Author Archives: Hervé Lebret

Red Herring: the End!

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This is my final post on the old Red Herring magazines I had collected from a friend. It has been fun to read what people thought 10-15 years ago. You can have a look at them through my Red Herring tag.

The most striking “mistake” was clearly linked to the difficutly in predicting the future. Just have a look at the cover page of July 2001.

I am not sure nanotechnologies have changed the world and 10 years is eternity. At least by start-up metrics. Medicine, optics and materials science as mentioned by Jason Pontin below may not have experienced breaktroughs from nanotechnologies.

But honestly, what I liked the most was Anthony Perkins’ contribution in December 2001. “Its back to the good old days”.

So let just me expand why I liked it (by putting in bold fonts what I liked). Here is the text again:

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Just before halloween, Red Herring held NDA, its annual CEO conference on the future of technology. Like the holiday it preceded, NDA started as a spooky affair. More than 400 industry insiders showed up at the spanking new St. Regis Hotel in Dana Point, California, with no idea what to expect. After all, the technology industries have suffered a relentless series of blows to the midsection, and the attendees’ first order of business was to look around and see who was left standing. By the time coffee had been served, however, such fears started to subside. Folks like Qualcomm president Paul Jacobs; Allegro Networks president, CEO, and chairman Dave House; chair of Edventures Esther Dyson; and cofounder of Integral Capital Partners Roger McNamee, were all happily strolling the hotel hallways.

By late afternoon the first day, an enthusiastic, even optimistic, attitude started to take hold. During the “Eggheads Unplugged” panel, which featured Steve Jurvetson, managing director of Draper Fisher Jurvetson; Eric Schmidt, the new CEO of Google; Bruce Schneier, founder and chief technology officer of Counterpane Internet Security; Tim Harris, president and CEO of Structural Genomix; and John Gage, chief researcher of Sun Microsystems, it was encouraging to hear these supergeeks riff on topics like nanotechnology, quantum computing, and other far-out innovations. [1] Almost suddenly, all was well again: our industry was still full of smart people talking about cool things.

At this point, Michael Schrage, codirector of the Massachusetts Institute of Technology’s Media Lab eMarkets Initiative, was edging up to me and observing that technology industries were far from becoming “sunset” industries. “Everyone at this conference is speaking in terms of exponential growth,” Mr. Schrage said. “The only debate that is going on is whether we are going to grow at a rate of ten squared or ten to the eighth.” [2]

On the morning of the second day, I gave a presentation on the “Always-On Generation”. After explaining why I thought the economic growth curve associated with the Internet was still well in front of us, I ended with a slide titled, “What Great Entrepreneurs Are.” [3] First and foremost, I noted that the great entrepreneurs I know are focused. I talked about how Bill Gates had sensed, back in 1995, that he had to turn around the Microsoft battleship and begin focusing on the Internet. He knew that it was going to be such a Herculean task that he had to kick himself upstairs and take on the role of chief software architect to get the job done. I also recounted that when Steve Jobs took back the reins of Apple Computer, he consolidated the company’s product line from 85 different models to two clearly defined families of computers–one for professionals and another, colorful one for consumers.

The second virtue of great entrepreneurship, I explained, was cheapness. This is probably the skill we abandoned most dramatically during the Internet bubble era, when the idea of making a profit seemed the last thing on our agendas. “Michael Dell has built a multibillion dollar business based upon being cheap,” I observed. I also spoke about the virtues of competitiveness and imagination. Throughout my professional career, I have observed the world trying to compete with vigor against Bill Gates. In fact, as far as I am concerned, I noted, Scott McNealy, Larry Ellison, and Steve Case have made careers of trying to topple the king.

Finally, I talked about the fact that great entrepreneurs have a high tolerance for taking risks. To illustrate this point, I noted that the six blue-chip technology companies that had successfully made the transition to the Internet era–Apple, Cisco Systems, Dell Computer, Intel, Microsoft, and Oracle–are still run by their original entrepreneurs. In essence, I believe that it takes the same aptitude for risk to point a large corporation in an entirely new direction as it does to start a company.

