Author Archives: Hervé Lebret

New data about academic technology transfer to startups

Nathan Benaich is very unhappy with technology transfer in the UK and he is probably right to be. For many years I had noticed that British academic institutions often took more than a 25% ownership in a startup in exchange for a license of intellectual property, whereas the standard figure in the USA and continental Europe is more in the 5-10% range. He had published a very interesting article in May 2021, Rewriting the European spinout playbook where he was complaining about a lack of transparency and very frustrating processes.

He is now working on a new set of data provided by founders that he makes freely available on spinout.fyi. He is asking for help and any interested founder should provide a little if she can. I downloaded his data and provide here my own analysis although Nathan has his own here. You should read it. Here is a first set of tables:

If you do not like tables and even if you do, here are more figures:

And because I had done a similar research some years ago, posted here as How much Equity Universities take in Start-ups from IP Licensing?, I did the exercise of combining his and my data. This is a set of 190+ companies! You will see the equity ownership per domain and per region.

So what are the lessons? The UK is a clear outlier, but what is more striking is the volatility in the numbers. And why is that? Some professional claim each startup is different. I disagree. Strongly! The lack of transparency in the policies is the reason of the volatility. Founders seldom know how they will be treated. This is why I was so happy with EPFL publishing its policy. See my recent post Technology Transfer according to EPFL and Rules for Startups.

I really hope that Nathan Benaich’s effort will help in bringing a much needed transparency in these numbers!

Access to French startups data

I should have known sooner about new rules on data about French startups. In the past, you had to pay on sites like societe.com or Euridile to get filing documents of private companies from the register of companies. This is the past! Now it is possible to access this data for free. And this is great news. So my favorite exercise which consists in building cap. tables of startups, which had become a habit for companies going public, for Swiss companies in certain cantons like Zurich or Basel, or for British companies thanks to Companies House is now possible in France with Pappers.

I obviously tried with some of the current famous private startups. I failed with Dataiku, probably because it moved to the USA, but could build some partial tables for Doctolib, Mirakl, Alan, Ledger and BlaBlaCar. It is far from perfect because you need to read many documents. I had to go through 68 ones for BlaBlaCar. I did not go into the details of stock options, granted or exercised. But I could get the info about the founders and the funding rounds. Here is a summary:

and here are the individual tables. QUite fascinating to see the recent trends in France through 5 examples:

Technology Transfer according to EPFL and Rules for Startups

Technology transfer has best practices but it is not so easy to read about them. The Technology Transfer Office (TTO) at Ecole Polytechnique de Lausanne (EPFL) had the great idea to publish how it manages the specific situation of startup creation. In March 2022, it published its New Guidelines for start-ups at EPFL. It is a very interesting document and I advise people curious about the topic to read it. “I wish I had it when I launched my start-up!” claims one of the EPFL entrepreneur. At the same time, the head of EPFL’S TTO was interviewed by Nature Communication and the document is worth reading too. Here is the link : A conversation on technology transfer. I will quote it at the end of the post.

Here are some data:

– For exclusive licenses, EPFL obtains either a number of shares equivalent to 10% of the start-up capital stock at incorporation, or a lower share of the capital stock that is undiluted until the start-up has received a certain amount of equity investment, e.g. 5% of capital share undiluted until the total accumulated investment reaches the amount of 5 MCHF, regardless of the value of the company.

Royalties are applicable on sales and depend on the industry
Pharma 2–5%
Medtech 2–4%
Sensors, optics and robotics 1.5–3%
Environmental sciences & energy 1–3%
Computer and communication 1.5–3%
Semiconductors 1–3%
Software 1-25%
(this last % may be surprising and I assume it applies to licenses of fully usable software as a product)

– Exit : At the time of exit, EPFL will diligently consider any request of a start-up to transfer the licensed patents to an acquiring company that is committed and that has the capacity to further develop and commercialize the technology. The companies shall furnish the necessary business information to allow EPFL to understand the needs of such a transfer, and in the case of a royalty buyout to make a valuation of the licensed patents in terms of potential sales.

As promised some interesting elements from the interview. The words in bold are my choice.

