Brave New World

The 12^th Annual MIT VC Conference is fast approaching – only about one month left!  As a co-chair of this year’s conference, it’s an exciting and challenging time.   We’re working hard to make this a great event.

One of the first tasks as conference organizers was to select the conference theme.  That happened back in March 2009.  It’s hard to pick a theme almost 9 months before your event, but potential sponsors and speakers understandably want to know.

In thinking of a theme, we thought about where we left off at our last conference.  The last MIT VC Conference in December 2008 was against a backdrop of incredible uncertainty.  Would this be a full-blown depression?  What dramatic changes would we see from the newly elected administration?  Would VCs be able to raise funds…ever?  Would the venture capital industry shrink and by how much?

The topic we chose for this year, “Brave New World”, reflected our belief that we would know more about the VC and startup world in December 2009 than we did in December 2008.  With more than a year in this new, post financial crisis, economy and almost one year with new government leadership, the new world would be taking shape. 

Why the brave part? Well, we knew that if anyone was taking this new world head on it was the entrepreneurs and VCs.  How many times have you heard an entrepreneur or VC say that it’s the best time ever to start a company?  That’s why we chose the title “Brave New World”.

With only a month left until the conference, some of the questions from December 2008 have been answered, but we can see that there is still a lot to learn about this “Brave New World” in VC:

·        The 3^rd quarter was the worst for venture capital fundraising in real dollar terms since 1994, according to the National Venture Capital Association.  How long will it take and what needs to happen for the funding environment to improve? 

·        On the exit side, the IPO market has shown some signs of life in 2Q and 3Q, but it is still way down from 2007 levels.  When can we expect IPOs to become a realistic option for VC-backed companies?  What are the implications if the IPO market does not come back?

·        Post financial crisis, there have been calls to regulate most investment firms, including venture capital.  VCs have tried to distance themselves from the leverage loving buyout and hedge fund shops.  Congress seems to be listening, but the jury is still out. Will VC be regulated? 

·        Capital efficiency has become even more of a focus for VC-backed companies.  But, in what ways specifically are the favorite industries of VC reacting to this new world?  How are investment and company building strategies changing for healthcare/bio, energy, mobile, etc.?

We hope you can join us on December 4, 2009 as we try to make sense of this “Brave New World.”  We are working hard to set the scene for these important discussions.  Check back as we release the participants and specific topics for our panel sessions in the near future.

Dave Nelson

2009 MIT VC Conference Co-Chair

The Government Is Here To Help? (MIT VC Conference panel)

The following has been written by Jeff Bussgang, Partner at Flybridge, and moderator for the Regulations panel at the 11th MIT VC Conference, and taken from his blog Seeing Both Sides at http://www.bostonvcblog.typepad.com

“Many pundits and economists observe that we are in the midst of the greatest financial crisis since the Great Depression. What they haven’t fully yet processed is that we are in the midst of the greatest wave of government intervention in business since the New Deal. Across massive, diverse industries such as energy, health care and life sciences, financial services and automotive — to name just a few — we are embarking on arguably the most business-focused, activist US government in history.

I moderated a very timely panel yesterday at the MIT VC Conference on the new role of government in business in general, and entrepreneurship in particular. MIT is one of the central cradles of American innovation and entrepreneurship. The fact that they asked me to focus on this theme is clearly a signal that entrepreneurs are focused on better understanding the New World Order of government as the “third wheel” in the VC-entrepreneur equation.

Joining me on the panel were a group of four very talented leaders whose careers have spanned both sectors. In effect, these four were uniquely experienced at “seeing both sides” of the private sector-public sector partnership:

• Dan O’Connell, Massachusetts Secretary of Economy and Housing under Governor Patrick.
• Ranch Kimball, former Massachusetts Secretary of Economy and Housing under Governor Romney and now CEO of the Joslin Diabetes Center.
• Phil Giudice, Massachusetts Commissioner of Energy and former SVP at EnerNOC.
• Paul Afonso, former chairman of the Department of Telecommunications and Energy under Governor Romney and now a partner at Brown Rudnick.

