KOREAN DIGITAL HAGWONS (“CRAMMING SCHOOLS”) AND TURNING ALGAE INTO ENERGY
Venture Capital Trends in the Web 3.0 World
Jim de Wilde
NOTES FOR ROTMAN MBAs
FINAL CLASS ON VENTURE CAPITAL STRATEGIES
April 9, 2007
Imagine Seoul in 2010, or Toronto 2010, or Helsinki 2010. You are leaving home in rush hour traffic. A GPS locator in your car shows that you can purchase access to a designated toll traffic-decongestion route for $5. You order it and are given clearance to a route which saves s 20 minutes from your drive. At home, your teenage daughter is working on a customized tutorial in biophysics with a programme from Helsinki University of Technology and a tutor in Cairo. You decide to check in on your home generation system, which includes a waste-incineration technology in a high-ceramic kiln (to avoid unnecessary byproducts in the atmosphere) and an algae-to-energy pond which has recently been installed in your back yard. You check the grid and find out that today your energy coordinating utility owes you net $13 because your energy production exceeded consumption in the previous 24 hours. After deciding to invest the $13 in a new project on Kiva , you have a drink from your private water system which has the latest ultra-violet water decontamination technology, replacing the one you bought in 2001.
This little science fiction story is, of course, not very farfetched. It also contains a venture capital trends projection. In the laboratory for new media products that is Korea, a company like Megastudy has already become a success in digitalizing the Korean interests in “cramming schools” or Hagwans. Digital customized education has a market and a significant investment success story in Korea. LiveFuels and Solix Biofuels are one of many attempts to provide ways to create new sources of energy.
Figuring this out is what makes venture capital so exciting.
There are two things that are important at the outset of this discussion. Venture capital can be examined from a variety of perspectives. (a) It is a fundamental part of regional economic development and competitiveness strategies, whether the unit is Nashville or Saskatoon, the state of Georgia or the province of Saskatchewan, Korea or Finland. It is essential that venture capital skills be understood as something which cannot be acquired off the rack. (b) The second is that the Silicon Valley model of venture capital remains a template when this type of discussion takes place. Many of the aspects of Silicon Valley are exportable, but there is no way the unique experience can ever be replicated. The mix of entrepreneurial capital, under commercialized science, a unique university system that created Silicon Valley cannot be reported. However, aspects of the Valley of the 1990s and the post-dotcom Valley do contain lessons. Venture capital is a collaborative exercise, with business models being tested by colleagues and companies being built around teams of people who speak the same conceptual language. The role of Stanford MBAs in Silicon Valley achievements remains one of the great success stories of organized knowledge-creation. We are in the process of doing similar things in Toronto, Montreal and all of Canada. This is the most significant part of the competitiveness agenda today. It is important to differentiate between strategic venture capital, building technologies within a competitive global marketplace and venture capital as a critical ingredient of regional economic development. The first commercializes disruptive and innovative technologies, the second backs local entrepreneurs for niches within larger markets. The strategies are quite different.
The network of commercialization of technology and new venture capital ideas has given rise to a networking about business models. Much venture capital has been driven by the rise of the digital era and we look for a Brazilian EBay or a Chinese Real Networks. Then some returning MBAs work with some local capital to build the Brazilian or Chinese web-architecture and that is called venture capital. These are highly successful models and indispensable to the construction of comparative advantage in Brazil, China or Ontario. However, this is only one dimension of “venture capital”. Another dimension is the way in which is venture capital becomes economic development, where a group of people in Nashville or Winnipeg or Minneapolis create a venture portfolio to back local talent. This works best, in my view, when the local entrepreneurs are “differentiated”. It is hard to reinvent EBay in Winnipeg or Nashville and harder to develop the economic architecture for a new application of web-commerce without being surrounded by people who plan their scientific and engineering life around web-architecture the way Silicon Valley operates.
