Author Archives: Hervé Lebret

When Valentine was talking

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Those who follow my blog know I am interested in the history of Silicon Valley, start-ups and venture capital. I had published a while ago data about Kleiner Perkins’ first fund. I’ve been trying ( and I still do) to find data on Sequoia’s first fund (Atari, Apple, Tandem, Altos) without much success [anyone with data on Sequoia I is welcome to contact me!) but today I found an interview fo Sequoia’s founder, Don Valentine, given to Inc. magazine in May 1985. What he told about start-ups, entrepreneurs, investors and big corporations could be said again today. I put in bold characters what stroke me. Enjoy, even if the interview is rather long.

Now I just found a recent interview of Valentine (dated October 2010). Though given 25 years later at Stanford Graduate School of Business, it does not seem valentine has changed much his values and beliefs.

Peaks And Valleys

Venture capitalist Don Valentine scaled the entrepreneurial heights as a key investor in Apple Computer, Altos Computer Systems, and Tandem. Now, amidst uncertainty in Silicon Valley, he talks of opportunity, company building, investor madness, and the failings of the business press.

He speaks like the New York street kid he used to be, but Don Valentine understands the challenges facing California‘s high-technology entrepreneurs better than most Californians. At 47, the feisty venture capitalist ranks high among the deans of Silicon Valley‘s much ballyhood investment community.

Not that this reputation has made him universally beloved. Gruff sometimes to the point of rudeness, he can be a formidable for of foolishness. As the marketing manager of the then fledgling National Semiconductor Co., Valentine is to have scolded a subordinate so severely on one occasion that the poor fellow fainted dead away. Other victims have also felt the lash of his wit: entrepreneurs and journalists, to name a few.

Despite his prickly manner, Valentine is widely admired among those entrepreneurs who have taken his money, and, more importantly, benefited from his intimate knowledge of building companies in emerging growth industries. The son of a New York City Teamster official and a graduate of Fordham University, Valentine won his spurs in the infant integrated circuit business — at Fairchild Camera and Instrument Corp.‘s semiconductor division from 1960 to 1967, then at National Semiconductor Corp. until 1971.

He then formed his own venture capital firm, Capital Management Services Inc. (now called Sequoia Capital), which was a key early investor in more than 100 California high-technology companies, including Atari, Apple Computer, Tandem, Altos Computer Systems, LSI Logic, and Cypress Semiconductor. With these and other successes, Sequoia Capital over the past 10 years has earned its limited partners returns in excess of 60%.

For all his triumphs, Valentine insists that he doesn’t back in the media’s glorification of his trade. Indeed, he deplores it. And now that the press has decided to deflate the industry’s once-buoyant image, he professes to be relieved. He knew failure, too, in the midst of his successes: Pizza Time Theatre was a Capital Management-launched company.

At the same time, Valentine has not lost faith in the future of U.S. entrepreneurism. Looking out of his office window at the rolling hills above Stanford University, sipping a mug of tea, he reflects that entrepreneurs need only remember the key qualities that have made for their success in the past — the courage to be different, to create markets where none existed before, and to invent radically new ways of doing business. With such weapons, he argues, entrepreneurs can continue to enjoy surprising triumphs against their larger, more entrenched competitors.

INC.: What’s going on in the venture capital business these days? Do you still have people pounding on your doors with new Apple Computers, or new add-ons for the IBM?

VALENTINE: Amazingly to me, yes.

INC.: What do you say?

VALENTINE: Well, the first thing I ask is, “Why, in 1985, do you want to do this? What do you see happening in the world that leads you to believe that you can make a real company, achieve whatever you want to do as an entrepreneur, and at the same time allow us to make a consequential return on the risk we take?”

INC.: And what do they reply?

VALENTINE: Unfortunately, many of them start talking about the installed base, how many are being produced — that sort of thing. They often don’t seem to have any sense that the race has been run, that there’s no longer an opportunity for the modest technical contribution to the evolving family of Apple or IBM boxes.

INC.: Does that mean there’s no more room for anybody in the microcomputer industry, apart from those two?

VALENTINE: Oh, I think Radio Shack is probably a well-entrenched company. They have their own distribution channel, which kind of helps them. And Commodore has staked out a very strong position in Europe and at the very low end. But I wonder if that’s not it.

INC.: What about the IBM-compatibles, the Coronas or the Compaqs?

VALENTINE: I have never believed it was possible to invest and make substantial returns by being compatible with IBM — anywhere, at any time. Not in mainframes, not in disk drives, and certainly not in personal computers.

INC.: The conventional wisdom says you have to be compatible with IBM.

VALENTINE: I think the conventional wisdom must be comprised of what goes on in people’s heads who have no sense of history. There are no historical examples where IBM compatibility has produced anything except annihilation.

INC.: OK. But if computers are not, where do you see any new fields of opportunity?

VALENTINE: Right where they have always been. One of our theories is to seek out opportunities where there is major change going on, a major dislocation in the way things are done. Wherever there’s turmoil, there’s indecision; and wherever there’s indecision, there’s opportunity.When it becomes obvious to anybody who reads Time magazine that it’s useful to have a disk drive on a computer, then it’s already way too late in the cycle to invest in disk drives. So we look for the confusion phase, when the big companies are confused, when other venture groups are confused. That’s the time to start companies. The opportunities are there, if you’re early and have good ideas.

INC.: Can you be more specific?

VALENTINE: Sure, the telecommunications industry is a good example. The regulations are unclear, the interpretations are unclear. So the big companies don’t know what they’re allowed to do and what they’re not allowed to do; and neither do the regional companies. They don’t know what they can sell and what they can’t sell. The venture business has never been a business of taking the big companies head-on; in fact, it is always a business of avoiding taking them head-on.

