Why Do Most Science Startups Fail? Here’s Why …


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“We need to get a lot better at bridging that gap between discovery and commercialization”

G. Satell – Inc. Magazine

It seems like every day we see or hear about a breakthrough new discovery that will change everything. Some, like perovskites in solar cells and CRISPR are improvements on existing technologies. Others, like quantum computing and graphene promise to open up new horizons encompassing many applications. Still others promise breakthroughs in Exciting Battery Technology Breakthrough News — Is Any Of It Real? or Beyond lithium — the search for a better battery

Nevertheless, we are still waiting for a true market impact. Quantum computing and graphene have been around for decades and still haven’t hit on their “killer app.” Perovskite solar cells and CRISPR are newer, but haven’t really impacted their industries yet. And those are just the most prominent examples.

bright_idea_1_400x400The problem isn’t necessarily with the discoveries themselves, many of which are truly path-breaking, but that there’s a fundamental difference between discovering an important new phenomenon in the lab and creating value in the marketplace.

“We need to get a lot better at bridging that gap. To do so, we need to create a new innovation ecosystem for commercializing science.”

The Valley Of Death And The Human Problem

The gap between discovery and commercialization is so notorious and fraught with danger that it’s been unaffectionately called the “Valley of Death.” Part of the problem is that you can’t really commercialize a discovery, you can only commercialize a product and those are two very different things.

The truth is that innovation is never a single event, but a process of discovery, engineering and transformation. After something like graphene is discovered in the lab, it needs to be engineered into a useful product and then it has to gain adoption by winning customers in the marketplace. Those three things almost never happen in the same place.

So to bring an important discovery to market, you first need to identify a real world problem it can solve and connect to engineers who can transform it into a viable product or service. Then you need to find customers who are willing to drop whatever else they’ve been doing and adopt it on a large scale. That takes time, usually about 30 years.

The reason it takes so long is that there is a long list of problems to solve. To create a successful business based on a scientific discovery, you need to get scientists to collaborate effectively with engineers and a host of specialists in other areas, such as manufacturing, distribution and marketing. Those aren’t just technology problems, those are human problems. Being able to collaborate effectively is often the most important competitive advantage.

Wrong Industry, Wrong Application

One of the most effective programs for helping to bring discoveries out of the lab is I-Corps. First established by the National Science Foundation (NSF) to help recipients of SBIR grants identify business models for scientific discoveries, it has been such an extraordinary success that the US Congress has mandated its expansion across the federal government.

Based on Steve Blank’s lean startup methodology, the program aims to transform scientists into entrepreneurs. It begins with a presentation session, in which each team explains the nature of their discovery and its commercial potential. It’s exciting stuff, pathbreaking science with real potential to truly change the world.

The thing is, they invariably get it wrong. Despite their years of work to discover something of significance and their further efforts to apply and receive commercialization grants from the federal government, they fail to come up with a viable application in an industry that wants what they have to offer. professor-with-a-bright-idea-vector-937691

Ironically, much of the success of the I-Corps program is due to these early sessions. Once they realize that they are on the wrong track, they embark on a crash course of customer discovery, interviewing dozens — and sometimes hundreds — of customers in search of a business model that actually has a chance of succeeding.

What’s startling about the program is that, without it, scientists with important discoveries often wasted years trying to make a business work that never really had a chance in the first place.

The Silicon Valley Myth

Much of the success of Silicon Valley has been based on venture-funded entrepreneurship. Startups with an idea to change the world create an early stage version of the product they want to launch, show it to investors and get funding to bring it to market. Just about every significant tech company was started this way.

Yet most of the success of Silicon Valley has been based on companies that sell either software or consumer gadgets, which are relatively cheap and easy to rapidly prototype. Many scientific startups, however, do not fit into this category. Often, they need millions of dollars to build a prototype and then have to sell to industrial companies with long lead times.

start up imagesThe myth of Silicon Valley is that venture-funded entrepreneurship is a generalizable model that can be applied to every type of business. It is not. In fact, it is a specific model that was conceived in a specific place at a specific time to fund mature technologies for specific markets. It’s not a solution that fits every problem.

The truth is that venture funds are very adept with assessing market risk, but not so good at taking on technology risk, especially in hard sciences. That simply isn’t what they were set up to do.

We Need A New Innovation Ecosystem For Science Entrepreneurship

In 1945, Vannevar Bush delivered a report, Science, The Endless Frontier, to President Truman, in which he made the persuasive argument that expanding the nation’s scientific capacity will expand its economic capacity and well being. His call led, ultimately, to building America’s scientific infrastructure, including programs like the NSF and the National Institutes of Health (NIH).