Regional venture capital firms require an increased academic focus. Because they are so essential to economic development policies, their portfolio strategies and competences have to be assessed differently than global technology leaders. This is not the occasion to discuss public policy towards venture capital-led competitiveness, but it is useful to start looking at a number of regional venture capital firms. For example, if one looks at local venture firms like Council Ventures in Nashville or Total Technology Ventures in Atlanta, whose portfolios are cited here for case study purposes, one gains some perspective on venture capital strategies outside of Silicon Valley. The University of Texas incubator is also a strategically innovative approach to the organization of local knowledge and expertise to create value. Another example is the Beyster Institute at the University of California at San Diego. This is not a discussion of best practices, because the best practices at Mayfield or Kleiner Perkins are not the best practices for a regionally-based firm. In designing venture capital strategies in new environments, we need to focus on local competences, e.g. the capacity of Saskatoon to become a venture capital centre for agricultural technologies. An analysis of venture capital firms in major states and provinces in North America is a much-needed stuffy for understanding economic innovation and competitiveness options for public policy-makers.
Similarly, if one looks at the portfolio of Union Square Ventures, one sees the excellence of combining strategic understanding of where the key high-growth area of the economy is going with the local expertise (advertising, traditional media) that exemplifies the strength of the New York Economy. The Union Square web-site is valuable for other reasons to venture capitalists. The discussion on the site of the rationale for a local media investment like OutsideIn argues the importance of understanding where there is an opportunity in developing a new media business model for local media. The rest of the portfolio includes companies like Del.icio.us which has been exited as Yahoo sought a social bookmarking play, companies like Tacoda which show how behavioral targeting can enhance consumer understanding for web marketing and AdaptiveBlue which improves the browsing experience through targeting.
Innovative and strategic venture capital strategies like Burrill and Company focus on activities in the biotechnology areas where there is a slightly different market potential. Burrill is one of the few firms with an expertise in agricultural biotechnology. In the Burrill portfolio, there are companies like Agraquest, commercializing science in biologically safe pesticides. It is cited here (a) because it is an interesting case study of an investment in California outside of the usual categories, and (b) because biological pest control is a category in the past that I have argued is a strong category for venture capital investment. In some Scandinavian venture capital firms, an expertise in industrial biotechnology, enzymes and reactive agents creates different kinds of competitive advantage. These are differentiated areas of the commercialization of science and fit into a different design for new industries in Europe (where food production is more advanced technology driven). This also leads to collaboration with corporations in this space, especially corporations with a strategic venturing capability like Novartis , a portfolio which is worth spending time examining as a case study of strategic diversification into new generation products.
Venture capital portfolios can either target a specific area where rapid growth is anticipated or build on local competences and clusters to enhance the competitive advantage of the investors. Arguably, Silicon Valley was the second for most of its life. As venture capitalists, skilled in deal-syndication, commercialization of technology, effective use of knowledge networks and the design skills for company-creation switched to the opportunities presented by alternative energy after the dotcom collapse, they migrated from the second strategy to the first. As economic policy makers want a thousand Mayfields and Kleiner Perkins to bloom, they have to understand what the capacities of a venture capital firm are and whether its organizational design meets the strategic objective or accessing a global opportunity or commercializing a domestic knowledge-base. Sometimes there is confusion between those objectives.
Esther Dyson wrote an excellent op-ed piece in the Wall Street Journal (reproduced below) which looked to new horizons for venture capital research , and saw innovations in transportation and aerospace engineering as being a huge opportunity for large scale new investment. There are many horizons that we have only begun to canvass in the next round of commercialized technology. There is a disruption in many technologies these days, Russian innovators challenging U.S. dominance in GPS satellite technology, Chinese scientists using herbal remedies to challenge pharmaceutical company domination of existing markets. It is in these global innovation patterns that we will see substantive change in the portfolios of the future.
The venture capital industry is focusing increasingly on Chinese and Indian opportunities. For the Canadian or Finnish venture capital communities, the Malaysian and Korean opportunities may have equivalent synergies. In China and India, the nature of the opportunities require either to access local entrepreneurs or, alternatively, to use the venture capital capacities of western technology companies, Siemens, Microsoft, Intel to build research centres and commercialize local knowledge. The latest Demos report on Indian and Chinese Science becoming part of the global knowledge infrastructure points the way to future collaborative practices. Intel’s involvement with Chinese startups remains one such model.