After finishing my talk, I felt strangely satisfied that my thoughts had been somewhat original. That was until I sauntered to the back of the room and sat next to Paul Deninger, Broadview International’s CEO and a Red Herring board member. “You know, Tony,” he said in his typical bottom-line style, “its amazing, but what you were just talking about is Entrepreneurship 101. And ironically it seems like we were all listening to these things for the first time!” This is when it occurred to me that somehow–magically–we were back to the good old days. Back to the basics. Back to the days when, as Steve Jobs used to observe, “overnight successes sure take a helluva long time.” When we have to work hard, we earn our glory. And, you know what? It sure feels great!
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So here are my comments:

[1]: you need to be imaginative, nanotechnologies, quantum computing, and elsewhere in the 2001 issues, I read about Nanotechnologies again (including fullerene, gallium nitride) and nanotech start-ups (Nitronex, Zyvex, not to forget Nanosys; I am not sure where they are), Europe irising (in biotech. Really?), Robotics, including artificial intelligence, face analysis and recognition. Coming! We need to dream, do not get me wrong. But RH missed Google (just as I did) and probably the Web2.0.

[2] The only debate that is going on is whether we are going to grow at a rate of ten squared or ten to the eighth.” Well, aren’t we in a recession?. Too easy now that we know.

[3] But the piece I like the most is the back to basics, entrepreneurship 101: focus, competitiveness and imagination, cheapness, high tolerance for taking risks. This is what great entrepreneurs are about. Jobs, Gates, Ellison back then. Brin and Page today.

RIP RH!

How Aart has poisoned the EDA start-up ecosystem

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You know I have a special interest in EDA. One of the influential bloggers, John Cooley, on his DeepChip site gives a video crash course on a start-up ecosystem, how the companies are valued, why VCs invest or not. Clear and simple and sadly true, and funny video at the same time.

The title is provocative and unfair. Aart (de Geus) has not poisoned anything, but the industry he is in may be in trouble.

They Made It !

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They Made It! by Angelika Blendstrup is another book made of interviews of Silicon Valley actors. I had talked in the past about In the company of Giants, Once You’re Lucky, Betting it All, Founders at Work, but this one as a different angle.

The focus is about immigrants as the subtitle indicates: “How Chinese, French, German, Indian, Iranian, Israeli and other foreign born entrepreneurs contributed to high tech innovation in the Silicon Valley, the US and Overseas.” And the lessons are quite interesting.

The author summarizes on page 260 some characteristics of the people interviewed:
– High intelligence, often coupled with a great educational background
– A willingness to work hard, focus, determination and perseverance
– A vision for success in their professional careers and personal lives
– Curiosity and passion
– Love of family and a dedication to supporting it
– An often uncanny insight into themselves and others
– Belief in themselves
– Openness to emotional and intellectual growth
– A tolerance for, even a love of, risk and the ability to (quickly) recover from failure
– An appetite to collaborate
– Humility
– A desire to give back to society

I was particularly stricken by stories of people who moved and left everything behind. There is an element in entrepreneurship that someone told me this morning about: entrepreneurs know that they may lose everything (house, family) and they might not been afraid of such risks, sometimes because they have experienced it already and they know they can recover from it. This explains the passion, the dedication, and the ability to try.

Interviews after interview, you read about values, leadership, and openness to diversity, breaking barriers. I may not have learnt many new things but I liked the book very much, maybe just for the reason that it is another great illustration of what Silicon Valley values are and why immigrants have been so critical to the region.

Final detail, I did a simple analysis of origins of people interviewed:
France: 7
Israel: 5
India: 5
China: 3
Taiwan: 2
Iran: 2
Germany: 2
ROW: 5
Interesting to notice that France is highest despite it is not known for its entrepreneurship culture…

Steve Blank and Customer Development

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Although I had mentioned him in previous posts such as The Art of Selling and his Views on Entrepreneurship, I had never read Steve Blank’s until now. I just finished reading The Four Steps to the Epiphany and I must just say it is a great book.

I will explain into some details his theory but the main reason I love this book is how he explains why founders are critical in all the decisions of the early phases of a start-up. Not the usual “hire business people”, but “learn and become an expert until you reach your limits”. I should immediately add that it is not an easy book to read and certainly mostly useful to people in the process of launching a start-up or developing new products. His web site steveblank.com is also very informative, you will find tons of slides of his teachings on the web and I particularly recommend the list of books he suggests reading.