It was Bush’s vision that made America a technological superpower. Grants from federal agencies to scientists enabled them to discover new knowledge. Then established businesses and, later, venture backed entrepreneurs would then take those discoveries to bring new products and services to market.

Look at any industry today and its most important technologies were largely shaped by investment from the federal government. Today, however, the challenges are evolving. We’re entering a new era of innovation in which technologies like genomics, nanotechnology and robotics are going to reshape traditional industries like energy, healthcare and manufacturing.

That’s exciting, but also poses new challenges, because these technologies are ill-suited to the Silicon Valley model of venture-funded entrepreneurship and need help to them get past the Valley of Death. So we need to build a new innovation ecosystem on top of the scientific architecture Bush created for the post-war world.

There have been encouraging signs. New programs like I-Corps, the Manufacturing InstitutesCyclotron Road and Chain Reaction are beginning to help fill the gap.

Still much more needs to be done, especially at the state and local level to help build regional hubs for specific industries, if we are going to be nearly as successful in the 21st century as were were in the 20th.

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The Coming Clean Disruption of Energy and Transportation: YouTube Video


Published on Jan 18, 2018

Mobility Disruption – A Presentation by Tony Seba, Silicon Valley Entrepreneur and Lecturer at Stanford University

The reinvention and connection between infrastructure and mobility will fundamentally disrupt the clean transport model.

It will change the way governments and consumers think about mobility, how power is delivered and consumed and the payment models for usage.

 Bold Predictions

“The industrial age of energy and transportation will be over by 2030. Maybe before.” – Tony Sena

Exponentially improving technologies such as solar, electric vehicles, and autonomous (self-driving) cars will disrupt and sweep away the energy and transportation industries as we know it.

The same Silicon Valley ecosystem that created bit-based technologies that have disrupted atom-based industries is now creating bit- and electron-based technologies that will disrupt atom-based energy industries.

Clean Disruption projections (based on technology cost curves, business model Innovationist as well as product innovation) show that by 2030:

– All new energy will be provided by solar or wind.

– All new mass-market vehicles will be electric.

– All of these vehicles will be autonomous (self-driving) or semi-autonomous.

– The car market will shrink by 80%.

– Gasoline will be obsolete. Nuclear is already obsolete. Natural Gas and Coal will be obsolete.

– Up to 80% of highways will not be needed.

– Up to 80% of parking spaces will not be needed.

– The concept of individual car ownership will be obsolete.

– The Car Insurance industry will be disrupted. The taxi industry will be obsolete.

Genesis Nanotechnology – “Great Things from Small Things”

Watch Our New YouTube Video:

In Silicon Valley Frenzy, VCs Create New Inside Track


Wall ST J BN-HS055_CLUB04_M_20150402101507Pinterest board observer raised $200 million in three days to buy more shares—with startup’s blessing

Silicon Valley insiders are taking advantage of soaring values for technology startups by creating a potentially lucrative side business.

Venture-capital firms such as Andreessen Horowitz and FirstMark Capital, along with a cast of prominent entrepreneurs and executives, have each raised tens of millions of dollars for impromptu funds that take a direct stake in a single startup.

These funds, which often come together in a matter of days, give institutional investors, friends and business associates exclusive access to highflying companies. The funds also let the venture capitalists invest far more money in a company than they otherwise could. In many cases, the funds are blessed by the startups, which see them as a way to raise big sums quickly.

While the investments are usually billed as exclusive, can’t-miss opportunities, the funds aren’t without risk. Their investors—which include fund of funds, family offices and pension funds—are usually offered limited financial information about the companies. They are also charged a performance fee that is typically about 20% of any investment profits on top of already rich prices.

When image-bookmarking site Pinterest Inc. set out to raise more than $500 million in February, one of its earliest investors, FirstMark Capital, wanted to take part in the round.

But the venture firm couldn’t invest a big enough sum from its $225 million fund to keep pace with Pinterest’s steep proposed valuation of $11 billion, more than double the price from May. Venture firms typically spread out their bets and avoid allocating too much capital in one company.

So Rick Heitzmann, FirstMark’s managing director and a Pinterest board observer, struck a deal with the San Francisco company to create a special fund that would pool capital from other investors and take a direct stake.

In just three days, Mr. Heitzmann rounded up $200 million from seven of FirstMark’s investors and included a small of amount of capital from its main fund, according to a person familiar with the deal.

He sweetened the deal by waiving fees typically charged to manage a fund, usually about 2%. FirstMark will get the same “carry,” or a cut of the investment profits, as its main fund should Pinterest hold an initial public offering or get acquired at a price higher than $11 billion.

In the eyes of some investors, the wager is easy money: Pinterest has the potential to follow a similar trajectory as Facebook Inc., FB -0.12 % which became a social destination for hundreds of millions of people and a top place for advertisers. But Pinterest is no surefire bet as it only officially began selling advertising on its site in January.