The commercialization of knowledge remains the great continuing source of wealth in the global economy. There are economic geographies which facilitate the convergence of talent, networks and capital, e.g. Silicon Valley. The pattern of the deals in the Red Herring 100 (Appendix A) are the brick-by-crick building of what used to be called the information highway, now more accurately a kind of open-source design bee-hive that is Web 3.0, the fusion of media and broadband technology. There are many niches still in this highway, but I have spent fifteen years counseling against “me-too” deals. Esther Dyson’s provocative and strategic piece in the Wall Street Journal reproduced below (Appendix B) builds on the kind of logic inherent to great venture capital strategists. The global trends toward improved and differentiated air transport creates a huge market opportunities. There are a few well-placed entrepreneurs with connections to the talent, networks and capital to commercialize the pent-up supply of technology in the aerospace sector and therefore, we, the venture capital strategist, can come up with a portfolio-mix which will meet the consumer demands for new aviation technologies. It is at this point that venture capitalists become industry strategists, assessing the competitive environment in this space and migrating their companies’ strategies towards these new opportunities.
Great strategic venture capitalists (like John Doerr, Herman Hauser, Michael Brown, Vinod Khosla or the greatly case study provided by Matt Richtel on Yogel Dala at Mayfield (reproduced below as Appendix C) mobilize commercialization networks and read social and political trends. It took a while to figure out that social networking was the next stage of internet commercial activity after e-marketing had run its course. The design of Nth Power, Enertech and Norsk Hydro Ventures in the alternative energy technology space came only after a few idiosyncratic deals like Ballard . Now there are some new discussions which are worth having at the beginning of a new era. Once it is on the cover of Business Week, it is no longer an emerging trend. But one can read what Ann Grimes wrote in the October 30th, 2003 Wall Street Journal regarding social networking. This emerging “hot” trend in venture capital circles emerged as the experiences of Web 1.0 were assimilated and processed. It is all there in a prescient analysis.
There is sophistication to the discussion of sustainable investment now. Environmental considerations lead to a number of new categories for commercialization. Industrial ecology and nutrition creation are categories which will be as familiar ten years from now as bandwidth is today. Industrial ecology forces us to focus on connected issues like land-use (bio-fuels or agriculture with productive protein-yield-per-acre usage, biopesticides and commercialized agricultural chemistry to create fertilizers) and waste management (incineration technologies, waste-to-energy conversion). Industrial ecology requires a form of land-use management that ensures agricultural productivity and a form of urban design which ensures that modern urban centres have a zero waste-to-energy relationship (all waste is processed into energy health investments will move towards nutrition management and raise consumer issues like food toxicology detection, emphasis on products that preserve foods naturally and find other technologies for processing, packaging and quality management. Biodegradable plastics are an already identified category in terms of innovation in the food management and processing technologies.
The new technologies for alternative energy are producing a new set of opportunities for venture capital. The long-anticipated commercial market for new battery technologies may have reached an economic moment where commercialization is sustainable.
The agricultural sciences are one of the next frontiers for venture capital. The food production and food quality management issues are receiving substantially less attention than they merit in context.
The other dimension of venture capital that needs to be underlined is that entrepreneurs create networks and can replicate business models in new economic environments. There is always a model for a Brazilian social networking site or a Bollywood version of Netflix in the hands of the right entrepreneurs. Rajshri has emerged as a Bollywood Netflix . This is important in a discussion of venture capital trends and strategies because, at the end of the day, a successful venture capital firm can develop a strategy based solely on finding the right stable of entrepreneurs. This is the MGM 1930s business models of stars-in-the-studio. Of course this strategy works, but it should be pointed out that in the world of Mayfields and Sierras where the process of building value involves specialized networks and headhunting capabilities, the “studio model” suite of entrepreneurs is increasingly more difficult to sell to institutional investors as the best model to get return on investment. In the Chinese new company creation activities, a company like Tencent has emerged under entrepreneurial leadership like that of Pony Ma.
