Author Archives: Hervé Lebret

Tesla Motors and Paypal, a tale of two founders

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…

Lessons from entrepreneurs: not intuitive!

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One of my favorite entrepreneurial web site, the Stanford Technology Ventures Program, just published its new batch of short videos.

The lessons are quite interesting as I found them not intuitive and quite uncommon:
– you do not have to work too much
– you should do what you love
– there are not rules.

So here is the first one: Great Ideas Derive from Well-Rested Minds. “Being a workaholic is no guarantee of success. David Heinemeier Hansson points out that 37signals’ main product, Basecamp, was created on 10 hours a week of development for a total of six months. When you’re overworked, you can’t think creatively.”

What about next: Do What You Like to Get Where You Want. “John Melo, CEO of Amyris Biotechnologies, enjoyed building oscilloscopes, circuits and transistors – and yet he was a college dropout. In this clip, Melo comments on his non-linear career path and how his passion, personal interest, and sense of independence have propelled him from one episodic position to another. He states that he first looked for opportunities to do the things he loved to do, and then focused on the places he wanted to be.”

Finally, Entrepreneurs Have No Rules. It also says: “Never give up the title of CEO… In many cases, it is the founder who is able to provide the vision to effectively direct product development.”

The Good Old Days

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Two pieces of news caught recently my attention. One is entitled Frank Quattrone, Star Banker of Technology Ventures, Talks Wistfully of the Good Old Days—Before Netscape’s IPO.

The other one is less nostalgic because of the web site name, which I quite like: You’re in Deep Chip Now.

Here is the full text captured from the site:

I will not comment this but let me come back on Quattrone. Quattrone was a star of the IPO world as you may read from this Xconomy blog. What is striking is that in the last 8 years, following the Internet bubble, there has been less venture capital, fewer IPOs. The reasons are many. But the key question remains: are we facing a major innovation crisis? After the transistor in the 60’s, the computer in the 70’s and the PC in the 80’s, the Internet and mobile communications in the 90’s, what have the 00’s given us? And what about the 10’s… I do not have any answer. What about you?

Are VCs arrogant?

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This was the question asked by Fred Destin in his blog post last December: The Arrogant VC: A View From the Trenches

I am interested in the topic because I see more and more entrepreneurs who just do not want to face VCs. I think it is a mistake as you may not find adequate resources for your ventures, but it is a real debate.

Destin puts in bold the following arguments:
– behaved in a rude and disrespectful manner
– absence of feedback loop
– lack of empathy
– VCs tend to string along entrepreneurs forever
– vague on their decision and engagement process
– the entrepreneur comes away feeling like he was played
– seeing everything through the lens of money
– out of touch with the reality of entrepreneurs
– VCs really don’t take any personal risk but expect everyone else to…
– dubious practices
and as a conclusion Choose your VC’s with care. Good ones transform your business, bad ones wreck it

I have read this many times, seen it sometimes but not so often. So let me add my piece, taken from my readings. You will find on this blog accounts of books I really recommend, such as Founders at Work, Betting it All, In the Company of Giants. I just extracted comments on investors from these books. I think they are more balanced and as Destin wrote, choose your VCs with care. Here they are:

– Great as long as all goes well.
– Learn about them and their lack of transparency
– Best motivation is not to need investors
– Know people and speak their language
– You can’t live with them, you can’t live without them
– Avoid it if you can
– VCs are politer than others, they rarely say no…
– Bad behaviors on all sides, “We’re interested in you guys because of your management team; we think you’re fantastic … Two weeks later they pull me into the office—before even the first board meeting—and say, “We want to replace you as CEO.”
– When company became popular, VCs knocked at the door
– Move from the ego, “me” to the company, “we”, the shareholders
– Met 43… and a lengthy process; Then once you’ve received a term sheet, then the VCs get interested, and then acquirers get interested. They all told me $18 million wasn’t interesting. And I’d say, “But most people will tell you $50 million, and you know they’re lying. I’m already discounting it because I’m a venture guy just like you are.” And they’d say, “Yeah, but $18 million just isn’t interesting.” So I changed my spreadsheet to say $50 million. And they said, “OK, that’s pretty interesting.”
– We’re also overly paranoid because the first thing we did when we started the company was talk to a bunch of entrepreneurs who told us, “Don’t tell anyone what you are doing. VCs are sharks.” Meanwhile, you hear from the VCs, “You’re too paranoid.” So it’s hard to find the right balance and be human, because you don’t know who’s genuine and who’s not.
– Within venture capital, you don’t want to manage what they call the “living dead.” Their rules of thumb were: typically one out of ten companies is a really big hit; roughly three out of ten go belly up pretty quickly, and you get rid of them. The other five to six are what they call the “living dead.” They grow nicely, organically, but don’t generate spectacular returns, and they take management time and energy.
– The venture capitalists at least in those days, had a terrible track record of bringing people in and then throwing the entrepreneur out.
– We didn’t take any salaries. but we held off on the VCs. We wanted the discipline. Not being paid and having uncertainty of having no safety net is a great motivator.
– It serves an enormous service in the business, in financing companies, in providing leadership, and connections. But we did not need their money or the leadership.
– I learnt something about raising money. They need us as much as we need them.
– I tried to get venture capital money, to no avail. What people don’t understand is that innovation is the hardest thing in the world to fund. I was 28 years old and this was before it was good to be a 28-year-old entrepreneur.
– In the old days, venture capitalists helped a company a lot. They were mentors. Many just bring money today.
– [To raise money,] go with the best venture capitalists and give them more equity. I’ll take a worse deal from Kleiner. They have people like John Doerr. You can’t put into words what that makes.
– We did a lot of market research, studied the customer, understood the problems. We couldn’t even get second meetings [with venture capitalists]. We had no industry experience and at the time VCs did not invest in consumer products.
– I did not have any venture capitalist which was good news and bad news. I could make every mistake, it was my neck, and probably no VC would have given me money: I was a woman, it was software at the time software had no value.
– In 83, I used the board to get some experienced business people. We got Dave Marquardt, a venture capitalist who bought 5% of the company for $1M.
– The downside to venture guys is that they sometimes think they know more than they do about what’s best for your company. They don’t want to admit when they make mistakes