A Pinterest spokesman declined to comment.

ENLARGE

The deal illustrates how startup investors are increasingly using an emerging funding structure that helps them defend their most promising bets. They are employing a type of fund called a special purpose vehicle, or SPV. Unlike venture funds that invest in dozens of startups over several years, an SPV represents a bet on a single company at a specific point in time.

These funds let investors write bigger checks to compete with the billions of dollars pouring into later-stage startups from mutual funds, hedge funds and banks. Venture firms are finding they don’t always have enough funds reserved to retain percentage stakes in startups as valuations rise quickly.

In the past 12 months, at least 70 private companies world-wide raised capital at a valuation of $1 billion or more, according to Dow Jones VentureSource. Many companies, including Pinterest, have been valued at more than double their previous valuation in that time span.

Further down the chain, a small but prominent group of entrepreneurs and executives are capitalizing on their access to fast-growing startups by raising SPVs for companies such as grocery delivery service Instacart Inc. and bitcoin processor Coinbase Inc., people familiar with the matter said.

Elad Gil, a former executive at Twitter TWTR -1.13 % and Google, GOOGL -0.27 % raised tens of millions of dollars from current or former employees of Google, Facebook and Twitter for Instacart’s $220 million January round that valued the company at $2 billion, said a person familiar with the matter. Mr. Gil couldn’t be reached for comment.

A spokesman for Coinbase confirmed the presence of an SPV in its January round, saying it represented less than 3% of the total $75 million investment. Instacart didn’t respond to a request for comment.

With the connections already in place, these deals happen quickly and further narrow the exclusive club that gets access to prime startups. But these funds pose financial risks. A venture capitalist gets a detailed look into a startup’s revenue, costs and financial projections before they make a decision to invest. Buyers of SPVs are usually only offered a high-level view into the potential performance, not detailed financial metrics, according to both investors who have arranged these funds and firms and individuals who have considered investing in them.

“There are going to be some bad outcomes,” said Brad Garlinghouse, a former executive at Yahoo Inc. YHOO -1.10 % and AOL Inc., AOL -0.08 % who has invested in some SPVs and passed on others. “When you’re the last money in coming at the top, you’re going to be disappointed with the financial returns.”

There are going to be some bad outcomes. When you’re the last money in coming at the top, you’re going to be disappointed with the financial returns.

—Brad Garlinghouse, former Yahoo and AOL executive

As more startups go this funding route, some investors question whether the companies are losing out on a chance to bring aboard more strategically valuable investors.

“Entrepreneurs should focus on investors that deliver value to them,” said Jeff Clavier, managing partner of venture firm SoftTech VC. “When you crowd out experience just to get an SPV going, then that’s a problem.”

SPVs gained popularity around Facebook Inc. and Twitter Inc. as those companies headed toward mega-IPOs. Chris Sacca, a former Google Inc. executive, helped popularize this trend when he bought up hundreds of millions of dollars in private shares of Twitter from executives and early investors over several years preceding the company’s 2013 public offering. Those shares, bought on behalf of J.P. Morgan JPM -0.02 % and investment firm Rizvi Traverse Management, would be valued at about $4.2 billion at today’s Twitter stock price.

Investment banks have also given their wealthiest clients special access to hot deals, such as Goldman Sachs GS -0.15 % ’ creation of an SPV in 2011 to market shares of Facebook to its clients at a $50 billion valuation, a year before the social network went public at about $100 billion.

Rick Heitzmann, a venture capitalist and Pinterest board observer, raised $200 million in just three days from investors to buy more Pinterest shares.
Rick Heitzmann, a venture capitalist and Pinterest board observer, raised $200 million in just three days from investors to buy more Pinterest shares. Photo: VICTOR J. BLUE/BLOOMBERG NEWS

But many of the earlier SPVs bought shares from employees or early investors. Startups such as Uber Technologies Inc. have attempted to prevent the trading of so-called secondary shares, and regulators have tried to crack down on a market of middlemen trying to buy such stock and reap big fees.

The newer breed of SPVs involves primary shares issued by the companies, which are giving express permission to invest.

Since its site launched in 2010, Pinterest has raised more than $1 billion, much of that through SPVs. Besides FirstMark, another earlier Pinterest backer, Andreessen Horowitz, recently arranged its own special fund, people familiar with the matter said.

The firm shopped the fund to its limited partners and “friends and family,” said one of these people, and waved its management fee and charged a 15% carry, smaller than what it normally takes from its main funds. A regulatory filing from Andreessen Horowitz for a fund called PinAH LP disclosed it raised $37 million in mid-March.

