckoning—the straight-line interpolation from the past to the future.

Witness how we predict business outcomes. In 2006, home prices rose by 15 percent, so our best guess for 2007 is another 15. Last year our company grew revenue by 22 percent, so this year we’re going to do 25! The problem, of course, is that these predictions can fly in the face of reason and observable outcomes. The expectation of continuous double–digit exponential growth of any quantity is definitely going to end in tears at some point (though predicting exactly when is worth billions).

For example, take the following graph. We can’t help but see the straight line interpolation showing “trending” growth from 1999 to 2012!

But now look at a simple subset of the above graph from 2001 to 2009, and one tends to see a different picture:

In case you’re curious, the data series from the above graphs is purely random (a random walk to be precise) courtesy of … Next Page »

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What was a geeky doctor like me doing on an MIT Sloan entrepreneurship and innovation trek in Silicon Valley back in March? That was the big question, given that I’m 37 years old, trained as an anesthesiologist, and only started using a Twitter account a couple of weeks ago. Going on that tour was almost like being Alice in Wonderland—I was so out of place from the world I’ve lived in for the last decade.

Medical training, for all its excitement, is absolutely dreadful at teaching the importance of business and organizational process. It’s no surprise that physicians often find themselves complaining about trends, yet do little to make a change. If nothing else, we’re busy working in the clinics. It’s difficult to turn a new idea into reality. This is the problem I was faced with. I saw all these cool ideas, but I was clueless on what to do with them. Do I talk to certain people about it? Who would these people be? How do you put your idea into practice? How do you find time to do any of this?

The Sloan trip was my chance to get a sense of this. How did people get an idea into the real world? Clearly a great idea is meaningless alone. To paraphrase a quote I once heard from former Surgeon General David Satcher: ideas must move from the bench to the bedside to the curbside.

With plenty of companies to potentially visit, I focused my trek schedule around entrepreneurs in the healthcare space. I was fortunate to start with Dr. Thomas Fogarty at his winery. As a little background, Dr. Fogarty is a legendary surgeon who invented a simple catheter that completely changed the way cardiac surgery is done, basically putting himself and many of his fellow surgeons out of business. It’s an interesting and courageous proposition to make a big difference at your own expense. After retiring from medicine, he opened the winery (after all, the catheter did work) which is where he welcomed us for a talk about his experiences. To me he’s the perfect example of the end-user innovator. He saw the problem first hand and knew the changes that needed to be made. His great move was then to actually do it.

My next visit was a visit to Rock Health, a healthcare accelerator. Walking around their office, I got my first taste of Bay area startup culture. It was wonderful to see how passionate everyone was about their startups’ ideas. It brought home the importance of finding something that excites me and that will make a big difference in people’s lives. It’s great to have a job; it’s another thing to have a mission.

I saw this realized later that day at HealthTap. That company, founded by Ron Gutman, is attempting to use technology to connect patients with physicians to get them the answers they need when they need it, significantly reducing unnecessary office and hospital visits. I’m the first to admit our healthcare system is broken and inefficient, and this struck me as an innovative way to address it. As for the feel of the group, these people are clearly focused and on a mission. Ron was just as proud to share his team’s credo as he was his technology.

Our next stop was to meet Dr. Amir Belson at Zipline Medical. I was surprised to see how he targets specialties completely outside of his area of medical training. He’s a pediatrician yet he’s working on ventures like improving endoscopy and fixing the trouble with IV catheters. The surprising part about IV’s is that they’ve changed little since their original design, and it’s harder than you think to place a plastic tube into a moving vein. Amir’s clever idea was to move a smooth “guide-wire” into place, allowing for the catheter to slip into position atraumatically. He described the process as … Next Page »

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Is natural gas the new next big thing? It is called a revolution in energy and a game-changer. Daniel Yergin claims that “the rapidity and sheer scale of the shale breakthrough—and its effects on markets—qualified it as the most significant innovation in energy so far since the start of the twenty-first century.” The President has proclaimed that the United States is “the Saudi Arabia of natural gas.” It is “the energy equivalent of the Berlin Wall coming down,” says Robin West, CEO of PFC Energy.

They may be right. Over the course of the next several years, we are likely to witness a dramatic evolution in energy. It will not be overnight, but it is likely that there will be steady movement away from coal and petroleum and towards natural gas.

Natural Gas Supplies are Up Dramatically

The statistics are intriguing. From 1990 to 2010, global proved reserves of natural gas have increased by 49 percent. Because of changes in technology, more can be expected to be found. The U.S. is one of the world’s top five producers with large reserves in New York, Pennsylvania, Texas, Montana, and North Dakota. It is likely the U.S. will become a net exporter of natural gas early in the next decade—a possibility that was inconceivable only a few years ago.

This increase in natural gas supply has put pressure on prices. In early 2011, MIT professor John Deutch noted that, “…oil is three times as costly as natural gas for a given amount for energy, and that is almost double the ratio that has prevailed over the past twenty years.” In early 2012, the U.S. Energy Information Agency predicted that with increased production, average prices will remain below $5 per thousand cubic feet through 2023.

Technical Innovations

Two innovations are responsible for much of the increase in natural gas supply: Horizontal drilling and hydraulic fracturing (or fracking). These developments have allowed drillers to economically harvest gas that was difficult and too expensive to obtain. While these are not new technologies, they have become vastly more cost effective and much more widely utilized in the past decade.

