buy propecia buy viagra buy cialis buy levitra buy zithromax buy doxycycline buy prednisone buy effexor buy clomid buy desyrel

Olson’s Observations

Technology. Innovation. Science. VC. Media. :: by Eric Olson

Archive for the ‘VC’ Category

Technology Transfer in the Midwest: Looking Up

without comments

Crain’s Chicago Business published a great article about technology transfer in the Midwest a few weeks back entitled “Seeking a breakthrough“.  The article specifically focused on tech transfer in Illinois and mentioned that, to date, Illinois has not done a great job of tech transfer.

Having come to Chicago from one of the most vibrant tech transfer centers in the world, Boston, MA (second only to Silicon Valley imho), I have seen what a great tech transfer system looks like and what it can do for the local economy.  Compared to Mass and the Valley we haven’t been doing a great job of commercializing technology from university labs (and from government labs) here in Illinois.

We all know the stories that still break our hearts.  Mosaic/Netscape, PayPal, YouTube, etc.  All of these companies were founded by Illini and yet ended up on the west coast.  The numbers also back up our lack of tech transfer.  From the Crain’s piece:

Between 1996 and 2006, Illinois universities spun off 124 companies and made $180 million from startups and technology they licensed directly to existing companies, according to the Deerfield-based Assn. of University Technology Managers. In that same period, the Massachusetts Institute of Technology alone started 220 companies and made $344 million. Stanford University made $209 million between just 2002 and 2006.

Those numbers say it all but we can (and will) turn this around.

What can we do to turn this around? One of the first things we need to do is not so easy.  We need to build some high profile success stories here in Illinois.  I would argue that is already happening with FeedBurner (acquired by Google in 2007) and TicketsNow (acquired by Ticketmaster in 2008) along with a handful of other solid companies that have exited recently (disclosure: DFJ Portage was an investor in FeedBurner and TicketsNow).  That said, those companies did not come out of university labs.  However, the success stories should still show people both in and out of labs and investors that great companies can, and are, built right here.

As the Crain’s piece suggests, more high profile successes in the state will create more technology millionaires who will then help to mentor and seed the next generation and so on and so forth.  This is the same way Silicon Valley and Boston, MA were born and why the biggest thing we can do is build some very successful technology companies here in Illinois.

The infrastructure is also being put into place to make technology in Illinois a mainstay.  The University of Illinois at Urbana-Champaign has built a fantastic research park and incubator (which I frequently visit and which will house TECH cocktail Champaign this week) as has the Illinois Institute of Technology (again, another place I frequent).  Both of these places along with other facilities are helping to change the tide of tech transfer here in the state.

What about the money though?  We all know that investors like to be close to their companies, which is why many Illinois startups have to leave the state to get up and running.  So we also need more investors here in the state.  The good news is that we are starting to see a growth in the investor pool here in Illinois.  From the Crain’s piece:

U of I created an independent fund, Illinois Ventures LLC, based in Chicago, with the help of private donors in 2002. Its goal is to provide early-stage money and logistical help to university-based startups.

Illinois Ventures has invested $20 million so far in 15 companies, among them Tetravitae Bioscience Inc., an alternative fuel company in Chicago, and has attracted another $300 million in outside investments, much of it coming from venture-capital funds on the coasts.

Ron Kirschner, a retired physician with an MBA from DePaul University, started Heartland Angels in Skokie in 2004. The group has grown from six to 22 investors and has put more than $3 million into six early-stage Midwestern companies. Four of those grew out of universities, among them Abiant Inc., a Deerfield company based on research from the University of Chicago and New York University. The startup uses imaging to help drug manufacturers improve products by mapping how they affect the brain.

I would also add the the Chicagoland Chamber of Commerce created a fund a little while back called the Illinois Innovation Accelerator Fund (i2A for short) which is a $10mm vehicle dedicated to funding innovative technology companies here in Illinois.

Also, as most of you know, the firm I am an associate with, DFJ Portage Venture Partners, focuses only on the upper Midwest and has for quite some time.  We are able to bring the global resources of Draper Fisher Jurvetson (DFJ) into the region while remaining locally focused, something we think will really help the region grow and help entrepreneurs create world class companies right here in Illinois (and throughout the Midwest).  As you can imagine we are very bullish on the Midwest as a technology center and we are excited to be part of the growing technology community here.