INC.: So the success of venture capital depends to some extent on there being a lot of confusion in the market-place, or at least in the minds of big companies. Is that right?

VALENTINE: Well, I don’t want to leave you with the impression that we’re so much more clever than the people who run big companies — that only we, the venture people, can see through the murkiness. On the other hand, big companies do suffer from certain disadvantages — implementation, for instance. Oftentimes, a big company will develop something, but then it will languish around and never get into production, or get into production too late. Take everyone’s favorite example, the personal computer. Long ago it was too late to be in that business. So what did the big computer companies do? They launched their own personal computers: Wang, NCR, HP, and I don’t mean to leave out Data General and DEC. Now some of those companies might be buying the product from someone; they might get it on an OEM basis, or a license basis, or coventuring it. But it’s all an example of a time when we should be moving in another direction.

INC.: Still, we’re hearing a lot about big corporate types beginning to see the value of “intrapreneurship,” small niche marketing, and so forth.

VALENTINE: I don’t know about all that. Big corporations flap their lips a lot about all the great things they’re going to do, but basically they’re obedient people. When you run a big company, it’s like running anything else that’s big, a church or an army: The key ingredient is obedience. Anything big requires people performing and acting in conventional, predictable ways — within the rules. Entrepreneurism is by comparison the role of the nonconventional person who’s going to do it differently. And in the big corporation, he’s just a flat-out pain in the ass. He doesn’t get through the industrial relations department, because that’s why you have an industrial relations department: to make sure the oddballs don’t get in and create confusion in the obedient world.

What you’re hearing is a fashionable reaction to a currently overreported event. Entrepreneurism is “in”; therefore corporate cultures have to embrace it in order to appear contemporary. I think that after the fad has passed, the big corporations will discontinue it, like affirmative action and the employment of women and all the other bullshit things they do for public appeal. This, too, will pass; and in another two years they’ll be on to something else.

INC.: Yes, but affirmative action accomplished something. Women and blacks were hired. They’re still working. Won’t this intrapreneur faddism, as you call it, leave some of its spirit behind, even after it has passed?

VALENTINE: I would be surprised. The progress of minority groups, the progress of women, is because fundamentally, as individuals, they are contributors, of sex and color. There’s no fundamental reason why intrapreneurship is going to be useful to a multibillion-dollar company.

INC.: You think it’s all public relations, nothing that’s deeply felt?

VALENTINE: Yes. Big corporations are made up of several ingredients. One part is public relations. But another part is accounting. Big companies are run by accountants, whose mentality is to control things, to homogenize things. That’s what control is: sameness, predictability. Look at what happens to an entrepreneurial company when it’s acquired by a giant. The giant comes in and says: “We have to change a few of the rules. Don’t worry; we’re not going to change the company. We just want you to think about a few things. You’ve got to have a compatible health plan. Ours is better than yours, so we’ll fix that. And this accounting firm is really better than your accounting firm, so we’ll fix that, too.” It’s death by a thousand cuts. A little nick here, a little cut there, a little change here — nothing significant. But at the end of a short period of time the people are so driven by controlling and accounting that the environment of nonconventional solutions is lost.

INC.: So you’re saying that big companies are doomed in their efforts to coopt the entrepreneurial spirit.

VALENTINE: Yes, but not the entre-preneurial product. The bioengineering world may be a good example. The bioengineering product is a technique, more a manufacturing process than a freestanding product. And the logical people to be in the biolengineering business are the pharmaceutical and drug companies, right? So why, then, do you have all there bioengineering firms starting up since 1978 or so? I think what happened was that the big pharmaceutical companies had other fish to fry. They had their scientists grinding away on other products. But meanwhile they saw all these little companies getting venture financing, and what they did, cleverly, was to point some money at this one, then at that one, knowing that later they would catch up with them. They knew that the venture companies couldn’t walk the new interferon drug, or whatever, through the Federal Drug Administration cycle, into production, and into the marketplace. That’s a very expensive process and requires a lot of know-how. They knew that the little companies didn’t have that kind of wherewithal. But the big companies did; so that when the time came they knew that they could come in and pick up the marketing rights from the little companies.

INC.: You seem to have a lot of ideas about big companies. Have you ever worked at one?

VALENTINE: That depends on what you mean by “big.” I worked at Fairchild, where I joined an already existing sales force and sales concept, and I managed it up to $150 million from the mid-20s. Then, at National Semiconductor, I got the opportunity to design a sales concept and sales force from scratch. They were losing about $2 million when I got there, and by the time I left they were earning about $40 million. I enjoyed that. I like taking the proverbial blank piece of paper and designing another approach to doing things. It matched my personal goals. But then I found myself no longer challenged. More important, I found that I didn’t like companies when they got to $40 million or $150 million. I hated them.

INC.: What was it you couldn’t stand?

VALENTINE: Success, I think, is what I couldn’t stand. When a company succeeds, the founders no longer have a personal impact on strategy, no longer have a direct contact with the customers. They become managers and superiors, while all the other guys who work with them have the fun. And if you don’t let them have the fun, you can’t keep them. I like doing things personally. I like seeing the customers, the applications of a product. I don’t like seeing them through a sales force. By the same token, I like planning products and strategies, personally, not through three layers of people. So I opted for venture capital, where I could act personally and permanently in a small-company, fast-track, growth environment — somewhat as a dilettante rather than a full-time manager. Managing a company that was growing at 10% or 20% a year wasn’t even an option for me. I wanted an environment where I could invest in small companies and enjoy their success, modestly contributing at the strategic level. Venture capital is where I can do that, and in a multitude of companies at the same time.

INC.: Let’s talk about how that works. When an entrepreneur walks into this room, looking for money presumably, how do you size him up?

