Vinit Nijhawan: Serial Entrepreneur, Venture Capitalist

What's next in Tech?

May and June are the months for entrepreneurship and technology conferences. I just returned from TiECON www.tiecon.org in silicon valley. I was pleasantly surprised at the attendance and generally upbeat mood of the participants. I did not see much change from last year, other than how many "in-between gigs" there were among my friends. There was considerable excitement about mobile applications with the iPhone clearly the trendsetter. There was also much discussion about cleantech though there was much angst about whether the ITC VC model is appropriate for cleantech. TiECON East  in Boston, www.tieconeast.com, started yesterday with a rousing speech from Tim Cahill, Treasurer of Massachusetts. The hall was packed and the mood was generally upbeat.

We have attracted two conferences to Boston University (BU) back-to-back in June. On June 24 we have the BU Office of Technology Development/Xconomy event http://www.xconomy.com/boston/xsite2009/, followed on June 25 by http://whatsnext.eventbrite.com/ sponsored by BU Institute of Technology, Entrepreneurship and Commercialization/Future Forward. Both events feature Boston-area entrepreneurs and VCs and will address the gnawing question: where is job-growth going to come from in New England. Greylock moving its headquarters to silicon valley is symbolic of this area's relative decline in the ICT industry.

As in the past fifty years, sustainable job growth will be driven by technology startup activity. The combination of ambitious, technology savvy university graduates combined with smart capital is a huge advantage for Massachusetts. 55% of PhDs in Engineering are foreign-born. It is imperative that these skilled immigrants be encouraged to stay in Massachusetts, especially in startup companies. I have joined hands with my colleage Vivek Wadhwa at Duke/Harvard to continue his work to influence the skilled immigration debate in favor of entrepreneurship. It is time we created a "startup green card" with preference given to any foreign-born entrepreneur educated in the U.S. and working at a startup for at least three years. Stay tuned for early results from this BU/Duke/Kauffmann Foundation study to be published later this summer.

Why a company needs to be based in Massachusetts

This article was published in Mass High Tech magazine on May 8, 2009: www.masshightech.com.

Massachusetts is a great place to start a business. Massachusetts is similarly a necessary place for a multinational to setup a branch office. What both startups and established business need to continue to grow are: people, capital and access to markets.

People: A+

            Massachusetts has the largest concentration of world class secondary and post secondary educational institutions in the world. We have approximately 460,000 post secondary students enrolled in 117 colleges and universities across the state. Many of these students stay in Massachusetts after graduating. We are number one nationally for residents with the highest college attainment. We are number one nationally in the concentration of science and engineering graduates. In most states across the U.S., about two thirds of Bachelor degree graduates come from public universities, in Massachusetts two thirds come from private universities. Not only does Massachusetts have fabulous intellectual capital in its workers but they are also very entrepreneurial. There were 5,000 new companies started in Massachusetts over the past six months, though this is down 13% from the same period a year ago.

Capital: B-

            Access to venture and debt capital is crucial for company startups. Massachusetts is number one nationally in the number of high-tech companies per capita and level of venture capital. The venture capital industry was established in Massachusettsafter World War II, with the formation of American Research & Development (ARD) by Harvard Business School and MIT professors. Massachusetts ranks fifth in the number of millionaires per capita with $335 billion in assets. Angel investors based in Massachusettsare active but do not invest as much California angels. Additionally there is significant personal wealth in Connecticut and New York Citythat could be attracted to invest in Massachusetts startups. Massachusetts ranks number one in Federal Small Business Innovation Research contracts, a form of government funded seed capital.

 

Access to markets: B+

            Massachusetts6.5 million residents are mainly crowded inside the Route 495 ring. Enjoying the nation’s third highest per capita median income, this population is an early adopter of new technology and services. For a European or Asian company, Massachusetts is ideally situated to access markets in northeastern U.S., comprised of nine states that accounts for 25% of the GDP of the U.S. Furthermore Massachusetts is number one in receipt of Federal R&D expenditures for academic and non-profit institutions.

