Nurturing Science-based Ventures

Leave a reply

Nurturing Science-based Ventures – An International Case Perspective by Seifert, Ralf W., Leleux, Benoît F., Tucci, Christopher L.

nsbv.jpg

A new book about start-ups has recently been published and it is mainly centered on Swiss (including EPFL) ventures. The authors do indeed have a strong knowledge of this environment as they are faculties from IMD or EPFL. What is unique with this book is that it does not describe success stories only, but also failures or not famous firms. Indeed failures are often better lessons than successes. You do not always know why you succeed and it may be easier to understand a failure. The authors have built their book as a process and describe in detail the development of start-ups; they begin with the opportunity recognition (chapter 1), they follow with writing a business plan (chapter2), financing a start-up (chapter 3), growing a company (chapter 4) to finally harvesting value creation (chapter 5). The final chapter is dedicated to corporate entrepreneurship (“Intra-preneurship”). I have not read it yet (it is more than 700 pages!) but the numerous case studies (more than 20) look rich and detailed. It is not the first book on the subject but it might be the first one with such a focus on European start-ups.

Cap. table: mysql

1 Reply

As a follow-up to my recent post on Scandinavia, I begin, with mysql, a series of posts which are close to Chapter 3 “Founders of start-ups”: it is quite interesting to analyze the capitalization table of a start-up at an exit event (IPO or M&A). Entrepreneurs and employees may learn there what to expect in terms of dilution because of investors, stock-option plan. The recent acquisition of mysql by Sun Microsystems for $1B shows that there are European success stories. Interestingly enough, mysql follows Skype, another Swedish start-up. Also of interest, let me add that founders were Swedes but not only (Danish for Skype and Finnish for mysql). Luxembourg was used as a base for the founders’ equity. The article “Focus on Sweden” recently published by the Library House in Cambridge shows the importance of Scandinavia and the Baltic countries. You, reader, may not remember, but Scandinavia had very nice success stories such as Navision, Qeyton, Altitun. The Trolltech acquisition by Nokia recently is another even if smaller example.

Let me come back to mysql. In the same way I built data about many success stories in chapter 3 and 8 of “Start-Up”, here is some data point about mysql: mysql (as a project) was formed in 1987 by three founders, two Swedes and a Finn: David Axmark, Allan Larsson and Michael “Monty” Widenius who had worked together in the 80’s. Marten Mickos, their CEO, joined the company in 2001. In 2001, mysql also raised its first round ($1M) led by ABN Amro. It then raised $19.5M in June 2003 with Benchmark and Index. In February 2006, a final round of $18.5M was led by IVP, and included Intel, Red Hat, SAP. Though an open-source company, mysql generated revenues through support, maintenance. The growth is impressive. (Disclaimer: the numbers are subject to errors as the company was private and did not communicate about its revenues. I found these numbers on the web)

Year Revenues
2002 $6’500’000
2003 $12’600’000
2004 $20’000’000
2005 $34’000’000
2006 $50’000’000
2007 $75’000’000

The board of the company included strong personalities such as Bernard Liautaud, founder of Business Objects and Tim O’Reilly. Finally, the capitalization table at the time of acquisition is probably not far from the one below. I had to use different (public) sources to build the table but just as with revenues, these numbers might be subject to errors.

Click on pictures to enlarge or download

mysql.gif

mysql-share.gif

Sources: Di.se Legilux

Next posts should be about Skype, Kelkoo, Addex.

Finland

Leave a reply

I am not the only one complaining about the weakness of Europe in terms of start-ups. Juha Ruohonen compared in his report VICTA (www.tekes.fi/en/document/42911/victa_pdf) the situation of Finland and Israel and he reaches similar conclusions to mine: not enough growth companies, a lack of ambition, and too many lifestyle companies.

His comparison table is self-sufficient:

finland-data.jpg

And his analysis of the reasons for problems are:

finland-probs.jpg

Finally his conclusions: There is a clear need in Finland:

  • To create a viable high-growth ecosystem
  • To multiply the number of VC capable growth companies
  • To eliminate the waste of resources to lifestyle companies
  • To provide a viable platform for fast international growth
  • To increase the corporate involvement and the number of corporate spin-offs/-outs
  • To better facilitate the transformation from research project into a fast growth start-up.

This can be achieved by:

  • shifting focus from quantity into quality
  • moving from project-based development to efficient long-term structures
  • creating structures to enable success of commercial players
  • attracting much more international talent into Finnish early-stage community.

My comment: you can replace Finland by Europe and the analysis is the same. Solutions are complex no doubt but I would add that betting on youth, on risk taking is essential (the “Stay Foolish, Stay Hungry” explained by Jobs, see the July 07 post) and that international exchange must also include discovering what exists abroad.

