Author Archives: Hervé Lebret

University licensing to start-ups

There’s been a long standing and passionate debate about what universities “deserve” when they license technologies to start-ups. There is the famous Google vs. Yahoo comparison where Google is an official Stanford spin-off which brought $336M in revenue from the equity the university owned in the start-up whereas Yahoo was considered as a hobby of the founders and no intellectual property was owned by the university. However one Yahoo founder gave some $75M to Stanford.

So what is a typical license between a university and start-up? Well there is no clear answer but the attached pdf file may be of help. I have done some search and found some info, mostly from US universities. I have also tried to find the rationals for or against such deals. The debate remains open and I do not expect a general agreement any time soon. But I hope this is contributing to the topic.

Survival or failure – which success?

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Failure and success are keywords in the world of start-ups. They even generate some heated debate, at least in Europe, when it is a question of surviving as long as possible until customers materialize or failing fast so that one avoids wasting precious time. The debate is difficult because all entrepreneurs deserve respect (yes, it is a tough job) and because slow and controlled growths (including survival modes) vs. fast and risky growths (with the risk of failing fast) may apply to totally different ventures. Here are therefore some figures that may contribute to the debate.

I must add that my motivation comes from a report published by ETHZ (the Swiss Federal Institute of technology in Zurich) about its start-ups, The performance of Spin-off companies at the Swiss Federal Institute of Technology Zurich. A 90% survival rate after 5 years was shown. But what are the typical survivate rates of firms? I searched the web sites of the US and Swiss institutes of statistics and the following chart illustrates the rates of the two countries for their entreprises overall.

In high-tech, the survival rates seem to be even higher. The authors of the report I mention above give figures as high as 70% to 90% for 5 years. Zunfu Zhang in his excellent “High-Tech Start-Ups and Industry Dynamics in Silicon Valley” (dated 2003 ) published the following curves:

The survival rates after 5 years are 76% for “non-service firms” and 72% for “service firms”. The authors of the ETHZ report added: “The low survival rate in the US – where some of the most successful University spin-offs have been created – raises, however, the question whether a high survival rate is actually desirable or whether too strong a focus on creating ‘surviving’ spin-offs does not eliminate some of the potentially very successful ventures that may not look so promising or too risky.”

As a conclusion to this post, I’d like to extract the following from my book!

As a footnote, I had added, the saying is pronounced “Shi Bai Nai Cheng Gong Zhi Mu” and means “failure is the mother of success”. There is a very similar quote by T. J. Rogers, founder of Cypress and another Silicon Valley icon: “failure is a prerequisite to success”. A Chinese student, Jie Wu, noticed the similarity. I would like to thank him for this. It might be encouraging to end this [post] with a quote, which shows that Silicon Valley mentality can be developed elsewhere. What we need to digest is that failure is not negative, but trying is what counts.

Gazelles and Gorillas – part 2

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Following my post of April 19, Gazelles and Gorillas – high growth startups, I went back to the chapter 8 of my book where I compared the growth of the European and American gorillas. I had not computed then the 5-year and 10 year growth of these very successful companies. The following table gives the results of my work this morning. These are not gazelles (20% growth), there extremely fast gazelles!

Gorillas seem to grow at 100% rates or doubled their sales each year on average… Now growth is never an easy path (ask Steve Jobs about Apple growth!) so let me add much more details. Below, you will see the yearly growth of all these companies and you may notice there are sometimes a lot of ups and downs!

Gazelles and Gorillas – high growth startups

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Since I have been interested in start-ups, i.e. 1997, I have always been puzzled about the macroeconomic impact of start-ups, i.e. fast growing companies, mostly in high-tech. The famous Intel, Apple, Microsoft, Cisco, Yahoo, and other Google have an impact, but what is it exactly for the economy?

Surprisingly, it is not that well-known. I have read in the past weeks some recent papers on the topic that you may download if you are interested. The Kauffman foundation which I have mentioned already is doing a great job and particularly Dane Strangler. He is the author of High-Growth Firms and the Future of the American Economy and of Exploring Firm Formation: Why is the Number of New Firms Constant? as well as Where Will The Jobs Come From?

Thanks to his reports, I became aware of older studies such as Gazelles as Job Creators – A Survey and Interpretation of the Evidence and High-Impact Firms: Gazelles Revisited both dated 2008. Finally the Brittish government has its own study, High growth firms in the UK: Lessons from an analysis of comparative UK performance. This last report is interesting as it not only considers gazelles, the fast growing companies, but also gorillas, the young fast growing companies which reached a large size in less than 10 or 15 years.

The first answers were provided in 1981 by David Birch who showed that large firms were not the providers of job creation anymore. But even today, the answer to the question is not so clear. At least it took me longer than I would have thought to understand what all these reports claimed. So for example, here is a table of how small, mid-size and large firms create jobs in the USA. The numbers come with no real guaranty as I have compiled them from a number of sources, mostly the High-Impact Firms: Gazelles Revisited

So what does this mean? First high-impact firms contribute to most of the new job creation in the USA. What are high-impact firms? These are the firms which grow at a 20% annual rate (in jobs and sales*), the fast growing firms. As you may see, low-impact firms also create jobs but only if they are SMEs (small and mid-size). It explains why we think that fast-growing small firms are so important.