A few themes/observations that were shared:

• Dan O’Connell observed that, at least in Massachusetts, when government leaders say, “We’re from the government and we’re here to help,” it’s not the old Ronald Reagan punchline. Instead, it’s an earnest attempt at striking a helpful partnership with the Patrick administration — led by a governor who himself was a former business leader. He also pointed out that business leaders need to appreciate that government’s involvement in business has a different goal: local job creation, not capital return, requiring some compromises on both sides when embarking on collaboration.
• Phil Giudice observed that from his recent visits to Washington DC this last week, it is clear that the Obama administration is preparing for a massive, long-term, strategic effort around energy independence from which billions of dollars will flow. Phil led the passage in MA of a landmark Energy Bill in partnership with business leaders from the New England Clean Energy Council (Flybridge Capital is a sponsor and member of the council).
• Ranch Kimball expressed his belief that NIH funding will grow again and that MA is incredibly well positioned for the surge in private and public life sciences spending that will flow to MA, citing with pride the extraordinary talent in Massachusetts (and not just in Cambridge and Boston, Dan noted, but throughout Worcester, Lowell, Springfield and elsewhere).
• Paul Afonso observed that when business wants something out of government (a growing trend as there is more that is being “given”), they need to not just send their lobbyists with their hands out, but rather encouraged CEOs to get to know government leaders when they don’t need anything so help lay the groundwork for collaboration.

Massachusetts has pioneered many of the initiatives in teaming business and government (health care reform, life sciences and clean energy being three salient recent examples). It will be fascinating to watch the new administration embrace, copy and adapt some of these initiatives over the next few months, and perhaps take them further still.”

CleanTech Panel Preview

The CleanTech panel at this year’s conference will be organized along the same lines as the popular sports talk show “Pardon the Interruption” (PTI). The session is organization into the following:

• Rapid fire round 1. 15 min duration with 2 min for each question.
• Five good minutes. The panel is debate one question for 5 min
• Rapid fire round 2. Same as Round 1.
• 15 min Q&A
• 5 min wrap up question

Here is a sample of questions that will be asked:

Ethanol – how did that happen?!
Stupidest Energy Policy in the World
I like/dislike Thomas Friedman but the best source for what is happening is …

This is going to be an exciting panel all. Entertaining, informative, and insightful all at the same time. If you are planning on being at the panel get ready to text message. If you have a question and want it answered during the Q&A session just send a text message to the phone number that will be posted during the session. Bill Aulet, the moderator, will pick questions from the pool and ask the panel.

See you all at the conference!

-Mahesh and Chris

Organizing Perspectives from 1st Year Sloanies…

Hello, we are first year MBA students at MIT Sloan and part of the organizing team at this year’s VC conference. As we reach the final stages of preparation for the conference, we are very excited about it! Our role in this conference is to manage one of the panels – “Exit Strategies”. Given the current economic conditions this topic is obviously very relevant at the conference!

The organization of the panel itself is complete with the moderators and panelists having been finalized. Our panel moderator is going to be Bo Fishback who is a Vice-President of Entrepreneurship at the Kaufmann Foundation. Our panelists bring to the table the perspectives of both venture capitalists and entrepreneurs. They include Steve O’Leary of General Catalyst Partners, Ryan Moore of GrandBanks Capital and Reed Sturtevant of Microsoft Startup Labs. The central theme of this panel will be Exits - Initial “Private” Offerings and VC Buy-Outs - Tackling exit strategies in the new frontier. Our discussion will focus on how exit strategies are being reinvented, how VCs attitudes are changing and whether, with exits taking longer, IPOs and M&As held off, will some sort of dividends/royalties be a way to see returns. There will also be opinions expressed on how early stage companies are getting bought out by corporate and if entrepreneurs actually prefer such acquisition exits. How will VCs compete in this market for a share of the pie? In the reinventing venture capital landscape, should VCs focus on investing in series A, or series B rounds? How do series A funded companies, obtain series B funding, and if it’s not available, do they get acquired? And from the focus of entrepreneurs, there will also be discussion on investments - if early stage investments are hard to come by and exits disappear how do start-ups keep going? How can they obtain project financing for capital intensive (Cleantech, Life sciences) ventures?

This conference has been a great experience for both of us. It has provided us excellent opportunities to meet people who are also interested in the VC/start-up space and learn about the different facets of being a venture capitalist or an entrepreneur. It has also been a lot of fun being part of the organizing committee of such a leading conference.