Steve Blank is famous worldwide (mea culpa for not mentioning him more before) for his theory on the Customer Developement. Whereas we all know that the high-tech world is not about technology (no it’s not; ideas and technologies are far from sufficient to explain this world), we have a tendency to focus on products (much more important than technologies) and markets (business vs. technology). But Steve Blank explains how products can be an illusion (if never sold to customers) and how markets can be extremely dangerous if not well understood; whereas what counts are the users of products, the people which make markets, i.e. the customers. He explains how important it is to interact with potential customers in an iterative manner (bottom-up) even before designing and developing the product, then while developing them and be careful about a top-bottom-only analysis of the markets.

This is one of his famous slides where he explains that Product Development in isolation is deathly and should be done in parallel with Customer Developement only. Start-ups do not need teams in Marketing, Sales or Business Development, but only two teams, in Product Development and Customer Development, each headed by one of the Founder(s)/CEO. Below is another detailed description of this process (also available online). Then when they become large, they can switch to the traditional models.

You should absolutely read this if you are in a start-up mode. This may help you avoid many (possibly deathly) mistakes.

Art and Technology

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Before coming back to my favorite topics and as a conclusion to a rainy summer, let me mention two artistic projects where the Internet, new technologies (and the fact they are cheaper, easier and as the same time high quality tools) have a huge impact. But more importantly, these are beautiful projects with a lot of creativity.

I discovered the first one last week. Playing For Change is a magnificent way of revisiting music charts and connecting people. Click on the picture and discover the new versions of famous songs. My favorite is probably #40, Redemption Song, but I did not have enough time to listen to all of them.

With a similar inspiration, David Lynch [in fact his son] has travelled through America for his Interview Project. Short videos describe the USA in as convincing a way as any economic or sociologic analysis.

I hope you will take the time to try and hopefully enjoy as much as I did.

More data on IPO and founders.

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Following a recent post on the age of founders, I just did a more systematic analysis on the topic and at the same time analyzed more elements on the cap. table of many companies. I had 47 companies in my previous post. Here I just have 100!

The two tables give the founders’ age, the number of years from foundation to IPO and the founders’ remaining equity at IPO by field and geography.

Now if you want to have a look at the full record, just click on the next picture, you will get a 107-page pdf with all data. But please be aware of some of the following difficulties. All this is best effort! The cap. tables are subject to mistakes and comparisons are tough to make. For example:
– Founders do not always share equally the initial stake.
– There is no real definition of founders but the group of people who recognize themselves as such.
– ESOP reserved for future grants is a quite artificial part of the overall picture.
– When age was not available, a indirect measure was to consider a BS is obtained at age 22.
– Directors include independant directors only, not the investors.
– Finally not all companies went public, some were acquired and some filed but did not go public (yet)

Is there anything worth noticing? Well Biotech/Medtech founders are the oldest whereas SW and Internet entrepreneurs are the youngest. Surprising? Not really, but remember, these are not statistically valid data, this is just a compilation…

Age of founders

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As I just mentioned in my previous post on Carbonite, I promised to have a look at the age of founders again. This follows some challenging comments from Pascale on a recent post, Is There A Peak Age for Entrepreneurship?

I have data, the ones I may bore you with when I publish cap. tables of IPOed companies. Well, the companies publish the age of their officers so when the founders are still active, you can get their age at IPO and getting the number of years from foundation to IPO, you have the founders’ age. Usually, the biographies also give the previous companies founded by these people. So I did yesterday the exercise in two broad groups: companies which went public recently (mostly in the last 5-10 years) and companies which had gone public in the 90s or even before. Just remember that in my book, I had compiled the age of the “famous” entrepreneurs and it was 27.

First the group of recent companies (52 founders from 25 companies):

Then the older companies (53 founders from 22 companies) with the average of the group but also of the two groups at the end.

These are not stats, just anecdotes and you should also see that when I did not have the age, I looked at academic background with the idea that you have a BS when you are 21… So the average is 34, increasing from 33 to 35. Definitely not the 27 I had, not the 40 either claimed by recent analysis. Is the glass half empty or half full, I will let you decide! I still wonder why the big successes seem to induce a lower average (if true!).

A final (and not related comment): “years from foundation to IPO” has increased from 3.7 to 6.8, being 5 overall. Still very far from what I had in Europe, which was closer to 9 or even 10 years.

