The Future of Venture Capital is Hanging-Out Downtown: The Not So Big Secret

“What has been will be again, what has been done will be done again; there is nothing new under the sun.”

Ecclesiastes 1:9

This is part of my Series on Venture Capital.

Despite the hyped meme people are putting out there about the “venture model being broken”, I’m definitely of the school that believes Venture Capital is merely going back to its roots. Smaller, smarter, more agile, leaner, that’s all. Just look at the charts Kopelman’s been sharing of late. If you ask me, this is all a very good thing.

Speaking of Kopelman, here’s a guy who, along with a few other smaller/high-volume funds is executing very effectively on this leaner VC model (on the east coast at least).  I really do think his extremely effective special-forces model is part of the new wave we will be seeing a lot more of.

To give you a concrete example, this ostensibly “Philly-based” swat team recently executed the equivalent of a pub crawl through all the NYC incubators in a single day, all under the covering fire of a steady stream of tweets, four-square yawps and various other forms of digital pitter-patter that announced their comings and goings. No doubt their approach is catching the attention of their brethren VC’s ensconced in more conventional settings and habits. 

And let’s face it, who really needs an office in this climate? This new breed of bad-ass-VC will meet you in cafes, at the Ace Hotel, in noisy diners- they don’t care. Bring it on. Headquarters, what’s that? That’s silly to them. You go where the entrepreneurs are and you hang with them.

It’s actually been incredibly enjoyable to watch- and with the advent of widespread VC blogging, the Funded, the ubiquity of cloud computing, open source software, younger and younger entrepreneurs and hence much less funding needed to launch a web business- we are witnessing the opening-up of, accessibility of and democratization of the entire industry. And by the way, First Round is just one of an entirely new breed popping up all over the place which includes the Founder Collective, True Ventures, Andreessen/Horowitz and others.

Here’s my tongue-and-cheek take on what’s been happening and what’s going to happen (on the east coast at least).

What’s been happening:

• Last summer, LP-types reading plays like “Waiting for Godot” on Herreshoff sailboats off the coast of Maine started calling the office sounding concerned and asking what’s going on.
• This started a small panic and suddenly, guys comfortably ensconced on “VC Hill” in Waltham started driving to Cambridge a lot to get back in the action.
• Extremely formal guys in French cuffs known for unwinding with $100 bottles of Sancerre after work suddenly started blogging enthusiastically about the arm-wrestling and bowling events for entrepreneurs they are hosting in various “cool-sounding” locations.
• In NYC, uptown VC’s started trying on jeans they haven’t worn in years only to realize they don’t fit too well.

What’s going to happen:

• In five years, there will be half as many funds operating as there are today.
• The last ones standing will be the very established funds on one extreme and this new breed of small, agile, entrepreneur-run operation on the other.
• Smaller, leaner, genuinely entrepreneur-friendly funds will thrive in this brave new world.
• Most of them will be “hanging-out downtown”.

PS: (Oh, and by the way, I’m talking about tech VC, not biotech VC. Commissioning the optimization of molecules and the like from reserved and stately offices supported by enormous amounts of capital is not going anywhere for a while IMHO.)

A Sampling of Commercial Products Using Columbia University Technology

This is part of my Series on University Entrepreneurship.

 Above I’ve posted a graphic showing some of the many products that have been developed in whole or in part from the intellectual property emerging from Columbia University’s many labs. Almost all of these represent IP licensed directly to industry by my colleagues at Tech Ventures, Columbia’s Technology Transfer Office. One can see everything here from life-improving and sustaining drugs to BluRay technology to the technology behind the Iphone’s screens.  With an average of 50 industry licenses, 100 sponsored research agreements, and 12+ spinoffs per year coming from Columbia alone, one can see that university tech transfer across the country has had an enormous benefit to society. The original vision behind the Bayh-Dole Act is definitely working.

For Part Eighteen in this Series, click here

Some Examples of Private Sales and IPO's from Columbia University's Startup Portfolio

This is part of my Series on University Entrepreneurship.

 In the coming weeks I’ll be discussing the popular Entrepreneur Office Hours Program we launched at Columbia University’s Venture Lab some months ago. The program is open to anyone in the Columbia community and is scheduled on a rolling basis by appointment.