VALENTINE: The characteristic we’re concerned with every time is whether the person knows what he doesn’t know — whether he’s mature enough to recognize it, talk about it, and do something about it. That’s one of our critical tests. Many entrepreneurs have incredible blind spots. For instance, they are often, correctly, said to be insensitive to the importance of sales, or manufacturing, or how to get good gross margins. They’re not deliberately blind; they just haven’t thought about those things.

INC.: How do you test for blind spots?

VALENTINE: We discuss it. We ask them about their products, their approach, and what skills they think are crucial to the company’s growth. Then we want to know whether those skills are resident in the team; and if so, who has them; and if not, why not, and where they’re going to come from. Our world is one of constant Socratic questioning. We spend a small part of our time trying to find out which questions are relevant, and the rest of it we spend listening.

INC.: How important to you is the business plan?

VALENTINE: Most important, but for a not very obvious reason. We must have something that will tell us how people think. We get one or two of these plans every day and we can’t possibly understand the nuances of every business. So the business plan to us is where we begin to learn about the people. We can’t tell whether the numbers are right, therefore we concentrate on how they reached the numbers, the thought processes that led them to conclude that their project was possible.

INC.: Where do most entrepreneurs fail in their thinking?

VALENTINE: Well, that’s one of the great ironies of my career. It’s the computer. The prevalence of the computer and the spreadsheet has caused entrepreneurs in the last two or three years to develop pro forma projections of their businesses. They’re no longer written out by hand and really thought about, with the result that many people have no personal understanding of the numbers they’re projecting. Sometimes you find incredible market shares being achieved in just four years, simply because the numbers suggest it; or sometimes you find sales expenses projected at numbers far below what you’ll probably need to get the orders. Things like that fall out because the numbers are generated impersonally, and nobody thinks about the relationship between them and the structures that have to be in place before the numbers start coming in.

So for us the business plan is a bridge to communication. We’ve never invested in a company that achieved more than 70% of its plan. But that’s not such a great failing, in our view. We’re dealing with people who are supreme optimists. If they weren’t, they wouldn’t be starting companies, they’d be working in some nice, comfortable haven. They would not be doing the hardest thing in the world. So we’ve become less concerned about the completeness of the plan than we are about how the founders reached their conclusions — what factors they considered relevant, what assumptions they made, how realistically they viewed the competition, and so forth. These are things which, from our point of view, you can learn only by listening, not by reading.

INC.: What do you look for in terms of growth — the company that gets up and running at $25 million to $50 million a year, or one that goes to $200 million?

VALENTINE: I wish your question had more alternatives. But if I have to choose, my interest is always in people who can get the company from zero to $25 million or $50 million as quickly as possible.

INC.: Why is that?

VALENTINE: Well, the thing you have to keep in mind is that we invest in partnerships that last from 8 to 10 years, at the end of which time they terminate. This means that the real time frame of our growth expectations is about 5 years. How much can you legitimately expect a company to grow in 5 years? Not to $200 million or $300 million. Of course there are exceptions — Apple, for one — but their principal effect has been to confuse people about the real history of venture capital. Historically, the probability of a venture investor having even one Apple to his credit in 7 or 8 years is very low. If he were really good, out of 30 or 40 investments, he might make 2 or 3 Apples, but never 10. It’s absolutely unrealistic, in my opinion, to expect $200 million to $300 million in 5 years. On the other hand, it is perfectly reasonable to expect $25 million, $35 million, $50 million in that time, and that’s what we look for.

INC.: That certainly seems a lot more modest than what you were saying not long ago. It sounds as though you’ve radically scaled down your expectations from what they were a few years ago.

VALENTINE: Let me suggest that it’s you, the press, who have had to scale down your expectations, and you want to impute your disappointments to me. The fact that a company goes from zero to $50 million counts for a lot to me. Now it is true that during much of 1982 and all of 1983 there was a real pricing insanity in the venture field. Investment bankers, pension fund managers, a good many new players were racing around frantically to get their money employed in start-ups or mezzanine financing. This drastically shortened the amount of time available to study investment opportunities. We saw companies being funded very rapidly, so rapidly that we didn’t get a chance to participate. We were too slow. Recently, as a matter of fact, we were talking about one such company, wondering why we hadn’t made an investment in it. Well, the other investors were more agile. They moved before we could, in our iceberg fashion. As it happened, this company didn’t succeed. We had dodged the bullet. But the point is that the reason we were able to dodge the bullet is that we didn’t adjust our approach during that period of insanity. You know the old saw — keeping your head while all around you people are losing theirs. Well, I don’t want to suggest that all the companies we ducked in that period of frenzy were properly ducked. I suspect some were successful. But I don’t believe the venture investment community was ever conceptualized or designed to produce a dozen $500-million companies per year. History, at any rate, shows that it works best at delivering lots of small-niche companies, employing hundreds of people, doing brilliantly on $25 million to $50 million a year in revenues.

INC.: But isn’t there a danger in that sort of thinking? Aren’t you doing these companies a disservice by focusing on relatively short-term growth? Don’t you have some responsibility to make sure they have management capable of taking them past the $50-million mark?

VALENTINE: If you’re going to talk about responsibility, the real question is, to whom and to what constituency am I primarily responsible? I would say that our first responsibility is to our limited partners, who are mainly members of various pension plans in the United States. They’re the ones who own our companies, and when I think of responsibility, I think about those people, and the returns that they have signed up for and expect to be delivered.

INC.: Yes, but even so, we’ve seen loads of companies go to $30 million or $40 million in sales and then collapse, sometimes before going public. Don’t you at least have a responsibility to get managers who can keep companies solid over the 5-to-10-year period of your involvement?