SOME TRENDS GOING FORWARD FROM 2007
Red Herring gave in its January 15th, 2007 issue, the 10 trends for 2007:
1. Brain gets Wired (electrical devices implanted to combat disease, depression).
2. Attack of the mobile virus (viruses targeting mobile devices)
3. Mega buyouts (private equity shopping for technology giants)
4. TV Grab Google uses You Tube to take on TV advertising.
5. Nanotech will heat up Project for emerging nanotechnologies monitors usage.
6. Sarbanes-Oxley fixed making IPOs easier
7. HD-DVD and Blue-Ray feature length downloads
8. Rollins booted out at Dell
9. Solar gets simpler Conergy buys Voegelin
10. New skills to integrate economy “how to buy solar power” consultants.
Red Herring is the gold standard of venture capital analysis, so criticisms are offered accordingly. I think 7, 9, 10 (feature downloading, solar convergences, new skills for managing technology on a consumer basis) are particularly astute. Designing to combat mobile viruses and mobile spam is a significant commercial opportunity (2). One can hope about 6 (Sarbox). One can be skeptical about 1 (for commercial significance the areas of advanced technology medicine and, in the short term 5 (nanotechnology).
The MIT Technology review has produced its list of 10 Emerging Technologies for 2007 (reproduced below as Appendix D). The ten are:
1. How to rescue the internet from drowning in video. This introduces the company CacheLogic in terms of P2P enhanced capacities.
2. Neuron control in terms of being able to switch off parts of the brain.
3. Augmented reality, one of the applications of the work coming out of Nokia Digital Laboratories.
4. Digital imaging to enhance medical diagnosis.
5. Even more innovation in optoelectronics, increasing storage capacities.
6. Nozik’s work at the National Renewable Energy laboratory which could lead to less expensive solar cells for conversion of solar power to electricity.
7. Nanohealing or the use of nanopeptides in surgery.
8. Composites research for nanomaterials.
9. Personalizing medical care, organizing medical test data.
10. Detection of differences between cells.
Here is an additional list of ten more intended for discussion and for strategic analysis and building on the topics discussed above (a) incineration technologies, (b) digital broadband learning, (c) biodegradable plastics; (d) selling energy back to the grid; (e) exotic new sources of energy production:
1. Refrigerators and air conditioners become significant innovations again. Two of the most underestimated transformative technologies in 20th Century history are refrigerators and air conditioners. Refrigeration made possible the weakening of the black market in the Soviet Union and the empowerment of consumers in the United States. Air conditioning changed the competitive position of Detroit and Atlanta, Phoenix and Milwaukee. As the world sees economic development in tropical areas, these technologies will explode in demand, making environmentally-sensitive coolant technologies to replace existing high pollutants an extremely attractive innovation.
2. Portable power becomes a category for nanotechnology, micro turbines, Chinese designed miniature nuclear reactors, batteries and fuel cells used as a decentralized power source. In this world the miniature Chinese nuclear reactor with a capacity to provide local power, but with a contained worst-case scenario becomes one of the world’s new green products.
3. Universities are fundamentally transformed with broadband bandwidth expansion. The MIT online capability becomes a gold standard and the redesign of educational product creates three new markets, one in blue chip certification, the second in life long customized curriculum management, the third in upgraded skills, the on-line version of the Matrix “learning-to-pilot-a-helicopter” software. This produces a change in educational products, differentiating between credentialization and skills-enhancement. As this happens, knowledge will become increasingly open-source and collaborative, making scientific research very different in its structure than it is now.
4. South Asian novelists and Mexican film-makers become the norm and not the exception in cultural markets. Accessibility of product on a broadband-delivered internet transforms the market in cultural industries with Hollywood becoming a video-game production centre and creative industries becoming more and more globalized and decentralized.
5. Steve Case’s Revolution Health transforms the market in health so that the digital Yellow Pages model of health information becomes the new gold-mine for investors. The market for pharmaceutical products transforms dramatically when a global version of Revolution Health compares effectiveness of therapies from Chinese and Indian sources with European and North American pharmaceutical therapies.
6. Capital will be formed more in the Dubai-Singapore-Mumbai-Shanghai world, introducing new arrangements into the venture capital financing scene. We already see this with designed initiatives like the Malaysia-Dubai Gulf VC activities. But there will be more India and China based venture firms investing in science. One already sees this dynamic in Asia-European relationships and it will intensify.
7. China will become much more a source of innovation and invention which can be commercialized globally. The Financial Times reported in Geoff Dyer’s January 17. 2007 piece on “The Dragon’s Lab” on the rise of scientific skills in China waiting the appropriate environment for commercialization. This trend can only accelerate as the mix of western-educated Chinese MBAs and a more commercial science base in conjunction with European technology-rich corporate environments increases.
