Incubators are for Chickens

I could have tweeted only (and not blogged) about the picture below. Its author whom I met today authorized me to put it online. It is good to remember the fundamentals, the basics of entrepreneurship. It does not mean entrepreneurs do not need support, but not too much except if they are too fragile. In the past I had heard many similar things (incubators – incinerators?), and Wikipedia explains that incubators have various functions such as a device used to care for premature babies in a neonatal intensive-care unit, a device for maintaining the eggs of birds or reptiles to allow them to hatch. Once they are out of incubators, at least they are ready for accelerators…

“Incubators are for Chickens – In Doers We Trust.”

Sensirion prepares its IPO

Sensirion finally announces its IPO. The spin-off from ETH Zurich was founded in 1998 and many were expecting such an event from a very succesful but quite discrete company. Sensirion has disclosed some numbers and I had followed the development of the company thanks to some data from the Zurich register of commerce. So as usual here is my guess of the capitalization table. And I look forward to compare it with the data from the IPO prospectus when it will be published…

Felix Mayer and Moritz Lechner, co-founders of Sensirion

Again this is guessing only. As you might see, the early funding rounds are unknown to me. I am not sure about how many shares the founders, main investor and employees have adn I am not sure either at which price the company will be priced. I based my numbers on about twice the company sales in 2017… The company claims Knoch has 55% of the company, the founders 14% and employees 8.5%. It does not look to far…

The Sensirion IPO prospectus is not public and is confidential so I cannot publish more than I have here. I can only write I was not too far from the truth despite some discrepancy…

March 8 – International Women’s Day

About to give my optimization class this morning, I just remembered only one woman got the Fields Medal. This was in 2014. Unfortunately she died of cancer last year

Maryam Mirzakhani (3 May 1977 – 14 July 2017) became the first Iranian and first and only woman to win the Fields Medal.

Let me add, that in the field of optimization, apparently only one woman got the Dantzig Prize, Eva Tardos.

I have to admit, I did not take the time to think of a similar name for startups and innovation. Comments welcome…

And Now Spotify

A few days after Dropbox filing for an IPO, here is Spotify. Their F-1 can be found here. The data from the filing document is not exhaustive enough for me, many pas financing rounds are not described but the Luxembourg register of commerce helps too.

Spotify founders Martin Lorentzon and Daniel Ek

Just like for Dropbox, this is a filing only, so the price per share is tentative and the valuation is not fixed yet. The price per share could probably go from €20 to €100…

The start-up of You by Reid Hoffman

I have never been a big fan of “How to” books, sometimes called “personal development”. Even if Reid Hoffman is a brilliant entrepreneur, he did not really change my mind with his Start-up of You. His book which sometimes look like an ad for LinkedIn and which is strangely written with four hands, one saying I (Reid) and the other, He (Ben Casnocha) is still a good description of what it requires to look at improving a career:
– know thyself,
– be adaptable,
– network,
– look for opportunities,
– assess risks.

He also has beautiful ideas. When he quotes authors such as Jonathan Franzen – “Inauthentic people are obsessed with authenticity” – or David Foster Wallace – “There is no experience you have had you are not the absolute center of”. (Pages 93-94) I assume Hoffman knows Franzen and Wallace were great friends until the death of the second – strong ties in networks.

He also prones diversity in networks. If people know each other too well, there is not enough diversity, if they do not each other well enough however, trust is tougher to build. You need both old blood (trust) and fresh blood in a team. (Page 118)

But a team is only as good as its members. team quality requires individual quality. Look below at the famous Paypal mafia(Page 159)

Even if Hoffman gives good advice t the end of each chapter, he is not over-analyzing. For example, when talking about risks: Of the voluminous research on risk, remarkably little of it actually analyzes how real businesspeople make real decisions in the real world. An exception is a study done by professor Zur Shapira in 1991. (…) What he found likely came as a disappointment to architects of fancy decision trees. The executives surveyed didn’t calculate the mathematical expected value of various scenarios. They didn’t draft long lists of pros and cons. Instead, most simply tried to get a handle on a single yes-or-no question: could they tolerate the outcome if the worst-case scenario happened?