• Horizontal drilling achieved commercial viability during the late 1980s. Horizontal drilling is the process of drilling a well that begins vertically or on a slant and then angles to a target location.

• Hydraulic fracturing (or fracking) is a technique that was first used in the 1940s. It injects large amounts of water, under high pressure, combined with chemicals and sand, into shale. This fragments underground rock, creating pathways for otherwise trapped natural gas to flow through to a well.

Potential Benefits and Concerns

Increases in the supply and use of natural gas present both benefits and concerns.

Benefit—Improved Air Quality and Reduction in Greenhouse Gases. The use of natural gas—particularly as a replacement for oil and coal—has compelling environmental advantages. Compared to coal-generated electricity, natural gas reduces nitrogen oxide emissions by 80 percent. Natural gas emits about 29 percent less carbon than oil and 453 percent less than coal. As a transport fuel, natural gas emits about 20-30 percent less lifecycle carbon than oil. In electricity generation, compared to coal, natural gas reduces emissions of sulfur dioxide by 100 percent.

The MIT study, “The Future of Natural Gas,” concluded that “substitution through increased utilization of existing combined cycle natural gas power plants provides a relative low-cost, short-term opportunity to reduce U.S. power sector CO2 emissions by up to 20 percent, while also reducing emissions of criteria pollutants and mercury.”

Concern—Drilling. Natural gas recovery has been widely criticized for the impact that drilling has on the environment. These concerns fall into three basic categories: Polluted waste water, the potential for earthquakes, and the risk of contaminating drinking water.

• Polluted wastewater. The fracking process generates large amounts of dirty water. Water is forced underground, along with sand and chemicals, to free natural gas for extraction. These waters are then extracted. This is a significant concern and waste waters need to be handled properly and disposed of safely. “Some operators have conspicuously misbehaved and some regulators have fallen short,” says the Rocky Mountain Institute’s Amory Lovins, “making fracking controversial even in normally drilling-friendly places like Texas and western Colorado.”

• Earthquakes. Earthquake concerns are raised both from the fracking process and from disposal of waste waters pumped underground. A Washington Post editorial suggests that “more study and probably more regulation will be needed” as more experience accumulates. But they note, “Of the 144,000 storage wells of this type in America, only a tiny fraction have been linked to earthquakes.”

• Contaminated drinking water aquifers. Critics warn that fracking is contaminating drinking water aquifers. Methane has been found in water wells in gas producing regions, but, according to Yergin, this could occur for a number of reasons (improperly sealed wells or naturally occurring shallow layers of methane, for example). The industry argues that fracking occurs a mile or more below drinking water aquifers and is separated from them by thick layers of impermeable rock. Further, they note, there are more than a million wells where fracking has been employed in the United States dating back six decades.

An MIT study concludes, “The environmental impacts of shale development are challenging but manageable. Research and regulation, both state and Federal, are needed to minimize the environmental consequences.” Not everything is known about these issues; they require continued scientific monitoring and research. As more experience and knowledge is attained, more regulation and oversight may be necessary.

Benefit—Energy Security. Increased utilization of natural gas may reduce our dependence on imported oil from unfriendly sources. While this is not a total solution, “the past image of the US as helplessly dependent on imported oil and gas from politically unstable and unfriendly regions of the world no longer holds,” (says) John Deutch.

Benefit—Impact on the Economy. There can be little doubt that a significant reduction in the export of U.S. dollars to foreign nations to pay for energy imports will be a positive development. It is likely to reduce the nation’s trade deficit and enhance the value of the dollar. It is likely that new jobs and investments will develop in the creation of enhanced energy infrastructure to support growing utilization of natural gas. In Washington, there are several examples developing:

• WaterTectonics is an Everett-based company that specializes in water cleaning systems including electrocoagulation treatment, chemical treatment, and automated pH adjustment. The company has seen significant growth in the treatment of flowback and produced water in natural gas extraction.

• World CNG is a Kent, WA-based company specializing in the aftermarket conversion of light- and medium-duty passenger and cargo vehicles to use compressed natural gas instead of conventional gasoline or diesel.

• HotStart is a Spokane Valley company that creates engine heating devices in markets including oil and gas. Much of the company’s growth has been in delivering large pipeline pump engine heating solutions that significantly reduce wear and tear.

Concern—Alternative Energy. Juliet Eilperin of the Washington Post wrote recently, “Perhaps the biggest force working against not just Solyndra but clean energy in general is this: Because natural gas has gotten so cheap, there is no longer a financial incentive to go with renewables.” Investor interest, at least for the moment, is moving in a new direction.

Conclusions

Is natural gas the next big thing? There are few certainties in forecasting, but natural gas looks big. Overall, this is a good thing, albeit with legitimate concerns. There are three reasons to move to new sources of energy: Environmental, economic security, and national security. Natural gas may be environmentally beneficial. It is certainly an improvement to U.S. economic and national security. If it can ultimately provide a bridge to a cleaner, more efficient energy future—and is regulated appropriately—it will indeed be a boon to the world.

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AN OPEN LETTER TO PRESIDENT OBAMA

Dear President Obama:

As you and the rest of our nation’s leadership grapple with the momentous questions of restoring our collective financial stability and eminence, I am hopeful that some lessons from my background as an immigrant—now naturalized citizen—might prove instructive. The undeniable fact that runs throughout all the lessons I have learned, which seems to be overlooked by many in this country, is that America is truly the land of opportunity.