“Contrary to what might be expected, the main factor is not necessarily the idea or technology itself, but people’s involvement. The actual and future commitment of the individuals involved in the commercialization of the technology is paramount, both on the academic and industrial sides. The commercialization of technologies is a long journey, from development, through de-risking, including prototyping and preliminary clinical validations, market analysis and industrialization, to the first sale. As no technology will find the path to commercialization by itself, long-term commitment is key.”

Entrepreneurship is an effective way to increase the odds, by having a single actor transitioning and playing both roles. While this strategy requires a double commitment in terms of time and risk taking, it may lead to a higher potential reward for the researcher.”

“It’s certainly a positive development that PhD students and postdocs now have a third option to consider besides staying in academia or taking a job in industry — that of becoming an entrepreneur — and an increasing number of great examples of entrepreneurs and start-up role models exist.”

“If personal motivation and commitment to entrepreneurship are present, the start-up route is the way to go. It’s important to understand that many TTOs do not create start-ups. Researchers, as “founders”, do it.”

A big thank you to my dear former colleagues in Switzerland for mentioning this very much needed information.

Bill Campbell, the Trillion Dollar Coach (Part III)

I very seldom read books twice, and had never done it with business books. This is the exception. I had blogged about this book here back in 2019. I remembered strong elements of good coaching but had not mentioned them. Here they finally come! Campbell does not talk much, does not give advice but asks questions… And he gives courage.

PRACTICE FREE-FORM LISTENING

In a coaching session with Bill, you could expect that he would listen intently. No checking his phone for texts or email, no glancing at his watch or out the window while his mind wandered. He was always right there. Today it is popu­lar to talk about “being present” or “in the moment.” We’re pretty sure those words never passed the coach’s lips, yet he was one of their great practitioners. Al Gore says he learned from Bill how “important it is to pay careful attention to the person you are dealing with… give them your full, undi­vided attention, really listening carefully. Only then do you go into the issue. There’s an order to it.”

Alan Eustace called Bill’s approach “free-form listening”­ – academics might call it “active listening,” a term first coined in 1957 – and in practicing it Bill was following the advice of the great UCLA basketball coach John Wooden, who felt that poor listening was a trait shared by many leaders: “We’d all be a lot wiser if we listened more,” Wooden said, “not just hearing the words, but listening and not thinking about what we’re going to say.”

Bill’s listening was usually accompanied by a lot of ques­tions, a Socratic approach. A 2016 Harvard Business Review article notes that this approach of asking questions is essen­tial to being a great listener: “People perceive the best listen­ers to be those who periodically ask questions that promote discovery and insight.”

“Bill would never tell me what to do,” says Ben Horowitz. “lnstead he’d ask more and more questions, to get to what the real issue was.” Ben found an important lesson in Bill’s technique that he applies today when working with his fund’s CEOs. Often, when people ask for advice, all they are really asking for is approval. “CEOs always feel like they need to know the answer,” Ben says. “So when they ask me for ad­vice, l’m always getting a prepared question. I never answer those.” Instead, like Bill, he asks more questions, trying to understand the multiple facets of a situation. This helps him get past the prepared question (and answer) and discover the heart of an issue.

[…]

When you listen to people, they feel valued. A 2003 study from Lund University in Sweden finds that “mundane, almost trivial” things like listening and chatting with employees are important aspects of successful leadership, because “people feel more respected, visible and less anonymous, and included in teamwork.” And a 2016 paper finds that this form of “re­spectful inquiry,” where the leader asks open questions and lis­tens attentively to the response, is effective because it heightens the “follower’s” feelings of competence (feeling challenged and experiencing mastery), relatedness (feeling of belonging), and autonomy (feeling in control and having options). Those three factors are sort of the holy trinity of the self-determination the­ory of human motivation, originally developed by Edward L. Deci and Richard M. Ryan.