A spokeswoman for Andreessen Horowitz declined to comment on the funding round.

Last year, SV Angel, the seed-stage fund headed by San Francisco financier Ron Conway, led a $200 million round in Pinterest at a $5 billion valuation.

Other companies have turned to SPVs for large sums of capital in recent months.

Data analytics provider Palantir Technologies Inc., which was valued at $15 billion last September, turned to an SPV arranged by Founders Fund, a San Francisco firm headed by billionaire investors Peter Thiel, according to people familiar with the deal. In March, ride-sharing service Lyft Inc. included an SPV of more than $10 million from GSV Capital for its $530 million round that valued it at $2.5 billion, a person familiar with the matter said.

By Douglas MacMillan

The Wall Street Journal

—Evelyn M. Rusli, Telis Demos and Yoree Koh contributed to this article.

Mercedes Is Testing Google Glass Integration, and It Actually Works


imagesCAMR5BLR Einstein Judging a FishI put the car in park, unplug the phone, and put Google Glass on my face. Within seconds, I’ve got step-by-step directions to a coffee shop down the street beamed directly to my eyeballs. This is what Mercedes-Benz has planned for the future, and not only do they have a functioning prototype, they’re working with Google to make it a reality.

 

 

 

It’s called “Door-to-Door Navigation,” and it’s just the latest in a string of high-tech pushes the automaker has made in the past few years. It started with Mercedes doubling its resources and employees at its Silicon Valley research center, which allowed the automaker to work on a thoroughly revised infotainment platform and develop one of the first comprehensive integrations of Apple’s iPhone into its entry level and youth-focused CLA.

Now, it’s Google’s turn.

“We definitely see wearable devices as another trend in the industry that is important to us,” says Johann Jungwirth, Mercedes’ North American R&D President & CEO. “We have been working with Glass for roughly six months and meeting with the Google Glass team regularly.” And it’s helpful that Google HQ is just a 10-minute drive from the automaker’s Palo Alto research facility.

We’ve already established that cars are the killer app for Google Glass. And Mercedes agrees. The German automaker’s R&D center snagged two pairs of Google’s goggles as soon as they became available — recognizing the potential — and started hacking away.

The first application is a navigation program that allows you to enter an address through Google Glass, get in your car, plug in your phone, and then the destination is transferred to the in-dash navigation system. Once you’ve arrived near the restaurant/bar/nightclub/BBQ joint and unplug your phone, the system re-transfers the data back to Glass to complete the journey. And based on hands-on time, it works. But the way it works is … a little rough.

Google doesn’t offer Glass support for the iPhone. Yet. And the Mercedes “Digital DriveStyle App” doesn’t work with Android. Yet. (Jungwirth tells WIRED that iOS is the dominant platform for Mercedes owners). So in order for the destination information to be sent from the car to Glass, Mercedes connects to its own cloud server between the iPhone and the embedded infotainment system. Google Glass handles the communication between the two, and the trigger to communicate is the disconnection of the iPhone from the car. When that happens, it contacts the server, connects to Glass, and downloads the destination information.

Jungwirth is quick to point out that this elaborate dance of connections is just a proof of concept.

“This is, perhaps, not how we will accomplish it when we launch it as a product,” Jungwirth told WIRED. “As we are in talks with Google about making a direct connection to Glass work, but it is how our prototype works today.”

Jungwirth makes it clear that Mercedes has every intention of integrating some form of Google Glass functionality into its future products. And by the time Glass goes into production in the next year, Mercedes may have something to offer its customers. In the meantime, Jungwirth says that Android integration for Mercedes vehicles is coming in 2014.

SEC Lifts Ban On General Solicitation, Allowing Startups To Advertise That They’re Fundraising


Contributors - CrowdFunding Incubator LLC - CFI - Douglas E_ CastleThe SEC has just voted 4 to 1 in favor of implementing section 201(a) of the JOBS Act, which lifts the ban on general solicitation and permits startups, venture capitalists, and hedge funds to openly advertise that they’re raising money in private offerings. While it may pose added risk of investors being misled, it should make it significantly easier for companies to raise capital to start or continue financing a business.

The rule change washes away some limitations on advertising of fundraising that have been in place for 80 years. President Obama signed the Jumpstart Our Business Startups Act in April 2012 but now the removal of the ban on general solicitation is finally going into effect.

Previously, the idea was that companies could go public if they wanted to openly raise money. However, the intense regulation and scrutiny around IPOs has dissuaded some private companies from offering their stock to the public. Poor IPO performance for some fast-growing technology companies and well as improved secondary markets like SecondMarket have pushed startups to stay private for longer. Four times as much money was raised last year through private offerings than IPOs.