I arrived here from Iran as a young man, with some experience as a sales representative at my family’s pharmaceutical company. My father strongly encouraged me to get a “real education” and out of respect for him, I traveled to this land of opportunity, and earned an advanced science degree at the University of San Francisco. Fortunately for me, a chemistry professor at USF assumed the role of my mentor and convinced me to undertake a career in chemical research and discovery. As the doors to my native country closed as a result of the 1979 revolution, I arrived at the University of California-Davis, where I earned a Ph.D. in synthetic organic chemistry. The caliber of students and professors I have worked very closely with at every step of the way proved the U.S. educational system is truly second to none.

Since 1993, when I became a naturalized citizen, I have founded three scientific research and equipment companies. My first, located in Novato, California, manufactured approximately 80 environmental protection products and created over 30 jobs. In 2007, we were able to relocate the company’s manufacturing operations from China to the United States which added additional employment to the local economy. The company now distributes over 5,000 products around the world, and exports to countries such as China, India, Germany, and Russia. The drug discovery firm I founded and currently lead, NovaBay Pharmaceuticals, has raised over $43 million in capital, collaborates with major global pharmaceutical firms, and employs 28 scientists and other employees. We are now in advanced human clinical studies with a totally new class of drug to treat a variety of infections without contributing to the worldwide crisis of antibiotic resistance.

President Obama, I believe my amazing journey of discovery, value and job creation could not have happened anywhere else in the world; nor do I believe it could have happened at any other time in history.

Lessons I have learned, which might be instructive, include an emphasis on a liberal, or at least flexible, immigration policy. I am afraid the open door policies of 19th and 20th centuries have come to an end in the post- 9/11 era. America is justifiably concerned about its borders and security. So what can be done?

Critical Factors

People from around the globe, such as me, have flocked to America for centuries in search of freedom, higher education and the opportunity (not the guarantee) to better themselves; perhaps even create the next innovative enterprise that will change the world.

Innovation is the prime engine for job creation and economic recovery. Companies that are driven by it will have long-term success.

10 Point Plan

1. Let’s maintain America’s leadership in drug development and cost-effective healthcare by providing grants, loans and investments to small, capital-intensive biotech companies that employ less than 50 people. These companies create high paying jobs that cannot be exported easily to China, India or even Europe. The National Institutes of Health (NIH) is in a great position to evaluate novel technologies and make grants available to small startups with viable business plans. The NIH can be a de facto venture capital arm of the U.S. government; its grants can be converted into pro-rata equity ownership of these companies

2. Promote hiring of qualified, unemployed workers. Companies hiring workers who have been unemployed for more than 12 months (particularly war veterans), should be exempt from payroll taxes for three years.

3. Eliminate or reduce the onerous burden of “Sarbanes Oxley” regulations for companies with less than 200 employees, or under $200 million market capitalization. This will encourage capital formation through IPOs and investment in innovative technologies.

4. Provide research and development tax credits to large companies who partner with small start-up companies in order to cultivate job growth, innovation and collaboration.

5. Continue capital gains tax-free status for investments in small, less than $200 million market cap companies. Profits from these investments should remain tax-free if the investment is kept in those companies for at least five years. These companies are this nation’s job creation engine. They must be nurtured in the capital markets by the risk taking “smart money.”

6. Create incentives for government research labs and public universities to transfer technology to small start-ups in the private sector.

7. America must take a leadership role in the wise stewardship of the earth’s resources. The world’s rivers, bays, oceans and global weather are at risk because of our careless activity today and, if we’re not diligent, for the foreseeable future. Every year when I travel to China on business, I am always amazed by the lack of interest in recycling and the worsening of pollution.

8. Invest in education. When I attended, quarterly tuition at UC Berkeley or UC Davis was $200; today it has risen to $12,000. We need to maintain our world class higher education while making it affordable for all. Many of our leading scientists and engineers would not have been able to earn their education if tuition costs were prohibitive.

9. Use diplomacy and financial aid to wage peace worldwide. An investment in creating peace will have a fantastic return.

10. Create an “open door,” welcoming visa policy for talented immigrants. Create incentives and reduce hurdles for gifted foreign students who want to stay in the United States. Recently, my company attracted the attention of a brilliant Korean graduate student from UC Berkeley, whom we tried to keep in the United States. The sheer volume and complexity of the attendant bureaucracy became overwhelming for both my company and the Korean scientist. He eventually gave up and is now a Professor of Biochemistry at one of the most prestigious Korean academic institutions. An unfortunate loss for the collective U.S. brain trust.

Mr. President, the United States is truly the land of unparalleled opportunity, a phenomenon that few who are native-born may appreciate fully. A vision of cultivating innovation, and a nurturing environment that welcomes immigrants whom will add value and wisdom, will foster our great nation’s security and ensure our freedoms and worldwide leadership into the future.

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The pieces are in place for Facebook’s IPO next week—not only has the company set its stock price range and updated its Q1 numbers, it has also attempted to de-risk the biggest perceived risk in the first draft of its S-1: exposure to mobile competition. Facebook bought Instagram for $1 billion, which ostensibly will help it approach mobile social interaction in a more engaging way. But it hasn’t done anything to address its exposure to other addictive consumer applications that could whittle away at its users’ engagement over time. Namely, the most risky applications involve social commerce, and the elephant in the room as it relates to physical goods, not virtual goods, is Pinterest.