8. Targeted innovation will produce some major breakthroughs and disruptions in older products which are foundations of particular markets. Three case studies to watch are innovation in set-top boxes and bar codes . Companies like Digeo and Akimbo enter a market-place where established players like Scientific Atlanta, TiVo, Motorola and Cisco are part of a restructuring of the market in interface between video and consumer electronics, where set-top boxes are the key. Entries into the marketplace like NeoMedia Technologies are part of a restructuring of the functionality of bar codes in a world of m-commerce. The role of bar codes in the commercial application of laser technology has not received adequate analysis in terms of creation of new value from technological sources, but in the highly competitive market for applications for mobile commerce, this development is highly interesting.
9. Canadian venture capital will increase its focus on agriculture and energy, keys to a sustainable prosperity if there ever was one and ones in which we have a differentiated competitive advantage. The success of specialized funds like Foragen and Investeco will be matched by entrepreneur-led start-ups in places like Saskatoon, Quebec and Guelph where a world-class competence has been underappreciated in the past.
10. The strategic investment in water (water quality management, clean water production, new sources of water including desalination) will start to pay off. Ted Turner told Harvard MBAs a few years back that if he were starting all over again he would invest in water. Ira Ehrenpreis of Technology Partners has been quoted as saying that water would become the oil of the 21st Century (“Parched for funding” by Jennifer Kho in Red Herring April 2, 2007). With the exception of Israeli start-ups and the cluster of water purification technology companies in southwest Ontario (Trojan, Zenon), has been discovered by, among others, GE. The new investment in infrastructure in industrial societies and the redirection of global investment to disease-prevention in emerging countries has already increased the attention paid to water. Israeli technology is well-developed in this space, noticed by Siemens in their acquisition strategy and the Chinese government in their recent conversations with the Israeli government about joint projects. The development of new business models in imminent. Atlantium is an interesting case study to follow.
To succeed in any of these categories, venture capitalists will still have to know how to spot the deal, discover the entrepreneur, talent recruit the management team (the never-ending expansion in the market for B-Schools), create the networks required for effective commercialization and building of new products, create the stable of companies which can be merged and create collaborative knowledge capabilities (it is the 1960s 3M and the 1990s Cisco all over again. 3M was the commercialization of new lens technologies for slide projectors; Cisco was a cable TV technology company at the time of its conception). We will see companies ten years from now that build on these trends. The geographical origin of these deals and the geographical origins of their investors is what the competition is all about.
But if we start off with the drive home in Seoul, Helsinki or Toronto in 2010, imagine the kind of life which strategically commercialized technologies could provide, we start to see the investment options of 2007. The broad trends of digital education and new energy production will produce many more Megastudies and many more research projects on turning algae to energy. The first responsibility and skill of being a world-class venture capitalist is to discover and commercialize a few of them.
For MBAs starting a career in venture capital, I would make three actionable recommendations from this analysis:
(i) Differentiate between backing local winners and thinking you are commercializing a disruptive technology. There is plenty of room in the market for a Tunisian social networking site or a small power generator out of local biofuels in Trinidad. Venture capital is critical to economic development in the new global economy. But these strategies and skills-sets are different from those at Kleiner Perkins or Nth Power. One can learn a great deal from analyzing the portfolio strategies of successful venture capital firms.
(ii) There are real opportunities to create value in new spaces (digital educational products for broadband, conversion of biological sources for new fuel sources). Especially in Canada, venture capitalists need to be aware that the next generation of value-creation is never a repetition of the past. By assessing social trends and demands, the next generation of venture capital will succeed. This is different from the commercialization of pent-up supply of new technology that launched the 1990s venture capital boom, i.e. the internet and satellite telecommunications.
(iii) Regardless of whether one is involved in the digital economy or commercializing a new knowledge-source, it is essential to understand the commercialization networks involved in the new product-area. The practice of venture capital requires assessing where a company fits into a regional demand or a global technology niche. There are a finite number of disruptive technologies, and many other ways to create value. All require a sophisticated understanding of knowledge-networks, technology commercialization networks and marketing and distribution networks. That is why the symbiosis between venture capital and B-Schools will continue.