But it is an over-simplification. High-impact firms are not small and all these studies also show that:

– they are not young. On average, they are 25-years old.

– they are not necessarily high-tech, they can be found in all sectors of the economy.

– a minority is VC-backed. This is obvious as we have here about 300’000 gazelles and probably only a few thousand companies are VC-backed each year in the US.

More on gazelles here. Now, what about Gorillas? Gorillas are extremely fast growing and young companies. The UK report above defines them as less than 15 years old, with the same growth as gazelles. I remember that Geoffrey Moore defines them as leaders in their market. Well, not much is known about them. The UK report mentions there was no Gorilla in the UK whereas Yahoo, eBay, Amazon, Yahoo and Google were Gorillas in the USA.

Dane Strangler in his report is providing more interesting data. They are not the gorillas per se, but probably quite close:

– In any given year, the top-performing 1 percent of young firms generate roughly 40 percent of new job creation.
– Fast-growing young firms, comprising less than 1 percent of all companies, generate roughly 10 percent of new jobs in any given year.

Qiote impressive! Well, I still do not have all the answers I would like to have, but I now know gazelles are important, and gorillas maybe even more. And at the end, what is the impact of high-tech, of venture capital is just another but interesting story!

*: Growth in terms of jobs is more complex than 20%… experts use the Employment Growth Quantifier (EGQ), that is the product of the absolute and percent change in employment over a four-year period of time and take it as bigger than 2 for “high-impact”… A 20% increase in sales is also a factor 2 over the same period of time.

Apple Computer to acquire FontSelf?

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Apple Computer should announce soon the acquisition of Lausanne-based FontSelf. In an usual move, the Cupertino-based company will acquire a stealth-mode start-up specialized in the design of fonts. It should be no surprise for those who know that the famous Helvetica font was created in Switzerland.

“Apple Computer is famous for its design and creativity so when we heard about FontSelf, we had a careful look, tested it and we were delighted. This is a great addition to our software and web applications” declared April Feel, head of Apple Computer Public Relations.

In 2005, at the commencement ceremony of Stanford University, Steve Jobs had declared “Stay Hungry, Stay Foolish”. FontSelf shows that staying young and curious is a critical need of human life.

“Stay Hungry, Stay Foolish” Steve Jobs said. Yes it was an April Fool, but FontSelf is a great and beautiful tool.

Maxlinear IPO and shareholders

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Maxlinear is new technology company going public and good news, it is a semiconductor company. You will find all the info you need on the web. Xconomy most recently annouced the Maxlinear IPO: MaxLinear IPO Prices Stock Above Range at $14 a Share

So here is my usual and favorite work on such companies: its equity structure, its investment story together with the pie chart. I have done it fast so I do not promise it is out of mistakes but it gives once again a good view on how founders, investors and employees are diluted.

A Swiss in Silicon Valley

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Here is my fifth contribution to Créateurs, the Geneva newsletter, where I have been asked to write short articles about famous success stories. After Synopsys, women and high-tech entrepreneurship, Adobe and Genentech, here is an short article about a Swiss founder in Silicon Valley.

Do you know Edouard Bugnion? I am not sure that Switzerland knows about its child, who grew up in Geneva and Neuchâtel before graduating from ETHZ (Zürich) in 1994 and moving to California where he obtained his MS from the University of Stanford in 1996. Yet he is the co-founder of VMware and Nuova Systems, two recent success stories from Silicon Valley.

Edouard Bugnion with the author in the middle of « cubicles » at Nuova in May 2006 (Picture: Mehdi Aminian).

As I was preparing a short trip to San Francisco, I had been advised to meet this Swiss citizen that I had never heard of. The meeting was planned in his office which we found thanks to a quickly printed logo posted on his door: Nuova Systems. The place was gigantic for a start-up which was less than one-year old. But Nuova was hiring fast. I should add that Cisco would soon invest $50M in the start-up. Why so much money? Because the founders of Nuova were exceptional: Mario Mazzola had just left Cisco and had also been the founder of Crescendo, the first start-up acquired by Cisco (in 1991). Edouard was one of the five co-founders of VMware in 1998, which was bought in 2004 by BMC for $625M. VMware was so successful with its virtualization tools that BMC gave back its independence to the company which is today quoted on Nasdaq (its market capitalization was above $10B at the end of 2009) and has more than 6’000 employees and $1.8B in sales. Nuova has been acquired by Cisco in 2008 for $600M.