Due to the general solicitation ban, hedge funds, VCs, and startups had to quietly raise that money, soliciting by word of mouth and other forms of private communication. Now they could buy ads or openly announce that they’re seeking investors alongside using the traditional quiet method.

Investment is still limited to accredited investors worth more than $1 million liquid net worth, and fundraisers must take reasonable steps to ensure investors are in fact accredited. To help the SEC collect data on how investment will change, fundraisers have to file a Form D with the SEC at least 15 days before they begin general solicitation, and amend that Form D to state that they’re done soliciting within 30 days of finishing.

General solicitation will fuel a new cottage industry of investor matching-making sites that aim to broaden the investment pool to financial whales outside the insular world of Silicon Valley.

“Today, with the ban in place, only the most well-known investors get access to the best deal flow, making it more difficult for accredited investors across the country to invest in top deals,” writes Ryan Caldbeck of crowdfunding website, Circleup, to us in an email. Many sites businesses, like FundersClub, Circleup, Angelist, and Wefunder, help investors find startups to invest in, but have been severely restricted in how they could promote opportunities

“With General Solicitation it will be much easier for investors to find companies they are passionate about supporting,” writes Mike Norman of crowdfunding website, WeFunder, to us in an email. The new rule will hopefully open up the capital-starved startup market to the majority of investors. According to WeFunder’s website, only 3% of the US’s 8 million accredited investors are active in the tech startup space.

“This is creating a large void in the investment community whereby dissatisfied sophisticated investors are clearly looking to alternative investment options for lower fees, more options, etc. Crowdfunding portals will create a way for accredited investors to find additional deal flow,” writes David Loucks of the healthcare investment bank, Healthios.

The SEC is still to rule on the most significant of all provisions: crowdfunding. The Jumpstart Our Business Act (JOBS) of 2013 was supposed to permit everyone from Bill Gates to soccer moms to take an equal stake in hot new startups, not just accredited investors. But the implementation of unaccredited crowdfunding has been delayed by SEC politics and mini-scandals. If crowdfunding is allowed, it could pump even more capital into the startup ecosystem.

Crowdfunding is mostly being stalled by fears that vulnerable elderly couples watching a late night-infomercial will be duped into handing over their nestegg to stupid investments or nefarious actors. While fraud and bankruptcy is a concern, Kiva co-founder, Jessica Jackley, who also founded the now-defunct crowdfunding portal, Profounder, says “I’m less concerned about abuse and more concerned about how well the new crowdfunding platforms will educate new investors — and entrepreneurs — on their investments,” she writes to us in an email.

“No matter how you present an opportunity, investing, especially for equity, is complex. This law requires significant information disclosure and I hope that that info is shared in a way that people can understand and make decisions around.”

For instance, a bill pending in North Carolina mandates that investors be warned in plain English “I acknowledge that I am investing in a high-risk, speculative business venture, that I may lose all of my investment and that I can afford the loss of my investment.”

With general solicitation now allowed, startups may be able to raise money more quickly and from a wider range of investors than before. That could create more companies, further fracturing top engineering and product design talent. It can take a lot of great minds in one room to solve big problems, and some believe more startup capital thereby leads to smaller ideas. Alex Mittal, CEO of FundersClub, says “A lot of noise is about to be introduced to the private markets, and distinguishing signal from noise will become critical for investors, and standing above the crowd will become critical for startups.”

Still, the ability to advertise fundraising could spawn high-impact startups that never would have existed, and they might even spring up in areas where there are no investors within earshot — aka outside of Silicon Valley.

Is Putin Pulling the Plug on Russian Nanotechnology?


By Dexter Johnson

Posted 27 Jun 2013 | 4:09 GMT

Russia’s generously funded and much ballyhooed nanotechnology initiative, Rusnano, has had its share of intrigue and certainly many detractors since its launch, not the least of which have been the leaders of the government, such as former president Dmitry Medvedev. But still it managed to continue on and seemed to be tracking fairly well with reported revenues of $300 million for 2011.

Just when it seemed Russia had found a shortcut into the nanotechnology arms race that has developed over the last decade and was sweeping up all the discarded nanotechnology companies that had run aground on the rocks of capitalism, Russian President Vladimir Putin last month looked to be sacrificing both Rusnano and another technology project Skolkovo—an attempt to build a Silicon Valley outside of Moscow—to  solidify his political aims.

As reported in last month’s Bloomberg, Putin was coming down hard on these two technology initiatives to project that he was tough on corruption and mismanagement of public funds.

The Moneyball strategy is the future for venture capital firms?