Courtney Skay and Vinay Subramanian

Wei Ji - Reinventing Venture Capital, Entrepreneurship, and Innovation

Now what?  The country has its new president (elect), the economy is correcting itself, (sorry, you’re right, it’s contracting itself), and all the corrupt managers who played with my home mortgage, my friend’s student loan, and your job, are going to be prosecuted soon (a growing economy for the lawyers, accountants, and prison services). But, how does this impact my future and my dreams: innovation, entrepreneurship, and venture capital.  Frankly, it doesn’t. When I graduated with a bachelor degree in computer science, the year was 2001, and the situation was no different.  Consumer confidence was low, and investor confidence, lower.  Several venture capitalists weren’t quite the vultures we thought them to be, since some of them hid in their holes and avoided me like plague.  Okay, that is an exaggeration, but I was a first time entrepreneur, starting a company based on the best research out of my university, with my two best friends and no money.  I had my dream, my vision, and fire in the belly, and frankly, the economy did not affect me much.  Or at least that is what I thought when I decided to take the plunge and give into my dreams: innovation, and entrepreneurship.  Regardless of the outcome of my entrepreneurial endeavors, the one thing that I learned then, which I want to impart now, is the power of passion, persistence, and conviction. With these three aides by your side, you can reinvent the world to be yours, and emerge victorious, happy, and have a lot of fun.  And this is the point of this year’s MIT Venture Capital Conference.

Of course, you are much like me, interested in entrepreneurship and venture capital.  That is why you are spending your time reading me blog for the first time on MIT’s website. You are an innovator and a solution finder, and you want to know how the new world that you find yourself in is going to affect you.  Fear not my friends. You can learn to reinvent the ways in which one operates and respond to the rules of the new world, by creating your own.  The one who does this, and does this with passion, persistence, and conviction, will soon create and ride the new opportunities that these financial and economic challenges have created.  Innovators, entrepreneurs, and venture capitalists are once again coming to the rescue, redefining the rules of the game, and adapting themselves to “rebound the missed shot and and dunk again!”

Venture capitalists and entrepreneurs know how to create new solutions for you, me, and everybody else.  That is what they have done for over a century (especially in our backyard in New England, where venture capital was born and the nexus of entrepreneurship continues to flourish). At the 11th MIT Venture Capital Conference, we will see how these venture capitalists and entrepreneurs (most venture capitalists are entrepreneurs and most entrepreneurs become venture capitalists, so in many ways we are talking about them as being one and the same), will now, once again, revisit the ways in which they operated until yesterday, and create new ways to operate from tomorrow.

At the outset, a Keynote panel of leading venture capitalists from firms that have developed and defined several industries, from high tech to life sciences, clean tech to retail, US to Vietnam,  will pause, and revisit: they will delve into their historic victories and lessons from failures, and reinvent the way they must now do business.  When the game changes, so must your rules, strategies and tactics. 

The new government may bring about several regulatory changes (oh, they must), but how will this affect you, the entrepreneur and the investor? The government has almost become the third wheel in fostering or dampening entrepreneurship and businesses, and we must discuss, with them on the panel, on how to navigate through their new landscape, cooperate with them, and have them cooperate with us. 

There is a lot that America can learn from other countries (even if the collapse of America now means a collapsing domino effect in several other countries), on how they did it.  Countries such as India, with less than twenty years of open economy, and income, education, and infrastructure, below feasible limits, have established business conglomerates such as Tata, Reliance, and Pantaloons, which have created products, services, and industries of giant scale and profits.  We will hear and learn from Dr. Jamshed J Irani, an icon and Director of Tata Sons (the parent company of 96 Tata companies, including the emerging Tata Nano – the $2,000 car that you all want to hear about), on how the Tata Group has created the finest steel industry, finest five star hotels (including our very own Taj Boston), and will now revive Jaguar within India, and around the globe.  As entrepreneurs and venture capitalists, we can collaborate with the Tata Group and reinvent our ways together.

The fun will not stop here, as we will close the panel discussions on Reinventing Venture Capital, by striking the cords with the founders of Guitar Hero and Rock Band, who have provided much needed fun and relaxation for several of us with their video games and entertainment products. We will learn how the founders created, developed, and profited from their entrepreneurial visions, and have them lead our way to an Entrepreneur Showcase of other innovations, and start-ups.  These entrepreneurs are all set to revive our economies and our spirits.

Failing economies and financial crisis is for those who cannot reinvent their ways, and who succumb to the pressures with panic and loss of confidence.  Innovators, entrepreneurs, and venture capitalists have always, and will again, come to our rescue; the undeterred, and unmatched, solution finders for our country and our globe.