Key industries in Massachusetts are Life Sciences (ranked #1 in the US), Information, Communications & Technology (ICT) (have fallen behind California), Cleantech (neck-in-neck with California), Defence & Aerospace (have fallen behind DC, Texas and California), Financial Services and Leisure (great arts, sports and general cultural scene). Other old industries that are experiencing technology-led reemergence and where Massachusetts excels are industrial robotics, advanced transportation, and renewable energy.

How we can improve:

1.      Get better at commercializing research conducted at universities. MIT is at the top of the game but Harvard and Boston University (BU) are laggards. For example BU has about 4,000 faculty, 2000 laboratories, 13,000 graduate students and received $336M in external research funding in FY2008. According to AUTM’s (Association of University Technology Mangers) 2006 licensing survey, of the US and Canadian institutions receiving >$250M in research funding, BU was at the bottom of the 3^rd quartile for research dollars spent per license granted.

2.      Encourage millions of Massachusetts’ alumni to communicate through and occasionally gather in Massachusetts. Let’s create an annual alumni gathering in Boston, coordinated by all colleges. We can have sub-fairs at this gathering with themes such innovation, arts, sustainability, healthcare, etc. Economic activity will naturally arise from making Boston the ‘knowledge hub’ of the flat world.

3.      Increase the amount of seed capital for startups by: (a) reenergizing MTDC (Massachusetts Technology Development Corporation); (b) encourage non-Massachusetts angels to invest in Massachusetts’ startups.

4.      Actively retain immigrants who complete advanced degrees at Massachusetts’ universities by helping them get permanent visas from the federal government. In return they agree to stay in Massachusetts for defined period.

Predictions for 2009

Here are my predictions for 2009:

1. Buzz--The buzz topic of 2009 will be the shrinking of venture capital and private equity. The business model for this financial asset class is in need of change and until it does Limited Partners will lower their exposure to VC/PE.
2. Exits--We will see a dramatic drop in M&A activity as a result of tight credit markets. We will see some recovery in the IPO market.
3. National--We will experience a severe recession.
4. International--India will recover from it's slowdown by Q2'09. China will not recover until 2010. 
5. Mobile--The emergence of client-server software on smartphones and the growth of BtoC enterprise mobile apps (what I call CRM 3.0).

Here is how I fared with my 2008 predictions:

1. Buzz--The buzz topic of 2008 will continue to be energy and cleantech. We will see a huge growth in VC investments in such companies. I was right on. CleanTech investments by venture capital firms reached $4.1 billion up 52% with 277 deals in 2008. Source www.pwcmoneytree.com. 
2. Exits--We will see a dramatic increase in cross-border M&A with many Indian and Chinese companies acquiring US and European companies. I was dead wrong. China cross-border M&A dropped by 30% and India by 51% in 2008. 
3. National--We will experience a recession. Unfortunately I was right on. 
4. International--The Flat World concept (Friedman) will be replaced with the lumpy world (Ghemawat). Companies will have to deal with a global skills shortage in very local ways. I was right on. In spite of a global recession some countries have fared much better, eg India as compared to the US and China.
5. Mobile--Apple's greatest innovation in the iPhone is its browsing capability as a result the mobile internet will finally take off. I was right on. Browsing has taken off with the iPhone browing holding a commanding lead with a 3X increase in it's share of total (landline and mobile) browsing. 

Here are my predictions for 2009:

1. Buzz--The buzz topic of 2009 will be the shrinking of venture capital and private equity. The business model for this financial asset class is in need of change and until it does Limited Partners will lower their exposure to VC/PE.
2. Exits--We will see a dramatic drop in M&A activity as a result of tight credit markets. We will see some recovery in the IPO market.
3. National--We will experience a severe recession.
4. International--India will recover from it's slowdown by Q2'09. China will not recover until 2010. 
5. Mobile--The emergence of client-server software on smartphones and the growth of BtoC enterprise mobile apps (what I call CRM 3.0).