IPO again: Carbonite is the new star

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I just discovered about Carbonite, one of the companies in The 17 Most Important IPOs To Watch For In 2011. Storage and backup are clearly hot fields in 2011 (just have a look at Fusion-io for example). In the 1st link I just mentioned above, Carbonite is described this way:

Carbonite, the online storage backup for consumers and businesses, has raised roughly $67 million in various venture rounds, while its sales have doubled each year since its launch in 2006. The company claims to have backed up some 80 billion files, with more than 150 million new files backed up daily. It also claims to have restored more than 7.2 billion files that would have been otherwise lost forever. Inc. Magazine placed it as #9 on its Inc. 500 list for 2010 of the 500 fastest growing private companies. With “the cloud” remaining a hot topic and with its annual basic plan starting at less than $55.00 a year, Carbonite should have a solid reception when it comes to market.

So I digged the IPO S-1 document and looked at the company with my usual interest. Cap. table. founders, investors, ESOP. The 2 foudners has 7-8% each pre-IPO, investors 60% and employess the remaining 25%. What might be a little scary though is the lack of profitability. Here it is.

The S-1 also gives the list of selling shareholders.

But following a few exchanges of comments on a recent post, Is There A Peak Age for Entrepreneurship?, I looked at something else, the founders and their age. Here is what the prospectus gives:

David Friend (63) has served as our chief executive officer and as a member of our board of directors since he co-founded our company with Mr. Flowers in February 2005. Mr. Friend also served as our president from February 2005 to September 2007 and again since August 2010. Prior to starting our company, Mr. Friend co-founded with Mr. Flowers and served as chief executive officer and president of Sonexis, Inc., a software company providing audio-conferencing services, from March 1999 through March 2002 and served as a director of Sonexis from March 1999 through August 2004. From June 1995 through December 1999, Mr. Friend co-founded with Mr. Flowers and served as chief executive officer and as a director of FaxNet Corporation, a supplier of messaging services to the telecommunications industry. Prior to that time, Mr. Friend co-founded Pilot Software, Inc., a software company, with Mr. Flowers. Previously, Mr. Friend founded Computer Pictures Corporation, a software company whose products applied computer graphics to business data, and served as president of ARP Instruments, Inc., an audio hardware manufacturer. Mr. Friend served as a director of GEAC Computer Corporation Ltd., a publicly-traded enterprise software company, from October 2001 to October 2006, and currently serves as a director of CyraCom International, Inc., Marketplace Technologies, Inc. and DealDash Oy. Mr. Friend holds a B.S. in Engineering from Yale University. We believe that Mr. Friend is qualified to serve on our board of directors based on his historic knowledge of our company as one of its founders, the continuity he provides on our board of directors, his strategic vision for our company and his background in internet and software companies.

Jeffry Flowers (57) has served as our chief architect since April 2011, as a member of our board of directors since he co-founded our company with Mr. Friend in February 2005, and as our chief technology officer from February 2005 to March 2011. Mr. Flowers co-founded with Mr. Friend and served as chief technical officer of Sonexis, Inc., a software company providing audio-conferencing services, from March 1999 through March 2002 and served as a director of Sonexis from March 1999 through August 2004. Prior to that time, Mr. Flowers co-founded with Mr. Friend and served as chief technology officer and as a director of FaxNet Corporation, a supplier of messaging services to the telecommunications industry, and co-founded Pilot Software, Inc., a software company, with Mr. Friend. Mr. Flowers served as VP of Development at ON Technology Corporation, a publicly-traded software vendor, from June 1994 through February 1996. Mr. Flowers holds an M.S. and a B.S. in Information and Computer Science from Georgia Institute of Technology. We believe that Mr. Flowers is qualified to serve on our board of directors based on his historic knowledge of our company as one of its founders, the continuity he provides on our board of directors, his strategic vision for our technology, and his background in internet and software companies.

Doing simple math (so maybe not very accurate, this would give the following table)

Founder Friend Flowers
Born in 1948 1954
Company Founded at age Founded at age
Sonexis in 1998 50 44
Faxnet in 1994 46 40
Computer Pict. in 1982 34

So it shows that the founders are not young, not even middle-age. They are serial entrepreneurs and probably close friends given the facts they have co-founded 3 companies together and were definitely not in their twenties when they did it. In my next post today, I will come back on the topic.

