Rocky Top MBA

CMM August 7th, 2009

This comes from Tim Draper’s article at Communications of the ACM. If you don’t know, Tim Draper is the founder of Draper Fisher Jurveston (DFJ), one of the most influential VC funds. Draper was also an investor in Hotmail, and created “viral marketing” as a tool for signing up beta users. The man is a legend, basically. I’ve had the chance to be in the audience for one of his speeches, and I loved it. He was funny, savvy, controversial, and very personable. Plus, he plays guitar and wears tacky ties.

Draper’s article is all about how now is the perfect time to be an entrepreneur. I couldn’t agree more! Frankly, I think we’re in the kind of trouble that stimulus and government spending can’t get us out of. And forget about big corporate. If they’ve got deep enough pockets, they’ll take the turtle approach… tuck in to their shell, don’t take risks, and hope to weather the storm. Who can really get us back on track? The entrepreneurs!

Is there evidence to support the claim that a recession is a good time to be an entrepreneur? Sure! GE, IBM, Microsoft, Shell Oil, AT&T, Merck, J&J, Sun, Skype, Kodak, Polaroid, HP, and Adobe…. all companies started during an economic downturn! What is it about starting during a recession that is a blessing in disguise? Draper says the following:

1. Managers think more creatively during a recession because circumstances force them to. They question old assumptions, look for new ways to cut costs, and explore new directions. If things are crazy outside, they look inside for ways to keep the financials healthy… and that spurs innovation!
2. Frugality becomes a long-lasting culture for the company. People work for less and cost-savings is encouraged. The bottom line is paramount because the company is in a battle to stay alive! Do you really need the fancy ergonomic desk? Not if it comes at the expense of losing your job.
3. Big companies, via management and boards of directors, are shortsighted during recessions. They cut product development, R&D, and “nonessential” spending. What happens? It leaves the world of development and innovation ripe for outsiders! (Author’s note: Frankly, if they’re doing their jobs they should have anticipated the conditions and been ready for it.)
4. Economic recessions decrease “venture fratricide.” What is venture fratricide? It’s when a company gets funded by institutional money at the seed and development stage, only to find out 9 months later that 20 other funds funded 20 other companies to attack the same market. What happens? You’ve got lots of new entry into an unstable and learning market. Enormous amounts of money are spent trying to gain marginal market share. End game, lots of money is loss.
5. Moore’s Law does not slow down for the economy! Ideas and innovation don’t care about the economy. They occur when smart people try to tackle big problems (author’s note: pay attention… smart people, not person… big problem, not small nuisance).

• Entrepreneurship
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CMM August 5th, 2009

Yes…. Yes they can. And with the way things are going, we better hope they do.

• Entrepreneurship
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CMM July 6th, 2009

Here’s the podcast from the panel I moderated/assembled for codestock. Thanks to the facilitators for putting this up.

http://feelthefunc.com/content/binary/3d147899-410d-4b4d-ac29-90817ec12f44/FTF-09-CodeStock_Starting_a_Software_Company_Panel.mp3

Picture of Knoxville area software entrepreneurs Curtis Jones with Voice’s Heard Media, Chris Van Beke with Voice’s Heard Media, and Patrick Hunt with Tingz. Big thanks to the three of them for doing this.

• Economy , Entrepreneurship
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CMM July 2nd, 2009

The data for this analysis came from NVCA, who has a relationship with Thomson Reuters. You can find the NVCA press release here.