Passage to India Part 7

Pune Monday December 22

 

I visited the cerebral city of Pune, 120 miles from south east of Bombay on the Deccan plateau. Pune is the closest parallel city to Boston, with a multitude of universities and government research labs. I attended high school in Pune over 30 years ago. The city was unrecognizable, with huge population and industrial growth. While no Detroit, the automobile industry has a big presence in Pune. It is the headquarters of Bajaj the largest worldwide manufacture of two-wheelers (scooters and motorcycles), three-wheelers (those ubiquitous yellow black auto rickshaws that Hollywood sees as a caricature of India). Tata Motors builds trucks, buses and now cars in Pune. My father had brought us to Pune, called Poona in those days, to help launch the Tata Motors truck plant in 1970. Pune has also become a growing IT hub of product development outsourcing.

 

I thought I might escape the crushing traffic jams of Delhi, Mumbai and Bangalore while I was in Pune; I was mistaken. If there is a symbol of modern India it is that of honking cars and two-wheelers crawling along at walking pace. The three-lane toll expressway from Mumbai to Pune was just like the Mass Turnpike, we were cruising at 70 miles per hour. However it took two hours getting out of Mumbai and two hours to get into Pune, covering about ten miles in each case. India’s transportation infrastructure cannot keep up with the growth of vehicles on the road. Some comparisons, the US has about 11 million km of paved and unpaved roads with about 250M vehicles. India has 3.3 km of roads with tbd vehicles. Most of the vehicles in India are in the four metropolitan cities, with Delhi alone adding about 1,000 new vehicles per month. India cannot emulate the US and depend on roads alone for transportation; it has to build a rail public transport system in cities.

 

The intercity railway network is the largest in the world, with over 2 billion passengers transported quarterly. I have decided to take an 18-hour train journey from Mumbai to Delhi in first class sleeper. I booked the trip online at the Indian Railways website in just a few minutes. The Indian Railways is one of the few government departments that has improved service for the public in the past few years. The Railway minister in Parliament is the erstwhile Lalu Prasad, a breathtakingly dishonest politician who as the Chief Minister of Bihar, brought that state to terminal economic decline. In true American style he has reinvented himself as a competent federal minister, earning a case study at Harvard Business School.

 

Bangalore’s new airport was delightfully efficient and clean and I have heard that the new airport in Hyderabad, the life sciences capital of India, is even better. Air travel is cheap and generally a delightful experience within India. Railway station and airports will soon be connected to urban public transport. Delhi, Bangalore and Mumbai are all building a metro system, with Delhi clearly in the lead.

 

The electricity grid in India is notoriously unreliable. Most of the problem is due to demand outstripping supply. It is also due to the enormous “leakage” of power, ie power that is stolen with the complicity of corrupt municipal officials. As a result there is a huge industry of distributed backup power, every house and office has battery backup UPSs, and diesel generators. The noise and air pollution from these back up generators can be experienced at any retail marketplace. With the nuclear cooperation agreement signed with the US (and France and Russia), India is embarking on construction of a dozen or so nuclear reactors. India is going to buy this reactor technology from these countries and there are billions of dollars of business up for grabs. From what I have heard US companies are in third place.

 

India’s biggest infrastructure challenge is that of clean water. Most of the country receives rain only during a 2-month long monsoon season. The rest of the year water is available from the ground or glacier fed rivers. Municipal water is generally contaminated and available for only a few hours a day. Most people augment municipal water by buying water from private suppliers who ship it in tank trucks. Every house and building has water storage tanks that need to be cleaned regularly so the water doesn’t get further contaminated. Every house also has a water filter to produce drinking water. Bottled water is common and a must for foreigners like me.