There are rumors that Facebook will announce a major eCommerce move just before its IPO in May. That is still possible, but given that its social commerce brainchild, Beacon, flopped in 2007, an unproven eCommerce-related endeavor branded by Facebook would be a hugely risky move. Unlike its answer to potential competition in the mobile space, Facebook is leaving eCommerce risk unanswered one way or the other.

In a Forrester report last April entitled, Will Facebook Ever Drive eCommerce? Demystifying The Hype For Retail eBusiness Executives, analyst Sucharita Mulpuru summarized:

“In spite of the fact that hundreds of millions of people around the world have Facebook accounts, the ability of the social network to drive revenue for eCommerce businesses continues to remain elusive. eBusiness professionals in retail collectively report little direct or indirect benefit from Facebook, and social networks overall trail far behind other customer acquisition and retention tactics like paid search and email in generating a return on investment.”

Is it possible that Facebook has concluded it is simply a social destination (and I use “simply” lightly because becoming a huge social destination with metrics like it has is not simple) that will engage users and disrupt the online (and ostensibly mobile) advertising spaces? Like Google, Facebook’s predominant source of revenue is advertising. Facebook’s payments and credits program generates revenue through social gaming, but this is largely contributed by Zynga. Like Google, Facebook has not proven that it can incubate and release vertical user applications that are monetized through means other than advertising.

However, Facebook is planning to go public at a valuation four times the size of Google’s IPO valuation. I see no other way to justify this without a belief that Facebook has a more diversified revenue base than Google, and that isn’t certain. Yes, it has a myriad of opportunities to grow its advertising revenue, but if you believe Facebook’s valuation could double over time (and you should if you plan on buying it), you should be betting on its advertising revenue growth and not potential diversification through eCommerce or other related streams.

I would expect that new companies, Pinterest included, will continue to take the eCommerce route in an effort to compete with Facebook. It’s my bet that someone other than Facebook will solve the social commerce experience for physical purchases, and this should be a very interesting space to invest in over the coming months.

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While everyone in the in the world of sequencing has heard this cynical joke, as an industry, the joke is about to be on us. We have focused our time, energy and investment on the ability to sequence the genome in a day, and have largely ignored the computational power required to extract and analyze the genomic data in a timeframe that keeps it relevant. This disparity creates significant risk of delay to the pace of research and creates a scenario where the joke becomes “the genome in a day but with the year-long analysis.”

The vast majority of academic and core laboratories are not prepared for the massive wave of data that will be coming off of multiple new “Genome-in-a-Day” technology offerings. Most labs are already computationally resource constrained, struggling to just store volumes of data. The average analysis pipeline of basic alignment, consensus calling, variant detection and filtering process takes 14 days, even with a large cluster for most sequencing centers. For most, the exorbitant cost of building more computing infrastructure is not a realistic short term solution and ultimately will not shorten computation time.

The answer that many labs have been dabbling with is going to “the cloud.” Unfortunately, as many researchers have discovered, the cloud is not as welcoming as its white fluffy exterior suggests. At the onset of a project, the learning curve just to start a computing instance is relatively steep. Additionally, there are many misconceptions about what the cloud can actually do to speed up a computation. Many researchers assume that if they put their existing analysis software in “the cloud” and purchase analysis time on 1,000 machines that the computation will automatically scale. Wrong.

As you might imagine, researchers are sorely disappointed with this outcome while at the same struggling in a deluge of data needing to be analyzed. Concurrently, the need for rapid, large scale genomic analysis continues to rise so the industry is at a technical impasse. Instrument producers while perfecting “the genome in a day,” have not offered solutions to solve this analytics crisis which begs the question, why would any lab purchase a genome in a day sequencing system if they can’t analyze the results in a day?

There is a new generation of cloud-based bioinformatics available. To date, the industry has taken a “wait and see” approach to the next generation of technology and now we have a pending bottleneck. It is critical for the industry to share its best practices, identify core investment dollars and support continued aggressive development of bioinformatics software that works in a cloud environment. Without industry support and bioinformatics technology allowing for analysis in a day, lab managers, researchers and sequencing instrument companies are running headlong into a data disaster.

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A recent meeting focused on “Reinventing Biotech’s Business Model” provided an interesting window into the spectrum of approaches being used to create new biotech companies. Unfortunately, it did little to relieve the concerns I recently voiced regarding the expanding numbers of “virtual” biotechs. This model is becoming a popular archetype for the creation of new biotech companies because they require much smaller initial capital investments than traditional biotechs. The basic idea is to build a company around a small managerial group who then farm out most of the basic operations to contract organizations. These outsourced functions usually include research and development, clinical trials, intellectual property, regulatory, financial, and even human resources.

These disposable companies are not designed to reach adulthood.They are raised for the sole purpose of being gobbled up while still young fry by the larger, wealthier fish in the pond. While some of these companies have been acquired for attractive valuations, I remain concerned about their potential to create useful medicines. There are several other attributes of “virtual” biotechs that contribute to my anxieties beyond the distortions these companies may introduce in the biotech ecosystem. The first has to do with the quality of the science on which at least some of these companies are likely built, and the second concerns the fact that “virtual” companies are not likely to contribute much towards the development of robust biotech clusters.