VALENTINE: Of course. And after having made investments in perhaps 150 companies, we are inclined to believe that there is one set of management skills needed to start a company and another set needed to manage a bigger company. They are rarely resident in the same person.

INC.: So, even within a 5- or 10-year time frame, it’s almost inevitable that you’re going to have to make significant management changes.

VALENTINE: I’d say “management additions.” Sometimes the man who starts as president of a company is replaced by another member of the team when the company reaches a later stage of development. But with the exception of someone like [Tandem Computers Inc. president] Jim Treybig, it’s rare that a successful, driving entrepreneur becomes a successful executive capable of managing the assets and people of a $100-million or $500-million company. A great many entrepreneurs just cannot make that transition.

INC.: Of course, to listen to the entrepreneurs these days, the problem they’re having is getting people to invest at all. They refer to the venture capital community as “the valley of the maybes.” That certainly wasn’t the situation a year or two ago. Have you changed with the times, too?

VALENTINE: I don’t know. We don’t keep data; we don’t want our investment process dictated by the numbers. But looking back over the past 15 years, I would guess we’ve made substantially the same number of investments every year, with only a small range of differences. It’s not that we planned it that way; it just turned out that way. But the other key point is that we almost always invest in the early stages. We reconsider this virtually every time we meet to discuss strategy, but we’ve always found that for our purposes it made sense to continue to invest in the early phases of a company.

INC.: Why is that?

VALENTINE: Because in the company-building business, which is the business we perceive ourselves to be in, it’s easier to have an impact on the concept and personality of the company. This is difficult to do after the first financing. By then other people are influencing the company; its personality has been determined. We’ve seen companies that have been very badly influenced: for example, encouraged or tolerated in habits of irresponsible spending. We just find it easier — as in child-care — to form company attitudes toward spending and growth early on.

INC.: What’s your “letting go” point? When does it seem you can no longer impose your will on them?

VALENTINE: May I quibble with the question?

INC.: Quibble all you want.

VALENTINE: Thank you. We don’t view ourselves as “imposing our will” on a team starting a company. We don’t see ourselves as relating to companies in an adversarial way. We see ourselves as encouraging them, as a stimulator. The important thing we have to maintain in perspective is that other people are running the company. It is their company. On the tactical level we are at best a partner, but mostly a cheerleader. For example, during the wooing process — when the decisions are made whether to invest or not — we try to avoid having any of our ideas taken up as part of the concept of the company, lest we distort the entrepreneur’s or management’s view of what’s supposed to happen. We don’t make an investment decision based on our ability to enforce our will. That’s a repugnant concept. We want to make sure that the company is one where the entrepreneurs are having their ideas financed, and that they are passionately committed to those ideas.

INC.: So what exactly do you bring to the table — besides capital, I mean?

VALENTINE: I would say the main thing is what we call “intelligence equity” — experience the companies don’t have, contacts they don’t have, perspectives they don’t have. Basically, we give them the opportunity to move from the entrepreneurial stage to that of a larger, more stable company. Altos, for example, is now a company with around $103 million in annual sales. When we invested in it, it was comfortably successful, doing something like $12 million to $15 million a year. Altos was profitable, had money in the bank, had no debt, and was developing a fair amount of momentum. They really didn’t need our money, but they realized that they were entering a risky period, with a lot of unanswered questions — the more so because they didn’t know what the relevant questions were. So they were clever enough to want to associate with other people who could help them identify the questions as well as the answers — not just us, but lawyers, accounting firms, and so on.

INC.: All right, but let’s face it. Your experiences are heavily oriented toward the computer industry. How valuable are they in, say, a restaurant chain, not to mention any names?

VALENTINE: Well, it’s true that most of our expertise is in the computer area, and we probably have less to offer to companies outside the wide embrace of technology, especially companies in slower-growing industries. There are leverage skills we don’t have. We are probably better off staying out of those businesses.

INC.: But doesn’t the same reasoning apply in a technology-based industry like biotech? Don’t you think that microbiology demands profoundly different skills and perspectives than micro-electronics?

VALENTINE: A lot of fundamentally different skills and a lot of fundamentally similar skills.

INC.: For instance?

VALENTINE: Well, it’s true that many of us understand the world of bits and bytes, and relatively few have much experience in the world of microbiology, partly because this hasn’t been a business before. So, from one perspective, we’re operating at a disadvantage.

But it’s also true that microbiology is basically a tool for solving problems, just as a computer is a tool for solving problems. The challenge in both cases is to identify the problem and the best tool with which to solve it. From that perspective, we still have something to contribute to these companies, not so different from what we’ve contributed to computer companies. After all, we’ve seldom contributed anything to, say, the electronic architecture of a computer, or the kind of circuitry needed, or the speed or packaging. It’s rare for investors to get involved in that kind of detail.

INC.: Can you give us an example of the kind of “intelligence equity” you might provide to a biotech company, or a telecommunications company, for that matter?

VALENTINE: Sure. One thing about both those industries is that they tend to be very capital-intensive, so you have to find creative ways to raise money. We try to help companies do just that.

One example is a company called Equatorial Communications, which had to acquire $16 million worth of transponders on satellites in order to be operative as a communications company. That’s a lot of money, and the situation required a solution that would not be an equity disaster to the founders and early investors. I mean, if the company went to the market and tried to raise the money, they would have no equity left. They needed a way to finance assets that had never been financed before — the worth of which were therefore unknown — and they had to do this before the satellite was launched.

Well, through a combination of leasing and guarantees, modest amounts of equity were sold in order to control two transponders on Westar 4.The solution involved corporations, insurance companies, and banks — nontraditional financiers for a company like Equatorial. Frankly, nothing like it had ever been tried before because nothing like it had ever been needed. Since then, this kind of solution has also been used in many of the modestly successful bioengineering companies.

