Monthly Archives: October 2011

10 lessons from the Dropbox story

Forbes recently published Dropbox: The Inside Story Of Tech’s Hottest Startup or is it its legend already? (I should thank my colleague Mehdi for mentioning the link to me, 🙂 )

It looks so similar to many of Silicon Vallley success stories that we should sometimes be a little skeptical about such beautiful stories. In any case, it is worth reading and here are my 10 lessons from it:

1- YOUNG GEEK – Drew Houston, the “typical” American start-up founder, began playing with computers at age 5 and began to work with start-ups at age 14. Steve Jobs knew this kid who had reverse-engineered Apple’s file system. He was 24 when Dropbox was launched.
2- ROLE MODEL – “No one is born a CEO, but no one tells you that” is what Houston learnt but when he saw one of his friends starting his own company he thought “If he could do it, I knew I could”.
3- COFOUNDER – In 2007, Paul Graham selected him in his Y Combinator program but insisted he has a cofounder. This would be MIT dropout, Arash Ferdowsi.
4- FRIENDLY ANGEL – Months later, they are supported by Pejman Nozad (famous with Saeed Amidi for their family rug business turned into office space [Logitech, Google] turned into investing [PayPal]).
5- VENTURE CAPITAL – Soon, Nozad introduced them to Michael Moritz (Sequoia’s legendary investor in Yahoo and Google) who invests $1.2M.
6 – MIGRANTS – Both Ferdowsi and Nozad have roots in Iran. They chatted in Farsi when they first met.
7- TALENT & PASSION – “I was betting they have the intellect and stamina to beat everyone else” claims Moritz. “Houston and Ferdowsi moved offices again and often just slept at work.”
8- LEAN & SPEED – Ycombinator funded Dropbox in June 2007, Sequoia in Sept. 2007, followed a year later by $6M from Accel and Sequoia. 9 employees in 2008 (with 200’000 users) and 14 people in 2010 with 2M users.
9- CUSTOMERS – In 2011, Dropbox should make $240M in revenues, from only 4% of its 50-million user base. 70 people and profitable.
10- RESOURCES – Being profitable did not prevent Dropbox to raise another $250M from Index, Greylock, Benchmark and existing investors. At a $4B valuation.

Silicon Valley – more of the same?

I was cleaning and filing old papers in my office, when I found “old” books about Silicon Valley and noticed how this amazing region has not really changed in the last 30 years. Let me just elaborate. The first book I looked at is Silicon Valley Fever.

Here is the back cover:

The next one is The New Venturers

with its back cover too:

Both were written in the mid-eighties. The New Venturers does not seem to be printed anymore and I wrote on Amazon in 2009, when I bought it, “In the mid 80s John Wilson published this book about venture capital. At the time, it was about business and how venture capital works. It has now become a history book and it shows how Silicon Valley developed in part thanks to venture capital. It is full of anecdotes, facts and figures. A great book… ”

Silicon Valley Fever is also out of print and there is no review for that one on Amazon! It is also a book I enjoyed reading. As a funny coincidence, the authors began their book with their history of Apple whereas my first chapter was the history of Google. Each decade has its role models. There is a section about Women and Entrepreneurship that Pemo Theodore would certainly appreciate: “The Silicon Valley has been called “one of the last great bastions of male dominance” by the local Peninsula Times Tribune. […] They are under-represented in management and administration. Few women have technical or engineering backgrounds. […] Why there are few women in positioning of responsability in Silicon Valley is complex and puzzling. Until recently, the overwhelming majority of engineering garduates were men. […] Scientific and engineering professionals in the finance community and in start-ups are likely to be men: these power-brokers rely exclusively on tehir personal networks. […] Twenty of the largest publicly held Silicon Valley firms listed a total of 209 persons as corporate officers in 1980; only 4 were women. The board of directors of these 20 firms include 150 directors. Only one was a woman: Shirley Hufstedler, serving on the board of Hewlett-Packard.” But the authors are optimistic: they explain that any woman with a technical background or an interest in high-tech has opportunities: “A Martian with three heads could find a job in Silicon Valley. So for women with a technical background, it’s terrific. […] An exception to masculine dominance is Sandy Kurtzig. “I wanted to start in a garage like HP, but I didn’t have one. So I started in a second bedroom of my apartment.” At first, Kurtzig did sales, bookkeeping and management of her start-up. As long as she had only five or six employees, they worked out of her apartment. It went into rapid growth and had annual sales in 1982.”