QDOTS imagesCAKXSY1K 8*** Note To Readers: I know, I know … some of you will read this with a seasoned sense of skeptisim … but more often than not, with enough data points and with “financial analysis tools” the approach to picking ‘winners and losers’ when it comes to new business ventures … becomes less and less dependent upon ‘ye old spin the bottle’ approach! Enjoy … “Live Long and Prosper!”  BWH

January 10, 2013 4:44 PM
Matt  Oguz

baseball

“Money Ball”

Traditional venture capital invests with a “gut” feeling approach, and as  VentureBeat’s Christina Farr  recently  put it, “Relying on gut feeling simply isn’t good enough anymore”.

Investors suffer from a number of cognitive biases. The biggest, most  powerful and most dangerous bias in Silicon Valley today is called the “herd  mentality” or “bandwagon effect.” It’s difficult to oppose the general  consensus.

As investors, this and other cognitive biases skew our decision-making  process every day. How do you get around it? We believe that the answer lies in  mathematics. If we can work with models that are built to protect us from human  biases, guide us through the turbulent waters of high-risk investing and  incorporate factors of safety, that would be a better option than swinging for  the fences to make up for losses.

Most people in traditional VC, including  Blumberg Ventures’ Jon Soberg would make the claim that there’s very little  data to work with. In a recent post in VentureBeat, Soberg comes up with a  heuristic statistic to prove that “most investments fail.”

I would argue that historical data is available. When you actually take a  deeper look at the numbers, you’ll find some definitive patterns. The returns  actually resemble a log-normal or log-levy distribution, not a normal  distribution. We actually have a strong grasp of what the return data looks  like, and do not need to accept the widely-held belief that most startups  fail.

Screen shot 2013-01-10 at 4.03.53 PM

There are a lot of data points available, but you need to know where to look.  At first look, it may seem like late-stage investments are safer bets than  early-stage investments. But looking back over the previous decade, we  discovered in our research that the risk of failure is about the same! A 49  percent failure rate in early rounds yielded a 2.8x money multiple versus a 45  percent failure rate and 1.3x multiple in later-stage rounds.

Traditional investors claim that the key to success is finding the next  Zuckerberg. In my view, this is the very reason why traditional VC firms fail to  deliver results. It shouldn’t be about discovering the next Facebook. It’s about  positioning yourself to find it. You don’t do that by swinging hard every single  time. Look at any legendary investor, Warren Buffett for instance, and you’ll  see that they don’t swing at every ball, but rather follow mathematical  investment models that incorporate appropriate factors of safety.

The claim that VC’s need to rely on old school-hustle, homework, and instinct  is also simply wrong because the VC’s that follow this mindset couldn’t deliver  sufficient returns, and are struggling to raise their next funds.

Let’s get into a little more detail. There are three key activities in  venture investing: Deciding which startup(s) to invest in, how much to invest,  and how to construct the portfolio.

Using decision models, and some of these models have been widely-used over  the last 20 years in a number of areas such as medicine and engineering, we  can:

  • Establish a bias-free, data driven selection model.
  • Optimize investment sizes per company.
  • Optimize investment portfolio of companies.

Without revealing too much about our research, I can say that we use  proprietary variations of models already used elsewhere, such as Multiple  Criteria Decision Analysis (MCDA), Kelly Criterion, and the Markowitz portfolio  theory. These theories must be modified for the characteristics of the venture  capital business, and we’ve attempted to do that, and filed patents on them  while we were at it. Our MCDA matrix has elements similar to those used in the “Startup Genome” project.

The “Moneyball” approach to venture capital forces us to work harder and  smarter to overcome the cognitive limitations instead of “the best gut-feeling  pickers.” Traditional VC takes way too much credit for successes, and doesn’t  accept its failures.

We should look at successes and failures as data points to improve our math  to get to our goal: to deliver superior returns to our limited partners.

Matt-OguzMatt  Oguz is a founding partner of Palo Alto Venture Science, a firm that brings a  data-driven approach to VC. He has been an angel investor in early-stage  startups since 2005, and specializes in e-commerce, analytics, behavioral  economics and decision sciences.

Prior to this, he built big data solutions for a number of Fortune  500 companies such as Dow Corning, Coca Cola and General Electric.