INC.: I suppose another solution would be to form one of these so called alliances, or corporate partnerships, with a larger company.

VALENTINE: Absolutely. That’s something we’ve done in the semiconductor industry — so that, for example, a company like LSI Logic can go into business and, through Johnson Controls, have the ability to purchase equipment worth $20 million for very little in the way of equity.

INC.: Do you think that this sort of alliance will become more common in the future, that people will be looking less to the equity market?

VALENTINE: I think corporate investors are a necessity in a capital-intensive business, where the equity leverage in a model venture deal can be easily lost. Obviously, straightforward debt doesn’t work. These companies don’t have the underlying equity from which to borrow from traditional sources. So corporate America has been one of the solutions. Insurance companies have been interested participants in these things, and some of the pharmaceutical companies as well.

INC.: Does this mean that small companies and large companies have more in common now than before?

VALENTINE: I view the small company as a vehicle for the individuals involved, but large companies can also benefit from their activities. Entrepreneurial companies are a stir to get big companies moving. What’s more, the people who work in big companies often own the small companies through their pension plans. One of our largest partners is General Electric, so the employees of GE benefit from our companies’ successes.

INC.: Let me change the subject and ask how all this affects you personally. You’ve had a string of spectacular successes as an investor, beginning with Apple. You’ve noted how unusual that is. Isn’t there a risk that they might go to your head? Don’t you ever get a slight Deity Complex?

VALENTINE: I suppose the correct way to answer that, in a magazine interview, is to say yes. It makes one appear humble. But the answer is no. I think I always understood why Apple worked, and that there was a great amount of luck involved, both for Apple and for our being investors in it. The publicity, if anything, reinforced this sense of perspective. Also, I have a teenage daughter whose role in life seems to be keeping my ego in check. At every opportunity she reminds me of my mortality.

INC.: Speaking of mortality, I take it that you don’t think we’re coming to the end of the Age of the Entrepreneur — despite all these stories of “Doom in Silicon Valley.”

VALENTINE: I think the thing that’s coming to an end is the reporting of it. Newspapers and magazines — and let’s throw in TV — are usually interested in short-term fads and “trends,” and since there are many more media than there are fads, the latter tend to get overreported. The fact that the media are now writing about “Doom in Silicon Valley” means to me only that they are getting tired of writing about “Boom in Silicon Valley.” For the public, maybe things will come back into some sort of historical perspective. Entrepreneurism is not the solution to all the economic problems of the country or the world. No one ever conceived it to be — except the press.

INC.: So in a way the doom-talk might be good.

VALENTINE: It might be good if fewer company presidents and venture capitalists have to talk with reporters. More time will be spent in creating new companies.

Start-Up in Russian

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My book is now available in Russian. You can find more info by clicking here or on the picture below. Using Google Translate you can read what the people who publish it say about it:

Dear readers!

We are glad to present the book “Start-up. What we may still learn from Silicon Valley, by the author Hervé Lebret [1]. The book is a translation of the English-language original. In Russia, it is published as a joint project company “Corporate Edition” and the Russian Venture Company. The purpose of the book – to provide start-ups information with a different perspective. The book begins with the author’s story of Silicon Valley start-ups, which gradually becomes a description of the region. The second part is devoted to Europe, where start-ups as a phenomenon have been less successful. Analyzing the causes of successes and failures, the author cites numerous examples from real life, considering the history of building successful companies from ideas.

Hervé Lebret tells of his personal vision of Silicon Valley and its culture, describes the companies and the individuals through the prism of fascinating stories of success and failure, of which the reader is sure to extract useful lessons. In presenting his individual views, the author demonstrates a remarkable ability to penetrate into the essence of things and see the difference between “old Europe” and “Young America.”

The book is unique in terms of number of analytical and reference material and, according to Alexandra Johnson is the best book, that tells of Silicon Valley. This book will be of interest not only to experts on innovation and entrepreneurs in high tech, but anyone who is interested in history and economics of startups.

Currently, innovation ecosystem of Russia is still in its formative stage. Innovative infrastructure sometimes patchy, new venture capital firms are perceived as extremely risky. However, there is an intentional movement to build “smart economy”: in the country, there are business incubators, venture funds, lobby for the interests of small and medium businesses, Russia is amended its laws relating to intellectual property and copyright, to increase the number of successful innovative projects.

We believe that the book will help us one more time “to learn from Silicon Valley”, to understand the secret of her success, to adopt its competitive advantage and bring them to our Russian reality.

You can buy books related to the formulation by phone or email. Cost of the book is 300 rubles
Contact: Olga Morozova
Tel: 8 (495) 783 44 07
e-mail: ads@corporatepublishing.ru

[1] Hervé Lebret his entire life engaged in high technology. After spending several years in academic research, in 1997 he became a venture capitalist, joined the fund Index Ventures. Since 2005 he manages the Innovation Fund to support entrepreneurs and start-ups in high technology at the Polytechnic School in Lausanne (Switzerland). Has a doctorate in electrical engineering, a graduate of the Ecole Polytechnique in France and at Stanford University in the U.S..

Finland (part 3)

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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.


Finland (part 2.5)

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Following my 1.5 previous posts about Finland (https://www.startup-book.com/2010/10/28/israel-through-finland and https://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

  • their Venture Garage

  • their Entrepreneurship Society
  • and obviously their trip to SV

    • 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?

    Israel (through Finland)

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    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!