Taking Risks

Leave a reply

The Stanford Venture Technology Program is one of the best source of info I know about start-ups. In one of their recent newsletter, they mention a video of Vinod Khosla (a co-founder of Sun Microsystems and former venture capitalist with Kleiner Perkins). STVP summarizes his views as follows:

khosla.jpg

“Launching a start-up is not a rational act. And Vinod Khosla, a partner in Kleiner, Perkins, Caufield & Byers and former Sun Microsystems CEO, believes that success only comes from those who are foolish enough to think unreasonably. Entrepreneurs need to stretch themselves beyond convention and constraint to reach something extraordinary.”

The Art of the Start

Leave a reply

The Art of the Start is a great book because it inspires. Guy Kawasaki, the author, does tell you how to build a convincing vision, a convincing pitch. It is not about writing a 40-page business plan. It is about the “value of making meaning” which may induce making money. The book is clear, simple and once you have read it, you will not see things the same way… go, run and buy it!

A brief quote from the book which illustrates why start-ups are important.

“Innovation often originates outside existing organizations, in part because successful organizations acquire a commitment to the status quo and a resistance to ideas that might change it” – Nathan Rosenberg.

The Man Behind the Microchip

Leave a reply

The Man Behind the Microchip is one of the best biographies about technology and entrepreneurship. This book is a pleasure to read from beginning to end. It is full of important facts about Silicon Valley, its history and its development.

I will just quote Robert Noyce, the hero of this book, founder of Fairchild and Intel:

“Look around who the heroes are. They aren’t lawyers, nor are they even so much the financiers. They’re the guys who start companies”

and also author Leslie Berlin adds:

Noyce testified against an industrial policy managed by the Federal government. He referred to his own experience with Apple to strengthen his argument: “If I was not capable of identifying the future champions of technology, how could we believe that the government could do better?”

This a must-read book for anyone interested in start-ups and high tech.

About Peter Druker

Leave a reply

Far from my previous post about Perkins, Peter Drucker’s book Innovation and Entrepreneurship was a paradoxical reading. The first chapters were painful even if brilliant. I understood there that innovation is a process which will be successful if carefully planned and managed. Fortunately, chapter 9 completely changed my perception when the author dealt with knowledge-based innovation, which includes innovations based on science and technology. So let me summarize the main points of this chapter:

1- the characteristics of knowledge-based innovation:

a. the time span between the emergence of the technology and its application is long, 20 to 30 years,

b. it is a convergence of several knowledge and until all the needed ones are available, this innovation can not succeed,

2- the requirements:

a. a careful analysis of the required factors, i.e. the available knowledge and the missing ones,

b. a clear focus on the strategic position, i.e. you have to be right the first time or others will take your place,

c. learn and practice entrepreneurial management, because most tech. innovators lack management skills ,

3- the risks:

a. first, even after a careful analysis, knowledge-based innovation remain unpredictable and turbulent (see also Moore’s books about the chasm and the tornado), and this is linked to its characteristics above; this has two important implication:

i. time plays against innovators,

ii. survival rate is low,

b. there is a limited window where new ventures start, and when it closes, there is a general shakeout, where few survive; who survives is also unpredictable. The only chance of surviving is to have a strong management and resources,… and luck;

c. there is also a receptivity gamble. Even market research does not work with these innovations and the reason why an innovation is accepted or not is also unpredictable.

I have to admit this confirms an intuition I had since my VC years: you have to make a bet and then work hard. But there is no way, you can really plan the success of knowledge-based innovations.

The end of the book is quite good, in particular its conclusion: “The first priority in talking about public policies is to define what will not work: Planning is actually incompatible with an entrepreneurial society and economy. Innovation has to be decentralized, ad hoc, autonomous, specific. It had better start small, tentative, flexible. […] It is popular today [1983!], especially in Europe, to believe that a country can have “high-tech entrepreneurship” by itself. But it is a delusion. In fact a policy which promotes high-tech and high-tech alone will not even produce high tech. All it can come with is another expensive flop, another Concorde. […] The French are right, economic and political strength requires high tech but there must be an economy full of innovators with vision and entrepreneurial values, with access to venture capital, and full of economic vigour.”

Tom Perkins, a Silicon Valley venture capitalist

Leave a reply

Tom Perkins is one of the icons of Silicon Valley. I have not read yet his new autobiography but Andre Mercanzini, a colleague at EPFL, just mentioned to me an interesting podcast from VentureVoice. Here is Perkins’ views about why Silicon Valley is unique:

The difference is in psychology: everybody in Silicon Valley knows somebody that is doing very well in high-tech small companies, start-ups; so they say to themselves “I am smarter than Joe. If he could make millions, I can make a billion”. So they do and they think they will succeed and by thinking they can succeed, they have a good shot at succeeding. That psychology does not exist so much elsewhere.