Impressive panel @ESPCI_Paris #SiliconValleyinParis with @reidhoffman @tfadell @Hemaisphere, Sebastian Amigorean and Stephen Quake moderated by @APapiernik

You could ask me why I decided to read that book. In the end, it shows entrepreneurs are really good at action, less at analysis… The truth is I went to Paris to listen to him at a great event called Silicon Valley comes to Paris. I wanted to approach him, network! Without knowing I applied some his advice and also made some of the mistakes he is describing. My main mistake was not knowing his interest about European start-ups. In fact he has not invested in Europe, he does not know EPFL. It makes you humble and willing to network even further. Reid, would you come back in Europe and inspire aspiring young entrepreneurs?

Silicon Valley 2018 : The Libertarians Have Replaced the Hippies

While Trump and Harari were in Davos, I visited Silicon Valley for the nth time. Even more than during my last trips in 2014 and 2016, I could feel the gap that has been created between the Silicon Valley that I discovered and loved in the late 80s and the one that exists today (and that I still love).

As one of my interlocutors mentioned, the Hippie generation – which Leslie Berlin describes in her Troublemakers and which until Brin and Page tried to democratize technology – has been replaced by the Libertarian self-interest of social networking that even Reid Hoffman will have a hard time to balance (see It’s time to change the culture of Silicon Valley). The skyscrapers climb in San Francisco, the poor had to leave or live in tents all over the bay, the venture capital funds do not perform as one might think, the unicorns might disappear one after the other, it takes 3 hours to drive from Berkeley to Palo Alto at 6am, one finds more founders than entrepreneurs according to Leslie Hook, and even Steve Blank is looking at a little less at startups and focuses more on innovation of government organizations.

This is a bit the “Querelle des Anciens et Modernes” and I am not sure Steve Jobs would pass the baton to this new generation when he said in 2005 [death] clears out the old to make way for the new. Some think that Silicon Valley is reaching its limits, but AnnaLee Saxenian said the same thing … in 1979. Will we live old enough to have the answer?

Leslie Berlin strikes again with Troublemakers

I had read a few years ago the great The Man Behind the Microchip by Leslie Berlin. After the biography of Robert Noyce, one of Intel’s cofounders, Berlin comes now with Troublemakers, a description of “How Generation of Silicon Valley Upstarts Invented the Future”.

The title is a reference to a famous Apple advertisement: The crazy ones. The misfits. The rebels. The troublemakers. One of the great merits of the book is to focus on 7 individuals (2 women and 5 men) which are relatively unknown compared to the stars of Silicon Valley. Will you recognize them on the following image? (The answer is at the end of the post).

The book is not only great storytelling. It describes the dynamics of Silicon Valley from the late 60s to the early 80s and how “five major industries — personal computing, video games, biotechnology, modern venture capital, and advanced semiconductor logic — were born”. You can also listen to Leslie Berlin here:

The close-to-400 page book also has more than 80 pages of rich notes. It is really a must read for anyone passionate or just interested in Silicon Valley. Here are a few quotes:

Indiana Jones: I’m going after that truck.
Sallah: How?
Indiana Jones: I don’t know. I’m making this up as I go.