Successful technology transfer efforts will be a big part of what ultimately makes Illinois a leader in technology and tech transfer efforts are certainly getting exponentially better each and every day here in Illinois (for example Northwestern did a $700mm deal last year to sell part of its royalty rights to Pfizer’s pain drug Lyrica - a drug based on Northwestern research).

We are just now hitting the big upswing in the “hockey stick” here in Illinois and across the Midwest.  We are well on our way to rivaling the coasts when it comes to technology but we’ll no doubt do it our own special way making the Midwest a unique and exciting place to start and build technology companies.

Further discussion on this topic: Chicago Tech Report: “Understanding why Marc Andreesen left Illinois” by Blagica Bottigliero

DFJ Network featured in USA Today

without comments

A number of people have asked me about the DFJ Network since I joined DFJ Network fund DFJ Portage (Midwest network affiliate) back in February.  People seem to be curious about how the network works and what the purpose of it is.  Edward Iwata of USA Today apparently had the same curiosity and put together a piece in yesterdays USA Today about the network.

The piece is very high level but I think it conveys the value of the network to entrepreneurs and to the VCs in the network.  The piece also covers why the network idea makes sense in an increasingly global world and why DFJ started to push the network idea forward a few years back.

I think the network approach DFJ has built thus far is solid and perhaps the future of the venture capital model.  I am excited to see the network idea evolve from the inside (especially given my interest in new and innovative VC models) and I’ll be sharing more of my thoughts and observations on the network as time goes on.

Written by Eric Olson

September 10th, 2008 at 11:23 am

Book Review: Creative Capital: George Doriot and the Birth of Venture Capital

with one comment

Creative CapitalI received an advance reader’s edition of Creative Capital back in early March and have been dying to read it. The book, as I was told, was the story of the birth of the Venture Capital industry putting it right in my sweet spot. History and VC - what could be better? I knew I didn’t know the whole story but I figured there was going to be a lot about the early days in the Valley. Firms like Kleiner and Sequoia would be spoken about a lot and Hewlett Packard would be hailed as one of the early wins.

What I was surprised and delighted to find when I opened the cover and dove into the book was that the birth of venture capital happened right in my own backyard in Massachusetts with a firm called American Research and Development (ARD) and a Harvard Professor/Businessman/WWII General named Georges Doriot (oh, and Digital Equipment Corp founded right in Massachusetts was the first big hit for institutional VCs and for ARD).

While the book does give all of the requisite history of venture capital from Doriot’s founding of ARD after WWII, to the spinouts of ARD which included Greylock, to the rise of the valley with Kleiner Perkins and Sequoia what really kept me engaged was the biological information on Doriot and specifically his business philosophies and sayings.

Here are a handful of Doriot’s famous sayings:

A team made up of the younger generation, with courage and inventiveness, together with older men of wisdom and experience, should bring success.

One should not only be able to criticize but should always have a suggestion to make.

Don’t challenge others’ statements, have them repeat them over again.

Conditions which are best for workers will give best production!

Ask about prospects who didn’t buy product.

Always challenge the statement that nothing can be done about a certain condition.

Those are some great quotes from a very wise man and there are many more (in fact, Fred Wilson is posting one per day on his blog until he runs out).

I have to say that I subscribe to most if not all of Doriot’s philosophies and it is interesting to me that there are a lot of folks uttering the same philosophies today as if they were new even though they were developed by a man over 50 years ago (and there was someone who probably figured them out before him as well).

One particular section of the book hit me hard since it touched on the relationship between entrepreneurs and VCs (something I have thought a lot about and also have written a lot about over the years). I will quote the paragraph from the book in full here:

ARD’s biggest hurdle was usually convincing these small, yet proud companies that they needed outside help. But Doriot didn’t hold that against them. He knew that if entrepreneurs weren’t self-driven and a bit egotistical they’d be punching the clock for IBM or General Electric. [Doriot] then closed his lecture by stressing the importance of management assistance in the venture business. “There is always a critical job to be done,” said Doriot. “There is a sales door to be opened, a credit line to be established, a new employee to be found, or a business technique to be learned. The venture investor must always be on call to advise, to persuade, to dissuade, to encourage, but always help to build. Then venture capital becomes true creative capital - creating growth for the company and financial success for the investing organizations.”