As Salar Kamangar, an early Google executive, puts it, “Bill was uplifting. No matter what we discussed, I felt heard, understood, and supported.” [Pages 89-91]

DON’T STICK IT IN THEIR EAR

And when he was finished asking questions and listening, and busting your butt, he usually would not tell you what to do. He believed that managers should not walk in with an idea and “stick it in their ear.” Don’t tell people what to do, tell them stories about why they are doing it. “I used to describe success and prescribe to everyone how we were going to do it,” says Dan Rosensweig. “Bill coached me to tell stories. When people understand the story they can connect to it and figure out what to do. You need to get people to buy in. It’s like a running back in football. You don’t tell him exactly what route to run. You tell him where the hole is and what’s the blocking scheme and let him figure it out.”

Jonathan often experienced this as a sort of test: Bill would tell a story and let Jonathan go off and think about it until their next session to see if Jonathan could process and under­stand the lesson it contained and its implications. Chad Hur­ley, YouTube cofounder, had the same experience. “It was like sitting with a friend at the Old Pro [the Palo Alto sports bar],” Chad says. “He would talk about things that had hap­pened to him. He wasn’t trying to preach, just be present.”
Fortunately, Bill expected similar candor in return. Alan Gleicher, who worked with Bill as the head of sales and oper­ations at Intuit, had a simple way of summing up how to be successful with him. “Don’t dance. If Bill asks a question and you don’t know the answer, don’t dance around it. Tell him you don’t know!” For Bill, honesty and integrity weren’t just about keeping your word and telling the truth; they were also about being forthright. This is critical for effective coach­ing; a good coach doesn’t hide the stuff that’s hard to talk about – in fact, a good coach will draw this out. He or she gets at the hard stuff.

Scholars would describe Bill’s approach – listening, pro­viding honest feedback, demanding candor – as “relational transparency,” which is a core characteristic of “authentic leadership.” Wharton professor Adam Grant has another term for it: “disagreeable givers.” He notes in an email to us that “we often feel torn between supporting and challenging others. Social scientists reach the same conclusion for leader­ship as they do for parenting: it’s a false dichotomy. You want to be supportive and demanding, holding high standards and expectations but giving the encouragement necessary to reach them. Basically, it’s tough love. Disagreeable givers are gruff and tough on the surface, but underneath they have others’ best interests at heart. They give the critical feedback no one wants to hear but everyone needs to hear.”

Research on organizations shows what Bill seemed to know instinctively: that these leadership traits lead to bet­ter team performance. One study of a chain of retail stores found that when employees saw their managers as authentic (for example, agreeing that the manager “says exactly what he or she means”), the employees trusted the leaders more, and the stores had higher sales. [Pages 97-99]

BE THE EVANGELIST FOR COURAGE

Bill’s perspective was that it’s a manager’s job to push the team to be more courageous. Courage is hard. People are nat­urally afraid of taking risks for fear of failure. lt’s the man­ager’s job to push them past their reticence. Shona Brown, a longtime Google executive, calls it being an “evangelist for courage.” As a coach, Bill was a never-ending evangelist for courage. As Bill Gurley notes, he “blew confidence into people.” He believed you could do things, even when you yourself weren’t so sure, always pushing you to go beyond your self-imposed limits. Danny Shader, founder and CEO of PayNearMe, who worked with Bill at GO: “The thing I got the most out of meetings with Bill is courage. I always came away thinking, I can do this. He believed you could do stuff that you didn’t believe you could do.”

[…]

Conveying boldness was not blind cheerleading on Bill’s part. He had the mind-set that most people have value, and he had the experience and a good enough eye for talent that he generally knew what he was talking about. He had such credibility that if he said that you could do something, you believed him, not because he was a cheerleader but because he was a coach and experienced executive. He built his mes­sage on your capabilities and progress. This is a key aspect of delivering encouragement as a coach: it needs to be cred­ible.

And if you believed him, you started to believe in your­ self, which of course helped you achieve whatever daunting task lay before you. “He gave me permission to go forth,” Alphabet CFO Ruth Porat says. “To have confidence in my judgment.” [Pages 100-102]

These are the elements that formed the foundation of Bill’s success as an executive coach – and that those who benefited from his coaching took with them when they became coaches to their own colleagues and direct reports, too. He started by building trust, which only deepened over time. He was highly selective in choosing his coachees; he would only coach the coachable, the humble, hungry lifelong learners. He listened intently, without distraction. He usually didn’t tell you what to do; rather, he shared stories and let you draw conclusions. He gave, and demanded, complete candor. And he was an evangelist for courage, by showing inordinate confidence and setting aspirations high. [Page 105]

The (Recent) Impact of Venture Capital on Startups

I have regularly been puzzled with the (real) impact of venture capital on startups, their growth or even their success. A few days ago, I received an email from a friend with a very interesting table.