Read more at http://venturebeat.com/2013/01/10/vc-moneyball-rebuttal/#Q6XHCXOExR4hrzCC.99

Scientists “clone” carbon nanotubesto unlock electronic potential


Scientists “clone” carbon nanotubesto unlock electronic potential
Wed, 11/14/2012 – 1:14pm
The heart of the computer industry is known as “Silicon Valley” for a reason. Integrated circuit computer chips have been made from silicon since computing’s infancy in the 1960s. Now, thanks to a team of USC researchers, carbon nanotubes may emerge as a contender to silicon’s throne. Scientists and industry experts have long speculated that carbon nanotube transistors would one day replace their silicon predecessors.In 1998, Delft University built the world’s first carbon nanotube transistors—carbon nanotubes have the potential to be far smaller,faster, and consume less power than silicon transistors.
A key reason carbon nanotubes are not in your computer right now isthat they are difficult to manufacture in a predictable way. Scientists have had a difficult time controlling the manufacture of nanotubes to the correct diameter, type and ultimately chirality, factors that control nanotubes’ electrical and mechanical properties. Think of chirality like this: if you took a sheet of notebook paper and rolled it straight up into a tube, it would have a certain chirality. If you rolled that same sheet up at an angle,it would have a different chirality. In this example, the notebook paper represents a sheet of latticed carbon atoms that are rolled-up to create a nanotube. 
A team led by Professor Chongwu Zhou of the USC Viterbi School of Engineering and Ming Zheng of the National Institute of Standards and  Technology in Maryland solved the problem by inventing a system that consistently produces carbon nanotubes of a predictable diameter and chirality. Zhou worked with his group members Jia Liu, Chuan Wang, Bilu Liu,Liang Chen, and Ming Zheng and Xiaomin Tu of the National Institute of Standards and Technology in Maryland. “Controlling the chirality of carbon nanotubes has been a dream for many researchers.
Now the dream has come true.” said Zhou. The team has already patented its innovation, and its research will be published Nov. 13 in Nature Communications. Carbon nanotubes are typically grown using a chemical vapor deposition (CVD) system in which a chemical-laced gas is pumped intoa chamber containing substrates with metal catalyst nanoparticles,upon which the nanotubes grow. It is generally believed that the diameters of the nanotubes are determined by the size of the catalytic metal nanoparticles. However, attempts to control the catalysts in hopes of achieving chirality-controlled nanotube growth have not been successful. The USC team’s innovation was to jettison the catalyst and instead plant pieces of carbon nanotubes that have been separated and pre-selected based on chirality, using a nanotube separation technique developed and perfected by Zheng and his coworkers at NIST. Usingthose pieces as seeds, the team used chemical vapor deposition toextend the seeds to get much longer nanotubes, which were shown to have the same chirality as the seeds.. The process is referred to as “nanotube cloning.” The next steps in the research will be to carefully study the mechanism of the nanotubeg rowth in this system, to scale up the cloning process to get large quantities of chirality-controlled nanotubes, and to use those nanotubes for electronic applications. Funding of the USC team for this research came from the Semiconductor Research Corporation’s Focus Research Program Functional Engineered Nano Architectonics center and the Office of Naval Research.

Don’t believe the hype – Silicon Valley is not the be-all, end-all for tech companies


Don’t believe the hype – Silicon Valley is not the be-all, end-all for tech companies

October 20, 2012 8:00 AM
Bill Karpovich
This post was contributed by serial entrepreneur Bill Karpovich.

Like many other engineering types, I dreamed for years of starting my own high-flying technology company. Like a moth to light, I am inherently drawn to the idea of creating something from nothing and seeing it grow. It was thus no surprise when I left my big-company career at Accenture a few years out of college to join the startup world. It was Mark Andreessen’s cover shot on Time magazine in 1996 after Netscape’s era-defining IPO that finally pushed me over the edge. Sixteen years later, I am on my fifth startup. It’s been a phenomenal ride that has culminated (so far, at least) with my current startup, Zenoss, of which I am co-founder and CEO.

In startup circles, nothing about my story is particularly surprising on the surface. In fact, to the degree that there is a “typical” entrepreneur story, mine would be it. What is novel and contrary to conventional wisdom, though, is that I don’t live in Silicon Valley (or even Cambridge). I live in Annapolis, Maryland, the nation’s Sailing Capital. And most of Zenoss is in Austin, Texas, the world’s Live Music Capital.

I agree with Eric Ries that, indeed, “entrepreneurs are everywhere.” My experience takes me a step further – I feel it’s actually a competitive advantage to build startups outside of Silicon Valley.

Can You Guess Birthplace of the Cloud?

At the risk of channeling Al Gore, let me set the record straight and share with you that the cloud as we know it today began in Maryland. It was two Maryland-based startups that pioneered the early Infrastructure-as-a-Service (IaaS) and Software-as-a-Service (SaaS) offerings that are the cornerstone of the modern cloud. Not coincidentally, these companies are where I first cut my teeth in the startup world.

The first was Digex, Inc., one of the first Internet backbone providers that stumbled upon the web hosting business in 1994 (think IaaS v1.0), and ultimately went public in 1996. The second was USinternetworking, the first pure-play SaaS provider, which went public in 1999 — back when we were called “ASPs” (initially for “Application Service Provider,” ultimately for “Awful Stock Price”).