That’s a mouthful and a half but what Doriot says in that small amount of words is very important. It seems as if there will always be a struggle between entrepreneurs and VCs in that entrepreneurs by nature will never think they need a VC or that VCs will add value to their company. In reality entrepreneurs need VCs and VCs need entrepreneurs in order to change the world which is what we’re all in it for in the first place. (Of course that statement doesn’t apply to all businesses as some can be bootstrapped and/or don’t take a lot of up front capital.)

I can’t do this book justice in a short blog post so I will stop here and say that I highly recommend this book to any VCs or aspiring VCs out there. Doriot’s words of wisdom can’t be beat when it comes to venture and to business. I would also recommend this book to entrepreneurs who are interested in the history of VC. History always provides context and this book certainly gives that much needed context to the entrepreneurial climate in the U.S. and abroad. Lastly, I recommend this book to any person interested in or currently practicing the art of business. This book will show you how America’s entrepreneurial scene came into being and why we still look to entrepreneurs and VCs to drive the next wave of technological innovation that will propel us even further into the future.

Written by Eric Olson

May 26th, 2008 at 9:54 pm

Posted in Books, VC

So you want to be a VC?: A look behind the curtain.

without comments

Matt McCall pulled together a pretty interesting post on his blog VC Confidential the other day based on a 2005 NY Times article entitled “So You Want to be a Venture Capitalist” by Gary Rivlin.

As someone who has recently entered the world of venture capital I was interested to see what Rivlin had to say and luckily Matt had pulled all the salient points together in his post (The guy is working me pretty hard so reading a whole article is tough these days… I thought VC was supposed to be a cushy job!).

Turns out that there is a lot of turnover at VC firms (70%+ at some of the top firms over an 8 year period from 1997 - 2005) for various reasons but it seems that a lot of times it is due to lackluster performance. Looks like VC is a true meritocracy - just like entrepreneurship - as it should be.

It also takes a while to see a new VC through to the “go/no go” stage.

It is a mentoring business with a long gestation period…”probably 6-8 years and you should be prepared for losses of about $20 million (per person)”.

I had heard these numbers before so this wasn’t shocking to me. That said, I did make sure that I joined a firm where I was going to be able to obtain a lot of mentoring. If you are looking to join a firm ask them if they will be able to spare time for mentoring. If they can’t you should consider learning elsewhere. VC is an apprenticeship business, no question.

Success in VC, as most people probably know/guess, is mainly due to VCs ability to judge people and their keen sense for market inflection points. This quote from NEA founder Dick Kramlich sums that point up nicely:

…it’s more about people skills and the ability to assess whether there’s a market for something.

This is perhaps why the transition from entrepreneur to VC can be a tough one. After all when you invest in a company you aren’t going to operate it since that is what the operators/founders are there for. Operational experience will no doubt allow you to give the portfolio company solid and informed guidance but in the end you aren’t the one jumping into the day to day management.

As a VC you need to be able to asses the people, the technology and the market as well as recognize patterns. I would also argue that the people part is very important. A lot of top VCs agree with that sentiment including the founder of the very first institutional VC fund, Georges Doriot, who always said that a Grade A person with a Grade B idea will win over the Grade B person with the Grade A idea any day of the week. I subscribe to that completely. As with most things it always comes down to the people.

I would love to get my hands on some data in 5 - 10 years to see how well the “entrepreneur VCs” did compared to the folks who haven’t operated. With the current trend being to turn successful entrepreneurs into VC I think there will be some interesting data to look at (Noam - how about this for a subject matter on the next paper we team up to write?). It would be nice to have some hard numbers to back-up the anecdotal evidence Rivlin brings up in his article like this snippet:

“Most of us learned the hard way that venture investing is best left to the professionals,” said Marc Andreessen, the co-founder of Netscape Communications.

