Edison NOT an Innovator after all?!
December 11, 2008
BUY THE BOOK AND LEARN FOR YOURSELF!
Scott Kirsner brought his killer presentation on his new book chronicling the history of technology in the movies to Portsmouth last night. Interesting crowd consisting almost evenly of arts/film types and technology people so the goal of mixing the communities was accomplished out of the gate. Film players and technies alike enjoyed learning not just the history, but also the bigger lesson captured in the book - the preservationists versus the innovators.
Scott Kirsner - with Edison and Eastman
It was an evening filled with interesting facts, many of which support the premise that in every industry there preservationists - as Scott calls them - attempting to hold on to the status quo and stave off the innovators. This pic captures Thomas Edison along with his friend George Eastman alongiside some early film equipment. It was interesting to learn that Edison was one of those protectors of the status quo - he was manufacturing the individual kalidescopes where people could watch personal films and could not see any future for movies on a screen to crowd, especially when he was making so much money on the kalidescopes!
For the best recap of the evening though - capture Andy Beupre’s blog on last night’s event!
Hollywood, technology & innovation
Scott Kirsner, the popular columnist and contributing writer to Variety, Business Week, The Boston Globe, New York Times and Wired, was in town last night talking up his new book “Inventing the Movies: Hollywood’s Epic Battle Between Innovation and the Status Quo, from Thomas Edison to Steve Jobs” The packed event held at the Portsmouth Public Library was sponsored by Borealis Ventures.
BarCamp this Saturday!
December 3, 2008
Why Flat Is The New Up.
December 1, 2008
Jeff Bussgang is a former entrepreneur who is now a partner at one of the more highly regarded VC firms in the Boston area - Flybridge Capital. So, when Jeff speaks he provides unique perspective representing both entrepreneurs and the VCs. Jeff’s recent post on how the current economic conditions are changing how VCs have to view their investments is “context sensitive” right now, very relevant you might say! For entrepreneurs I like the question Jeff encourages you to ask your VCs - “what do you have reserved for us in your fund?” Go to his blog for the full perspective - Seeing Both Sides - but I have tried to capture most of it here.
Nice work here Jeff.
VC Perspectives From A Former Entrepreneur - November 30, 2008
Why “Flat Is The New Up” and VC Funds Are Under-Reserved
Everyone in the VC business is looking hard at their fund reserves right now. Very hard.
That’s because the two key assumptions regarding how much money a portfolio company would require from start to finish (the exit) have changed: (1) the length of time before exit; and (2) the number of portfolio companies that would attract outside capital to lead follow-on financing rounds.
The new planning assumpion VC fund CFOs and senior partners are embracing is that each portfolio company’s exit forecast should be pushed out two to three years and, further, funds should assume that inside rounds will be the prevailing method for raising additional capital within the portfolio. For the strongest portfolio companies, it will be a privilege to close a flat round with an outsider. In other words, “flat is the new up”.
Let me first “pull back the camera” for a minute and explain how VCs think about “reserves”. When a VC invests in a company, they set aside “reserve capital” for follow-on rounds of financing. For example, if a VC invests $5 million in a round of financing, they pencil in an additional, say, $10 million of capital that they set aside in their fund for the company to cover additional rounds of capital in the years. They calculate this number based on their assumptions of total capital required before exit and the amount of that capital they will be responsible for — as opposed to other investors who may be investing alongside them. So, if you assume the company will require $40 million in total capital before exit, then other investors will need to be found to put in the additional $25 million (i.e., above and beyond the initial VC’s $5 million plus $10 million in reserve). Reserves become an important number because VCs need to plan their entire fund structure around them. If a $400 million VC fund makes 20 investments of $10 million each (for a total of $200 million in capital out the door) and then sets aside $10 million for each investment in follow-on capital (for a total of $200 million in reserves), then when investment #21 walks in the door, they need to have a new fund raised to invest out of - the previous fund is “tapped out”.
When things were going well, VCs could comfortably assume their portfolio companies would achieve their exits 4-6 years after investment and would assume that the good companies would attract outside investors and higher and higher prices. For the last five years, it was not atypical for a high-quality Series A company that raised an initial round of capital priced at, say, $5 million on a $5 million pre-money valuation to hit a few important milestones (e.g., hire the team, build an initial prototype, identify a few initial customers) and they expect to raise a Series B at a meaningful step-up from their $10 million post-money valuation from the Series A - say, $10 million on $15-20 million pre.
Today, those financings are simply not happening. Series A prices have come down a bit, but the initial management team needs some reasonable ownership level to stay committed. Where prices are really getting hammered in the VC-backed world is in Series B and Series C rounds. Outside of a few notable, and particularly promising exceptions, almost no one is paying up for pre-revenue companies never mind fast growth revenue companies. If you have a high quality company and it can simply attract outside capital at the same price as the previous round, it’s a great outcome. Hence, flat is the new up.
