This blog contains original articles as well as articles from the book "Start-Up", by Hervé Lebret, which exists both in English and French. It is available on Amazon as well as in electronic versions. To buy it, click here.
I was having a chat with an EPFL professor who asked be if I had read the reprint of the Business Week article about Microsoft IPO. I had not even heard of it. It is a very interesting description of the IPO process so even it is a long article, you should read it.
I had included Microsoft cap. table at IPO in my book and here is a slightly improved version. It is interesting to notice that
- Microsoft had been founded 11 years earlier,
- Microsoft did not need to go public (just as Google a few years ago and Facebook today).
- There was very little venture capital money, so Gates and Allen were not much diluted.
As you noticed recently if you read this blog, IPO filings are piling up. The latest one (I heard of) is Apache Design Solutions and it is very interesting for me because the company belongs the the field of Electronic Design Automation (EDA) which I covered as a full chapter of my book and I follow from time to time the EDA domain on this blog.
EDA is an interestign market because it has reach maturity so you can look at its dynamics over 30 years. I will come back on it at the end of the post. But first, Apache. John Cooley on his DeepChip web site has the best possible description of the company: A brief history of Apache and its IPO.
So here is my usual cap. table. It took Apache 10 years to file despite the fact that the company has been profitable for many years. Not very famous investors (though Intel and Bechtolsheim are not bad!), solid revenues and profits. It shows how much the tech sector has suffered. Such companies would have been public easily ten years ago. In fact,a s Cooley notices, tehre has not been any EDA IPO since 2001.
So what about the EDA market? The last EDA IPO in 2001 was… Magma. I will just let you look at the market data and judge about the market.
Figure 1 – EDA Market and Players 1983, – 2010.
Figure 2 – EDA Market and Players, 1983 – 2010.
Table 1 – EDA Market and Players, 1983 – 2010 (Revenues in $M).
NB: the 2010 figures for Total and Magam are assumptions (as they are not known yet).
After Genentech, Chiron and Genzyme, let just me do a simple analysis of biotech start-ups. The table which follows summarizes it all and I added Amegn but it is obviously a little tough to read. You can enlarge it however. So you can see data about the companies themselves, foundation year, IPO year, revenues and profit/loss at IPO, current status and then data on founders, their age at foundation, what they were doing before the creation and what they did after the start-up adventure. Then I provide a link on them.
So what is interesting about the companies themselves?
- On average, it takes them 3 years to go public. So the myth that biotech start-ups develop slowly is linked to the revenue/profit status, not the exit status.
- Indeed, when they go public, they have very small revenues and lose money. Compare to Apple for example, on the first picture.
- They are very similar to Internet companies of the late 90s: they go public very soon without revenues and still losing money.
- Finally, they are acquired by European players. This is in total opposition to IT companies where the only buyers are American (check for example slide 36 of the pdf I published in the past).
Now the founders.
- First, they are not young people. Compare again to the same document, slide 27 now. American founders in the slide are on average of 27 year-old, and Europeans, 33 year-old.
- Many had an academic career they did not have to leave. They may have taken sabbaticals but many went back to their academic life. It is obviously related to the previous point.
These 3 posts have shown my small knowledge of biotech but also the fact that they are interesting not to say major differences between Biotech and Information Technology.
When I heard about a talk on innovation at Google, I was obiously interested all the more that the brief summary looked great. here is the video on youtube, and below the summary:
It was given by Dan Russell, Research Scientist and Search Anthropologist, Google and was part of the Series of the CITRIS Research Exchange from UC Berkeley on March 16, 2011.
Wednesday, March 16
Banatao Aud., 3rd floor, Sutardja Dai Hall, UC Berkeley
About the talk:
As a company, Google clearly relies on innovation to keep our business alive and growing. Translating that desire into a continual innovation practice is central to the outlook and world-view that Google has as a corporate culture. Innovation isn’t just for the futurists, but a part of what everyone in the company is expected to do on a day-to-day basis.
People who work on internal processes, for example, are expected to be as innovative as engineers and product managers who drive externally visible products. Innovation isn’t something that the company can just leave to a few bright minds, but is deeply embedded in the culture of the company.
Beyond culture, though, there are a few pragmatic behaviors that help Google be innovative. A commonplace belief is that innovation originates with an identified market or user need. While we design for the user, we recognize that innovative ideas originate in many places—sometimes with user needs, but also occasionally from technology opportunities that suddenly become available. In these cases, the user need might not be clearly identified at the outset of research, but become evident only over time. Ultimately, of course, an innovation has to be user-relevant, but we understand that not everything starts that way.
One of the key drivers of Google innovation is our focus on data-driven analytics of our products. We instrument just about everything we can think of, log the data (anonymizing along the way to preserve privacy), then analyze it extensively. We recognize that innovation often proceeds in an evolutionary fashion, and that apparently large leaps in design and novel concepts are often hidden beneath a great deal of under-the-covers work the precedes the public announcement.
In user-interface design, for example, we don’t just do A/B testing, but often A/B/C/D/E/F/… testing. And one of the deep lessons of such an extensive testing program is that we recognize that our intuitions are often incorrect. Large changes in the design may very well lead to poor performance shifts, while tiny, sometimes imperceptible changes can have profound consequences. In many of our products, the UI changes significantly over time, particularly as we learn from our experiments, but also as new technology and data becomes available.