Most biotech companies, no matter their business model, need to start off with some sort of molecule that they plan on turning into a drug or treatment that will attract funding from investors. “Virtual” companies, however, are not equipped to do independent research, as they have no dedicated lab space. So where do their drug development projects come from? They generally originate from one of the three places that are also plumbed for drug leads by more conventional biotechs:

1) New ideas provided by entrepreneurs directly or indirectly associated with the new company.

2) Castoffs from Big Pharma or biotech companies that did not develop them for a variety of reasons (e.g. change in clinical focus; drug performance wasn’t stellar in early trials; prioritization left no money for development; projects left over after purchase of more valued corporate assets).

3) Published data on potential drug targets, which mostly arise from academic research papers.

It is this last category that is the primary source of my trepidation. One might expect that research chosen as the basis for forming a new company would be described in ground breaking, high profile papers. After all, practically all science builds upon previous discoveries, which is why many researchers spend so much time reading the literature and attending conferences. This concept was famously summarized by Isaac Newton in a letter he wrote in 1676 to his rival Robert Hooke, “If I have seen a little further it is by standing on the shoulders of Giants.” Suppose, however, that instead of standing on the shoulders of Giants, Newton had found himself kneeling on the feet of Dwarfs? What would he have seen and come up with from that position? Would he … Next Page »

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On September 16, 2011, President Obama signed into law the America Invents Act, the most important modification to U.S. patent law in 60 years—and some even argue, since 1836. Some changes went into effect immediately, such as fee penalties for submitting paper applications and strict rules on when multiple defendants can be joined together in one lawsuit.

These immediate changes were not as important to most inventors and tech companies. Instead, the big focus has been on the switch from the “first-to-invent” guideline for awarding patents to a “first-to-file.” Another change of great interest are the new types of challenges that can be used by third parties to prevent a patent from issuing, or to get it revoked. The changes in patent challenges take effect on September 16, while the new first-to-file rule begins next year, on March 16.

This doesn’t mean inventors and tech companies should be in standby mode, however. Actions that inventors and companies take now could affect patent applications and patents filed for and issued after the new provisions take effect. Thus, it is imperative for inventors and tech companies to start preparing immediately for the new world under the America Invents Act.

As a patent litigator, inventor, and professor of patent law, here are my five most important steps you or your company can take in advance of the First-to-File switchover:

—Get your documentation and lawyers ready to file patent applications on all of your current inventions by March 16, 2013.

All applications filed after March 16, 2013, that cannot trace all claims that were submitted at any time in the application to an earlier application fall under the new first-to-file rules—which in the vast majority of situations, can only hurt the applicant. Thus, under nearly all circumstances, make sure to file before March 16, 2013.

—Be careful about disclosing, selling, or using your invention in a commercial manner.

Under existing law, patent applicants have a year to file after selling, using, or disclosing their inventions. While it appears that the intent of … Next Page »

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Faced with disruptive innovation, you can be sure any possibility for innovation dies when a company forms a committee for an “overarching strategy.”

I was reminded how innovation dies when the e-mail below arrived in my inbox. It was well written, thoughtful, and had a clearly articulated sense of purpose. You may have seen one like it in your school or company.

Skim it and take a guess why I first thought it was a parody. It’s a classic mistake large organizations make in dealing with disruption. [Editor's Note: Names in the memo have been changed, obviously.]

The Strategy Committee

Faculty and Staff:

We believe online education will become increasingly important at all levels of the educational experience. If our school is to retain its current standards in terms of access and excellence we think it is of paramount importance that we develop an overarching campus strategy that enables and supports online innovation.

We believe our Departments play an essential leadership role in the design and implementation of online offerings. However, we also want to provide guidance and support and ensure that campus goals are met, specifically ensuring that our online education efforts align with our mission, values and operational requirements.

To this end, we are convening a Strategy Committee that is charged with overseeing our efforts and accelerating implementation. The responsibilities of the group will be to provide overall direction to campus, make decisions concerning strategic priorities and allocate additional resources to help realize these priorities. Because we anticipate that most of the innovation in this area will occur at the school/unit level we underscore that the purpose of the Strategy Committee is to provide campus-level guidance and coordination, and to enable innovation. The Strategy Committee will also be responsible for reaching out to and receiving input from the Presidents Staff and the Faculty Senate.

The Strategy Committee will be comprised of Mark Time, Nick Danger, Ralph Spoilsport, Ray Hamberger, Audrey Farber, Rocky Rococo, George Papoon, Fred Flamm, Susan Farber, and Clark Cable.

A Policy Team, which is charged with coordinating with the schools/unit to develop detailed implementation plans for specific projects, will report to the Strategy Committee. The role of the Policy Team will be to develop a detailed strategic framework for the campus, oversee the development of shared resources, disseminate best practices, create an administrative infrastructure that provides consistent financial and legal expertise, and consult with relevant campus groups: and the the Budget Office. The Policy Team will be led by two senior campus leaders, one from the academic side and one from the administration side.

We are extremely pleased that Dean TIrebiter has accepted the administrative lead role of the Policy Team. Dean Tirebiter brings to this position a deep knowledge of the online environment. He will be helping to identify a member of our Faculty to serve as the academic lead of the Policy Team.

The Strategy Committee will be meeting for a half-day retreat at Morse Science Hall in the coming weeks to begin work. We will be sending out an update to faculty and following this retreat, so stay tuned for further updates.