The measure of capital productivity is given by the ratio a/b where a is the startup revenue at the time of IPO and b is the amount of venture capital raised by the startup before going public. The 4 big tech companies are Apple, Microsoft, Amazon and Google, 4 companies founded before 2000. The ratio a/b is greater than 10. The recent VC or IPO deals give ratios below 1 and closer to 0.1.

So it was easy for me to look at my usual cap. tables (check here if you do not know what I talk about). I have now 880 companies and I sorted this a/b ratio over time. Here is the result:

I have 272 biotech startups and 361 in the Software and Internet fields (the others are hardware, semiconductor, energy, medtech companies mostly). I have the a/b ratio (which I call Sales to VC) by period of 5 years (the years of foundations of the startups). I also pu the PS ratio (the famous Market Capitalization to Sales or “Price to Sales” ratio). Indeed the ratio is “collapsing” from above 5 before the 90s to below 1 after 2000.

I have also separated biotech which is known to have startups going public with low revenue and the group of Software and Internet. The curves which follow are probably better illustrations. Quite striking!

I also looked at the profits (or losses) of the startups and computed the Profit to VC amount ratio. Here it is:

Biotech is different as companies were rarely profitable when going public and the ratio is quite stable since 1990. But overall, companies were profitable at IPO before 2000 (and sometimes highly profitable, so that I could not find a good axis scale for my figure). They are losing money since 2005 and apparently losing more and more.

All this is no real surprise. Mallaby in his recent book The Power Law has described the new trends in venture capital. Funds like Softbank Vision or Tiger Global are pouring tons of money in startups which try to capture market dominance, whatever the cost. So the capital productivity is decreasing at IPO with the hope of huge gains in the future. A very, very risky bet…

PS (dated April 22, 2022) : I was asked a question about startups in the energy / greentech field. This is indeed interesting. Couple of comments before providing an answer from my data. Greentech has never been a stable or profitable segment. Kleiner Perkins or Khosla Ventures, early entrants in the field, seem to have suffered a lot. In addition I have only 21 companies in my DB. You are right, it is stable but from the low range, with low sales to VC ratios and negative profits…

La question était : On a different note you have data only on Energy/green tech? what would you expect to see? I was wondering if for capex intensive businesses the trend is more weak as they already needed to raise a lot of capital.

The Return of Dark Humor in Russia

When I noticed the article by French newspaper Le Monde En Russie, le retour de l’humour noir soviétique, I immediately remembered the great and funny book I had been offered in 2018. I probably should have also been concerned with this poisoned gift, ah ah ah!

I’m not going to praise it again but let you (re?)-discover the articles at the time
Why was I offered that book? Humor and bureaucracy in June 2018.
Humor and bureaucracy (part II) in October 2018.
I was not aware of the Wikipedia page on the topic, which also deserves to be read: Anecdotes.

I will conclude on this April 1st that apparently Russia has decided to give Leo Tolstoy’s War and Peace the new name of “Special Operation and High Treason”.

Mathematica by David Bessis – about logic and intuition

“Mathematicians are the humans who advance human understanding of mathematics.” William P. Thurston

I had already mentioned David Bessis’ book, Mathematica, when the author appeared on France Culture. He had spoken of Grothendieck, but said above all that between logic and intuition, he gave more importance to the second to do mathematics. Go back to the article to find the interview link. I had the chance to read his very beautiful book in the recent days and the author is convincing. He explains quite well the failure of the teaching of mathematics which gives too much importance to the first.

No doubt it will be difficult to change the minds of skeptics, but the argument that there is no special talent or gift for doing mathematics but above all curiosity and perseverance, as for any activity that requires learning, is well illustrated in his book.