Chris McClearly, who also lives in Annapolis, was the CEO of both of these companies and remains my entrepreneurial mentor to this day. For an entrepreneur-in-training, there were no better experiences to be had than working with an experienced executive like Chris. We created new industries from scratch and became global leaders; we changed the world, created billions in market cap and crushed our competition in Silicon Valley – all from our perch on the Chesapeake Bay.

Breaking Out

The idea to start our own company came directly from our experiences at Digex and USinternetworking. Both companies were essentially large-scale IT operations, and our biggest struggle was our management software platform. After blowing millions of dollars on failed efforts with legacy management framework vendors, we ultimately succeeded by building our own custom solutions.

Living it twice, it finally dawned on us that the world needed a new IT operations platform to take on the new challenges of the cloud area, and that’s what Zenoss is all about. We formally launched the business in 2006 and have enjoyed strong growth since that has brought us to more than 100 employees, over 300 customers and over 100,000 active members in our global user community.

Choose Passion over Profile

After we closed our Series B funding round, we were confronted with the problem that all emerging growth companies eventually need to address – how do we scale the team without compromising passion and know-how?

We had built a great core team in Annapolis, but there simply weren’t enough people there who had the requisite experience with IT operations software to grow at the desired pace. Mind you, this story would have been very different if we were building a world class sailing team.

To the surprise of many, we ended up expanding 1,500 miles away, in Austin, Texas. For us, this was a no-brainer. The key attraction was – and still is – the fact that Austin is a Mecca for IT operations software. As a result, there is a disproportionately large population of folks who are not only experienced with the nuances of building our kind of software, but they are also passionate about it.

In Silicon Valley, they appreciate what we do, but it’s not the latest shiny object that drives the region’s never-ending hype cycle. More so, Silicon Valley lacks the talent pool of Austin when it comes to IT operations software. While you could certainly find the technical talent there, it would lack the passion and context that we have found in droves in Austin. This is largely a product of Austin’s rich heritage of successful IT management companies — a list that is headlined by Dell.

In the end, startups succeed by being closer to and caring more about the problem they are solving than simply having a Silicon Valley address. In this game, passion trumps profile every time. The key is to design your company to tap into the deepest reservoirs of energy where you can find it, no matter where it is. Who knew that Austin was not only the world’s “Live Music Capital” but also the world’s “IT Operations Management Software Capital?”

Be Wary of Groupthink

There are many great thinkers in Silicon Valley, and there is of course tons of innovation. The latest ideas spread like wildfire up and down Highway 101, and even faster along Sand Hill Road – home of most of that area’s sizable and influential venture capital community. Ironically, the efficiency of this ecosystem can at times works against itself in the form of groupthink.

Entrepreneurial memes are always on the rise and fall, and there are undoubtedly always shared lessons to be learned. Over the years, though, I have noticed a surprising orthodoxy among the entrepreneurs and investors in the Valley. New ideas are rare in Silicon Valley. Once they are proven (watch for the latest IPO or billion dollar acquisition), they spread quickly and, in the wake of intense competition – as well as fear of missing the latest wave – a template forms. If you are not aligned with one of the fashionable templates, your mojo in the Valley can quickly whither.

Innovation is by its very nature non-conformist. The groupthink that occurs in Silicon Valley is one of the area’s clearest and most significant downsides. I certainly find it valuable to keep a pulse on the hot ideas on the West Coast, but operating outside of that ecosystem provides a degree of independence that is very healthy for budding companies. Startups need to be focused on the needs of their customers, whether or not the latest entrepreneurial technique applies.

The Money Factor

The last point I’ll touch on is funding. Here again, I think the advantage goes to those outside of Silicon Valley.

While there is a great supply of money in Silicon Valley, there is also much more competition. While there is a wonderful ethos of risk taking, good ideas can drown in the noise and groupthink.

My experience is that good ideas and strong teams will get funded no matter where they live – and sometimes an unknown address can even help you stand out from the pack. At this point, the entrepreneurial ecosystem is sufficiently global so that no matter where you are, there is capital available for viable ideas.

Finally, if you need or desire money from Silicon Valley VCs, it’s certainly not limited to local companies. In fact, Silicon Valley VCs are very accommodating to out-of-towners. A day trip is all it takes to access the central bank of technology. As an out-of-towner, you may even find it easier to get a meeting. The good ideas that get famous in Silicon Valley have to come from somewhere – and it’s usually not there.

[Top image credit: Peeradach Rattanakoses/Shutterstock]

Read more at http://venturebeat.com/2012/10/20/dont-believe-the-hype-silicon-valley-is-not-the-be-all-end-all-for-tech-companies/#03hF84tSLolSuFfx.99