In the meantime, for all you fledgling entrepreneurs out there in universities around the country and overseas, I thought I’d begin to post some inspirational information on some of the successful exits Columbia’s portfolio companies have enjoyed over the years. Here are a few examples below. 

Aton Pharma (Acquired by Merck for $150 million; NYSE: MRK)

http://www.merck.com/

The company is developing cancer drug targets based on research from R. Breslow of Chemistry and Sloan Kettering technology. Lead candidate is in Phase I/II clinical trials. The company was acquired by Merck for $150 million on February 2004.

CallStreet (Acquired by FactSet for $7 million)

http://www.callstreet.com/

CallStreet is the leading provider of corrected and formatted transcripts of management conference calls to the investment community. Hundreds of leading firms rely on CallStreet for the most accurate, highest quality content available. The company was acquired by FactSet in May 2004.

Corixa (Acquired by GSK for $300 million)

http://www.gsk.com/

Corixa is a biotechnology company involved in the identification of novel genes. The company develops immunotherapeutics that treat and prevent autoimmune diseases, cancer, and infectious diseases by understanding and directing the immune system. Corixa was acquired by GSK for $300 million on May 2005.

CoTherix/Exhale Therapeutics (Acquired by Actelion Pharmaceuticals; NASDAQ: CTRX)

http://www.cotherix.com

CoTherix is a biopharmaceutical company focused on licensing, developing, and commercializing therapeutic products for the potential treatment of cardiovascular diseases. CoTherix went public at the NASDAQ for $30 million in October 2005 and was purchased for $420 million by Actelion in November, 2006.

Electro-Optical Sciences (NASDAQ: MELA)

http://www.eo-sciences.com

EOS is a medical device company focused on the design and development of a noninvasive, point-of-care instrument to assist in the early diagnosis of melanoma. EOS went public at the NASDAQ for $20 million in October 2005.

Memory Pharmaceuticals (NASDAQ: MEMY)

http://www.memorypharma.com/

Memory Pharmaceuticals, a biopharmaceutical company, is focused on developing innovative drugs for the treatment of debilitating central nervous system disorders, many of which exhibit significant impairment of memory and other cognitive function. The company went public at the NASDAQ for $35 million on April 2004 and was acquired by Roche in 2008.

Mycrocept (Acquired by Healthpoint)

http://www.healthpoint.com/divisions/surgical/

Mycrocept develops, markets, and distributes a variety of innovative pharmaceutical infection control systems, its flagship product being an antibacterial surgical hand scrub to the hospital market. The company was acquired by Healthpoint for an undisclosed amount in October 2005.

Nephros (AMEX: NEP)

http://www.nephros.com/

Nephros was founded in 1997 by Columbia University health professionals, scientists, and engineers to improve the quality of life for the end stage renal disease patient, while addressing the critical needs of the care provider. The company went public at the AMEX for $12.6 million in September 2005.

ParAllele Biosciences (Acquired by Affimetrix; NASDAQ: AFFX; Department-Genomics and Development, Eric Schon)

https://www.affymetrix.com/corporate/parallele.affx

ParAllele Bioscience is now part of Affymetrix. Not only does ParAllele bring innovative assay technologies to the Affymetrix technology portfolio, but working with their talented team of scientists, Affymetrix can continue to build on the underlying molecular inversion probe technology while expanding the applications capability of the GeneChip® platform. The company was acquired by Affymetrix for $120 million in October 2005.

Pharmacopeia Drug Discovery (LGND: NASD)

www.pharmacopeia.com

Pharmacopeia is a biopharmaceutical company developing small-molecule therapeutics to meet the needs of large patient populations suffering from significant unmet medical needs. Pharmacopeia's programs leverage the company's immunobiology expertise and are focused on diseases such as rheumatoid arthritis, multiple sclerosis, and psoriasis. The company was purchased by Ligand Pharmaceuticals in 2008.

Progenics Pharmaceuticals (NASDAQ: PGNX)

http://www.progenics.com/

Progenics is a biopharmaceutical company focusing on the development and commercialization of innovative therapeutic products to treat the unmet medical needs of patients with debilitating conditions and life-threatening diseases. Their principal programs are directed toward symptom management and supportive care, human immunodeficiency virus, or HIV, infection, and cancer. The company has four product candidates in clinical development and several others in preclinical development.