It is not a question of tricks that are used too often in the teaching of mathematics, which can make people less fond of the discipline. In the article on the Beauty of Mathematics, I wrongly and a little too much used this impression of magic. It is more a question of deep understanding of things, in the sense that we end up seeing them. The downside of math is that while music is heard, or a sport is physically visible, math is mostly made up of mental images.

He also talks (as I must have done if you follow the #mathematics hashtag) about proofs of the sum of the first natural numbers and Bessis is luminous when he explains that Gauss’ clever proof probably does not really allow to “understand” the solution:

while there are more intuitive approaches such as the use of triangles or distance from the mean. Read his pages 169 to 181, it is easy to understand why Thurston as a child first gave 5000 as an answer to the sum of the first 100 integers, then corrected himself to give the exact answer. The average of a random drawing of numbers between 1 and 100 is also not quite 50… (unlike that between 0 and 100) and there is a link between the two subjects.

I really liked the descriptions and portraits that Bessis makes of Descartes, Thurston, Grothendieck and the less famous Ben Underwood. Or the magnificent passages on Pierre Deligne and Jean-Pierre Serre. I hope to give you the desire to discover them.

It is a beautiful book to offer to anyone who wishes to discover or rediscover the beauty of mathematics. And perhaps more importantly, as the subtitle of the book indicates, an adventure in the heart of ourselves, Bessis shows that all explorations are above all a choice to overcome one’s fears, to accept the possibility of mistakes, and the possibility of a path to more self-confidence. A paradox is an advice that comes up often in his book: “You should never read math books”. Except this one! Superb!

The Power Law (part 5) – Sequoia Capital

Sometimes I publish posts which may be unreadable, they might be more for myself, not for other readers. In a way, this blog is my second memory… so I am not sure this post is worth reading…

There have been two major venture capital firms in history. So important, I have created hashtags for them: Sequoia and Kleiner Perkins. So not surprisingly Mallaby covers them both in his great book, but in different manners. According to him, Kleiner Perkins (KP) has lost its leadership. Both Sequoia and KP were #1 and #2 from 1980 to 2005, but since, Sequoia has kept its ranking and KP is not even in the top 10 partnerships (see page 413). KP is covered in the last part of Chapter 11, with subtitle The decline of Kleiner Perkins. The full chapter 13 is entitled Sequoia’s strength in numbers.

Mallaby has a lot of convincing arguments, from the team strategy to the diversification of the firm activity: Sequoia has now large growth funds, a hedge fund, even an endowment, and a presence overseas in Israel, China, India and even recently in Europe. And Sequoia’s performance looks impressive: Taking all its U.S. venture investments between 2000 and 2014, the partnership generated an extraordinary multiple of 11.5x “net” – that is, after subtracting management fees and its share of the investment profits. In contrast the weighted average for venture funds in this period was less than 2x net. (Data from Burgiss). Nor was Sequoia’s achievement driven by a couple of outlandish flukes: if you took  the top three performers out of the sample, Sequoia U.S. venture multiple still weighed in at a formidable 6.1x net. Deploying the capital it raised in 2003, 2007 and 2010, Sequoia placed a grand total of 155 U.S. venture bets. Of these a remarkable 20 generated a net multiple of more than 10x and a profit of least $100M. (Proving it was not afraid of risks, Sequoia lost money on nearly half of these 155 venture bets.) The consistency across time, sectors, and investing was striking. “We’ve hired more than 200 outside money managers since I came here in 1989”, marveled the investment chief at a major university endowment. “Sequoia has been our number one performer by far”. [Page 320]

So I had a look at my own data. Here what I found about their fund history.

I also looked at my cap. table and found where Sequoia was an investor. When the data was available, I looked at how much the firm invested and what was the stake value at the IPO or acquisition. Indeed impressive.

PS (May 3rd, 2022): I just read a very interesting account of Mallaby’s book by Bill Janeway : The Forgotten Origins of Silicon Valley. Janeway likes the book and adds interesting criticism. Two points are not new, that is
– the role of government would be underestimated by Mallaby,
– East Coast VCs and the field of biotechnology are not analyzed well enough.
But a third point was newer to me: technology became open in the 70s and 80s (the PC, the operating systems, the networks including the internet) and this created huge opportunities for new companies. I have never been fully convinced by the first two points, motsly because the funding of research brings no guarantee to great innovations. But the third point is more intriging.