Basically, Q2 of 2009 showed some signs of life out of the IPO market with five offerings, four from into tech and one from non-high tech. While we’ll celebrate those as the first real high technology IPOs since Q1 2008, we can’t over do it. We’re still a long way from the IPO payday; for example, in 2007 there were 86 IPOs for the year. The IPO market imploded in January of 2008, which in hindsight was probably an early sign of the financial fiasco we’re still struggling with to this day. I still feel like lots of politicians were trying to talk us into a little recessionary dip with pre-election angst and finger pointing, but in retrospect I don’t think I paid enough attention to the stalling IPO market. But I digress…

The venture industry needs liquidity events. Right now, many funds have all capital tied up in portfolio companies that can’t exit even though they’ve reach profitability, or the fund is tied up pumping capital into companies unable to raise additional outside equity. Either way, funds are limited on their ability to engage in real value-add, early stage investing. In addition, some funds are taking huge cram-downs and dilution as portfolio companies go through recapitalization and down equity rounds (i.e. raising money at lower valuations than before). Now, I’m not waving a “poor pitiful VC” flag. I’m just saying we need a healthy, vibrant, and liquid venture industry to keep entrepreneurship going.

The thing about entrepreneurship and early-stage investing is that it’s an expertise lost to the general public and most public officials. Frankly, you don’t really hear major media reporting on innovation, new business creation, IPO registrations, and patent filings. It’s all too complicated for the average Joe or Mary, so real high-growth entrepreneurship seems reserved to those fringe elements of society. Lots of people want to claim some title in this arena (angel invstor, entrepreneur, etc), but few of them really have the somatch and even less ahve the know-how. In addition to the complexity and unknown of this space, the target is always moving as a result of disruption and hyper competition. In my experience, working in this industry requires a high level of commitment to learning and a deep humility/sensitivity to how much you need to learn and relearn each and every day.

In conclusion, we’ve seen some sign of life in the IPO market, but we’ve still got a lot of capital clogged up in venture-backed companies. Exits are approximately 60% of their high over the past five years, with IPOs still anemic.

Here are some graphs showing venture0-backed liquidity events in the US (sorry for the poor pic quality):

• Economy , Entrepreneurship , Venture Capital
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CMM May 19th, 2009

This morning, I saw this cartoon by Gaping Void artist Hugh MacLeod. I want to be honest, I’m a fan boy of Gaping Void. I have two of Hugh’s cartoons printed off in my office serving as cube grenades– Permanent State of Reinvention and The Hugh Train. Both serve as great talking points, tacked to my wall right beneath my “venture capital value chain” and NASA sticker. Hugh’s stuff really connects because: a. it speaks to something bigger than just the grind of labor, 2. it communicates the same frustrations and irritations that I feel about (insert topic).

When I saw this new cartoon, I was immediately swept back to a twitter comment yesterday. Casey Peters of Knoxify.com tweeted about whether digital/online/social media should be called social media or new media. His question being, is it really “new” media if there are so many opinions, experts, agendas, and conferences about it. My response was that the majority of those opinions, experts, agenda, and conferences were all self-serving and/or rubbish.

This cartoon really captures where I think we’ve come with much of social media– 97% are attention starved, self-indulgent wannabe’s, while 3% are really trying to properly utilize the power of the platform. I know this sounds harsh, but the amount of complete drivel that comes across my various communications is staggering. Add to that pool the ever-so-frequent poorly planned with no hope of generating revenue “social networking” business opportunity that lands in my inbox, and I feel like I’m struggling to keep my head above water!

So, I could expound upon the various elements of social media and why most of them are rubbish, but that would be a waste of time. At the end of the day, your platform/network/meme/etc must be life changing to justify its use existence. Society has quick and dirty flings with technology that makes the needle twitch. Sure its fun, but you don’t commit to something with negligible value-add. If you do, its a long, dark, and expensive road to nothing (dot.com bust). Society embraces/loves/worships technology that makes the needle spin like a clock!

On a positive note (finally!), there is a choice. I think it has a lot to do with ethics and responsibility. Wannabe’s sell out. They take the early easy wins to get cash, because in the end that’s all they care about… Real rock stars, the kind that leave you feeling light headed and giddy at the end of a show, are in it because they LOVE it! The money is awesome and keeps them focused when times get difficult, but they have passion and drive that transcends that. They want their music (aka product) to make a difference.

The world needs more rock stars.

PS: Hugh MacLeod is a rock star in my book.

• Entrepreneurship , Innovation , social media
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