“We didn’t want to be considered part of the flock. Eagles don’t flock, was our joke.” (Tom Perkins when asked why KP was not initially on Sand Hill Road – Page 192)

Let me make a short parenthesis. While reading this book, I read a very interesting article in the FT entitled Silicon Valley’s founder factory ‘Silicon Valley is lacking in one core area — a sense of entrepreneurial hustle’ (Leslie Hook – Jan 2018): “When I moved to San Francisco four years ago, I noticed something odd about the start-up founders I met: many of them resembled each other. Not just physically, though most were men under 35. But also in the way they spoke about their companies. They had PowerPoints at the ready, and big numbers on the tips of their tongues. Everyone seemed to know exactly what the total addressable market of their start-up was, even if they hadn’t yet made a single dollar of sales. […] By contrast, while there are a lot of founders in Silicon Valley, I have found relatively few entrepreneurs. The founders are smart and hard-working. But many are simply products of a system, which is why they all seem vaguely the same.” Interesting food for thought in comparison to the 70s…

As my personal contribution, here are 4 of my “usual” cap. tables. Ask Computer, ROLM, Cetus and Atari are companies from the 70s mentioned in the book that I had not studied yet… Ask was one of the first software companies and Cetus the 1st biotech company…

Ask Computer cap. table

ROLM cap. table

Cetus cap. table

Atari cap. table

Well to show the complexity of the exercise, here is a second Atati cap. table based on its S-1 IPO Filing…

In her final pages, Leslie Berlin also mentions another company founded by Mike Markkula, Echelon Corp. Echelon had the ROLM founders as well as Arthur Rock and Larry Sonsini as stakeholders. Here is a 5th table:

Echelon cap. table

Answer to the quiz, the seven troublemakers, from left to right:
Top row: Sandra Kurtzig, Mike Markkula, Fawn Alvarez, Niels Rimers.
Bottom row: Bob Taylor, Al Acorn, Bob Swanson.

Google is not Stanford largest license revenue anymore

Until early this morning, I thought that the Google license (i.e. the rights Stanford University had granted the startup on the PageRank patent) was the largest generator of licensing revenue for the Californian university. I was wrong! If you read the annual reports of OTL, its Office of Technology Licensing, for example the pdf of the 2016 Annual Report, you may notice that the largest royalty revenue generator had another source: intellectual property/patents about functional monoclonal antibodies. Here are what these reports say of the largest amount of revenue in a given year from a single invention:
2016: $64M
2015: $62.77M
2014: $60.53M
2013: $55M
2012: $51M
2011: $44M
2010: $45M
2009: $38M
2008: $37M
2007: $33.5M
2006: $29M
These numbers give a total of $363M and another book mentions $125M cumulatively before 2006. But a more recent powerpoint document shows that the total cumulative revenue is … $613M!!

As a side note, in 2005, the Google patent gave proceeds of $336M following the company IPO. The 2004 and 2003 reports do not say the amount of the largest source of income whereas in 2002, it was “an unexpected $5.8M in one-time royalties” and in 2001, “for the first time in over 20 years, a physical science invention – an optical fiber amplifier – generated the most income”.

As Lita Nelsen from MIT said (see my previous post), “Even nationwide, you can show that tech transfer is, at best, a lottery if you want to make an ability to influence [a university’s financial position]. The primary winners—not 100 percent of them, but damn close—are single pharmaceuticals. Because if a pharmaceutical hits the market, it’s going to be in the multi-billon dollar [range]. The equity is seldom worth a lot, unless of course you can follow up with preferred investments. But that’s not what we’re in the business of doing. Any university that counts on its tech transfer to make a significant change in its finances is statistically going to be in trouble.” Google was a big exception with the equity proceeeds whereas the patent around monoclonal antibodies or the Cohen Boyer patent are about pharma. Have a look at the next figure from the same powerpoint document.

Interestingly enough I am reading a very interesting book (more when I am finished) which describes the early days of Silicon Valley and in particular the creation of the office of Technology Licensing by Niels Rimers.

In Troublemakers, author Leslie Berlin extensively describes the Cohen Boyer patent. In note 32 (page 450), she describes the terms of the Cohen-Boyer license. You can also find them in Lessons from the Commercialization of the Cohen-Boyer Patents: The Stanford University Licensing Program.