Renovis (NASDAQ: RNVS)

Renovis was a science-driven, biopharmaceutical company that sought to discover, develop, and commercialize therapeutics for major medical needs in the areas of neurological and inflammatory diseases. The company went public at the NASDAQ for $66 million in February 2004.

Sentigen (Acquired by Invitrogen; NASDAQ: IVGN)

http://www.sentigen.com/

Sentigen Biosciences, a wholly owned operating subsidiary of Sentigen Holding, has developed a proprietary drug discovery platform that has the potential to change the paradigm of modern-day pharmaceutical discovery and development. The company was acquired by Invitrogen for $26 million in September 2006.

SGX Pharmaceuticals (NASDAQ: SGXP)

http://www.sgxpharma.com/

SGX Pharmaceuticals is focused on the discovery, development, and commercialization of innovative cancer therapeutics. Its mission is to provide patients with life-changing therapies through the dedication, innovation, and excellence of its employees. The company went public at the NASDAQ for $24 million in February 2006 and was subsequently bought by Ely Lilly & Co. in 2008.

Skinetics (Acquired by Sirna Therapeutics Inc., which was subsequently acquired by Merck; NYSE: MRK)

http://www.sirna.com/

Based on technology from Dr. Angela Christiano's lab in Dermatology, Skinetics focuses on hair loss and growth. The company was acquired by Sirna for $2 million in December 2004, and was subsequently acquired by Merck.

System Management ARTS (Acquired by EMC)

http://www.emc.com/products/software/smarts/smarts_family/index.jsp

System Management ARTS is a leading developer of software to automate management of complex networked systems and identify network problems in real time. The company was acquired by EMC for $260 million in December 2004.

For Part Seventeen in in this Series, click here

Breaking the Century Mark: Celebrating 100 University Spinoffs at Columbia University

This is part of my Series on University Entrepreneurship.

 Upon spinning-off 13 companies from Columbia University in FY 2009, we at the Venture Lab realized that we’d now eclipsed the century mark with over 100 spinoff companies historically. We were also heartened by the fact that over 30 of these had been venture-backed at some point in their life-cycle, over 20 had either been sold or gone public and among them they had created in excess of 1500 jobs and raised over $1 Billion in venture capital.

It’s a testament to all the great work being carried out by the faculty and grad students in the 7,000 plus labs at the University, by the business school’s entrepreneurship center and by the talented entrepreneurs and investors who stepped up to take fledgling ideas and transform them into commercial ventures.

It’s also just a snapshot of the emerging behemoth of university entrepreneurship being loosed upon campuses around the country. 

(Above find just a few of Columbia University’s portfolio companies)

For Part Sixteen in in this Series, click here

5 Steps to Take If You Cannot Raise Any Capital for Your Startup

This is part of my Series on Venture Capital.

In a recent webinar I addressed the topic of raising capital and launching startups during an economic downturn. Previously, I published this post dispelling certain myths about raising capital. One matter I did not address in either of these, however, is perhaps the starkest reality entrepreneurs must face in times such as these. It is the reality that very few newly launched startups will actually be able to raise any seed capital whatsoever.

Until significant traction is achieved in a new venture, funding from angels or VC’s alike is simply more of a scarcity than it normally is. Now is truly a time for friends and family money, but this too is difficult to come by for many these days.

So if you find yourself in such a situation and yet are determined to launch your startup, what should you do? Here are some steps you can take:

1) First forget about paying rent. Find a free cubicle at a friend’s office, work out of a lounge or your home, or try to get accepted into a local incubator program.

2) Employees? Forget it. Hire some unpaid interns, give a talented developer some equity with a vesting schedule based on milestones and make do for now.

3) As for basic startup needs such as conference calling, file exchange services, online databases, blogging tools, analytics, bandwidth, etc., most of these services can be obtained for free and/or on the cheap.  Just check out services such as google docs, amazon web services, drop.io, freeconferencecall, dabble, crazyegg and many others.

4) Lawyers? Forget it. Usually there is no need for a lawyer at this point. Instead, find an experienced mentor and read my post about this topic here.