When all else fails, remember: passion, persistence, and conviction, and revisiting the old, and creating the new, will, definitely, make you emerge victorious.  I hear that Wei Ji is a word in Chinese, which means both opportunity and crisis – and this is our Wei Ji, so make the most of it.  Have fun.

Taking it to the next level each year

Every year the MIT VC conference gets better and it’s amazing to see how a group of students busy with their full MBA schedule are able to pull off an event this size. When I met with Irina and Bennett in Sep during a brief campus visit, it was amazing to see all the excitement that was building up towards this year’s conference.

As one of the lead organizers of last year’s conference, the entire experience - raising sponsorships, finding keynotes, recruiting panel speakers and building a strong executive team - was a highlight of my MBA experience. It was an invaluable experience as it gave me a good view of the New England VC and entrepreneurial ecosystem. Most importantly it was an entrepreneurial effort in itself as we had to work with limited resources in terms of time/people/money and put together a show that draws the best investors and entrepreneurs in the NE region.

Now in it’s 11th year, the conference will be packed with exciting panels and keynotes as every year. It will also be a great networking event with entrepreneurs sharing latest business ideas, VCs talking about the changing dynamics of the industry and MIT students and professors discussing about technologies and ideas germinating on campus. A recent addition since last year’s conference is the MIT Entrepreneurship Showcase. The event was very well received last year and I hear it will expand this year to make it more useful for VCs and entrepreneurs to directly connect with each other.

With the backdrop of the recent financial crisis, this year’s conference will be very interesting and important as it will arouse discussion about the impact on VC investing and how entrepreneurs should plan to build their ideas in such difficult times. With so many recent Sloan graduates (about 20!) who started their own businesses instead of taking plush jobs, it will be interesting to hear the community’s advise on how to weather the current crisis.

I wish good luck to the lead organizers and the rest of the organizing committee for the preparations of this event. It will be an exciting event and I look forward to it. Finally, I would like to extend a big thanks to the sponsors, VCs, entrepreneurs and the MIT Entrepreneurship center who keep coming back each year to support this student run initiative. I hope to be there and meet many of you during this year’s event!

Abhinav Khushraj, Class of 2008

An MIT Entrepreneur’s Perspective

The Conference is only five days away and I couldn’t be more excited. I’m a second-year MBA at Sloan and a former Founder of five startups with my sixth in development. I know many entrepreneurs, especially students, face the question, “Do I really have time for another Conference?” To best illustrate the answer, I’d like to share a story with you from a few years back:

I remember when I was taking a Small Business Management class as a sophomore back in undergrad and my Professor required that we write a business plan from scratch. Stewing for all of thirty seconds, I decided on developing a plan to build cell towers. After founding my first business in high school around IT consulting and spending my childhood in the family business hawking two-way radios, I thought that my business acumen and memories of my Dad building his one and only tower were enough to go on. Though, assembling a business plan with real data was a bit different. My Dad had toted me along to his industry trade shows when I was a kid, which were always great opportunities to meet the movers ‘n’ shakers and play with (sometimes destroy) the new products. I immediately dove into the web and drummed up the 2nd Annual Tower Summit and Trade Show in Las Vegas, an event two weeks into my class and a perfect opportunity to find more info quickly. I promptly pulled out my somewhat maxed-out credit card, made a plane ticket, and booked a hotel. There I was, 19-years old in my suit sitting through a number of conference sessions on zoning, marketing, dealing with carriers, construction, all the while meeting a vast amount of people. I remember being so impressed with one presentation by John Tynan of The Tynan Group, who was the Michael Jordan of tower zoning, that I affectionately named my company The Marcus Group. Maybe the magic would rub-off. More importantly, I walked away with at least 150 pages of fresh industry research and trends to help assemble my business plan, not mention the contacts I made with developers and carriers. My Professor asked me at the end of the class, “This looks promising. Why not start it?” Less than a month later The Marcus Group was born.

Fast forward to last year’s VC Conference, where I was sitting at lunch listening to Jeff Tayler, Founder of eons.com and former Founder of Monster.com. To my left was an angel investor that I just met. She described how she became an angel, which was through an exit she made many years prior in a very inconspicuous company. I asked, “So, what kind of things are you looking for today?” to which she replied, “I’m due diligencing a plan by these guys and I wasn’t sure they could do it. After listening and asking a few questions today, I now know they can.”