Start-Up, the book: a visual summary

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Start-Up, what we may still learn from Silicon Valley is two years old. I still make presentations of it and I hope to share my passion about this world.

By clicking on the picture below, you can download an extensive presentation inspired from others made in places such as Paris, Barcelona, Stockholm, Marseille, Antwerpen, Geneva… It’s never easy to follow slides without any comment, but I hope you will enjoy some of them… have fun and contact me if they are not clear!

A European in Silicon Valley, Aart de Geus

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Here is my fourth contribution to Créateurs, the Geneva newsletter, where I have been asked to write short articles about famous success stories. After women and high-tech entrepreneurship, Adobe and Genentech, here is Aart de Geus, founder of Synopsys.

Aart de Geus was born in the Netherlands in 1954. At the age of 4, he moved with his parents to french-speaking Switzerland and in 1978, he graduated from EPFL, the Swiss Institute of technology in Lausanne (where I currently work). He then moved again to the USA and got his PhD from the Southern Methodist University in Texas. After a few years with General Electric (GE), he founded Synopsys in 1986, raised $15M of venture-capital before Synopsys went public (in 1994). In 2008, Synopsys had 5’600 employees, $1.3B in sales and a $3B market capilalization.

According to him, « Everybody from Europe who comes to the U.S. or Canada is looking to discover something ». In his case, when he arrived to the USA, he was lucky in being assigned as a graduate student to Ron Rohrer “He took a liking to me. […] Rohrer essentially gave me the freedom to do whatever I wanted within the graduate school research facilities”. Rohrer became his mentor. He learnt how to manage a team, a know-how he changed in a management style. “everybody counts on the team and there’s always a role for everybody, which produces an ecosystem that manages itself.” He recognizes it is as much luck as destiny.

He also shows how difficult it is to predict anything: “In fact, I’ll tell you a story. In 1978 or ‘79, I attended a conference in Switzerland of leaders in the field of electronics, or microelectronics. They all agreed on 2 things. Number 1, electronics was going to be a big deal and would move forward for many years to come. Number 2, one micron was the hardest barrier that we would never move across. And [laughing again], those same people who made the predictions are the ones who made 22 nanometers happen!” and he adds: “The lesson here: whenever one predicts the end of something in high tech, there’s always a twist or new perspective that makes a new breakthrough possible.”

Aart de Geus, a born entrepreneur?

The art of metamorphosis…

Aart appreciates complexity and metamorphosis. Everything is important and everything changes. In the early days of a start-up, ideas and people matter. When you have an idea, what do you do? “First, you write a business plan. Then, you ask, is it ethical? Is it okay to do that? How do you go about planning the business so as not to go up against GE?” Well, according to Aart, “there’s a simple answer. You write a business plan and propose it to GE. After all, it was clearly their IP. Period.” GE not only backed the idea but invested in it. Money and values are essential at that stage.

But the baby has to grow. The teenager will have to develop the products, sell them to customers. This may be a tough crisis. Does Aart feel lucky to have survived? “Luck favors the well prepared,” and added that a fortuitous combination of management, graduate students, geographic location, viable business plan, and marketing expertise were augmented by having the “right technology at the right time.”

Back to EFPL in 2007.

… with the risk of becoming a dinosaur !