 

Amongst the Christmas greetings I am receiving on my Blackberry is one that has a hilarious comparison of cow economics in various countries: Indian corporation, you have two cows you worship them; Chinese corporation, you have two cows with 300 people milking them, you declare full employment and imprison the journalist who tries to tell the truth. US corporation, you sell one and force the other to produce the milk of four cows and then hire a consultant to analyze why the cow dropped dead! Feels bizarre reading emails from Detroit about cows while I gaze out scrawny cows nibbling in the fields we are passing by.

 

 

Passage to India Part 6

Mumbai Friday December 19, 2008

 

The TiE Entrepreneurial Summit in Bangalore was a huge success--the sponsoring hotel was barely able to manage the large crowd. What struck me was how young the crowd was and how aggressive the entrepreneurs were in approaching anyone who looked like they had money to invest. Speaker after speaker lauded the “demographic dividend” offered by all those young people and to be reaped by India. Implicit in this comment was that this group would be well educated. Everyone by now has heard about the Indian Institutes of Technology (IIT) and the Indian Institutes of Management (IIM) and perhaps even the All India Institute of Medicine (AIIM). These fine institutions graduate just tens of thousands students annually. There are many other engineering colleges and management institutes but the most are not graduating world class talent. This is even more evident in high school. The elite private high schools (Cathedral, Campion in Mumbai and Sriram, Modern in Delhi) are excellent but most Indian teenagers in the metros get subpar education at public high schools. In smaller towns the options are even fewer.

 

Nonetheless the kinetic energy of these young entrepreneurs is infectious. One young man bewitched our table with a multitude of startup companies that had been selected by his cleantech non-profit for fundraising help. These varied from electric scooter companies to biodiesel producers. A couple of us were ready to start a company to import scooters to the U.S.! The unwritten story behind these eager entrepreneurs is the hard work they have put in to get to where they are. It starts in elementary school, most students put in a full school day (including hours of commuting) and then take extra tutoring to prepare them for entry exams to the elite private high schools. To get entrance to an IIT or medical school, students have to study 5-6 hours per day for couple of years, in addition to attending regular school hours. Only one in a hundred applying get into these elite colleges. It is questionable that all this studying prepares Indian youth better than American youth for real world jobs but it certainly instills a strong work ethic.

 

Traditionally youth is celebrated in the U.S. but in India age (read wisdom) is respected. This seems to be changing, especially in the workforce. An executive search professional I was chatting with said that many executive jobs came with a stipulation that the candidate be younger than 45. With so many young people available why pay extra for tired, old wisdom?! I don’t know if the average age of Indian companies is lower than that of U.S. companies but the senior ranks certainly seem younger.

 

TiE is launching a chapter in Tokyo and I had a chance to discuss Japan’s new found fascination with India with the founders. Apparently the Japanese were taken aback that many multinational companies in Japan suddenly began to have Indians as the managing head. Japan has always had a historical fascination with India, the home of Buddhism but was always considered an industrial backwater. With the success of its IT and especially automobile parts companies (Toyota Kirlowsker’s plant in Bangalore produces as or more reliable parts as Toyota’s Japanese plants), aging Japan appears to have discovered talented India. There are hordes of Koreans and Japanese on all the elite golf courses in Delhi and Bangalore!

 

National Entrepreneurs Network (NEN) business plan finalists

Passage to India Part 5

Bangalore Monday December 15

 

For forty five years after independence Indian companies for all purposes operated without competition. Monopolies were granted by the government for extended periods. Many fortunes were made, both by industrialists and corrupt politicians. Consumers had to wait years for “luxury” goods such as cars and telephones. This began to change in 1992, when in the face of an economic collapse the Indian economy began to reform. Slowly, industrial sector after sector was opened up to multiple competitors, even foreign ones. The IT industry evolved slightly differently as the government babus (bureaucrats) were so used to regulating physical goods that the industry was able to export its bits and bytes via satellite links without intervention.