Shortly after America Online paid $4 billion to buy Netscape, Mr. Andreessen helped bankroll a venture firm called 12 Entrepreneuring, a short-lived partnership forged in early 2000 by Benchmark and a pair of successful Internet entrepreneurs, Halsey M. Minor and Eric Greenberg. But 12 Entrepreneuring ceased operations only 18 months after it started, and the partners, including Mr. Andreessen, lost nearly two-thirds of the money they had invested.

Of course that is only one case and I should point out that there are a number of great entrepreneur-cum-VCs around like Brad Feld. The point I am making is simply that success any given related thing - whether it be entrepreneurship or something else - doesn’t mean you will be a great VC.

“I think what a lot of these guys [i.e. people who jumped into VC in the late 90s] learned, some the hard way, is that you’re a natural athlete or you’re not,” said Sanford Robertson, the co-founder and former chairman of the investment bank Robertson, Stephens & Company, who has been investing in venture funds for more than 20 years. “Some can do it, and some can’t, and like with athletes there’s no way of telling until they take the field.”

It looks like you either get it or you don’t. It is a natural ability to asses people and their technology/business. Wow, for someone new to the business that’s a pretty interesting - and heavy - tidbit. I’d like to think I have a good (albeit naive at this point) sense for this business but time will tell.

I will leave you with a tidbit about the background of one of the most famous VCs in the world, Mike Moritz. Moritz proves there is no obvious background for a great VC. He was a business journalist and writer for Time before he joined Sequoia in 1986 (although he did hold an M.B.A.).

Side note: I have been meaning to put up my personal reflections on my first few months in VC. Those are coming soon. Stay tuned.

Written by Eric Olson

May 20th, 2008 at 5:39 pm

Posted in VC

iVentures10: Starting up in Illinois

with one comment

iVentures10As programs like Y Combinator and TechStars gained popularity I started to wonder why something along the lines of those programs didn’t exist here in Illinois. After all the modern web was pretty much born at the University of Illinois at Urbana-Champaign (mosaic/netscape, apache, etc.) and other notable web superstars like PayPal and YouTube have come from the minds of U of I grads. Well, I didn’t have to think about this idea for long…

Enter the iVentures10 program. iVentures10 is a program created by Illinois VENTURES initially as a “new kind of internship” for U of I computer science students. However, they recently announced a partnership with Mozilla along with their intention to take applications from around the world.

I think this is a fantastic thing for tech entrepreneurs based here in Illinois and a great way to get others that aren’t based here to spend a summer here in Illinois building their companies. Hopefully we can all show them such a good time they won’t want to leave! Keeping our tech talent here in the state is crucial to Illinois becoming the tech center it deserves to be and this program will clearly help with that effort.

You can learn more about the iVentures10 program on their site and if you think you want to submit an application make sure to get it together soon. The final day to submit applications is May 15th.

Side note: You can also learn more about the iVentures10 program at the next TECH cocktail mixer on May 29th. The team will be at the event along with some of the folks who have been accepted into the program.

Written by Eric Olson

May 1st, 2008 at 10:21 am

Posted in Business, Chicago, Technology, VC

New VC Blog: Texas Venture Capitalist

without comments

I had the pleasure of meeting up with Aziz Gilani the other day at Peet’s Coffee in Evanston. Aziz and I ended up meeting each other through DFJ and our friends at IllinoisVENTURES. Aziz is currently a student at Kellogg who will be joining DFJ Mercury, our Houston, Texas based fund, as a summer associate in a couple months (although he is already spending a lot of time with the Mercury guys looking at deals and helping portfolio companies).

Aziz is a very smart guy especially when it comes to enterprise software. What I loved about our conversation was that we were able to teach each other a lot due to our complimentary skill sets (my main competency being consumer web and his being enterprise software). I hope to continue learning from Aziz over time and I hope I can help him learn a bit more about the consumer web as well.

Anyhow, I wanted to make sure all of you were aware of Aziz’ new blog titled simply Texas Venture Capitalist. I am sure he will have some great insights into new technologies, especially enterprise tech, so you should go ahead and subscribe now to ensure you don’t miss anything (no pressure Aziz!).

