Start-Up: the book

Last week, I had lunch with Pekka Roine. This follows my trip to Finland (and my recent posts) where many people advised me to meet this Finn living in Switzerland. He described himself has bbb = big, bald, and bearded… so I answered back I was gg = grey hair and glasses so that we could find each other on the EPFL campus.

We have one thing in common: we spent some time at Stanford University and he told me something about it. He mentioned this experience was great for 3 reasons,
- the least important one is that Stanford has the best professors in the world,
- the second least important is that when you are there, you know at least 200 people who are like you, so you are not isolated,
- but the most important is that you are away from home and it gives perspective and new horizons.

Pekka worked for DEC before the company disappeared and experienced the best years of the company. Then he became an independent since 1994 and he has been on the board of 25 companies and also helped in launching 2 VC firms, PTV and Conor.

So we discussed how to help our entrepreneurs. He believes in Israel and its incubator model where people who know how to run them select 2-3% of the best projects and follow them closely. He told me about this guy who failed his 1st start-up, M&Aed the 2nd, IPOed the 3rd so felt qualified to run an incubator. Good point!

I am not a big fan of incubator, someone had told me if I meant incinerator, but with a model where the Yozma tools were privatized with the right incentives and people, this is a different story. So is this a way to solve the unsolvable, this chicken and egg problem that we do not have enough role models and entrepreneurs following the right models. Pekka believes in exchanges with Israel, I believe in the Go West which has similarities. There has to be a way we can convince our decision makers at the academic and national level, and we should not stop trying because we are RIGHT, Pekka! We need to create high-growth companies which are the places for the future jobs for our kids.

There is no doubt that Finns and Finland were inspiring for me!

A small addition: I just discovered (I mean on November 13) this article from the Helsinki Times, following an interview I had given during my trip.

Following my 1.5 previous posts about Finland (http://www.startup-book.com/2010/10/28/israel-through-finland and http://www.startup-book.com/2008/04/03/finland) here are some of the interesting lessons I learnt from my Nordic friends. Let me add I visited Aalto University as well as the University of Applied Sciences in Jyväskylä.

The main lesson I got there is that small countries such as Finland, Switzerland or Israel need to be open countries. Nokia is a good example of what a small country can achieve but the company is also worrying Finns at the moment as it is losing some traction to Apple and Android. So Finland needs to look for more fresh air. That’s probably why Finland is so open to new ideas from Israel or the USA. You should just check my post of yesterday to see how both countries have been references for Finland.

At Aalto, I particularly liked a few experiments such as

Will Caldwell is heading a large piece of the effort with his colleagues and I met many passionate people including Pauli, Teemu, Panu, Jari, Paolo, Ramine, Matalie, Juha, Kristo and my apologies to the ones I forget…

Internationalization does not mean just sending people or businesses out but attracting people in. I was very interested by a recent report, the Silicon Valley Journey, Experiences of Finnish IT Startups from Dot-Com Boom to 2010, on Finns based in Silicon Valley, the experience of which should be used. There is an awareness that we never know enough about how SV is performing and our ecosystems (students, entrepreneurs, investors and support) should always know better about it. And it also means attracting international VCs something Israel (and Switzerland by the way) has been quite good at.

Things were very similar in Jyväskylä, though it is quite far from the main capital city, Helsinki. Just three examples:

- the mentors such as Jussi Nukari, also an author of “Launching Your Software Business in America”

- the Protomo experiment which supports local entrepreneurs

- the entrepreneurship courses given by Sharon Ballard from Arizona (who also challenged me about the efficiency of the SBIR program in the USA, something I had/have been skeptical about but this is another story!). Sharon is bringing a typical American attitude to European students. And what I liked there is that it was not just Finnish students, but a group of international young and enthusiastic people!

My thanks here to Juha Saukkonen who invited me to JAMK and who may have forgotten he was the 1st person to mention the Victa report to me, and thanks to all his colleagues, Asta, Mari, Heikki, Sharon, Jussi, Kari, Marko, and… Juha, Juha, Juha and Juha again.

Any negative lesson? I feel a recurrent issue about critical mass in Europe. Any country, any region, any city in Europe is trying to promote innovation and they must do it. But are we taking the risk of diluting the effort by not taking strong decisions on a few hot spots, as we do it by the way for education, research or even sports or arts? I do not have any good answer and we all know we have to try and try again. But the USA have one SV only even if they have other clusters in Boston, Triangle Park, Seattle, or Austin. But we do not have our Silicon Valley in Europe. So how much are all these efforts efficient is a tough question?

I spent 5 days in Finland in mid-October and I came back with interesting lessons. But before writing about these in my next post, I would like to come back on the Israel situation which interestingly enough has been a strong model for Finland. I had discovered the Victa report (you may see my older post) a few years ago and during my trip, Will Caldwell who had invited me to Helsinki offered me his book Attracting Foreign Investment into Early-Stage Finnish Technology Companies. An Examination of Different Investment Modes Including Case Study: Comparing High-Tech Investing Environments in Israel and Finland.

One of the strong features of the Israeli situation is how international their start-ups are. This includes international investors and also the fact that most start-ups have a US presence very early in their development. (They have fully digested the Go West I mentioned in my post of yesterday). And finally, the M&A and IPO ouputs are a by-product of all this. Will’s book was published in 1999 so it could look old, but it is not. Let me just show you a number of examples: one striking element which is not about Israel is a comparison of what entrepreneurs need and what local business angels (in Finland) can bring.

The discrepancy which appears was an argument for the need of international VCs. This may still be the case!

Now more about Israel. The country is known for its great success with high-tech start-ups and here is what Will was showing:
- Table 6: Israel had more start-ups on Nasdaq than Europe as a whole. One may claim Europe has local stock exchanges but it would not change the success measure.
- Table 5: The M&A activity mostly by US companies (of course). You could compare to my table about European M&As in my book.
- Appendix 4: the Mkt. Cap. Of all Israeli Nasdaq companies in 1998.

The results are obviously impressive but if you look closely at the volatilities, it also showed that the Israeli situation was diverse. Below, I just did an update of his tables.

One final table I steal from his book is a comparison of what entrepreneurs claimed in the business plans and what really happened. Not surprising but I had not seen it so often.

Now my updates of his tables: I looked at these public companies again. I used the Nasdaq web site and Wikipedia and then Yahoo and Google finance. So here are the updated values of the companies which were public at the time and the new public companies. I have not done stats yet, but the basic description of all this is good enough I think!

I am not the only one complaining about the weakness of Europe in terms of start-ups. Juha Ruohonen compared in his report VICTA (www.tekes.fi/en/document/42911/victa_pdf) the situation of Finland and Israel and he reaches similar conclusions to mine: not enough growth companies, a lack of ambition, and too many lifestyle companies.

His comparison table is self-sufficient:

And his analysis of the reasons for problems are:

Finally his conclusions: There is a clear need in Finland:

• To create a viable high-growth ecosystem
• To multiply the number of VC capable growth companies
• To eliminate the waste of resources to lifestyle companies
• To provide a viable platform for fast international growth
• To increase the corporate involvement and the number of corporate spin-offs/-outs
• To better facilitate the transformation from research project into a fast growth start-up.

This can be achieved by:

• shifting focus from quantity into quality
• moving from project-based development to efficient long-term structures
• creating structures to enable success of commercial players
• attracting much more international talent into Finnish early-stage community.

My comment: you can replace Finland by Europe and the analysis is the same. Solutions are complex no doubt but I would add that betting on youth, on risk taking is essential (the “Stay Foolish, Stay Hungry” explained by Jobs, see the July 07 post) and that international exchange must also include discovering what exists abroad.