    6 start-up lessons learned

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    A great document that I found thanks to Burton Lee. It summarizes perfectly what start-ups are about. It clearly shows how uncertain these things are: 0.1% home runs, .5% success at $100M level, young people, hungry, ready to change as fast as needed, so with the righ mental state, all this is just crazy and a little irrational. That’s why it is also beautiful. The movie about Zuckerberg (the topic of my previous post) describes very similar features by the way.

    The Social Network

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    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!

    Watch live video from c3oorg on Justin.tv
    This is from Garham’s start-up school and here is part 2

    Watch live video from c3oorg on Justin.tv

    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!

    Technology = Salvation

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    “Our technocratic elite told us to expect an ever-wealthier future, and science hasn’t. Except for computers and the Internet, the idea that we’re experiencing rapid technological progress is a myth.”

    So speaks Peter Thiel in an interview to the Wall Street Journal Technology = Salvation that I read while traveling to Helsinki to discover the Finnish high-tech ecosystem (I will come back on my trip when I am back home). I did not know Peter Thiel was German, I mean one more European migrant to Silicon Valley. For those who do not know him, Thiel was the business angel in Paypal and then Facebook.


    Zina Saunders

    “People don’t want to believe that technology is broken. . . . Pharmaceuticals, robotics, artificial intelligence, nanotechnology—all these areas where the progress has been a lot more limited than people think. And the question is why.” […] Innovation, he says, comes from a “frontier” culture, a culture of “exceptionalism,” where “people expect to do exceptional things”—in our world, still an almost uniquely American characteristic, and one we’re losing. […] The idea that technology is broken is taboo. Really taboo.

    Peter Thiel is an interesting fellow. A unique character, I am not sure he is a conservative or a libertarian like T. J. Rodgers. You should read the full article (I am not sure the WSJ still offers it for free, but I copied it below) as well as the comments. The reason why I mention this is that it is also a concern of mine I have wrote about in my previous posts on the crisis or about books on the science crisis such as Smolin, or (in French) Zuppiroli or Ségalat

    So here is the full interview but I am not sure the WSJ would like this…

    Technology = Salvation

    An early investor in Facebook and the founder of Clarium Capital on the subprime crisis and why American ingenuity has hit a dead end.

    By HOLMAN W. JENKINS JR.

    The housing bubble blew up so catastrophically because science and technology let us down. It blew up because our technocratic elite told us to expect an ever-wealthier future, and science hasn’t delivered. Except for computers and the Internet, the idea that we’re experiencing rapid technological progress is a myth.

    Such is the claim of Peter Thiel, who has either blundered into enough money that his crackpot ideas are taken seriously, or who is actually on to something. A cofounder of PayPal and an early investor in Facebook (his stake was recently reported to be around 3%), Mr. Thiel is the unofficial leader of a group known as the “PayPal mafia,” perhaps the most fecund informal network of entrepreneurs in the world, behind companies as diverse as Tesla (electric cars) and YouTube.

    Mr. Thiel, whose family moved from Germany when he was a toddler, studied at Stanford and became a securities lawyer. After PayPal, he imparted a second twist to his career by launching a global macro hedge fund, Clarium Capital. He now matches wits with some of the great macro investors, such as George Soros and Stanley Druckenmiller, by betting on the direction of world markets.

    Those two realms of investing—narrow technology and broad macro—are behind his singular diagnosis of our economic crisis. “All sorts of things are possible in a world where you have massive progress in technology and related gains in productivity,” he says. “In a world where wealth is growing, you can get away with printing money. Doubling the debt over the next 20 years is not a problem.”

    “This is where [today is] very different from the 1930s. In the ’30s, the Keynesian stuff worked at least in the sense that you could print money without inflation because there was all this productivity growth happening. That’s not going to work today.

    “The people who bought subprime houses in Miami were betting on technological progress. They were betting on energy prices coming down and living standards going up.” They were betting, in short, on the productivity gains to make our debts affordable.

    We’ll get back to what all this means. Mr. Thiel wants to meet me at a noisy coffee shop near Union Square in Manhattan. Because a Fortune writer invited to his condo wrote about his butler? “No,” Mr. Thiel tells me. “And I don’t have a “butler.”

    His mundane thoughts these days include whether Facebook should go public. Answer: Not anytime soon.

    As a general principle, he says, “It’s somewhat dangerous to be a public company that’s succeeding in a context where other things aren’t.”

    On the specific question of a Facebook initial public offering, he harks back to the Google IPO in 2004. Many at the time said Google’s debut had reopened the IPO window that had closed with the bursting of the tech bubble, and a flood of new tech companies would come to market. It didn’t happen.

    What Google showed, Mr. Thiel says, is that the “threshold” for going public had ratcheted up in a Sarbanes-Oxley world. Even for a well-established, profitable company—which Google was at the time—the “cost-benefit trade-off” was firmly on the side of staying private for as long as possible.

    Mr. Thiel was early enough in the Facebook story to see himself portrayed in the fictionalized movie about its birth, “The Social Network.” (He’s the stocky venture capitalist who implicitly—very implicitly—sets the ball rolling toward cutting out Facebook’s allegedly victimized cofounder, Eduardo Saverin.)

    Today, Mr. Thiel (the real one) has no remit to discuss the company’s many controversies. Suffice it to say, though, he believes the right company “won” the social media wars—the company that was “about meeting real people at Harvard.”

    Its great rival, MySpace, founded in Los Angeles, “is about being someone fake on the Internet; everyone could be a movie star,” he says. He considers it “very healthy,” he adds, “that the real people have won out over the fake people.”

    Only one thing troubles him: “I think it’s a problem that we don’t have more companies like Facebook. It shouldn’t be the only company that’s doing this well.” Maybe this explains why he recently launched a $2 million fund to support college kids who drop out to pursue entrepreneurial ventures.