Red Herring Top 100 companies 2006 with notations of companies not in the mainstream digital economy and web 2.0 spaces.
www.biospace.com (cheaper chemical-based manufacturing of artemisinin)
www.bittorrent.com (downloading IPTV)
www.current.net (broadband over power lines)
www.molienergy.com (Canadian, battery)
www.eurekster.com (SWICKI, search + wiki)
www.feedburner.com (advertising for bloggers, podcasters)
www.firstsolar.com (manufacturer solar modules)
www.funambol.com (open-source mobile)
www.greenfuelonline.com (convert smokestack waste to biofuels)
www.groovemobile.com (music on mobile phone)
www.havok.com (game developer)
www.luminetx.com (vein detection for medical use)
www.magenn.com (mobile wind power)
www.medsphere.com (open source software health records)
www.nereuspharm.com (marine microorganisms for pharmaceuticals)
www.neugenesis.com (new drug research)
www.newportmediainc.com (digital broadcast)
www.nextrials.com (clinical trials innovation)
www.origentherapeutics.com (avian viruses)
www.pluck.com (powering social media)
www.revver.com (video web)
www.scanbuy.com (mobile phones to do purchases)
www.totalsmallbone.com (orthopedics innovation)
www.spotrunner.com (personalizes TV ads)
www.surfacelogix.com (pharmaceutical research)
www.vixs.com (powering broadband)
New Horizons for the Intrepid VC
By ESTHER DYSON
March 20, 2007; Page A19
Lots of people are building new IT companies. You can start a company and sell it to Yahoo! or Google in a couple of years. But so can anyone else. Aerospace is different. To paraphrase John F. Kennedy in 1962: We choose to go to the moon not because it's easy, but because it's hard.
That's why, as a long-time investor in IT and Internet start-ups, I'm now spending more and more time on private aviation and commercial space start-ups. I'm trailing an illustrious crew of IT pioneers: Elon Musk (Space-X, rockets, formerly with PayPal), Vern Raburn (Eclipse Aviation, very light jets, formerly at Microsoft, Symantec and Lotus), Jeff Bezos (Blue Origin, rockets, and still at Amazon, too!), Jeff Greason (XCOR, rockets and formerly with Intel) and Ed Iacobucci (DayJet, air taxi operator, and founder of Citrix).
Why all the excitement now? Two big things are happening. In aviation, the unpleasantness of "regular" air service is driving customers—those who can afford it—to alternatives. On the one hand there are high-end services such as Warren Buffett's NetJets, which is increasingly profitable and growing healthily, though it spends huge amounts on training its people in customer service. NetJets appeals to people who value their time, including their leisure time, at thousands of dollars per hour.
Then there are the air taxis—which represent the conjunction of aviation and information (plus a generation of new, very light jets). Air taxis and private jets are to mass-market airlines what PCs are to mainframes. They will take you wherever you want to go on demand, as long as you want to go to one of the secondary airports they serve. But doing so cost-effectively requires extensive information and calculations in order to get the most efficient use of airplanes and staff.
This emerging business model is mostly aimed at people whose employers value their time at $500 or more per hour, because, for example, they can make three sales calls a day rather than two in three small, non-hub cities and still get home at night. Air taxis often replace hours of driving. Happier and more productive employees will make air taxis worth paying for.
Consider this: I worked on Federal Express as a junior analyst for a VC firm back in the 1970s. FedEx was created as a response to the complexity of shipping packages around the country. The answer was simple: Ship them through Memphis and make everything routine. Packages don't know the difference.
By contrast, air taxis, represented by start-up DayJet, take it as given that people, unlike packages, do care. IT is needed to optimize the use of aircraft and staffing resources according to specific customer demand: With enough hardware and software, each trip can be what programmers call an "exception": a route uniquely designed for each customer, each time.
These new air operators will be successful only if they also offer responsive, personal service. The major airlines have fooled themselves into competing only on price, since they can't control the experience the way, say, NetJets can. They can't help it if you end up in a middle seat with an unpleasant neighbor, and they can't easily charge more for aisle seats because people who board an emptyish plane with many free seats will feel cheated if they paid for an aisle seat.