Part I of the book is historical, part II is the culture of Silicon Valley and part III is about its future (as foreseen in 1984). The final book I found is certainly not out of print. Written 10 years later by Annalee Saxenian, Regional Advantage is the reference book about Silicon Valley. It is one of my bibles. Saxenian compares the culture of Silicon Valley and Route 128 (the Boston cluster).

Funnily enough, she had this honnest recognition in 1998: “In 1979, I was a graduate student at Berkeley and I was one of the first scholars to study Silicon Valley. I culminated my master’s program by writing a thesis in which I confidently predicted that Silicon Valley would stop growing. I argued that housing and labor were too expensive and the roads were too congested, and while corporate headquarters and research might remain, I was convinced that the region had reached its physical limits and that innovation and job growth would occur elsewhere during the 1980s. As it turns out I was wrong.” (Source: A climate for Entrepreneurship)

Let me just put here pictures of the preface of the book that you can find on Amazon or Google books. It is enlighting and will be my conclusion of this post: Silicon Valley was and is the innovation center with many ups and downs that these three books describe with their own style.

dot.dead, a Silicon Valley mystery

I seldom mention novels here. In fact, I only did it one with the excellent “The Ultimate Cure” by Peter Harboe-Schmidt. I nearly bought by accident dot.dead, the first novel written by Keith Raffel, a Silicon Valley entrepreneur turned into a thriller writer. And I enjoyed it.

There is no point in telling you anything about the story. It may not be very realistic, but which mystery novel is? The description of Silicon Valley, Palo Alto and Stanford University is nice and accurate though  and you have the feeling you are back there if you know the places. What I also enjoyed and what is relevant for this blog are the links with the high-tech start-up world.So let me quote Raffel.

– An interesting comment about motivation to be an entrepreneur (page 42), maybe the most surprising thing in the book! “She asked if the hard work required to start a business was worth it. […] -[It is] a kind of Catch-22. To found a successful company, you had to think it was more important than anything. But if you were intelligent enough to run such a company, you had to know it wasn’t. Realizing that, you could not have the drive needed to start the next Sun, HP…”

– A much less important detail (page 45): “[The company] had gone public at $12 a share. After three two-for-one splits, [he] had sold the company for $42 a share. An investment like this might explain the […] comfortable circumstances.” I let you compute the multiple!

– Of course, when you read a fiction about Silicon Valely, you may try to guess if the author found inspiration in real individuals. Paul is the easy one (page 16): “While not quite at the level of Bill Hewlett or Dave Packard, Paul still rated as a Silicon Valley legend. Born in Hungary, Pál Békés had been a baby when his parents carried him across the border into Austria during the 1956 revolution. Paul Berk, as his parents rechristened him, graduated from the Bronx School of Sciences at sixteen and from Stanford…” Well it is not exactly the personal history of Andy Grove at Wikipedia but close enough: “During the Hungarian Revolution of 1956, when he was 20, András István Gróf left his home and family and escaped across the border into Austria, where he eventually made his way to the United States in 1957. There, he changed his name to Andrew S. Grove. Arriving in the United States in 1957, with little money, Grove retained a “passion for learning.” He earned a bachelor’s degree in chemical engineering from the City College of New York in 1960, and earned a Ph.D. in chemical engineering from the University of California, Berkeley in 1963.”

– The other people I tried to identify with less success are the board members of the company (page 57): in addition to Paul, there is
” Bryce Smithwick, board member as well as corporate counsel. sat to Paul’s right, leaning forward an Armani-clad leopard.
” Darwin Yancey, the technical genius behind Paul’s previous company. As usual Darwin’s glasees had slipped down his nose so that he peered at Paul with his head cocked back. Darwin had worked eighteen hour days [in the previous start-up] but to everyone one surprise had not followed Paul to [his new start-up]. Instead, he retired with his millions in the south of France. “My wife told me that our firrst twenty years of marriage belonged to work and that the next twenty years belonged to her.”
“A rare representative of her gender in the macho world of top venture capitalists, Margot Fullbright had cofounded Chance and Fullbright. Seated next to me, she had her hands folded on the table like a prim schoolgirl. A sideways glance showed me that the short skirt of her expensive suit was designed to show off the thighs of a Parisian runway model, not a buisiness executive. But Margot, approaching fifty, had a body toned as much as shiatsu, Bikram yoga, and two-thousand-dollar-a-day spas could achieve. Known for her ability to do complex calculations in her head, her mind was in even better shape.
“The fifth board member, wearing his trademark bowtie, hie crew-cut hiar beginning to show a few flecks of gray, was leon Henderson, a Stanford professor. A handful of former students, inculding three Fortune 500 CEOS, had thrown him a sixty-fifth birthday party the previous January. I myself had taken his entrepreneurship course and now met him vevery month or two for breakfast at Stanford’s Tresidder Union, where he offered me parctical advice on management and product positioning.