Now, back to the reserves analysis. If your exit timing assumption is pushed back 2-3 years, then you need to raise more like $50-60 million, not $40 million. And if you thought you could attract most of that from outsiders, you are mistaken. VC funds need to plan to shoulder a larger part of the load. So now you’re looking at needing $20 million in reserve capital rather than $10 million. Across one or two companies, a fund can sustain this level of replan. Across the entire portfolio, it’s a bigger problem. Remember my example of the $400 million fund above with 20 portfolio companies? If all 20 double their reserves, the fund is way underwater. And woe to the portfolio company whose VC fund gets tapped out too soon. It’s a bit like pension funds for…er…auto makers. If the VC fund has under-reserved for the portfolio companies, then everyone gets squeezed.
Entrepreneurs need to get up to speed on this important issue that’s echoing through the halls of VC firms and engage their VC partners in open dialog about their reserves. I’ve suggested to each of my CEOs that they systematically poll their investors and directly ask, “what do you have reserved for us in your fund?” so that there is no confusion on this point.
There is no shame for VCs in changing the planning assumptions underlying their funds. The tragedy would be if VCs don’t do it quickly in light of the new facts on the ground - and, in turn, if entrepreneurs aren’t aware of the issue early enough to make the necessary adjustments to preserve the value creation opportunity in their companies.
Inside The Movies - Technology and the Arts Come Together.
November 26, 2008
Recently Ross Gittell - the UNH Business School Prof - and I were talking about interesting ways to help some of the various Portsmouth area communities work together to the same ends. We have both developed a good relationship with and respect for Scott Kirsner who is the leading tech industry blogger in the Boston area - Innovation Economy - and over lunch we came up with the idea to invite Scott up to do a presentation on his new book and to use the event to open up a dialogue around the arts and technology communities working more closely in the future … more to come, but in the meantime it will be a great night!
Click on the Scottster to learn more and RSVP!
Technology and the arts come together in an intriguing evening with Scott Kirsner at the Portsmouth Library
Wednesday, December 10th 5:30pm at the Portsmouth Library
— Admission and Popcorn are FREE
And the NH Product of the Year is ….
November 19, 2008
Another great program and even a great dinner by Matt Pierson and the NH High Technology Council.
INSIGHT TECH GEAR named 2008 PRODUCT OF THE YEAR 
Insight Tech-Gear - MTMv2-LCD
Imagine if you could see crisp, clear, live images in total darkness, through fog, smoke, or thick brush with a devise that fits comfortably in the palm of your hand, said Devin Standard, Director of Marketing & Business Development - as he addressed the audience at last night’s Product of the Year Awards banquet. And, imagine if you could locate a lost child lying unconscious in the deep woods or a man overboard from your pleasure boat at night or in dense fog. STOP imagining. Insight Tech-Gear has the solution, the MTMv2-LCD, the smallest high-resolution handheld thermal imaging devise in the world, weighing in a less that 11oz. Boasting a robust military heritage and innovative features, this product has been created to directly serve the first responder market with unprecedented portability, thermal imaging performance, and easy viewing. The MTMv2-LCD is the only thermal imaging devise that renders facial-recognition quality images and man-sized objects at a 1/3-mile distance in a package this small. Utilizing a high-resolution infrared detector coupled with Insight’s proprietary electronics and imbedded software, the MTMv2-LCD runs on commercially available batteries for over 4 hours making it ideal for search & rescue operations on land and at sea. Saving lives in the goal of using this New Hampshire designed and manufactured high-tech product. Resume imagining! www.insight-tek.com
The Five Judge’s Award Winners: Ensconce Data Technology, Dell Inc., Eleme Medical Inc., Bradford Networks and Insight Tech-Gear presented their products to an audience of over 325 business, government and education leaders at the New Hampshire High Technology Council’s Product of the Year gala banquet held November 18th at the Center of NH Radisson Hotel in Manchester. The products were judged according to their innovation, performance, functionality, value and uniqueness, among other attributes. As the audience and finalists waited for the results, Governor Lynch received the winning company’s name and announced Insight Tech- Gear’s MTMv2-LCD the 2008 New Hampshire High-Tech product of the year. The winning team cheered as they all gathered on stage to be recognized. The elegant crystal Product of the Year trophy will be engraved with this year’s winner, Insight Tech-Gear. The trophy is on display at the Manchester-Boston Regional Airport lobby in the Product of the Year Hall of Fame.
Is the time right, or not?
November 16, 2008
Will you be telling your family that holiday gifts will be few, and not due to the slowdown of the economy, but as a result of your decision to start a business?! What?! That’s right, some people may think you are crazy while others who have done it know that this could be just the right time!
Nice article on this very topic in a recent Mass High Tech authored by NH’s Chip Griffin - enjoy!
Friday, November 7, 2008
Innovation Notations
Risk takers can flourish in this economic storm
Right now the opportunities are abundant. Companies that find themselves downsizing will find real appeal in startups that help them do more with less staff. Focusing on things that increase efficiency and leverage scarce resources may be a path to success for new high-tech companies. Similarly, consumers will continue to spend money, they will simply be more selective in their short-term spending. Pursuing a venture that either appeals to the cost-conscious today or establishes itself in preparation for the next economic upturn would be wise bets.
Of course, finding investor funding may be a bit harder since far too much capital remains on the sidelines. That simply means that ideas with bootstrap potential may be better positioned to succeed in this environment since they are less likely to be facing imposing opposition from a well-funded competitor.
Meanwhile, smart venture capitalists aren’t hiding their wallets — instead, they are out looking for opportunities. With less competition for the best deals, investors can afford to be selective. There are no artificial competitions for funding to drive prices into the stratosphere, and that’s a good thing. A rational market has greater chance of long-term success than one that veers between extreme frugality and irrational exuberance.
Of course, there are other benefits to the current economic situation for entrepreneurs that must not be overlooked. The fact that many companies are reducing their workforces represents a tremendous opportunity for today’s startups. With talented individuals out of work and looking for their next paycheck, startups take on greater appeal. Moreover, with an expanded talent pool and a diminished market for employment, those who are hiring are in a position to pluck prime talent at affordable prices.
In the very best cases, some of these unemployed individuals may prove to be excellent entrepreneurs themselves, either by starting their own companies or by joining the founding team elsewhere. For those contemplating the refuge of graduate school, you might think about joining a startup — where you’ll get an on-the-job education about many business essentials. It won’t be formal or fancy, but you’ll get paid rather than shelling out cash, and you may just get a head start on the next big thing.
None of this comes without risk, unfortunately. For those who demand stability — either because of personal circumstances or individual preference — the turbulence may prove to be too great. The odds of failure for a startup today may not actually be any greater — in fact those at greatest risk are likely those started when times were better, when enthusiasm often outweighs reason.
If you have a strong stomach, a great idea, or a pile of cash, now is the time to find the right opportunities to take advantage of everyone else’s fear. Bundle up, prepare for the storm, and head out into the great unknown in search of the next prize.
Chip Griffin is a serial entrepreneur and angel investor who serves as the CEO of CustomScoop, a media intelligence company based in Concord, N.H. He can be reached at chipgriffin@gmail.com.
Speed Venture Summit Peek.
November 3, 2008
Last week was the first-ever Speed Venture Summit here in NH and both the company and investor slots were sold out so this economic craziness has not stopped the formation of new companies!
Below is a shot of Bill Savoie from Savvy Software - can you see the determination on his face?
Met many other interesting companies from NH and below are the links to the ones I liked!
and from ME …
The real risktakers - VCs, Founders or CEOs?
October 26, 2008
Recently, we had a historian as a keynote speaker at our annual Friends of Borealis Dinner. Dennis Robinson did an amazing job telling the story of the almost 400 years of history that defines Portsmouth. In tailoring the presentation to the audience he highlighted the role of entrepreneurship and even venture capitalists in driving the various phases of history … At one point he reviewed the whaling era and showed this image below while sharing “that you can see the VC here taking a chance again …” - the crowd burst into laughter. Why do you think that was? Clearly this is an image of Ahab from Moby Dick, but that is not why people laughed. Why do you think they laughed? Was it because they can’t see VCs taking that kind of risk? Did they think that was more likely a Founder or a CEO?
Who is more likely to have a peg leg and still go back for more?!
…you make the call! IS this a VC, Founder or CEO on this “puppy”?!
Valley VCs Gone Crazy?
October 19, 2008
Nah, not really - athough there was a time early in the last couple of weeks when people thought the Sequoia Team was auditioning for that movie! In reality, they provided some great advice to their portfolio company CEOs but as it leaked out in the midst of the general craziness in financial circles it came out lacking context and probably created some unintended consequences.
While I was reading all the coverage of that now infamous Sequoia CEO meeting I wondered aloud when the voices of reason would emerge - then came this letter from Alan Patricof! It has been a pleasure to work with Alan on the Handmark Board (the team there is just killing it right now) and his letter reinforced many of the things I have learned from Alan, and now I will let excerpts from his letter do the talking.