Innovation is thus often smoothly evolutionary, albeit looking like punctuated evolution from the outside, but driven by continual rapid iteration and redesign, always driven by an objective function that includes goodness-of-fit to the environment and exaptation of opportunities as they arise.
Finally, we find that innovative products really are the product of many minds. A very small team might drive the initial design and creation of the concept, but having multiple people look at, evaluate, comment-upon and lend supporting insights is valuable. The trick is to allow these additional insights to be supportive, and not weigh the original ideas down with extraneous freight. Keeping an innovation clear, clean and useful to the consumer is an important practice to avoid losing the key insight and value in the innovation.
I was wrong about the difficulty in producing an iBook for Apple. Thanks to an EPFL colleague, I learnt I did not have to use complex editors such as Calibre (and then do a lot of manual corrections). I just imported my Word file into Pages eand then converted it in the ePub format. It then took Apple 8 days to validate the content.
Genzyme is the second topic of my biotech series. Same approach as with Chiron. Genzyme was founded in 1981, went public in 1986, in less than 5 years. It had two founders, Sheridan Snyder and Henry Blair. It should be added that Henri Termeer was instrumental in the company success. Snyder was 45 and an entrepreneur who after Genzyme will create again new companies. Blair was a researcher at Tufts and was 37. He would become an entrepreneur again.
Genzyme had some revenues but no profit when it went public. Oak was the main investor and both Advent and Rothschild had about 5-6% of the company. Interestingly enough, just like Genentech (with Roche) and Chiron (with Novartis), Genzyme has been recently acquired by a European pharma: Genzyme has been acquired by Sanofi-Aventis for $20B.
Biotech is a strange world for me. I am an IT guy and I have never really understood much about biology. The biotech start-ups are also very different from IT companies. It is well-known that it takes them years to reach revenues with products (not R&D revenue), not to say profitability (just like the semiconductor industry). It does not prevent them from going public early (just as Internet start-ups did in the late 90s!). So it is a strange mix of features of hardware and software companies.
In a series of documents on the biotech history, I could find the following quote related to Genentech: “Late in 1979, Tom Perkins pushed the idea of a public offering. Although the technology was young, and we were early on in the development of products, there was enough interest in the public to get a public offering done. This was a foreign concept at the time. While we had a couple million dollars in revenue–! think it was $3.5 million in revenues in 1979-there were no product revenues or profits generated from products. Whether or not you could take a company public that didn t have product revenue, didn t have commercialized products, and didn t have significant profits, was an unknown. In the mid to late seventies, if companies went public, they had revenues and earnings. You d have at least $10 million in revenues and at least a million dollars in profit, then maybe you could have one of the small high-tech underwriters take you public.”
Secondly, the founders are seldom the typical nerds with some great business vision (Gates, Jobs, Brin/Page, Zuckerberg) but often university professors/researchers. They do not have to quit their academic position and often take the title of chief scientist. (This also happens in the hardware academic spin-offs, with Atheros as an example I mentioned in a recent post).
As a first illustration of all this, I will just show some data about Chiron. My next post will be about Genzyme and I will conclude with general elements in the 3rd and final post.
Chiron was one of the early start-ups in biotech. It was founded in August 1981 and went public in May 1983… 2.2 years! It had three founders Edward Penhoet, William Rutter and Pablo Valenzuela who were respectively 41, 54 and 40 years old when Chiron was founded. Not kids in their early twenties! Their activity at time of foundation was professor at Berkeley, professor at UCSF, researcher at UCSF.
Here is my usual cap. table followed by the equity pie. Chiron at $1.5M and $0.8M in revenue in 1983 and 1982, there was no profit but a loss of $2.2M in 83 and $0.8M in 1982…
Chiron was bought in 2006 by Novartis and it is not the only biotech start-up acquired by an European corporation as we will see soon.
Thanks to a conversation with an EPFL colleague, I was recently reminded the early history of Silicon Valley. I knew about Shockley, Fairchild and the Traitorous Eight. I did not know Shockley had been funded by Beckman (thanks Andrea ), that was the point of the recent conversation.
What is interesting is to have a look at the Traitorous 8 also. Their history (cf Wikipédia) is well-known, what may be less known is their background.
The next table gives the origin, education and age of the 8 traitors, the 8 engineers who left Shockley labs to found Fairchild Semiconductor in 1957 (click on it to enlarge).
They can be considered as the real fathers of Silicon Valley. The famous poster entitled Silicon Valley Genealogy is certainly a convincing illustration of it as well as their Post-Fairchild activities.
The next image is extracted from the one above (left, mid-height level, corresponding to 1957).
A few comments:
- 5 were educated on the East Coast, 2 on the West Coast and 1 in Europe.
- Indeed, three were from Europe.
- 6 had a PhD (3 from MIT), all had a bachelor.
- They were between 28 and 34-year old in 1957.
Twitter is with Facebook, Groupon and LinkedIn, one of the divas if the web 2.0. This morning, I read about a new rumor that the start-up received a new investment valuing Twitter at $4.5B. Twitter has already raised more than $250M and the latest valuation was $3.7B for only $45M in revenues in 2010 with 300 employees. If this is true, Evan Williams, Jack Dorsey et Biz Stone, the 3 founders, are already wealthy, all the more that it seems that some of the investors did not buy new shares from the company, but existing shares from management and employees.
I tried to read the crystal ball and guess how the shareholding is structured. Given the number of unknown parameters, I am probably quite far from the current status, but, thanks to a simple analysis of the financing rounds, a standard stock option plan and a quora article on the founders, here is the result: