Urgent Speed

Startups Should Make a Dent in the Universe

Steve Jobs had it right: Startups should make a dent in the universe.    Big ideas attract the top teams. Big ideas keep the teams going through the inevitable hard times.  Big ideas with top teams change the world.   For decades, the life blood of Silicon Valley was great teams working on big ideas.

But recently, as Jon Evans at TechCrunch points out, the Valley is increasingly fascinated with “the big distraction of entertainment.”  I could not agree more.

Silicon Valley has lost its way.  Stop screwing around in the small pond of media and advertising and tackle big industries and real problems.   Heck, why not invent a new industry? Did you know in New York City there are at least a dozen companies that have sprung up around the “personal replicators industry” aka 3D printing ( MakerBot , Quirky, Shapeways etc.).

Did you know that all Media, (including NBC, CBS, Google, AOL, ESPN, every radio station, every magazine and every advertising agency) only represents about 2.5% of GDP?  The Valley has become obsessed with “selling sugar water.”   

The world needs Silicon Valley back.

Energy, Finance, Healthcare, Education… that is where the BIG problems are.  (BTW: Facebook already has $470M in financial service revenue from Facebook Credits).

How do you expect to attract great talent if you are not substantially improving the world?  Is it pay?  Has Silicon Valley become filled with “technology whores” like the East Coast hedge funds they like to make fun of?   As an entrepreneur, changing the world is what keeps me going.   Building a company is hard work. How can you work 80+hr weeks if the outcome is: it’s easier to buy crap you don’t need online (aka sugar water).    

Finance:

Credit, Savings, Insurance and Payments are Huge.  Sean Park has a great post on "digitally native finance.”  At my startup, Lenddo.com,  we are using the social graph to improve people’s lives and restructure finance.  Members are using their online reputation to prove identity and access credit in regions where there is little access to credit.   Every day members are able to get education for loved ones, medicine for family members, and shelter for relatives.  Tangible life improvements.  Our team sees how we will impact millions.  This is why you have a start-up!  This is the power of technology! 

Education:

At Aristotle Circle, where I am an Angel, they are using technology to build a network of peers and experts to radically improve educational outcomes.  Other companies are using algorithms for adaptive/dynamic course material to tailor online material to the specific pace, medium and style of each individual learner.  Today about 5.5% of GDP goes to public education which does not include private universities and corporate training.  What happens when education cost half as much, or is twice as good?  Technology combined with entrepreneurship will show us.

Health Care:

We waste more in healthcare then we spend in media..come on.  We spend around 16% of GDP on healthcare in the US, and baby boomers are not getting younger.  Did you know computational linguistics combined with analysis of social media is being used to guide drug discovery?   If you are great at math or engineering, why would you be optimizing online photos, when you could be extending human lifespan?  Why not ask a health care entrepreneur?

Energy:

Don’t worry about Energy; why would we want to have more of that?  

Don’t get me wrong.  I love Silicon Valley. The Valley had a great run with semiconductors, PCs and the Internet.  They did a fine job “taking on” media.  The Media Industry is Powerful, but they are pussycats (or leave off the cats) when compared to Wall Street, The Teachers Union, Health Insurance Companies, Big Pharma, and Energy.   

My friend in Silicon Valley once gave me sound advice: “Jeff, as a tech-entrepreneur you need to be back here in Silicon Valley at least every 30 days”  He was absolutely correct.  There is nothing like the innovative energy and echo chamber of northern California.  I go often, and every trip is time well spent. 

Now my advice for Silicon Valley: Get out of the echo chamber at least once a month.  See what is going on in Finance, Education, Health Care, Energy and “personal replicators.” 

It’s time to think big again.

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Photo: from Bob Cringely's awesome 165 minute history of the PC industry "Triumph of the Nerds"

Tech IPO's: What TechCrunch & Fred Wilson Are Leaving Out

Erick Shonfeld has a great post up on Techcrunch called "The Poor Pilloried Tech IPO" that's worth a read, following on Fred Wilson's  recent post on the same subject.  Says Erick:

A decade ago, tech IPOs ruled the stock markets and Silicon Valley. They were the end-all and be-all for ambitious entrepreneurs and venture capitalists looking to become instant billionaires, or at least millionaires. That was many booms and busts ago. The IPO market never came back, and the multiple financial meltdowns which brought on Sarbanes-Oxley and other regulations made going public even less appealing to shoot-from-the-hip entrepreneurs. The founders of the most successful tech companies today—Facebook, Skype, LinkedIn—are pushing off the inevitable IPO for as long as possible. And for smaller tech companies, IPOs seem hardly worth the bother.

As I said in my April post on "Why Ten Million Dollar IPO's Matter", the U.S. IPO torrent has turned into to a trickle:

My concern is that we are not graduating the “Intels” of tomorrow.
 