73 companies has signed for the initial $10k upfront payment, but “ten companies alone provided 77% (US$197 million) of the total licensing income” and 3 (Amgen, Genentech and Lily) provided close to 50% of the total. All this is well-known but I thought it would be interesting to blog about it today.

MIT’s Lita Nelsen Perspective on Academic Technology Transfer

I just read an excellent interview of Lita Nelsen who has recently retired as head of MIT’s Technology Licensing Office. You should read the full Exit Interview: Lita Nelsen on MIT Tech Transfer, Startups & Culture. I was used to say that MIT was more conservative than Stanford just like the Boston Area has been known to be more conservtaive than California, but things change. So let me just mention a few extracts.

Lita Nelsen (Formerly head of MIT Technology Licensing Office)

About patents:

Patents are needed because the whole idea is if you’re going to get somebody to invest a lot of time and a lot of money, if you succeed you don’t want the other guy, the bigger guy, saying, “Well, thank you very much. Now that you’ve shown the way, get out of the way.” We are primarily using patents as an incentive for investment.

About universities having an investment fund:

[The Technology Licensing Office helps] start about 25 or 30 companies a year. God knows how many [other companies started on campus] go out the back door. No one fund could put that amount of sweat equity into all of them. Now imagine we have MIT’s fund, and I invest in company A, but don’t have the resources to do B, or maybe not C. Then I go with C to [an outside venture capital firm] and say, “How would you like my leftovers?” There’s a negative selection bias there for what we don’t invest in. So, better to let a level playing field for anybody who wants to play.

But one thing any institution doing it has to decide is, are we primarily in it for return on investment? Or are we primarily in it for getting companies started that wouldn’t otherwise get started? You usually get a mixed message if you ask people which it is. And as everybody knows, when you get mixed missions, things get very hard to manage.

About equity in licensing:

How much equity does the Technology Licensing Office usually take when it spins out a company? Usually in the lower single digits, maybe a little higher if you have a software spinout. And it’s common shares.

If it’s research-intensive stuff—biotech, things that take multiple rounds of funding—[our stake] usually gets demoted down to [tiny] portions. You make a little money; you don’t make a lot. Except in cases when the Wall Street bubble is totally irrational. Even nationwide, you can show that tech transfer is, at best, a lottery if you want to make an ability to influence [a university’s financial position]. The primary winners—not 100 percent of them, but damn close—are single pharmaceuticals. Because if a pharmaceutical hits the market, it’s going to be in the multi-billon dollar [range]. The equity is seldom worth a lot, unless of course you can follow up with preferred investments. But that’s not what we’re in the business of doing. Any university that counts on its tech transfer to make a significant change in its finances is statistically going to be in trouble.

About accelerators:

“Does MIT have an incubator?” And my classic answer has been, “Yes, it’s called the city of Cambridge.”

The problem with accelerators is the definition has become as broad and varied as incubators, which range from science parks to little projects within universities, so you don’t know what the word means until you dig in. But some of them are putting money into product development. Some of them are venture funds expecting ROI. Some of them are [funded] through donations, as we did with Deshpande and Harvard did with their accelerator.
It’s going to be interesting to look at the mechanisms that people are trying. Because the problem is there: How do we get from the stage of which the university has done its research and maybe even gotten on the cover of Science magazine, to where somebody is going to invest in that ripening process before it actually turns into true product development, short-term product development? How do you get from the petri dish to full-scale clinical trials? You’ve got to get pretty far along before pharma’s going to do that for you. So people are looking both within universities and outside of universities as to how you fill the gap.

About teaching entrepreneurship:

now MIT, with its emphasis on innovation, is investing officially in training students in innovation and entrepreneurship, along with, not separate from, their intense technical educations. It’s not “you go and learn how to be an entrepreneur,” it’s you learn biology or chemistry or electrical engineering or computer science, but you also learn how entrepreneurship and innovation and moving technology out into the marketplace works—rather than having to learn that after you graduate.