Start-Up: the book

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.

The new movie about Facebook’s founder, Mark Zuckerberg, is a great movie. It does not matter so much if it is a description of reality. You may watch it as a piece of fiction, and it would remain a great movie thanks to the actors and screenplay.

It is also great because it describes the start-up world in a very accurate manner. It is not a movie about start-ups really, but there are details which reminds me a lot of real-life stories.

The first lesson is that money and friendship seldom work together. The stories of Eduardo Saverin, the founder soon to be diluted, Sean Parker, the exhuberant founder of Napster and Plaxo and mentor of Zuckenberg and the short appearance of Peter Thiel are such examples.

It also shows the old world of Boston where people think ideas are crucial and the new world of Silicon Valley where what matters is implementation. It’s why Silicon Valley is the Triumph of the Nerds. It shows how right Paul Graham is when he says Silicon Valley is about nerds and money. You see the crazy, sad, exciting, depressing life of these hard-working people. You may like it or not, but it is mostly what start-ups are about.

I just looked for what some key people thought of the movie. So, for example, Eduardo Saverin said here: “The Social Network” was bigger and more important than whether the scenes and details included in the script were accurate. After all, the movie was clearly intended to be entertainment and not a fact-based documentary. What struck me most was not what happened – and what did not – and who said what to whom and why. The true takeaway for me was that entrepreneurship and creativity, however complicated, difficult or tortured to execute, are perhaps the most important drivers of business today and the growth of our economy.”

And Dustin Moskovitz said there: It is interesting to see my past rewritten in a way that emphasizes things that didn’t matter (like the Winklevosses, who I’ve still never even met and had no part in the work we did to create the site over the past 6 years) and leaves out things that really did (like the many other people in our lives at the time, who supported us in innumerable ways). Other than that, it’s just cool to see a dramatization of history. A lot of exciting things happened in 2004, but mostly we just worked a lot and stressed out about things; the version in the trailer seems a lot more exciting, so I’m just going to choose to remember that we drank ourselves silly and had a lot of sex with coeds. [...] I’m very curious to see how Mark turns out in the end - the plot of the book/script unabashedly attack him, but I actually felt like a lot of his positive qualities come out truthfully in the trailer (soundtrack aside). At the end of the day, they cannot help but portray him as the driven, forward-thinking genius that he is. And the Ad Board *does* owe him some recognition, dammit.

And Zuckerberg himself!

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This is from Garham’s start-up school and here is part 2

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Of course, this looks like corporate language, we should remember these guys have FaceBook shares! Talking about shares, there was another thing I did not like recently, the fact that according to Forbes, Zuckerberg would be richer than Steve Jobs. I had a discussion with a friend over the week end and he agreed with the statement whereas I disagreed. It may be a detail: but as long as Facebook is not quoted, Zuckerberg’s wealth is mostly paper value he can not really trade. I am sure he is already rich, he probably has already monetized some of his shares but not all of them whereas Jobs owns shares which are liquid. It may not be a big difference given the success of Facebook, but I have seen to many stories of start-ups where people thought the paper value of the stock was real wealth and the next day worth nothing…

When my daughter told me yesterday, she might at least explain her friends what her dad was doing. i.e. working in the world of start-ups, I thought the movie had at least reached that goal of reaching a large audience towards this important topic!

Final point, a recurrent topic in my blog: Facebook cap. table and shareholder structure. As Facebook is private, it is a challenge to know what’s true and what’s myth. I have still tried the exercice from what the Internet gives. One interesting feature is Saverin’s dilution from 30% to 5% whereas Zuckerberg went from 65% to 24%, not really pro-rata! We shall see when Facebook goes public, who wrong I was!

An interesting post by Xconomy on the topic. It’s been a on-going topic and there are no clear answers.

Check the post at Can Business Schools Teach Entrepreneurship?

In “vibrant ecosystems” such as Route 128 and Silicon Valley, business schools are embedded and students easily find or develop ideas. But I am less sure Business Schools really teach. They explain, they expose and of course they teach management. As I comment on that post:

There is a talk by Prof Byer (Stanford) about the Silicon Valley and Stanford ecosystems, where the author claims about 5% of companies are direct transfers of technology:http://spie.org/documents/Newsroom/audio/Byer.pdf
It is not clear how many companies Stanford alumni have created. At least 2′500 but probably many more. Now the role of business schools is another subject of interest. You have stories on both sides, i.e. pure engineers or scientists (Google, Yahoo, Cisco in the academia, Apple outside) or entrepreneurs from bus. schools (Sun Micro, eBay).

A new report has been published about the Entrepreneurial Impact of MIT

It is full of data and even if obviously self-serving, it remains very interesting. Let me just quote what I noticed:

- Growth: the number of “first-time” firms has increased from about 2′000 in the 70s to 6′000 in the 80s and 10′000 in the 90s.