When I told my surprise in front such a big office space, Edouard told me the story that when VMware had grown to a workforce which forced the company to move, the company proposed to lease its old offices to a small new start-up. Its founders looked at the place and declined: “Too small!” The start-up was unknown and its founders were very young people. Edouard was as surprised then as I was when we met. Was it ambition? Was it arrogance? The start-up was Google and its two founders, Page and Brin, were, without any doubt, visionaries

Nuova’s front door logo in May 2006.

Edouard might be qualified as a school dropout. Even with his diplomas from ETHZ and Stanford, he quit the Stanford PhD program in 1998 to launch VMware with his professor. With $20M of venture-capital, they could grow the company until its acquisition six years later. In 2000, he gave an interview to SwissInfo. With 120 employees, VMware was only two years old. “In Switzerland, young entrepreneurs do not dare dreaming about such a scenario. If you have a good idea, you can find a few million and your product can reach the market for better or worse.” Such is the quote from the author of the interview, Pierre Godet, who, then, says his concern about this brain drain. Bugnion is more optimistic: “Swiss people in Silicon Valley develop a very unique experience, as well as a network. Then, most of them come back to Switzerland at some point in their professional life.” It is one of the theses in my book. It may be a good idea to go and work in the Bay Area, a region where anything is fast, very fast, where ambition can be expressed and where failure is tolerated. I hope that someday, Edouard will come back to Switzerland to tell his story himself and share his experience and know-how…

Tesla Motors and Paypal, a tale of two founders

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Tesla Motors recently filed to go public. Behind the success story is a strange tale of founders. You should read first the Wikipedia page about Tesla. You will see that there are five founders. Because there’s been a litigation and a judge decision, it shows that defining a founder is not so easy. My definition of founders would be limited to Martin Eberhard and Marc Tarpenning, but because their initial business angel has become the CEO, it is more complex according to the judge.

What is even more interesting is that Elon Musk, the BA and CEO, was a founder of Paypal, or more precisely of one of the two start-ups which merged to give Paypal (X.com and Confinity). Then he was fired or left Paypal, similarly to what Musk did to Eberhard and Tarppening. Amazing, no?

So I provide here two cap tables! The Tesla one first and the Paypal one follows. I hope you will appreciate the information and you can react about founders, investors and the sometimes sad stories behind the scene of success stories…

First the Tesla equity tables and investors. Click on the pictures to read them!

The reason why there are green cells is because the company is not public yet. So the IPO date and price per share are fictitious. I do not know how much the founders exactly have but there was apparently about 8M founders’ shares. Now the company has raised a lot of money:

Finally, here is how the share dilution occured:

Am I doing here a Freudian analysis? Whatever is the Paypal stories through the X.com and confinity merger:

The equity table

and the investors

The beauty of all this is that behind the numbers, their complexity, there are many untold stories about founders, business angels, investors and success. React…

The crisis and the American model

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I seldom do it this way. I will not translate my French post about a personal analysis of the crisis and the American model. A crisis which is much more general than the financial and economic crisis. It is also a crisis of creativity, invention and innovation at least in Europe. So we look at the USA for a model and solutions. This creates tensions. Many of my friends and colleagues disagree with my fascination for the USA, which by the way, is limited to a very small number of things!

So I give a few directions including a previous post on the book by Lee Smolin, The Trouble with Physics. Go to French or if you do not, at least go and watch No One Knows About Persian Cats. Where’s the link? I think our crisis is about individuals and society, the inability of the university, of the school, of the family, of the society in general to let people express their dreams, their self-confidence, their creativity and their inventiveness. The pressure is so high that (self-)censorhsip and fraud prevail sometimes.

You may think I am out of my mind. So let me finish with the way I finished my book by quoting Wilhelm Reich from “Listen, Little Man”. A small essay by the number of pages, a big one in the impact it creates. “I want to tell you something, Little Man; you lost the meaning of what is best inside yourself. You strangled it. You kill it wherever you find it inside others, inside your children, inside your wife, inside your husband, inside your father and inside your mother. You are little and you want to remain little.” The Little Man, it’s you, it’s me. The Little Man is afraid, he only dreams of normality; it is inside all of us. We hide under the umbrella of authority and do not see our freedom anymore. Nothing comes without effort, without risk, without failure sometimes. “You look for happiness, but you prefer security, even at the cost of your spinal cord, even at the cost of your life”.

I am quite convinced that our crisis at least in Europe is about self-confidence, trust, creativity, inventiveness and innovation. It has not much to do with the technology, the economy and a lot to do with how individuals can grow in the society. If you followed me until now, thanks! Please, please, react!

A123, Boston and Atlas

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I just met this morning Fred Destin in the beautiful Rolex Learning Center at EPFL. We both have a passion for entrepreneurs and architecture!

Fred told me he liked my equity tables and pies (check skype, mysql, Kelkoo, Synopsys, Genentech, Adobe, or the general one.

So as a small gift to Fred who is moving to the Atlas office in Boston this summer, here is the equity case of A123 Systems, an MIT spin-off which went public last September.

I am aware the pictures are not very nice but you can enlarge them and ask me for the excel file…