    Mr. Thiel is phlegmatic about his own hedge fund, which took a nasty hit last year after being blindsided by the market’s partial recovery from the panic of 2008. Listening between the lines, one senses he faces an uphill battle to convince others of his long-term view, which he insists is “not hopelessly pessimistic.”

    “People don’t want to believe that technology is broken. . . . Pharmaceuticals, robotics, artificial intelligence, nanotechnology—all these areas where the progress has been a lot more limited than people think. And the question is why.”

    In true macro sense, he sees that failure as central to our current fiscal fix. Credit is about the future, he says, and a credit crisis is when the future turns out not as expected. Our policy leaders, though, have yet to see this bigger picture. “Bernanke, Geithner, Summers—you may not agree with the them ideologically, but they’re quite good as macroeconomists go,” Mr. Thiel says. “But the big variable that they’re betting on is that there’s all this technological progress happening in the background. And if that’s wrong, it’s just not going to work. You will not get this incredible, self-sustaining recovery.

    And President Obama? “I’m not sure I’d describe him as a socialist. I might even say he has a naive and touching faith in capitalism. He believes you can impose all sorts of burdens on the system and it will still work.”

    The system is telling him otherwise. Mankind, says Mr. Thiel, has no inalienable right to the progress that has characterized the last 200 years. Today’s heightened political acrimony is but a foretaste of the “grim Malthusian” politics ahead, with politicians increasingly trying to redistribute the fruits of a stagnant economy, loosing even more forces of stagnation.

    Question: How can anyone know science and technology are under-performing compared to potential? It’s hard, he admits. Those who know—”university professors, the entrepreneurs, the venture capitalists”—are “biased” in favor of the idea that rapid progress is happening, he says, because they’re raising money. “The other 98%”—he means you and me, who in this age of specialization treat science and technology as akin to magic—”don’t know anything.”

    But look, he says, at the future we once portrayed for ourselves in “The Jetsons.” We don’t have flying cars. Space exploration is stalled. There are no undersea cities. Household robots do not cater to our needs. Nuclear power “we should be building like crazy,” he says, but we’re sitting on our hands. Or look at today’s science fiction compared to the optimistic vision of the original “Star Trek”: Contemporary science fiction has become uniformly “dystopian,” he says. “It’s about technology that doesn’t work or that is bad.”

    The great exception is information technology, whose rapid advance is no fluke: “So far computers and the Internet have been the one sector immune from excessive regulation.”
    Mr. Thiel delivers his views with an extraordinary, almost physical effort to put his thoughts in order and phrase them pithily. Somewhere in his 42 years, he obviously discovered the improbability of getting a bold, unusual argument translated successfully into popular journalism.

    Mr. Thiel sees truth in three different analyses of our dilemma. Liberals, he says, blame our education system, but liberals are the last ones to fix it, just wanting to throw money at what he calls a “higher education bubble.”

    “University administrators are the equivalent of subprime mortgage brokers,” he says, “selling you a story that you should go into debt massively, that it’s not a consumption decision, it’s an investment decision. Actually, no, it’s a bad consumption decision. Most colleges are four-year parties.”

    Libertarians blame too much regulation, a view he also shares (“Get rid of the FDA,” he says), but “libertarians seem incapable of winning elections. . . . There are a lot of people you can’t sell libertarian politics to.”

    A conservative diagnosis would emphasize an unwillingness to sacrifice, necessary for great progress, and once motivated by war. “Technology has made war so catastrophic,” he says, “that it has unraveled the whole desirability of it [as a spur to technology].”

    Mr. Thiel has dabbled in activism to the minor extent of co-hosting in Manhattan last month a fund raiser for gay Republicans, but he has little taste for politics. Still, he considers it a duty to put on the table the idea that technological progress has stalled and why. (To this end, he’s working on a book with Russian chess champion and democracy activist Garry Kasparov.)

    You don’t have to agree with every jot to recognize that his view is essentially undisputable: With faster innovation, it would be easier to dig out of our hole. With enough robots, even Social Security and Medicare become affordable.

    Mr. Thiel has not found any straight line, however, between his macro insight and macro-investing success. “It’s hard to know how to play the macro trend,” he acknowledges. “I don’t think it necessarily means you should be short everything. But it does mean we’re stuck in a period of long-term stagnation.”

    Some companies and countries will do better than others. “In China and India,” he says, “there’s no need for any innovation. Their business model for the next 20 years is copy the West.” The West, he says, needs to do “new things.” Innovation, he says, comes from a “frontier” culture, a culture of “exceptionalism,” where “people expect to do exceptional things”—in our world, still an almost uniquely American characteristic, and one we’re losing.

    “If the universities are dominated by politicians instead of scientists, if there are ways the government is too inefficient to work, and we’re just throwing good money after bad, you end up with a nearly revolutionary situation. That’s why the idea that technology is broken is taboo. Really taboo. You probably have to get rid of the welfare state. You have to throw out Keynesian economics. All these things would not work in a world where technology is broken,” he says.
    Perhaps it really does fall to some dystopian science fiction writer to tell us what such a world will be like—when nations are unraveling even as a cyber-nation called “Facebook” is becoming the most populous on the planet.

    Mr. Jenkins writes the Journal’s Business World column.

    A Swiss (European) way for entrepreneurship?

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    With my seventh contribution to the Créateurs newsletter, I stay in Switzerland again with two succesful SMEs. Enjoy!


    There is a recurrent debate in the world of high-tech start-ups: and if the American model of fast growth supported by aggressive venture capital was not adapted for European or Swiss entrepreneurs? Two examples may contribute to the discussion: Sensirion and Mimotec.