Sincerely,

President Peter Bergman

We Can Figure it Out in A Meeting

The memo sounds thoughtful and helpful. It’s an attempt to get all the “right” stakeholders in the room and think through the problem.

One useful purpose a university committee could have had was figuring out what the goal of going online was. It could have said “the world expects us to lead so lets get together and figure out how we deal with online education.” Our goal(s) could be:

• Looking good
• Doing good for all [or at least citizens of California]
• Doing well by our enrolled students
• Fixing our business model to fix our budget crisis
• Having a good football team—or at least filling the stadium
• Attracting donations
• Attracting faculty
• Oh and yes—building an efficient, high quality education machine

But the minute the memo started talking about a Policy Team developing detailed implementation plans, it was all over.

The problem is that the path to implementing online education is not known. In fact, it’s not a solvable problem by committee, regardless of how many smart people in the room. It is an “NP complete” problem—it is so complex that figuring out the one possible path to a correct solution is computationally incalculable. (See the diagram below.)

If you can’t see the diagram above click here.

Innovation Dies in Conference Rooms

The “let’s put together a committee” strategy fails for three reasons:

1. Online education is not an existing market. There just isn’t enough data to pick what is the correct “overarching strategy.”
2. Making a single bet on a single strategy, plan or company in a new market is a sure way to fail. After 50 years even the smartest VC firms haven’t figured out how to pick one company as the winner. That’s why they invest in a portfolio.
3. Committees protect the status quo. Everyone who has a reason to say “No” is represented.
4. Dealing with disruption is not solved by committee. New market problems call for visionary founders, not consensus committee members.

My bet is that there will be more people involved in this schools Strategy Committee than in the startups that find the solution.

In a perfect world, the right solution would be a one-page memo encouraging maximum experimentation with the bare minimum of rules (protecting the schools brand and the applicable laws).

Lessons Learned

• Innovation in New Markets does not come from “overarching strategies”
• It comes out of opportunity, chaos and rapid experimentation
• Solutions are found by betting on a portfolio of low-cost experiments
  • With a minimum number of constraints
• The road for innovation does not go through a committee

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Dr. Donald Berwick, the former administrator of the Center for Medicare and Medicaid Services, held his post from July 2010 until December 2011 (about 18 months if you’re counting), before resigning in the face of sustained Senate opposition to confirmation.

He has kept a fairly low profile since his departure from the agency, but he spoke last week in California at an invitation-only conference of healthcare executives and investors sponsored by the private equity firm Health Evolution Partners. Perhaps not the most sympathetic audience for this liberal lion of health care reform, but the erudite professor and policy maven still has a lot to say about our health care system and he did not shy away from saying it.

He remains passionately committed to the goal of providing cost effective, quality care to every American. Indeed, I overheard one attendee respectfully remark after the session that he clearly is “a man with a dream,” as if this was the only conceivable explanation as to why an otherwise intelligent and influential Harvard professor would stoop to take the reins of an apparently unmanageable bureaucracy with an impossible mission amidst unrelenting political crossfire.

Dr. Berwick opined that it would be a tragedy for America should the Supreme Court strike down the Obama Administration’s Affordable Care Act; no surprise there. He also says that Americans have a sufficient stake in their own health to be vested in the system, even if the costs of health care are not shifted so that we bear a larger portion of them directly. Others openly disagreed with this sentiment.

Yet his primary theme was that it was getting very, very late in the game to slow the aggregate cost of health care as the baby boomers come into retirement. Citing his recent article in the Journal of the American Medical Association co-written with Andrew Hackbarth, Berwick noted that by surveying the lowest estimates of waste identified by other researchers in six broad categories — overtreatment, failures of care coordination, failures in execution of care processes, administrative complexity, pricing failures, and fraud and abuse—the sum of the lowest available estimates exceeds 20 percent of total health care expenditures. In fact, Berwick suspects we are wasting one of every three dollars that we spend, and this seems consistent with the oft-cited disparity between total health care spending and outcomes in this country.

The urgency of cost control is now such that, he said, there will be big reductions. The only question is whether we will do it in a good way or a bad way. The implication seems that “the good way” will involve rational government action consistent with the Affordable Care Act. I am reminded of the Cold War era debates over the Pentagon budget that targeted the euphemistic $1,000 toilet seat. The point being that, when you are spending billions and billions (or more), there will invariably be a percentage of it subject to waste, fraud and abuse that we all must implicitly accept as part of the program mission and scale.

That said, I agree that we should aspire to do better. How to do so? The Congress may continue to be dysfunctional, but its division surely reflects our own discord. Since most voters don’t read JAMA as they doze off, how can we expect to develop the kind of sophisticated policy consensus that is necessary to provoke the Congress and the regulatory agencies to act rationally so that we better control costs and improve quality of care?

Berwick did not address this question directly, but the implication of his remarks seems to be that unless we are prepared to have draconian, across the board reductions in healthcare spending and services, we need to look to the private sector to advance the cause. This could mean more subtle, consistent cost reductions driven by private payers, and quality improvements facilitated by enhanced information and other technological advances.

There is another path forward, one that reflects the time worn adage that “necessity is the mother of invention.” As The New York Times just reported, some of us apparently already have embraced cost cutting with fervor, driving down the rate of health care spending in 2009 and 2010. We don’t yet know what is behind these trends, or if it is indeed a trend. However, based on my experience with US Oncology, by 2010 there were disturbing anecdotal reports of cancer patients deferring or abandoning essential treatment. Some patients were ignoring pain to the point that they showed up at their healthcare provider with metastasized tumors, while others declined post-operative radiation therapy.