By Alan J. Patricof Managing Director, Greycroft Partners
The comments made by the partners of Sequoia Capital at their recently held “CEO Summit” have been widely covered by leaks to numerous bloggers. These bloggers have disseminated the details and spread the contagion of the sentiments to the public at large, unfortunately running the risk that the words become a self-fulfilling prophesy. Without challenging the comments, which expressed a heightened degree of doom and gloom for the economic prospects of young start-up companies particularly, I do think it calls for a somewhat more restrained response on the outlook and required action before throwing the baby out with the bath water…
Nevertheless, aside from an over inflated housing boom that had to collapse sooner or later and a complicated financial system that arose in part to fuel this engine, the basic economy was in reasonable shape with GNP growth and productivity gains supporting a solid, if not vibrant outlook. (I know the automotive industry is also going through bad times but it no longer pervades the economy as once conveyed in the expression “As GM goes, so goes the nation.”)
Advances in technology are allowing companies to make goods and provide services faster and cheaper. The wireless revolution and the Internet have made the dissemination of information easier and more pervasive for the entire world and brought significant benefits to every phase of our economy. That is not going to stop although it may temporarily slow down. In these difficult times, there will be winners as well as losers (and the former may be fewer in number for a while).
The point is, the financial problems are being addressed, if not a bit belatedly, and some international mechanism will be found in short order for some coordinated policy that will restore order and confidence to the system.
Most young companies, with which we are specifically concerned, are financed with equity capital. That has its positives and negatives; on the one hand, debt is a very small factor in the capital structure of most small companies so loan foreclosures and the interest rate burden are not of prime concern. On the other hand, equity capital, which is provided by private investors, requires confidence in future prospects for reaching profitability and creating a strong market value. Certainly under current conditions it is hard to engender such confidence although history has demonstrated that it is in times like these that great opportunities are created. I have always said, “The best time to invest is when the drums are beating, not when the trumpets are blaring!”
This is surely a time for companies to pay meticulous attention to detail, particularly their cost structure. It is a time to be realistic in their near term assumptions for revenue growth and take nothing for granted. Raising additional capital to support operations is of course critical, as it is at any time, but this is particularly a time for young companies to be extra cautious in developing pragmatic assumptions of their needs and in focusing on the amount and not necessarily the cost of that capital.
This is not a time to panic, cut off all investment in the future, and burrow into a dark hole. Take a page from the packaged goods industry that the time to gain market share is during tough times when your competitors are weaker in responding. And while this may feel more directly related to portfolio companies, we as a venture industry should not retreat either. It is our strong belief that we can and will continue to make sound investments in excellent opportunities. It is as good a time as ever to start a company with sound fundamentals.
So my point is to heed the caution of the Sequoia comments but to use them only as a strong message to reexamine all cost elements and growth plans and use this opportunity to assure that you are a survivor. Find a way to use this moment to gain your greater share of the market by providing a solution that is needed by others to improve their prospects in the difficult environment ahead. Tighten your belt and live within your means. Although the timing makes this message seem more prescient, it is a philosophy that works for successful companies at all times and at all stages; it is simply put, good business. This is not a time for heroes!
State of the NH High Tech Economy
October 15, 2008
Recently Ross Gittell and his team at UNH released the latest report on the Granite State’s High Tech Economy. We will share more on this report in the future, but the most immediate thing to know is that we need polticians elected on Nov 4th that understand both the importance of the high tech industry to our state and the policies required to keep it fueled and growing!
Profile of the High Technology Industry in New Hampshire
ØNew Hampshire’s high tech industry accounts for 9 percent of total private sector employment in the state (about 49,000 jobs) and for approximately one-quarter of the state’s economic output.
ØIn 2006 in New Hampshire high tech average annual earning was just under $75,200, which is 75 percent higher than average (all industries) wage.
ØIn 2007 New Hampshire exported $1.1 billion in high tech goods, which accounts for 36 percent of total exports from New Hampshire.
ØDuring the “tech bust” of the early 2000’s New Hampshire had a higher percentage decline in high tech employment than any other state. Between 2000 and 2003 high tech employment fell over 22 percent in New Hampshire, compared to a decrease of 12 percent in the nation.
ØThe current level of high technology employment in the state is lower than in the early 1990s and New Hampshire has dropped in the high tech concentration rank, from 4th in 1995 to 8th in 2006.
ØThe most significant employment decline has been in high tech manufacturing industries.
ØThere are opportunities to expand the base of high technology employment in the state. This includes opportunity to grow sectors of the high technology industry that are already strong — including defense-related industries — and to grow in sectors that are emerging in importance — including in the so-called “green economy.”
ØThe next couple of years will be challenging ones for firms in the high tech industry (and all industries). But in high technology with challenges, come opportunities to innovate, to develop new products and services, and to serve and create new markets and these opportunities are all available for high technology companies in New Hampshire.
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