To be sure, air taxis won't ever make sense for travel between hub cities, if only because of airport capacity. But the air taxis may well change living and working patterns over time. (If you don't want to invest in air taxis directly, consider the prospects for your local airport.)
On the space side, there's a different but equally strong parallel with the world of IT. The establishment in "space" is the government and especially the military, just as it once was (along with academia) for the Internet. I remember the days when commerce on the Internet was considered sleazy—but look at the innovations and productivity it unleashed.
In the same way, the current priests of space are dismayed by the privately funded space start-ups—unsafe, sleazy, frivolous. Imagine: Ads on the side of a rocket ship! Well, why not, if it helps pay for the fuel... and the R&D that designed the thing?
Tourism is likely to be the initial driver for commercial space travel. You can make a deposit on a future suborbital flight (360,000 feet up) with Virgin Galactic. Zero-G (in which I am an investor and two-time flier) offers flights in a reconfigured 727 that give you a total of eight minutes (16 half-minute stretches) of weightlessness. It charges about $3,500. In our time-pressed world, that's a compelling proposition, where the competition, a Caribbean cruise, for example, costs the same amount per person—plus a week of time. Space offers an intensity of experience in a world where high-tech is devaluing itself by making artificial experiences so easy. The guys building rocket ships are willing to take real risks, and they're selling to passengers who are willing to take risks. That may even be part of the appeal.
The challenge for all these start-ups right now, they tell me, is that investors want to invest in the third round. That is, they want someone else to take the risks and then come in at the end, when the price has been beaten down and the risks overcome. But the trick is to start early and stick with it. IT investors mostly invest in opportunities; aerospace investors create them.
Ms. Dyson is the chairman of EDventure Holdings and an investor in XCOR, Constellation Services, Zero-G, Icon Aircraft and Space Adventures.
Matt Richtel on Mayfield
A Mentor Teaches How to Become Wise in the Ways of Silicon Valley
By MATT RICHTEL
Published: April 4, 2007
THE morning after Chamath Palihapitiya won $50,000 in an all-night poker game, he walked into a BMW dealership in Virginia. The dealer, seeing an unkempt 26-year-old, did not allow him a test-drive. So Mr. Palihapitiya walked across the street to a Mercedes-Benz dealer, bought a car and returned to show the BMW salesman what he had missed.
Winning had been the only thing for the ultracompetitive, hyperintelligent Mr. Palihapitiya, who by age 27 was head of AOL’s communication and instant-messaging division. Now at 30, he is in Silicon Valley, sitting at the feet of the venture capitalist Yogen Dalal, learning to live with failure.
The two are involved in one of Silicon Valley’s trickier rituals: nurturing a new generation of venture capitalists.
For the next few years, Mr. Dalal, 57, a managing director at Mayfield Fund, plans to focus and tame Mr. Palihapitiya’s talents. The goal is to help him earn the trust of investors who give the firm hundreds of millions of dollars, teach him to identify worthwhile start-ups and allow him to work with and inspire the start-ups’ executives without aggravating them with his youthful exuberance.
The passing of the torch does not always work.
Mr. Dalal said that among his biggest challenges is teaching his Type A trainees that the venture capital business requires patience and, because of the huge risks involved in investing in start-ups, has failures.
“The rule of thumb is that your first investment will fail,” he said. “Your enthusiasm is likely to be ahead of reality.” The fear of failure, he said, can lead young VCs to overextend themselves.
“The biggest issue young people have is persuading them they’re not the C.E.O.,” Mr. Dalal added, noting, “When you’ve been the king yourself, it’s hard to learn the new set of rules.”
Despite the learning curve, there are good reasons to bring in new blood. Older venture capitalists can lose their vigor, develop other interests or want to enjoy their money. As with Mr. Dalal, they also want to keep their firms and legacies alive.
But the old guard also must come to terms with parting with some of the hefty management fees and — if the start-ups they invest in are major successes, like Google — to share in the kind of big money that lets people buy vineyards and yachts.
“The torch is so expensive and lovely that you don’t really want to give it up,” said Rory O’Driscoll, a managing director at Scale Venture Partners. “It’s hard for the old guard to say, ‘Here’s my $5 million a year.’ ”
Another challenge to succession is that pension funds and other big investors want to invest only with the most successful venture capitalists. Can they trust young turks with their tens of millions of dollars?