5) Everything else? Do it all yourself but constantly attend local entrepreneurship events and mix with fellow bootstrappers for moral support so as to constantly exchange information and ideas. Put yourself out there, get "in-the-know", help others and you will find that people will want to help you as well.

If you think this is tough, you’re absolutely right- so read about Bill Powell building an entire golf course from scratch or about Jeff Bezos’ earliest days at Amazon for inspiration.

The bottom line is this: It's all on you right now. Welcome this challenge, be incredibly resourceful and make it happen.

Profiles in Entrepreneurial Courage: The Story of Bill Powell

This is part of my Series on Entrepreneurial Culture.

I was really inspired by an article I read in this weekend’s NY Times penned by Larry Dorman.  It’s about a gentleman by the name of Bill Powell, a veteran of WWII, a great-grandson of Alabama slaves, and a man who endured enormous indignities and discrimination but nonetheless persevered in achieving his entrepreneurial dream. His particular ambition was to design, build and run his own golf course.

Upon his return from the war no bank deigned to give him a loan and he was essentially denied the rights accorded to him in the G.I. Bill.  Unbowed, he managed to scrape together some seed money for his venture, borrowing from his own brother and from two black physicians. He then proceeded to handle the rest on his own and slowly and steadily built a golf course from scratch. He finished with the front nine in 1948. After earning the means to buy some more land, he completed the back nine thirty years later- in 1978.

Today his Clearview Golf Club of East Canton, Ohio is on the National Register of Historic Places and Mr. Powell, who is now 92 years old, will shortly be receiving the PGA’s Distinguished Service Award.

I write quite a lot about entrepreneurship and entrepreneurial culture and you can find my various posts on this subject here. These two passages below, however, said it all to me and embody somehow what being an entrepreneur is all about:

“He did much of the heavy work himself, clearing brush, pulling out fence posts and hauling away stones in a wheelbarrow. He seeded the fairways by hand, sometimes helped by Marcella, who died in June 1996 after 56 years of marriage.”

“He and my mother planted most of the trees you see there bordering the first hole,” she [his daughter] said. “When you think about what he was able to accomplish here, with everything that was arrayed against him, it really is quite amazing.”

For Part 6 of this Series, click here.

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• After Battling Racism, Veteran Found Peace on His Golf Course (nytimes.com)

Raising Capital and Launching Startups in Uncertain Times

This is part of my Series on Venture Capital.

A few weeks ago I authored a post describing five common myths about raising capital. In this webinar organized by the National Council for Entrepreneurial Tech Transfer, I am joined by colleagues of mine from the venture, angel and legal community to specifically address the challenges of raising capital and launching new companies in a difficult economic environment. The webinar's agenda also includes the following specific sub-topics:

• How recent market developments are affecting tech transfer offices and startups.
• Emerging trends in the angel investment market.
• Emerging trends in the venture investment market.
• Changes in legal terms of startup transactions.
• Positioning startups for funding and operational success.

In my remarks I specifically address how the economic downturn has affected university start-ups/spin-offs and what steps university venture labs can take in light of such conditions.  I welcome your insights as always.

Jeff Bezos: Extraordinary Entrepreneur

This is part of my Series on Entrepreneurial Culture.

If you’d like to hear an amazing entrepreneur talk about what he’s learned about over the past fifteen years, definitely listen to Jeff Bezos in this video below.  You’ll also hear why he’s so excited about his recent acquisition of Zappos. For those who don’t have time to watch it in its entirety his major points were:

• Be relentlessly focused on your customers

• Be ready to invent on behalf of your customers

• Be ready to think long term and ignore the noise

• Zappos is a remarkable company and is obsessed with its customers

• Remember, it’s always Day One!!

It’s easy to look at the behemoth that Amazon has become today and forget that all of this started with a tiny team working out of Jeff’s house. He is a true visionary.

Raising Capital: How Would You Pitch Your Business to an Old Friend?

This is part of my Series' on Angel Investing and Venture Capital.

I came across this short post from London-based VC Nic Brisbourne yesterday and it immediately struck a chord with me.  Essentially he recommends that entrepreneurs pitching to investors should communicate as if they were pitching to their best friend. In my opinion this is a simple yet very effective prescription and encapsulates in one fell swoop all the right things one should do in a pitch.