 

Today India has hyper competition in many industries and consumers are the net beneficiaries. There are five major wireless carriers with about equal market share (contrast this with the U.S. which rapidly moving to a duopoly of Verizon and AT&T). As a result making a cellphone voice call in India is the cheapest in the world. My monthly cellphone bill in Boston averages $120 or about $4 per day. I am spending about 50 cents a day in India. Albeit cellphone conversations in India tend to be quick and short, I can only attribute this to how costly phone calls used to be just a few years ago. There are a multitude of startup companies offering value-added services in this vibrant ecosystem. I met a young engineer who had bootstrapped a company to offer mobile internet advertising services to brands. He was saying that the growth of mobile internet usage in rural cities was exploding as small scale business men had no other way to access the internet for relevant content such as local weather, crop prices, etc.

 

Similarly there is significant competition amongst domestic airlines. The customer service on these airlines reminds me of flying in the 1980s in the U.S.. Call centers that respond within seconds, ground staff that is friendly and efficient and best of all, in-flight service that astounds (I just had a flight attendant service a bathroom after a particularly long winded customer!). My sister-in-law just flew from Delhi to Toronto on a Jet Airways flight and said it was the best business class experience she had ever had, and she is a frequent and demanding flier. I was conversing with an executive at the biggest training school for airline staff and she said that they train about 2,000 customer service reps annually and only the crème de ala crème make it on to plane as flight attendants, and yes, looks are an important criteria.

 

In contrast almost any government run service is horrendous. Delhi’s domestic airport was mobbed at 5:30am for early morning flights. Security was overwhelmed and chaotic. I witnessed a shouting match between a patiently queuing customer and someone jumping to the head of the line because they were late for a flight. There are exceptions of course. The entire city of Delhi appears to be under construction with an extensive expansion to their 4-year old metro (subway) underway to be ready for the Commonwealth Games in 2010. Crews are literally working 24x7 with minor disruption to traffic. I contrast this to the Winter Street exit off Rte 95 in Waltham where repair of single bridge has been going for over three years with no end in sight. Interestingly elections are hard fought in India because politicians end up in personally lucrative monopolies. Since they maybe in power only for a single term, they try to extract as much graft as they can. Government led corruption is the bane of emerging economies from democratic India to autocratic China. Fortunately India has a highly competitive press corps that is valiantly trying to inform the public about government’s misdeeds. In the aftermath of the Mumbai terrorist attack, some politicians’ heads rolled as a result of press coverage of their ineptitude. In the U.S. no leader lost their job as a result of the security lapses in advance of 9/11. Nevertheless the Indian public would gladly trade the U.S. public sector for India’s. Perhaps our multitude of outsourced government contractors should set up in India and begin lobbying for outsourced services from the Indian government, a win-win situation for both countries!

 

There is no doubt India’s youngsters are eager to move up the social ladder and are prepared to study hard, work hard and compete aggressively.

 

Ready to compete in the global economy

Passage to India Part 3

New Delhi December 10

 

The housing meltdown in the U.S. got me thinking about the property market in India. With the dramatic urbanization and growth of Indian cities property prices have skyrocketed. In good neighborhoods in Delhi prices have increased 100x in 30 years. I met a small dairy farmer who supplied a neighborhood with milk from a few cows by bicycle who had sold his property for $2M (see the photo of him delivering milk).  Property and property rights, or the lack thereof, is a central theme in free market India. India has national, state and municipal laws supporting intellectual and physical property but enforcement of those laws are weak. This is especially the case in housing. In India possession is more than 9/10ths of the law it is the law. In a situation similar to rent controlled properties in some U.S. cities (remember rent control in Cambridge?), there are millions of tenants who occupy properties, pay nominal rent and cannot be evicted.

Land is an emotional issue in India. Hundreds of millions of farmers still make a living off their land. The size of the average farm has decreased since independence as generation after generation has subdivided land among their children. In the cities single family homes have grown into multi-storey apartment buildings with each floor given to a child as inheritance. Even the mighty Tata Motors was forced to move their Nano car plant from one state to another because small farmers protested against having their land taken by eminent domain. While India is a mobile society, people tend to retain their ancestral land. This creates a shortage of properties for sale, especially in old established neighborhoods in cities.