    In my contribution to Créateurs last time, I had focused on Swissquote, which has become a magnificent success story, without that venture capital, which is so much criticized these days. Mimotec is an EPFL spin-off with 24 employees and about CHF10M in revenues. The company provides micro technologies for the watch industry. Mimotec was founded in 1998 by Hubert Lorenz who told his start-up’s story during a recent venture ideas conference at EPFL. It is a clear example of organic growth, a steady growth even if not exponential.

    Sensirion is probably more impressive. Founded also in 2008, it is an ETHZ spin-off and it sells pressure sensors, another field of expertise in Switzerland. In an article published for the MEMS 2008 conference, Felix Mayer, Sensirion’s co-founder and CEO, described the growth model of his company. Here is an extract: “The Europeans – especially the Swiss – do not go for the big thing! They rather start small and put one foot in front of the other. A characteristic of the European and Swiss mentality is not to promise high returns for a business idea based on an immature new technology. The European way is rather to start with the own money, to try to find customers, and to grow with the earnings. The Americans, as far as I can tell, follow the motto: “Shoot for the moon. Even if you miss, you will land among the stars”. This means: to go for the new big thing, write down a promising business plan, and raise money to realize it. Hunting for potentially high gains means, on the other hand, to take a higher risk. The United States have more of a high risk culture. However, if you fail, you also get a second chance. Europe is different in this respect”.

    Mayer adds that because the financial means are lacking, the European entrepreneur will be more challenged to target the very big markets. Therefore he believes in an intermediate path which will not generate Google-like companies, but leaders in their niche. Thanks to the patient support from a business angel and then from its customers, Sensirion can be proud in 2010 of its 180 employees (the revenue numbers are not public as the start-ups is still privately held). I should however add that it took Sensirion six years before ti could fund its growth through its profits; its business angel was apparently critical to its success.

    Is there a model that Europe may follow without just copying the Silicon Valley way? Yes, if we notice that very few companies could reach the size of Logitech or Actelion for example. Whatever the success of an Hubert Lorenz or a Felix Mayer, I cannot help expressing again the same thing I did in my book Start-Up. Why should not Europe ambition the same large success the USA experience in addition to our mid-size stories. Don’t you think the Americans do not have companies similar to Mimotec and Sensirion, in addition to Google or Apple? Criticizing venture capital might be an easy way and I prefer quoting an American entrepreneur on investors: “You can’t live with them, you can’t live without them” And let us not forget that Google has today about 20’000 employees and it was founded in… 1998. There is no doubt that our culture and financial support is not made to produce our own Google but I seriously believe that we should not be afraid of having large ambitions instead of criticizing an American model which also has great assets.

    Boulevard of Broken Dreams

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    A colleague of mine (thanks Jean-Jacques) recently mentioned to me this book by Josh Lerner, which full title is Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed–and What to Do About It. I was all the more interested that Lerner is the author of many academic papers on high-tech entrepreneurship, and particularly of one about serial entrepreneurs: “Performance Persistence in Entrepreneurship” [pdf format here] with Paul Gompers, Anna Kovner, and David Scharfstein, Journal of Financial Economics, 62 (2007), 731-764. I will come back in the future on this topic which I am currently studying.

    So what should we do about the public efforts is what Lerner is trying to help us with and his answer shows how challenging the topic is. What is beautiful about the author (my personal point of view) is that he likes history (just like me). Just like Steve Jobs! Just read again what I posted about Jobs on mentors; “You can’t really understand what is going on now unless you understand what came before”.

    Lerner’s initial chapter is “A Look Backwards” He shows how entrepreneurs and investors benefited and suffered from each other in the 70s and 80s, including the excess of speculative bubbles, the PC burst of the 80s for example. He also shows how important public support was in the very early days through the funding of research (mostly the cold war militaries) and the legal actions to ease venture capital (SBIRs, Erisa Acts) so that he does not really agree with Rodgers (founder of Cypress) who wanted government out of Silicon Valley (page 32) so that he claims that “The Public sector did play a key role in shaping the evolution of Silicon Valley” (page 35).

    Then, in the following chapters he shows how complex it is to find facts: “consistent information on venture-backed firms that were acquired or went out of business doesn’t exist” (page 59) which means that quantitative analysis is rare. And remember he is a respected academic, so he knows! What he tried to do then, is to show some of the obvious mistakes: incompetence in allocating public resources (page 73), capture, that is use of subsidies by the wrong groups (page 80), by “organizations that are mandated to help entrepreneurs” (page 83). “Seven of the incubators gave less than 50% of funding in cash to incubated firms” (just one example from Australia, page 84) or the SBIR program which has exhausted its usefulness (page 85).

    So his advice is:
    – enhancing the entrepreneurial culture (page 90) [through the right laws, the access to technologies, tax incentives and training],
    – increasing the venture market’s attractiveness (page 100) [through allowing partnerships, creating local markets, accessing human capital abroad],
    – avoiding common mistakes: timing [be patient], sizing [not too small, not too large], flexibility [learn by doing], create the right incentives [and here it is a complex situation as perverse effects from good ideas often occur] and evaluate [which does not happen often enough].

    Indeed, his introduction (pages 12 and following ones) summarized it all: you need rules, experience, time, incentives and assessment. But with all his experience and knowledge about high-tech entrepreneurship, Lerner is very humble with the lessons: the topic is really complicated, all these advice have to be implemented together and it is really their careful interconnections which will make an ecosystem lively or not. Then it is my personal conclusion that such favorable conditions will be useful if entrepreneurs use them intelligently. So the reason why all this fails has many roots…

    I cannot finish this post without comparing it to my book. It is indeed very similar in its conclusions with slightly different facts and figures. So you would learn complementary and consistent things by reading both! My thesis is we need an entrepreneurial culture and access to people from Silicon Valley who have the experience. Everything else is necessary but not sufficient.