Ecommerce cap. tables: Responsys, Salesforce and Broadvision

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For different reasons, I’ve been looking at a few other ecommerce companies. No real connection except the field. It’s more a summer post for my archives but at the same time, there are interesting elements. These are

– Responsys founded in 1998 and IPO in 2011.
– Salesforce.com founded in 1999 but public in 2004.
– Broadvision was founded in 1993 and public before any of the two others even existed, in 1996!

They are all based in Silicon Valley. They are typical in their structure (founders, managers, VCs, stock options, directors. Now let’s have a look at them individually.

I studied Responsys because it was one of the early 2011 IPO. An old company (13 years!). Two founders with very little equity. It could be explained with the large amount of money raised ($60M) but this cannot be the reason. Just have a look at teh price per share of the rounds. $3, then $16, then $6 then $0.25. The terrible down rounds… of course this was extremely dilutive for many shareholders.

The two founders Ragu Raghavan and Anand Jagannathan were not active with responsys for some time.

Broadvision is the oldest of the 3. It was one of the stars of the late 90s. It’s still a public company but its market cap. is $50M only. Today Responsys has better revenues and profits… In a way, Broadvision and Responsys might be The Tortoise and the Hare of the fable.

Also of interest is the fact that id had a unique founder, Pehong Chen, who  was also (and still is) the chairman and CEO.

In between, there is Salesforce.com. The Hare and the Tortoise at the same time. Went public 5 years after foundation. Still had losses at IPO even with good revenues. A market cap. of $1B. But in 2011, it has a market cap. of $19B!!! Explained by revenues of $1.6B even if the profits are below $100M. Not typical in terms of investors though. Mostly business angels and very little ownership.

Four founders at salesforce, Marc Benioff, Parker Harris, David Moellenhoff, Frank Dominguez. The first is a star of Silicon Valley, the last one nearly unkwown to me at least. Apparently, they still all work there…

The Monk and the Riddle: a great book

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Do not ask me why this book is entitled The Monk and the Riddle as I will let you discover it if you decide to read this “old” book (a more than 10 year-old great piece of Silicon Valley description). Its subtitle is clear though: The Education of a Silicon Valley Entrepreneur.

Not all agree on the fact it is a great book as you may find at the end of this post, from the comment by the Red Herring in 2000. Still, I loved reading this book and let me explain why. Randy Komisar, today a partner at Kleiner Perkins and former enrtepreneur, has written a book about passion and inspiration. He does not tell you how to do your start-up (but he tells you how not to do it). He also explains also very well what Silicon Valley is, the locus of risk taking, where failure is tolerated, where a start-up is more a romantic act than a financial endeavour. “Business isn’t primarily a financial institution. It’s a creative institution. Like painting and sculpting.” [page 55] Here are a more few extracts I scanned from Google Books.

First Mr. Komisar explains that an entrepreneur is a flexible visionary and why the business plan does not have to be strictly followed (or should not always be) [page 37]:

Of course, venture capitalists look for such people [page 38]:

But there is a danger with VCs: the down round which is the consequence of failed momentum [page 52]:

Mr. Komisar gives much more than basic advice. Even if he admits he may not have followed these when he was younger, he understands now how important they are. His book his about the meaning of life where he defines the Deferred Life Plan (that should not be followed) [page 65]:

He therefore considers that personal risks are more important than business risks [page 154]:
Personal risks include:
– the risk of working with people you don’t respect,
– the risk of working for a company whose values are inconsistent with your own;
– the risk of compromising what’s important;
– the risk of doing something you don’t care about; and
– the risk of doing something that fails to express – or even contradicts –who you are.
And there is the most dangerous risk of all – the risk of spending your life not doing what you want on the bet you can buy yourself the freedom to do it later.
[… page 156…]
If your life were to end suddenly and unexpectedly tomorrow, would you be able to say you’ve been doing what you truly care about today?

He also explains why Hard Work is a critical and necessary value of Silicon Valley [page 125]:

But People and Culture remain the most important elements [page 128]:

Another interesting concept is the fact that start-ups need 3 CEOS [page 128]:

But nothing replaces Vision [page 144]:

When I wrote above that Silicon Valley is about tolerance to failure [page 150]:

Obviously it means even success should be mitigated [page 151]:

I really advise you to read this great book, not only for the Riddle but also for the nice, funny and sad story of Lenny and Allison. Enjoy!

Here is what the Red Herring published. The analysis is not wrong, but even 10 years later, I am not sure Silicon Valley is so well understood as the RH thought…