Most Indian families I know have a property dispute within the family, generally resulting from inheritance. The legal system is slow and corrupt and it can take upwards for 10 years to resolve disputes (it is very easy to delay the legal process by bribing clerks and even judges). As a result possession has become the instrument of choice in such disputes. When the second parent passes away the children start moving themselves or their relatives into parts of the property to stake a claim. Naturally this creates discord within families. Feudal India is never far from the surface of 21st century India.

In contrast intellectual property is well protected in India. Partly as a result of joining the WTO and the fact that most ordinary people are not affected by IP, it is not politicized and the courts generally act quickly to resolve disputes. A colleague who returned from California to take care of an ailing mother with Alzheimer’s, is running a product development outsourcing company. A couple of his employees naively showed software source code they were working on to a competitor in the process of a job interview. Subsequently a major U.K competitor of their U.S. customer came out with an identical product. My colleague was able to sue in the Indian courts and put his employees in jail.

 

Milk-walla Millionaire

Passage to India Part 1

New Delhi December 4, 2008

I arrived in Delhi near midnight off a packed flight and to a crowded international airport, no sign of any slowdown in activity as a result of the recent terrorist incidents in Mumbai. The cool winter air is thick with construction dust, there is a new airport being completed and an extensive subway system, including a line running to the airport.

My first task was to get a local SIM for the Sony Ericsson phone I borrowed from my son. I went to a Bharti Airtel customer service center in a south Delhi market in Lajpat Nagar. It was packed with about a dozen customer service reps (see photo), a payment kiosk and about twenty customers. The rep looked at my phone and said that it was locked to the Rogers network (my son goes to college in Canada) and I should go down the street to a shop to get it unlocked. I went to the shop titled “Orange Teleservices” (see photo) and they promptly said they could unlock it for Rs.650 (about $13) and it would take two hours. I then went to get a passport photo taken at a nearby shop called “Kodak Express” (see photo) and paid $1 for 8 color photos. I went back to the Airtel shop and filled out an application for a prepaid account: my photo, passport information and local address was attached to the application. I was told that my SIM would take a day to activate after my application information was verified. This was a new procedure as a result of foreign terrorists acquiring India cellphone accounts to escape being tracked. Seems like the recent terrorists were a step ahead, they bought satellite phones in Dubai to communicate with their handlers in Pakistan.

 

Airtel Customer Service:

 

The entire experience with getting a local phone service was much more cumbersome than activating a phone in the US or Canada. Then again I imagine if I was an Indian citizen visiting the US, walking into an AT&T store I might also have to wait a day to get activation? I was astonished by how many stores there were all over south Delhi offering mobile phones and services. With 300M subscribers, up from about 100M when I was last here two years back it is becoming a huge industry here.

 

Getting my phone unlocked:

 

Getting my photo for the Airtel cellphone SIM application:

 

Regional Venture Capital Business Models

Download nijhawan_presentation_to_necina_sep_2008.pdf

I was invited by the New England Chinese Information and Networking Association (www.necina.org) to speak at their annual business plan competition kick-off. About 150 people showed up on a gorgeous early fall day. My talk was about regional differences in entrepreneurship and venture capital within the US and around the world (see the attached presentation). I was approached by many young entrepreneurs and MBA students after my presentation. Although the audience was quite similar to www.tie-boston.org audiences, I was struck by how many women attended. Other observations:

• Many of the young entrepreneurs and MBA students were from mainland China not Hong Kong or Taiwan.
• There was considerable enthusiasm from young entrepreneurs for iPhone applications.
• Many in the audience were surprised by data on the impact of immigrant entrepreneurs in the US.
• Many wanted to raise money from US venture capital firms rather than purely Chinese VC firms.
• There were two young entrepreneurs from Africa: Cameroon and South Africa and we had a lively discussion about entrepreneurship in Africa. One was searching for a business idea to take back to Cameroon, but was concerned that there were no VCs in Cameroon. I mentioned an article I had read about an entrepreneur in Ghana who had cultivated a stand of trees to provide renewable products. The business model was brilliant and he was seeking $10M in London to expand by purchasing more forested land. The other entrepreneur wanted to raise money for South African startups in Boston. Seems like a ripe opportunity for a VC firm to establish an office in Africa.