Remember, investors are first and foremost looking to back great entrepreneurs who know how to communicate well with colleagues, employees and customers.  When you convey your ideas in a straightforward and unaffected manner, are responsive to feedback, and as Nic says, “do as much listening as talking”, you’re really putting your best foot forward.  

Would love to hear your thoughts on this.

For the next post in this Series, click here.

Notable Posts: "Read All About It"

 

London VC, "Does Operational Experience Help a VC?"

In VC deals, Price Doesn't Matter - But The "Promote" Does

WSJ on Andreesen

Don’t Raise Money: China StartupBlog

University Spinoffs: Bridging the Cultural Divide

This is part of my Series on University Entrepreneurship.

 A big factor in having success spinning-out university startups is the ability to bridge the cultural gap between academia and the investment community.  I think about this divide a great deal, both as a long-time investor in this space and perhaps even moreso now that I am the director of a prominent university venture lab which spins out 10-12 new companies a year.

I was therefore delighted to recently come across this short post written by Amit Monga, Professor of Finance at the University of Alberta. He shares some excellent insights into the practice of investing in university startups courtesy of his prior experience as a venture capitalist.  Dr. Monga’s central premise is that investors want to see much more than technology when they speak with a university tech transfer office.  They are, after all, in the business of launching new companies, which require quite a bit more to succeed than the initial invention or discovery.

What really caught my eye, however, is his very first point which addresses the cultural divide to which I refer above. He points out that whereas it’s very much the custom in academia to focus on a professor’s achievements in research, (including his or her credentials, awards, honors, the number of grad students in their lab, etc.), the reality is that investors first want to hear a value proposition articulated for a potential business. Monga asserts that investors must actually have the answer to this question within the first five minutes of a pitch.

Having politely sat through quite a number of such lengthy introductions that never quite arrive at describing the “pain in the market”, I must wholeheartedly agree with Dr. Monga. In fact, I would say that this value proposition should be expressed within the first two minutes of a pitch.  If the investor is interested, there will be plenty of time to learn more about the professor’s academic achievements. 

I’ll go a step further on the subject of the cultural divide and say that I’ve seen instances where an investor’s motives are viewed extremely dimly by the academic. This too can be a problem.  Again, in this instance, it’s incumbent on the tech transfer folks to invite only the most reputable people into the university and to help work through any ingrained biases that might exist on either side.  For an eventual start-up to be successful, both parties will have to get along extremely well and will come to rely on each other. Start-ups are the very opposite of “arms-length” transactions.

So whether you’re an angel investor, a VC, an entrepreneur, a grad student, a post-doc or a university professor, it’s always valuable to approach university spin-offs with a great deal of cultural sensitivity and understanding.  I assure you, this sort of awareness alone can make all the difference.

For Part Ten in this Series, click here

My Interview on Venture Hype

This is part of my Series on Angel Investing. A few weeks ago I was interviewed by the great team at Venture Hype, a popular web-portal dealing with all aspects of angel investing. The interview was posted earlier today and can be found here. We begin by discussing my background and how I became immersed in the world of entrepreneurship and early-stage investing. We then go on to cover various aspects of academic entrepreneurship and university spin-offs, what works and what doesn't work, and what investing in this space is all about. Lastly, we touch on angel investing more generally. As always, I welcome your input and questions.

 For the next post in this Series, click here.

The Three Most Common White Lies I’ve Heard Told to VC’s

 

This is part of my Series on Venture Capital.

I see a lot of amazing things happen when investors and entrepreneurs interact. I’ve witnessed and been a part of many Venus-Mars moments, the rare love-fest and then of course, what I call the annual train wreck. Today I’ve chosen three questions that may come your way that you ought to understand when you’re out raising capital. I chose these specific questions from the multitude only because I’ve cringed at the responses I’ve heard so many times.

Q: So, how much money have you raised or invested in this company?

This question is actually the least loaded of the three I’ve chosen. It’s very straightforward. On three separate occasions this year, however, I’ve heard the entrepreneur, (who in each case had raised zero money), throw out a number in response that roughly corresponded to the non-dilutive grant money the company had received in the past, prior to his involvement. At least once this number was in excess of one million dollars and gave the impression of a large seed round of some kind. Whereas these responses were technically not outright falsehoods, I knew in each case that there was an intent to ‘slip this one by’.