I am looking forward to working with Aziz and hopefully we’ll be able to put on a TECH cocktail down in the lone star state this summer.

Written by Eric Olson

April 19th, 2008 at 12:37 pm

Posted in VC

Liquidity for VCs: A New Exchange?

with 4 comments

Update: Check out the comment from Dave McClure to hear his thoughts and read his clarification on the VC side of things (i.e. he does think that VCs are needed and helpful in the market but things more competition is a good thing - agreed!). He also links up his startup metrics which are getting better every day.

Liquidity for VCs and entrepreneurs is a topic that continually comes up. It has resurfaced in the last week due to the fact that public markets have pretty much been closed to startups for a while now leaving M&A as the primary liquidity event for entrepreneurs and VCs. This time Fred Wilson is the one kicking off the conversation about VC/entrepreneur liquidity.

Fred is worried about liquidity for obvious reasons but he also adds a new thought into the mix. He claims that web services that are exited via M&A to larger companies can languish inside their new corporate homes. This worries him as a user of the services and has pushed him to think about newpaths to liquidity even more.

The discussion over liquidity ramped up over the past week due in part to the interesting nature of the idea but also spurred along by the TechMeme effect (Fred event spoke about the topic on Yahoo’s Tech Ticker show). It has been interesting to see everyone’s opinion on the issue all the way from VCs should stop whining to agreement with Fred that a new form a liquidity needs to emerge. After absorbing all of the opinions across the web I decided I should chime in.

In fact, I actually wrote about a related topic back in October 2007 in response to my friend Dave McClure’s post. Dave argued that a market should be developed that would allow transparency and would disintermediate the VCs by allowing lenders and other investors to invest directly in startups while allowing startups to keep most, if not all, of their equity. As a student of finance and VC I found that idea very intriguing.

A large impediment to this type of market is solid data (and metrics). With good data debt and equity markets for startups could look like mortgage markets (ouch - bad example!) or the public markets. If you can look at historical startup data and understand the numbers enough to make a solid bet and know your chances of success an interesting market emerges. (Side effect - more actuarial jobs open up.)

Let’s say we can get the data and can figure out the right metrics, then what happens? Well, here is where things get a little tough. The SEC (or a new org like them) would probably want to step in and protect the individual investor from themselves. That’ll be a big brick wall in the way of innovation and it makes this idea a little more long term (man, I hate regulation). What can we do in the meantime then? This is where Fred’s post comes into play.

Fred argues that there should be another way for VCs to liquidate their positions and it could take the form of an exchange. This exchange would not be open to the general public and it would not disintermediate VCs like the one Dave wrote about back in October. What it would do is allow qualified/accredited investors (i.e. anyone except the average joe individual investor - this exclusion eliminates the need for SEC oversight) to trade positions in private companies. This way VCs could trade their positions to others (like PE firms) rather than trying to bring a company public or sell their companies to larger companies.

It is an interesting idea and one that already happens informally as Fred mentions in his post. He simply thinks that a formal market may help. It turns out that this type of market is already springing up in various forms surprisingly enough.

Goldman Sachs launched an exhange for private companies called GS TRuE - short fo Goldman Sachs Tradeable Unregistered Equity - about a year ago (this market is open only to Institutional Investors with $100mm or more in assets). Other networks like this are also popping up (like OPUS-5) and, according to this May 2007 WSJ story, the Nasdaq is planning on launching a smaller market for unregistered equities.

These markets will probably consolidate over time and then we’ll have our main market for unregistered equities which could be game changing. This isn’t quite what Dave was arguing for but it is a step towards it in many ways.

Even without the need for VC liquidity I think this would have come to bear. The increasing regulation of public companies is becoming unbearable for many managers and directors while also adding a lot of expenses into businesses. This is why so many large companies are choosing to be bought by PE firms and brought private (CDW is a great example).

This is a very exciting time for finance/business geeks like myself. Finance can be very innovative and we’re seeing the proof of that right now. I can’t wait to see how these new markets work out.

Written by Eric Olson

April 18th, 2008 at 9:46 am

Posted in Business, VC