I do not know who these people are. There are a few women in VC, including Ann Winblad and Esther Dyson. Raffel is right, it is a macho world. They could all exist and look like SV stereotypes.


Ann Winblad (left) – Esther Dyson (right)

Another detail on bankers (page 100): “I had the natural prejudice against investment bankers. We worked seventy-hour weeks to make a start-up successful. Then, when the payoff came, investment bankers got a six-percent cut for a few weeks’ effort.”

Raffel could not avoid telling his Silicon Valley history (page 107). Nicely written: “Riding in the back of my parents’ Country Squire station wagon thirty years earlier, I would have been passing apricot orchards and horse trails. We didn’t know it, but they had already been condemned when William Shockley opened a company in 1955 to exploit his invention of the transistor. In an almost biblical sense, Shockley Semiconductor was the progenitor of hundreds of the firms flourishing in the Valley, for people from Shockley begat Fairchild and people from Fairchild begat Intel and someone from Intel begat Apple, and so on. In a variation on the biblical theme, two of Shockley’s most promising disciples, Gordon Moore and Robert Noyce, revolted against the founding father of the Valley to start that first competitor, Fairchild Semiconductor. Shockley was left claiming betrayal and ended his days using his Nobel Prize to defend his indefensible view on eugenics. This drama set the tone for Valley culture: young, brilliant technologists breaking away from companies run by the previous generation of entrepreneurs and founding their own.”

I plan to discover soon if Raffel’s latest novels bring pieces of interesting data.

Another French start-up going public!

They may not be that many, but it is at least the 3rd French start-up going public in 2011, after Sequans and Envivio. Whereas these two ones went public on Nasdaq and NYSE, Mauna Kea Technologies went public in August on Paris Euronext. I did not anything about MKT until recently but I looked at their IPO prospectus.

A nice entrepreneurial story. Two founders, apparently friends before high school, launched MKT in 2000. Benjamin Abrat (MBA, a few years with Givaudan) and Sacha Loiseau (Ecole Polytechnique, PhD in astrophysics and a postdoc at Caltech) are the typical young entrepreneurs with not so much experience but probably a lot of mutual trust.

Not so common, in France at least, is the funding history:
– a seed round of €1.6M with the renowned French business angels: Marc Vasseur (Genset), Jérôme Chailloux (Ilog), Jean-Luc Nahon (Isdnet), Christophe Bach (Isdnet), Patrice Giami (Isdnet), Philippe Maes (Gemplus) and Daniel Legal (Gemplus)
– a 1st round in 2004, €5M
– a 2nd round in 2007, €20M
with a €50M IPO this year. here is my usual format for the equity history and structure.


(click on image to enlarge)

In an interview (in French), Sacha Loiseau gives his views on what French PhDs are lacking:
What do you think of the PhD training ?
S. L. : It brings autonomy and initiative, two important qualities for fundamental or applied research. However, the French system does not cover other important topics, which are essential to the business world: the customer, teamwork, market intelligence, intellectual property and technology transfer, as well as mastering the English language. The strong point is that, facing tough problems, PhD students learn how to find a solution, often alone. This is a great asset for companies which must always innovate, but it may not favor teamwork, openness to the world… Many PhD students, I think, are isolated and do not know what their competitors do.”

High-tech start-ups: the new star system.

America loves its heroes! Two recent events seem to show that after Hollywood’s Walk of Fame and the Hall of Fames in sport, high-tech entrepreneurship is creating its own star system:

– it began with Boston’s Kendall Square. See for example the Xconomy article: Entrepreneur Walk of Fame Opens in Kendall Square: Gates, Jobs, Kapor, Hewlett, Packard, Swanson, and Edison are Inaugural Inductees.
– it was followed by Stanford recent Engineering Heroes project. This one is a project only with a very long list of more than 60 nominees.

Well you could build your own list. I think Boston missed Robert Noyce. Stanford will have to decide on its initial winners. The value of such lists is obviously the role model effect it should induce.