AT&T, Disney, General Electric, Genentech, Cisco, Intel, Microsoft, Google and E-bay all had a public offering.  Since going public, they have all benefited from the credibility, profile and prestige associated with being publicly traded companies.  And of course the access to capital, both as IPOs, and perhaps even more importantly, with secondary offerings. The ability to do a short lead time secondary offering gives a company enormous flexibility.

But that flexibility is unavailable to most growth companies today.
 
Would the phone, talking movie, television, personal computer, and internet industry have been as innovative if these leading companies were instead acquired as a division of Western Union?   I think not, but that is the future of most venture-backed companies today. M&A has become the only available exit for growth investors and Founders. 

But why? Erick, as well as some of the people he quotes like Fred Wilson and Frank Quattrone, point to one or two barriers to going public - mostly the lack of "category-defining, earthshaking" precedents, and regulatory hurdles (such as Sarbanes-Oxley). But I think that's just the tip of the iceberg.

As I posted before, there are at least nine major impediments preventing tech IPO's:

1. Death of the mid-market investment firms
2. Decimalization. 
3. Rise of the Internet Brokerages
4. Growth of Prop Trading.
5. End of Equity Research.
6. Increased Litigation Risk
7. The Internationalization of Wealth.
8. Larger Global Funds.
9. Increased Regulatory Expense including Sarbanes-Oxley.

Quattrone's conclusion is right -  VC's need an IPO market. But I think he's wrong if he thinks the problem will be solved just by a few high profile IPO's from some current web standard bearers. 

Our community needs to address ALL the key impediments for tech IPOs. Something must change, even if it means moving the IPO market off-shore and and excluding U.S. participation to under 500 U.S. “Qualified” Investors.
 
There are smart people in Silicon Valley, London, New York and Hong Kong working on ways to overhaul the IPO process.  As tech innovation moves millions more into the middle class, people need a better place to invest their new wealth. And by 2035 the majority of the world’s wealth is expected to be outside the G20. It's inevitable that markets will connect these investors with start-ups and innovation will continue, that's a given.

But the big question -- how long it will take U.S. entrepreneurs and investors to figure this out?

Tomorrows Green Jobs are in Jeopardy

For 30 years, the process of job creation in the U.S. was the envy of the world.  Start-up entrepreneurs backed by private investors, followed by public investors, created and expanded companies that generated millions of jobs, all while growing the U.S tax base.  These new companies became the backbone of our modern economy.
 
While Ford, International Harvester, Chrysler, PanAm and RCA shrank or declared bankruptcy, Adobe, Dell, Microsoft, Cisco, Intuit, Yahoo, and hundreds of others were created jobs, increased our standard of living, and made America a better place.
 
Today that process is under siege: .not only from abroad where nations are duplicating our process, but also domestically, as well-meaning legislators are undermining the process.  We can handle the international competition, but these internal assaults could be the death of America’s standard of living.
 
The majority of U.S job creation follows a simple 3 step process:
 
Step 1 – Entrepreneurs have ideas and start companies, kicking-off the hiring process.
 
Step 2 – Angel investors, and eventually early stage investors, provide capital to fund further employment growth.
 
Step 3 – The company moves into the public market, where it has even greater credibility and access to capital, enabling it to continue to create jobs.
 

This whole process costs the government nothing, while it simultaneously increases the U.S. tax base. But it’s about to come to an end if elements of Senator Dodd’s new Banking Bill are passed into law.  Specifically, the Dodd Bill makes it much harder for individuals to qualify as angel investors. It’s already competitive enough for startups to attract early investment. 

If these changes are implemented, the definition of “accredited investor” will be individuals with a net worth of over 2.3 million. Currently that minimum is 1 million. As a serial entrepreneur and early stage investor, I know firsthand what this means to the future of startups. If these changes are implemented there will be significant reduction in the number of startups that are able to attract funding. 

Other countries have no such artificial barriers.  In China, where for the first time, in 2009, more money was raised in IPOs than in the U.S, anyone can have a chance of getting rich and investing in risky startups.  I guess our government thinks you can’t handle the risk associated with early stage companies, unless you are already rich.  Why is it only the rich should have access to this exceptional asset class?  True 60% of startups will produce no economic return for investors, but in aggregate the asset class is outstanding.
 

• Section 412 of the draft bill recommends adjusting the accredited investor to for an individual to $2.3 million in net worth or $450,000 plus in annual income.  At a time when many accredited investors have lost approximately 20% of their net worth and innovative startups are having an increasingly difficult time raising equity capital, decreasing the potential pool of angel investors is counterproductive to supporting the very companies that will create new high paying jobs.