The Power Law and Venture Capital (part 4), China’s rise

In the part 1 of my post about The Power Law, I had embedded my own visual history of venture capital. There was a missing element which is China’s rise, that Mallaby adresses in his 27-page Chapter 10. Before 2010, venture capital in China was behind Europe, but today it’s challenging the USA:


Source: Mallaby’s The Power Law, appendix, page 413.

Mallaby convincingly explains that it developed not with the support of, but bypassing the Chinese government and surprisingly thanks to a combination US venture capitalists and Chinese people who had been in close contact to the American entrepreneurial culture. I knew nobody from the people below but one entrepreneur (you can check their names at the end of the post).

I had heard about the BATX which are nowadays compared to the GAFA and I loved Jack Ma’s video which could have been given by many Silicon Valley entrepreneurs. Here it is again:

I had a few Chinese startups in my 800+ cap tables and they are mostly internet and ecommerce companies. Mallaby seems to have similar views. I extracted them all (see below) and here are a few interesting characteristics:

Not only are they mostly internet/ecommerce companies, but they are recent, went public quickly, their founders are younger than average, keep more equity than others, and they have many more founding CEOs than the average. Interesting…

Equity List China

In the image above are the:
Funders: Gary Rieschel (Qiming), Neil Shen (Sequoia China), JP Gan, Hans Tung (ex-Qiming), Kathy Xu (Capital Today), Syaru Shirley Lin (ex-Goldman Sachs)
Founders: Jack Ma, Richard Liu, Wang Xing

The Power Law and Venture Capital (part 3), planners and improvisers, betting big or diverse

Mallaby is a marvelous storyteller – thanks to his team probably as he mentions at least 15 collaborators in his acknowledgments. This is part 3 of my posts about the Power Law, following part 2 and part 1.

You will discover so many figures of venture capital and entrepreneurship that it would be impossible to mention them all. But here are illustrations. If you do not know them, chek their names at the end.

What is really impressive in Mallaby’s book, is that whatever the strategy of the investors – for example being improvisers or planners, betting big or small in a small or large number of opportunities, replacing or mentoring the founders, the power law prevails.

As a side and unimportant comment, Mallaby is great at story-telling, he is less good with numbers. But valuations of startups can be tricky when you mix pre-money and post-money, dilution and stock options. Page 155-6 : “The founders tentatively suggested a valuation of $40million up from just $3million when Sequoia had invested eight months earlier. […] Son duly led Yahoo’s Series B financing providing more than half of the $5million […] In a bid without precedent in the history of Silicon Valley, he proposed to invest fully $100million in Yahoo. In return he wanted an additional 30 percent of the company. Son’s bid implied that Yahoo’s value had shot up eight times since his investment four months earlier.” I am not sure all this is correct. I let you check. Or page 147 : “Rather than merely doubling in power every two years, as semiconductor did, the value of a network would rise as the square of the number of users. Progress would thus be quadratic rather than merely exponential; something that keeps on squaring will soon grow a lot faster than something that keeps on doubling.” As Etienne Klein has often said, the “exponential function” is heavily mistreated in the media and now abusively assimilated to a function whose only characteristic is to grow very quickly…

The founders:
Nolan Bushnell, Jimmy Treybig, Bob Swanson, Sandy Lerner, Bob Metcalfe, Mitch Kapor, Jerry Kaplan,
Rick Adams, Marc Andreessen, Jerry Yang, Pierre Omidyar, Larry Page, Mark Zuckerberg, Max Levchin, Elon Musk.

The funders:
Don Valentine, Mike Moritz (Sequoia), Tom Perkins, John Doerr (KP), Jim Swartz, Arthur Patterson (Accel),
Bill Draper, Masayoshi Son (Softbank), Bruce Dunlevie, Bob Kagle (Benchmark), Peter Thiel, Paul Graham.