Come to the VC Conference and put that idea into motion. I know I will.

Behind the Scenes

I am a second year MBA student at MIT Sloan School of Management and am a lead organizer for this year’s conference. With less than 2 weeks to the conference, I am very excited about the conference!

The preparations for the conference started over 6 months ago. But the bulk of the conference has been put together during the last 3 months (Fall semester) mostly by first year MBA students who just started school. I am highly appreciative of their efforts, particularly so because they have stepped up during the intense ‘core’ semester which has a heavy course load. Thank you all of you!

I was actively involved in organizing last year’s conference which was a great show in itself. But every year it gets better and I am very excited this year for several reasons:

1. The theme, “Enabling the Entrepreneur”, is compelling since it brings the spotlight on entrepreneurs without whom the VC community does not exist. To that end, we organizers have laid tremendous importance to fill our events with a significant number of entrepreneurs.

2. We have introduced the first ever MIT Entrepreneur Showcase (http://www.mitvcconference.com/showcase.htm) which will be held at the MIT Museum on Thu, Nov 29th from 5-8pm. When we started we had no idea what it will end up being. Now with over 30 companies out of 70 applications from across the world, the showcase is looking solid with companies from life sciences, mobile, Internet, software and energy. I invite each one of you to attend and take a peek at what the entrepreneurs are up to. Remember, it’s open to the public.

3. The purpose of any conference is high quality “content”. To that end we have put in a lot of thought to carefully think through the panel topics which are relevant, debatable and entertaining. Further, we have carefully picked our panelists to ensure the highest quality participation. We hope that every attendee walks away from the conference with a lot of new learnings about the VC industry and entrepreneurship.

Finally, I would like to share what this conference has meant to me. It has provided an excellent opportunity to get to know several individuals both at school and in the New England entrepreneurial system (VCs, Angels, entrepreneurs) Also, it has helped me build strong ties with the MIT entrepreneurial ecosystem, particularly the MIT Entrepreneurship Center. To all those MBA students who are interested in entrepreneurship and Venture Capital, I highly recommend engaging yourself in a conference. It goes a long way in immersing yourself into this field. Further, it helps a lot in personal skill building.

Now I can’t wait to see you all at the conference. More later!

Big vs. Small - an Entrepreneur’s Primer

I enjoyed Scott Kirsner’s post on fund size, “Big vs. Small”.

Here’s a good rule of thumb for entrepreneurs: early-stage VCs should have $40-60m in capital per general partner per fund. The math goes like this:  VC general partners do 1.5-2 deals per year over the four year investment period of a fund, or 6-8 deals per partner. For an early-stage firm, $6-8m per deal is a good amount (including reserves; this means total capital raised is $10-25m over the life of the start-up). That pencils out to $40-60m per GP per fund.When we raised our $180m 2nd fund, we were 3 partners but had an intent to hire a fourth over the life of the fund (which we did, my fellow blogger/partner david aronoff). Thus, we decided to keep the fund size below $200m to stay true to our early-stage focus.

Big v. Small

One of the more interesting debates in the Boston VC world right now is whether fund sizes are getting too big.

(Remember the last time we had this debate…? It was the late 1990s, and Pets.com was delivering cartons of dog food across the country at negative margins. Those were the days…)

Battery Ventures, Bessemer, and General Catalyst have each raised big new funds in the $700 million - $1 billion range. At an event earlier this week called Future Forward, Castile Ventures partner Nina Saberi was questioning whether a fund can effectively do everything from early-stage deals to buy-outs, in geographies ranging from Silicon Valley to New York to Boston to India to Israel.

I’ve also been noticing the emergence of a whole new crop of smaller funds, in the sub-$250 million range, that are making the case that they can do earlier-stage deals, with more upside potential, much better than the big funds.

A few weeks ago, I had a chance to sit down with David Andonian, the founder of one of these new funds, DACE Ventures. David is the former COO of CMGI, the conglomerate that cranked out and funded Internet businesses in the late 1990s from its headquarters in Andover. He also spent time as an EIR at Cambridge-based Flagship Ventures. His new fund is in the $75 million range. A short video of our conversation is here.

I suspect this debate about big versus small will be part of the discussion at the MIT VC Conference later this month….