- Origin: Non-US founders had slight visibility in the 40s, grow to 12% in the 90s and 17% in the 00s. 30% of MIT foreign students founded a company at some point.

- Age: Before and during the 70s, 24% of first-time entrepreneurs were under 30, growing to 31% in the 80s and 36% in the 90s. There is no real difference between industry segments.

- Serial entrepreneurs: I have a small disagreement on that point as I am not sure serial matters, but… about 40% are serial entrepreneurs so 60% are not…

- Engineering vs. business degrees: EE/CS degrees is 22%, management is 16% for the 90s. Clearly science and technology matter.

- Location: in the 50s and 60s, majority of companies were in Massachusetts, but thereafter Silicon Valley has become a critical locus. In the 00s, 26% are in MA and 22% in CA.

Then the report talks about the culture and the ecosystem. It is also very interesting. We should always remember that:

- Tons of money went to research from the militaries and space agencies.

- MIT had more of a tacit and hands-off role, but much encouraging.

- Role models: “entrepreneurs could name about ten other new companies before they started their own”. Authors compare to another study where “Few of the Swedish entrepreneurs could name even one or two others like them”. They quote Schumpeter: “The greater the number of people who have already successfully founded new businesses, the less difficult it becomes to act as an entrepreneur. It is a matter of experience that successes in this sphere, as in all others, draw an ever-increasing number of people in their wake”

- Feedback loop: there is a positive impact of such examples and this may be the main reason of the creation to tech. clusters.

- Culture: the best is a quote by Bob Metcalfe, Ethernet inventor, founder of 3Com and now a partner at Polaris Ventures: “It’s not just that MIT’s entrepreneurial environment flourishes under its institutional commitment to technology transfer,” he said. “It’s also that MIT includes both ‘nerds’ and ‘suits.’ Divergent life forms, yes, but necessary to and working together at MIT on entrepreneurial innovation. And what keeps MIT’s entrepreneurial ecosystem accelerating is that nobody is in charge. There are at least twenty groups at MIT competing to be the group on entrepreneurship. All of them are winning.”

… Nobody is in charge…

- Tech. transfer: the majority of the exclusive licenses go to startup companies. The TLO’s strategic dependence on startup companies has been the reluctance of large companies to invest in “university-stage” technologies, because the risk and cost of development is high and the time to market is long.

- License deals: For startups, instead of cash up front and in lieu of some of the royalties, the TLO usually takes a small equity ownership that is less than 5 percent of the new firm.

And some conclusions:

- Universities that are strong in research and technology are at the forefront of knowledge creation and potential application. When the university is able to couple this capability with the inclination and resources needed to connect ideas and markets, impressive possibilities exist for generating entrepreneurship-based economic impact at the local, as well as national and global levels.

- Numerous changes are needed in most universities over an extended period of time in rules, regulations and, more important, attitudes and institutional culture.

- Until quite recently, MIT had followed a “hands-off” approach toward entrepreneurial engagement, in contrast with many other universities in the United States and abroad. MIT has neither created an internal incubator for ventures nor a venture capital fund to make life easier for prospective startups.

- Instead, MIT has relied internally on growing faculty, student, and alumni initiatives, especially during the most recent thirty years, to build a vibrant ecosystem that helps foster formation and growth of new and young companies.

- Educational programs require investment in and acquisition of faculty to develop and teach such programs. Effective and well-trained academics are, unfortunately, still scarce in most entrepreneurship related disciplines. Fortunately, successful practitioners are available everyplace and the MIT history indicates that they are quite willing and enthusiastic about sharing their time and experiences with novice and would-be entrepreneurs.

For those who have been so far, first you should read the full report and second I aggregate below a few tables from the report:

I refer again to the excellent Xconomy with the post Paul Graham on Why Boston Should Worry About Its Future as a Tech Hub—Says Region Focuses On Ideas, Not Startups

I had to react so I posted my own comment on their site, which I copy here:

There is no doubt Paul is right (unfortunately). I do not care about Boston too much but about the ROW. The debate, I think, was definitely closed when AnnaLee Saxenian published Regional Advantage (I think in 94). She had predicted before that SV would suffer from too much activity: “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.” She admits she was wrong at a conference in Stockholm in 1998! So what?

SV is the only place on earth where the right environment for start-ups exists. Read again Paul’s essays on his web site www.paulgraham.com. One important element is that Fairchild gave birth to hundreds of start-ups and this is well documented. The start-up culture emerged at that time. I am so passionate about the subject that I have published my own book and [this] blog (”Start-up, what we may still learn from Silicon Valley”). But if you do not like self-promotion, you may also want to read Junfu Zhang’s extremely detailed work: “High-Tech Start-Ups and Industry Dynamics in Silicon Valley” that you can find online I think and where you will discover the different dynamics at work there (vs. Boston again)…

Boston is by far nb2, no doubt, but we, the nb3 and below, should be worried that even Boston does not manage to compete with SV…