The growth of global VC firms with regional offices continues. Boston area VCs have been quite aggressive in setting up offices first in silicon valley, then India and China. Highland Capital is even setting up an office in Europe. These regional offices have sufficient ability to modify their focus for the region they are in but follow the same investment selection and management process as headquarters. An example is Matrix India which is focused on investing in consumer-driven companies, unlike Matrix Boston which made most of its returns on telecom technology companies. Matrix India has invested in a fast food chain and a company that brings luxury brands to India. Boston area VCs have had offices in silicon valley for years but it is odd that most silicon valley firms don't have offices in Boston, I wonder why? It seems to me that aggressive early stage silicon valley firms would be welcomed by entrepreneurs in conservative Boston.

A Walk on the Dark Side

I have been part of the entrepreneurial ecosystem for over 25 years, mostly as an entrepreneur but also as a VC and angel investor. I firmly believe that the symbiotic relationship of entrepreneurs and smart capital is the key to economic development around the world.

I have spent the past six years either running VC backed startup companies or as an investor at Key Venture Partners. Here are some of my observations from my time on the Dark Side:

• If one rates what it takes to be a successful VC partner, sourcing deals is usually the number one task. Therefore it is surprising how many VCs are slow to respond to phone calls and emails from entrepreneurs, even when referrals come from trusted sources.
• The VC business requires long term thinking but very few VC partners are willing to invest in relationships with entrepreneurs that may not bear fruit for years. I believe that those VCs that develop long term relatioships, tend to outperform those that don't.
• Being a VC is learning how to drink from a fire hose. In the two years I was a VC I sourced 220 deals and invested in one company. That doesn't count all the other deals that we discussed in partners' meetings. One has to develop judgement on a deal very quickly even if it means that you may decline what turns out to be a good deal.
• My philosophy in dealing with entrepreneurs was that I always gave something back to them for the time they spent with me. Even if I declined to invest I would give them a VC or customer lead, or some advice about their business. In my view, this created the foundation for a longer term relationship. Many VCs have lost sight that they are service providers to entrepreneurs not the other way round.
• As experienced entrepreneurs know, not all VC partners add value to their portfolio companies. Some can even add friction to the governance process and can be distracting for management. Usually this results from differences in opinion about exit timing but also sometimes from ego issues.
• I thought hard about how we as a firm might add value to our portfolio companies. One area that a CEO is responsible for but always seems to get relegated to lower priority, because day-to-day operations take precedence, is exit planning. At Key Ventures we developed an exit template for all our portfolio companies that included: investment banks with relevant focus, analysts, potential acquirers (and we built a relationship with their VP Business Development), public company valuations, etc.
• It is known that serial entrepreneurs matched with serial VC partners generally leads to successful companies. The problem, in my opinion, is a shortage of serially successful VC partners in the US and especially in Massachusetts. I have joined Boston University's Institute for Technology Entrepreneurship and Commercialization and will endeavor to address this shortage by researching what makes the good ones so effective and then teach these best practices to aspiring VCs.
• The symbiotic relationship between entrepreneurs and VCs is recognized as the best way to develop an economy. It has been over 60 years since General Doriot and others founded American Research & Development Corp. (in June 1946), the first organised venture capital firm. In 2006 venture-backed companies' revenue made up 17.6% of the GDP and 9.1% of private sector employment in the US according to the NVCA. Similarily China and India have accelerated their economic growth rates as a result of unleashed entrepreneurial energy in the past 20 years. The rest of the world is now adopting this model.
• I believe this model needs some tweaking in the US as it gets applied to new innovative industries such as life sciences, energy and nanomaterials.