David York, the chief executive and managing director of Paul Capital Investments, a limited partner that invests millions with venture capitalists, said he watched the successions carefully within venture firms when deciding where to invest and how much. “You want to see if the secret sauce is still there,” he said. “You’re constantly looking at the younger crop to see it they’re going to grow up to be the next John Doerr.”
Some industry analysts said that in recent years, it had been tough for outsiders to gauge the success of the newest partners, given the struggles of venture capitalists since the dot-com bust.
“The reality is that pretty much everyone who has been in the business for seven years or less has not had an exit,” said Paul Kedrosky, the executive director of the Von Liebing Center, which studies venture capital funds. “That means you have an entire ‘next generation’ of partners who don’t deserve to be partner.”
There is also resistance sometimes from entrepreneurs — the founders and executives whose start-ups are financed by venture capital money and who may not take advice easily from people just starting out.
“They’ve got to deal with supersuccessful people, older people,” Mr. Dalal said. “Sometimes, the question comes up, Do the entrepreneurs respect these guys?”
Mr. Dalal earned his own stripes over many years. As a computer science and electrical engineering doctoral student at Stanford University, he was an author of the TCP/IP protocol used in Internet communications. At Xerox PARC, he was on a team that developed the Ethernet standard. He joined Mayfield in 1991, investing in enterprise start-ups, including Tibco…….. continued.
MIT Technology Review Top 10 emerging technologies 2007
Peering into Video's Future
The Internet is about to drown in digital video. Hui Zhang thinks peer-to-peer networks could come to the rescue.
Arthur Nozik believes quantum-dot solar power could boost output in cheap photovoltaics.
Karl Deisseroth's genetically engineered "light switch," which lets scientists turn selected parts of the brain on and off, may help improve treatments for depression and other disorders.
Tiny fibers will save lives by stopping bleeding and aiding recovery from brain injury, says Rutledge Ellis-Behnke.
Markus Kahari wants to superimpose digital information on the real world.
Artificially structured metamaterials could transform telecommunications, data storage, and even solar energy, says David R. Smith.
Digital Imaging, Reimagined
Richard Baraniuk and Kevin Kelly believe compressive sensing could help devices such as cameras and medical scanners capture images more efficiently.
Personalized Medical Monitors
John Guttag says using computers to automate some diagnostics could make medicine more personal.
A New Focus for Light
Kenneth Crozier and Federico Capasso have created light-focusing optical antennas that could lead to DVDs that hold hundreds of movies.
Norman Dovichi believes that detecting minute differences between individual cells could improve medical tests and treatments.
Keeping Up with Venture Capital activities
There are many great sources of information about venture capital strategies and venture capital portfolio strategies now. The re-emergence of Red Herring is a significant step. The alumni of the original Red Herring crowd have emerged at Always-On combines with the decision of another Red Herring veteran, Jason Pontin to take the MIT Technology Review into a new space as essential reading for serious venture capitalists. The globalization of brands, like Red Herring have replaced the networking that took place around groups like First Tuesday in the hey-day of the venture capital led boom. There are extremely useful venture capital analysis websites like Venture Beat , Om Malik, and the great technology writer formerly of Business 2.0, who now writes at GigaOm. Chris Anderson’s The Long Tail builds on the themes he has articulated in his book and with Wired magazine. John Battelle’s successes in journalism at Wired, the Industry Stand make his blog frequent reading for venture capitalists. There is even a blog about venture capital blogs
The next stage of the new media revolution going on around us is the fusion of education and sophisticated new media journalism into single “branded” products. The Financial Times, Wall Street Journal and New York Times remain the premier “educational content” in social, political and economic issues in the English-speaking world. The depth of analysis done in FT, WSJ and NYT has not been converted into an educational curriculum which can complement organized educational products. Ironically, the business model underlying Pearson, Dow-Jones and the NYT is increasingly under pressure despite their brand being the hallmark of quality analysis. In this environment, the challenge of turning this content into usable customized curriculums and other business models remains an opportunity for knowledge management and strategic information in old media companies.