The adult age means processes, experienced managers so you need to survive the tornadoes that Geoffrey Moore describes so well. Aart summarizes these permanent metamorphoses through a parallel management of teams, customers, investors, products and their cycles, but also managers, leaders, implementation. All these things are interdependant and it is often underestimated. In a talk he gave to EPFL in 2007, he showed the history of Synopsys acquisitions in the form of the animal below! His sense of humour was certainly very useful. This sense of humour hides the humbleness of the individual who succeeded without giving any lesson. If there is one lesson in all this, is that you must try, be curious and flexible. Success may come.

As usual, I finish with my beloved capitalization table and charts.

Sources :
-Aart de Geus at l’EPFL (vpiv.epfl.ch)
-Peggy Aycinena (www.eetimes.com)
The Aart of Analogy is alive and well at Synopsys -2001
The Aart of Analogy Revisited -2009

Next article: A Swiss in Silicon Valley

Founder without experience, lonely founder

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Two recent posts address the topic of the Founder. Kevin Vogelsand describes his experience as an entrepreneur without experience On Founding a Company Fresh Out of College. Olivier Ezratty is interested in the lonely founder in the cas difficile de l’entrepreneur isolé. Both topics are important and I submit to your thoughts the following table that I had publkished in my book:

Ezratty also deals with equity sharing between founders, something I had stuided in a aborde aussi le sujet important du partage d’equity entre fondateurs que j’avais abordé dans un past post. In that post is mentioned an article I did not know by Paul Graham:
The Equity Equation.

Business angels and venture capitalists

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The question often arises about the difference between the two groups, business angels and venture capitalists. The simple answer, which claims that angels come at the seed and early stages whereas VCs only come later, is misleading. For example, Google got $1M from Business Angels initially whereas Yahoo got its 1st million from Sequoia. In fact the differences are elsewhere. A recent academic article theorizes some of these differences and I describe them below.

I have a tendency to say that venture capital was the institutionalization of angels. In the 60s, there was not much venture capital and the first funds were built by the syndication of angel and institutional money. Even today, some groups of angels syndicate their money and look like venture capital. So they are indeed quite similar.

The recent academic paper I just mentioned is “Prediction and control under uncertainty: outcomes in angel investing” written by Wiltbalm, Read, Dew and Sarasvathy and published in the Journal of Business Venturing. Because of copyright issues, I am not sure you can access the paper but you can try and click the picture below.

The authors define angel investor as “a wealthy individual who acts as an informal venture capitalist”. Informal venture capitalist and institutional business angel look very similar so we do not disagree. One manages his money directly; the other manages others’ money. But there is much more than this. Forget about conditions in term sheets. They have become very similar even if some claims business angels are easier to work with. You will find good and bad people in both groups. The paper I mention above is very interesting at another level. It categorizes investors in two groups. I am certainly simplifying as these academic papers are often too detailed for a blog!

On one side, the authors claim you have investors who focus on prediction, on the other side, those who emphasize control. Prediction means here that you see a long-term business opportunity and you deploy the resources adequate for this ambition. Control means you do not know about long term so you plan short term and you act as you learn. No real need for a business plan. Let me describe this further using the terms of the authors.

“Predictive strategies include market research using formal tools such as surveys, detailed financial models leading to careful calculations of risk-adjusted expected return, etc., and are very familiar to virtually anyone involved in writing business plans… However, high uncertainty may reduce the accuracy and usefulness of prediction… One concept suggests that to the extent you can control the future you do not need to predict. Such actors begin with who they are, what they know and whom they know, rather than with a predetermined vision or externally validated “opportunity.” This means that they do not evaluate opportunities based on expected return. Instead they work with any and all interested. In other words, those who commit something valuable to come on board help determine what the venture will do next. People are working on things within their control, working to expand the zone of things they can materially control, obviating the need to predict the future.”

What are the implications of the two strategies?

The authors claim the following: “Findings show that emphasizing control strategies is significantly related to experiencing fewer negative exits and those investors who emphasize prediction make significantly larger investments, but do not experience more homeruns. We found that angel investors who performed more due diligence experienced significantly more homeruns, and significantly more negative exits (thus fewer moderate exits). Also, angel investors who participated more with their ventures, post-investment, experienced fewer negative exits. Surprisingly, we found that investors who concentrated on very early stage opportunities experienced fewer negative exits. These results raise important considerations about the use of prediction and control as decision tools in highly uncertain settings. Understanding the differential use of these strategic approaches may be relevant not only to angel investors but also to venture capitalists, corporate entrepreneurs, and managers making decisions in very uncertain situations.”

These are quite interesting and also surprising. If I fully understand the advantages of the control strategy, it seems strange that a homerun may come with a conservative strategy. But control does not mean conservative, it means more pragmatic. This is my understanding of the thing.

For those who read my book, you may remember the analysis of venture capital that I had taken from Tim Cruttenden. I see some similarities between his description and the two categories of the paper with the major exception that Cruttenden expects more homeruns (and more failures) with aggressive strategies. What do you think?