As to the future impact of all this on innovative life sciences companies, Berwick sounded an unmistakable warning. “If your products are expensive, it will be challenging; if yours is a firm focused on controlling costs, then your time has come.” In other words, biotech and medical device companies had better develop their case for cost effectiveness as their products enter into clinical development, because mere efficacy and safety may not get you paid in this brave new world.

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Last week, attendees of Sage Bionetworks’ 3rd Annual Congress came to San Francisco with the bold charge to speed up drug discovery and ready to stand on the shoulders of the previous two Congresses to take the nascent open source biology movement from a thinking to a doing stage. Pitched as “Building Better Models of Disease Together,” a packed house of more than 250 forward thinking attendees and a global online community of 500 watched the live webcast (available here).

Those who gathered were fully aware of the failures with the current siloed approach to biomedical research and were expecting to hear about Sage Bionetworks’ progress to build new infrastructure so that researchers, funders and the public can for the first time develop, fund and complete research that puts the patient at the center of the equation.

A special buzz filled the air as the 80 percent of returnees were complemented by an irreverent, energized group of 16 Young Investigators selected for their effort and commitment to open research. I opened the Congress, prompting all to call each other out on the culture of open collaboration they had come to create: “If you are lucky at some point in your life, you realize that the task needed is bigger than you. Realize that you should not be building something for you to use but for others to use. When you use the word “We,” mean it.”

Opening keynote speakers George Church and David Haussler, both heroes from the front lines of genomic technology and Big Data analysis, continued to impress all with the rapid advances of affordable molecular technology and its ability now to generate more bytes of data—rapidly approaching the zettabyte scale—than words that human beings have collectively ever spoken. To make the most of Big Data, both exhorted all to stop participating in the current siloed culture and instead invest in approaches that turn the machines loose on ALL the data that ALL can then see.

As Congress returnees have come to expect, Sage Bionetworks’ scientists, software engineers and collaborators led solid sessions, this time providing open science tools for all to now take up. These included datasharing platforms (Synapse), a portable legal consent (pending IRB approval) to create openly available, user-contributed health and genomic data, exciting examples of pre-competitive drug discovery models and the launch of BRIDGE, an online “town square” to democratize the identification of the effective therapies that matter most to patients.

But no one expected the jawdropping talks of three keynote speakers that stretched things even beyond the comfort zone of the most disruptive thinkers at the Congress. Although attendees arrived at the Congress heady about the progress already made, these keynote speakers pointed to the huge effort and out of the box thinking still needed to truly democratize medicine.

Keynote speaker Lawrence Lessig, a Harvard Law School professor, compared our current closed “medical industrial complex” to the hopeless picture of today’s U.S. government and the toxic effect that money and privilege have had on its core democratic principles. Most biting was Lessig’s reminder that “We are the They” that are distracted and do nothing to change the status quo. Similar to the parent of a child with terminal cancer, Lessig exhorted all of us … Next Page »

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Twenty-plus years ago, I helped launch the $10K Business Plan Competition now known as the MIT $100K Competition. Back then there was very little of formalized entrepreneurship activities at MIT. The $100K gave rise to the Deshpande Center for Technological Innovation after Desh Deshpande had served as a $50K judge and noticed that there weren’t as many cutting-edge early-stage ideas in the competition as he would have liked. Around the same time Professor Dave Staelin, and MIT alum Alec Dingee got the Venture Mentoring Service off the ground, which among other things provided “after $100K support” to entrepreneurs who had entered the $100K.

Over the last 20 years, I have talked to a variety of delegations from other U.S. states and from foreign countries seeking to understand how to be as successful as MIT has been in entrepreneurship. They have seen the MIT Founders Report and the follow up report Professor Ed Roberts did for the Kauffman Foundation that shows that there are 125,000 living MIT alums and that the 25,000-plus active companies founded by MIT alums or professors if taken together would constitute the 11th largest economy in the world.

For many years, I would explain the various programs at MIT that foster entrepreneurship, and many of these delegations would go back to their homes and literally copy every MIT program. Often I would follow up with them and ask them how it was going, and in most cases the answer was “it wasn’t really working.” Over time, I realized that by the time they implemented the MIT-type programs I had described, new MIT programs had been born and the existing MIT programs had morphed. What we were looking at was an evolving Entrepreneurial Ecosystem.

Indonesia—Building an Entrepreneurial Ecosystem

I just returned from the better part of a week in Jakarta, Indonesia, as part of the Startup Boot Camp Indonesia program. Most of you probably don’t know much about Indonesia—I certainly didn’t before my trip. Indonesia is a G-20 country (the 17th largest economy) with 240 million people stretched across three time zones (as wide as the U.S.). Although it is not an Islamic state, more than 86 percent of Indonesians are Muslim, making Indonesia the world’s most populous Muslim-majority nation. The median age of the population is 27, versus 37 in the United States. With 42.5 million Facebook users, Indonesia has the 4th largest number of Facebook users in the world, behind the U.S. (157M), India (46M) and Brazil (45M). So it is a large nation with a young Internet-connected population.