• Section 926 of the bill would require, for the first time, companies seeking angel investment to make a filing with the Securities and Exchange Commission, which would have 120 days to review it. This would both raise the cost of seeking angels and delay the ability of companies to benefit from their funding. 120 days is an eternity for a fast growing start-up.  Kauffman Foundation Vice President, Robert Litan notes:  “that 'protections' for angel investors in Section 926 of the comprehensive financial reform bill outlined by Senate Banking Committee Chairman Senator Dodd are unnecessary and will hurt America's job creators.”

• Section 928 of the legislation would repeal the existing federal preemption of state regulation over “accredited investor” securities offerings. This would end the uniform, national set of rules for financing startups. By eliminating regulation that is working well, the draft bill would expose technology startups to a potentially complicated system of patchwork, state by state regulation, resulting in higher costs, more legal risks, and the potential of not being able to raise capital because of different rules in different states. Nothing would be gained from this change: no additional protections would be provided to the accredited angel investors and there would be no benefits to the national financial system or to the economy.

These three Sections of the bill will kill the creation of jobs, especially green jobs.

Right now the CleanTech industry in the U.S is in its infancy. Many of the companies of the future are currently angel backed and all rely on investment for their early stages of growth. 

These companies produce no drain on the U.S. treasury, and in fact increase the tax base by growing the economy.   

A good example is Locus Energy, With Angle backing; Locus is developing the hardware and software to manage alternate energy sources like solar panels. 

Another good example is high quality carbon offset provider, Belgrave Trust.  With Angel backing, Belgrave Trust helps high-net-worth individuals (and some corporations) use market based solutions to completely offset their carbon footprint. 

Both companies are growing their revenue, delighting their customers, and both companies are creating an ongoing stream of high quality green jobs. 

Our future is dependent on entrepreneurs and angel investors, for they will create the jobs of the future.  I just hope well intentioned legislators destroy the process.  

Scheduling Meeting still Sucks

Coordinating meeting times is still cumbersome.  Sometimes it takes a dozen emails simply to find a time for a 3-person call.   Why hasn't this problem been solved?  Microsoft? Google? Can't someone make a universal tool for finding a time to meet?

Adeo at TheFunded is so fed up he has adopted a freestyle approach, but my gut says there has to be a technological solution. 

For years i have been following  Whenisgood.net, and this morning i was invited to schedule a  meeting using the service.  Wow has the service has improved!  Liberal use of AJAX helps, and I think they are on the right track. Similarly to Timebridge, they still haven't hit the nail on the head yet, but I have high hopes.  I wish them and others sucess. 

One hint for Whenisgood: if you're serious about solving the scheduling problem...splurge and buy the .com domain...or even better buy pointment.com from our half-baked attempt to solve this problem. 

Please, someone solve this multi-party-cross-platform-scheduling problem so my assistant and I can move on to other pressing issues.  

Cold Calling

It’s not exactly customer centric consultative sales; but Jeffrey Gitomer
cracks me up with his advice on how to get people to call you back.

Go AWAY Grim Reaper

Last year I was bummed that the world lost Milton Freedman, but the Grim Reaper won’t stop.  Today I learned Momofuku Ando passed away.  The busy, lazy, broke college student, or anyone that lived in Tokyo will miss the inventor of raman noodles.

Is Blogging like Dieting?

I am continuously amazed at how many different ways people make a living!  Recently at a holiday party, I met a man who made a living selling salads and opening gyms.  Over eggnog he explained that January is his busiest season because many people make a New Year's resolution to lose weight.  Turns out, December is to Retailers as January is to “Salad/Gym”-ers.

I noticed many bloggers went on vacation during the holidays… did they also resolve to get back to blogging after the New Year?   I will be monitoring to see if there is a reduction in the average number of human generated posts per hour in February VS January.  Who knows, maybe if I keep blogging I will post my findings. More likely, I will be too busy eating salads at the gym.  ;-)

E-Holiday cards Suck

 

When did it become acceptable to spam your friends and business associates with E-holiday messages? 

I am not that old, but I remember a day when all notes and addresses were hand written.  Then folks started using their computes to print the labels.  Next think you know they were forgoing finding holiday stamps and using a postal meter.    I am sorry, if your admin is the only one to see the card, and you’re using a corporate postal meter –that is called junk mail.

But worse, if you are just merging your outlook address book with an e-greeting card service....that’s spam!  Personal e-mails from friends and vendors are appreciated; Viagra ads and e-holiday cards are not.   

Call me old fashioned, but this has gotten out of hand.  I am ok with E-Birthday cards. (Also, if my 85 year old grandmother wants to PayPal me my annual birthday $20 she will be equally welcomed, but come on E-Christmas, E-Seasons Greetings, E-New Years …give me a break!

Is deportment dead?

Emily Post where are you when society needs you?

End Rant…Happy New Year