Startup Boot Camp Indonesia is a program run by the GIST (Global Innovation through Science and Technology) Initiative. GIST was established in 2010, with funding from the U.S. Department of State, to spur economic advancement through science- and technology-based innovation in countries across the Middle East, North Africa, and Asia. The idea behind GIST is that economically empowered people (aka entrepreneurs) provide the basis for political stability and economic growth.

Key business and governmental leaders in Indonesia are just beginning to make a major effort to grow an Indonesia Entrepreneurial Ecosystem. This effort was almost single-handedly started by Dr. Ir. Ciputra, a successful Indonesian entrepreneur who … Next Page »

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Enacted with great fanfare in early April, the JOBS Act is intended to improve access to the public capital markets for startup companies. The cornerstone of the act is the creation of an “IPO on ramp” which provides “emerging growth companies” up to five years following their IPO to come into full compliance with various disclosure and accounting requirements. By reducing the cost and complexity of going public, at least to some extent, the act should encourage eligible companies to pursue IPOs.

An emerging growth company (EGC) is any company that had annual revenues of less than $1 billion (indexed for inflation) during its most recently completed fiscal year, other than a company that completed its IPO on or before December 8, 2011. Approximately 90% of all IPO companies over the past five years would have qualified as EGCs. Emerging growth company status ends after five years or earlier if the company’s annual revenues reach $1 billion (indexed for inflation); the company has been public for at least twelve months, files one Form 10-K and achieves a public float of at least $700 million; or the company issues more than $1 billion in non convertible debt during a three year period.

The JOBS Act provides a number of important benefits to EGCs:

• Reduced Financial Statement and MD&A Disclosure: In IPO registration statements, emerging growth companies are required to provide only two years of audited financial statements (instead of three) plus unaudited interim financial statements. In addition, an EGC need not present selected financial data in other registration statements or reports filed with the SEC for any period prior to the earliest audited period presented in its IPO registration statement. Similarly, an emerging growth company is only required to include Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) for the fiscal periods presented in the required financial statements.

• Exemption from Internal Controls Audit Attestation: Emerging growth companies are exempt from the requirement of the Sarbanes Oxley Act that an independent registered public accounting firm audit and report on the effectiveness of a company’s internal control over financial reporting. As a practical matter, IPO companies will still need to implement robust controls and procedures prior to going public.

• Delayed Application of New Accounting Standards: Emerging growth companies may choose not to be subject to any newly adopted or revised accounting standards unless and until these standards are required to be applied to non-public companies. This election must be made on an “all or nothing” basis and is irrevocable. Opting out may not always be beneficial, however, as it may make the ultimate transition out of emerging growth company status more painful.

• Exemption from New Audit Requirements: EGCs are exempt from any future mandatory audit firm rotation requirement and any rules requiring that auditors supplement their audit reports with additional information about the audit or financial statements of the company that the Public Company Accounting Oversight Board might adopt. Any other new auditing standards adopted by the oversight board will not apply to audits of emerging growth companies unless the SEC determines that application of the new rules to audits of these companies is necessary or appropriate in the public interest.

• Reduced Executive Compensation Disclosures: An emerging growth company is allowed to provide the “scaled” executive compensation disclosures previously available only to companies with a public float of less than $75 million. An EGC need not provide Compensation Discussion and Analysis (CD&A); compensation information is required only for three named executive officers (including the CEO); only three of the seven compensation tables otherwise required must be provided; and the Summary Compensation Table is only required to cover two years (as opposed to three).

• Exemption from Additional Compensation Disclosures: Emerging growth companies are exempt from the Dodd-Frank Act requirements, which are not yet in effect, to include disclosures about the relationship between executive compensation and financial performance and the ratio between CEO compensation and median employee compensation.

• Exemption from Say-on-Pay, Say-on-Frequency and Say-on-Parachute Requirements: Emerging growth companies are exempt from the requirements mandated by the Dodd Frank Act that companies seek stockholder approval of an advisory vote on their executive compensation arrangements, including golden parachute compensation.

• Confidential Submission of Registration Statements: An EGC is able to submit a “draft” Form S-1 to the SEC for confidential review instead of filing it publicly. A Form S-1 that is confidentially submitted must be substantially complete, including all required financial statements and signed audit reports. Confidential submissions do not have to be filed publicly until 21 days before the road show commences, enabling an EGC to maintain its IPO plans in secrecy and delay disclosure of sensitive information to competitors and employees until much later in the IPO process.

Emerging growth company status is also available to companies with annual revenues of less than $1 billion that completed an IPO after December 8, 2011. These companies will need to decide whether to adopt EGC standards in future SEC filings.

An eligible company may choose to forgo any of the exemptions provided to EGCs and instead comply with the requirements that apply to a company that is not an emerging growth company. However, the company must decide whether it will avail itself of the exemption regarding the extension of time to comply with new and revised accounting standards at the time the company is first required to file a registration statement or other report with the SEC after April 5, 2012. An emerging growth company is not permitted to choose to comply with some but not all of the non-EGC accounting standards.

The extent to which emerging growth company standards will be adopted by eligible companies and accepted by the market is uncertain. Institutional investors could, for example, demand that EGCs continue to comply with non-EGC standards for some or all matters. A pre-IPO emerging growth company should discuss with its IPO underwriters the impact of adopting the standards on marketability of the offering. An emerging growth company that went public after December 8, 2011, should consider market and investor expectations before adopting EGC standards.

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