One thing to keep in mind here is that the investor really wanted to know two things: 1: Have you put any of your own money into this company? And 2: Has anyone else put actual money into this company as an equity investment? If the company, (or the lab technology pre-company for that matter), received grant money in the past that is wonderful- but be specific about it. You are building a relationship with a potential partner after all. First of all it’s the right thing to do. Also, the investor will certainly find out eventually when he or she sees the cap table. So be clear and honest in all your answers. An example of an acceptable answer might be: “The company received some non-dilutive grant money from Gov’t Program Z one year ago, but no, we have no equity investors as of yet”.

Q: I see, so who else in the investment community are you speaking with?

Ok, so this is a rather loaded question. Some entrepreneurs greatly resent it and perhaps with good reason. They know full well that the VC will be calling any fund they volunteered by name soon after they depart the building. Georges van Hoegaerden of the Venture Company (www.venturecompany.com)  is particularly critical of this question and others like it and feels that it is an indicator of what he colorfully terms a “sub-prime VC” and the lemming mentality he so detests. http://venturecompany.com/opinions/files/detect_subprime_vc.html

But let’s put these macro issues aside for the moment. Let’s face it- when you ask someone to invest in your company, you have implicitly submitted yourself to entertaining questions of all kinds, (no matter how inappropriate). So how should one answer such a question? Well, here’s some practical advice. Don’t hem and haw and don’t start out on some long-winded, rambling and evasive story. Be prepared for how you want to answer this question. If you decide ahead of time that you won’t answer this, prepare an elegant response. For example, you could say something like “I’m talking to a number of funds but am really looking for the right partner who believes in this team and this vision”. If you’re willing to answer, do so and mention the funds with whom you’ve spoken. How you choose to respond is largely a matter of taste and personality I think, but the key is to have conviction, prepare and be forthright. Never hem and haw and never equivocate.

Q: Got it, so this is really interesting. What’s the valuation of the company?

Wow. This is the one question I’ve seen people botch from the most real-deal traditional conference-room pitch to the most academic ivory-tower business school venture competitions I’ve moderated or judged. I’ve seen the deer-in-the-headlight look take hold. I’ve seen presenters repeat the question in a near catatonic state…. “the valuation, the valuation…. well….”. I’ve seen the most confident and polished presenters suddenly look over helplessly to their partner for help.  Most often, however, people dissemble, equivocate, punt, smile nervously or giggle out loud in a strange and guilty manner as if their bluff has been called and the unforeseen moment of truth has arrived. I’ll leave the “Why” in all this to trained shrinks although I personally believe it is because presenters simply are not prepared for this stark, direct question.

So what to do? Again, my advice is simple. Prepare for this question! If you are confident in the business, in yourself and the plan you have put forth be ready to calmly state your pre-money valuation.  For example. “I’m glad you’ve asked. We’re at a pre-money of $X million and look forward to any other questions you have.”  If you’re not confident enough to set a pre-money valuation, maybe it’s best to ask yourself why before going out to raise capital.

What I’m trying to convey is this: Be prepared, be yourself, be honest. You win no matter what this way.

Should There be Profit in Knowledge? A Century of American Debate

 

This is part of my Series on University Entrepreneurship.

I recently hosted a talk by Geoff Smith of Ascent Biomedical Ventures entitled: Should There be Profit in Knowledge? Geoff is a fellow Williams College alum and recovering attorney who, like me, got ensconced in the world of launching companies and venture investing in the mid-nineties.  He’s a Managing Partner at Ascent which is one of the few truly seed-stage venture funds in New York operating in the biomedical tech space. He also happens to be a Scholar at Rockefeller University where he founded and teaches the University’s Science & Economics Program. (See here for his bio: http://bit.ly/gbnAC)

One thing I learned about Geoff during his talk is that he’s really a very deep thinker about public policy as it relates to university tech transfer. His lecture covered the evolution of the intense American debate in this field over the last century, from the time of the World Wars up through the passage of the Bayh-Dole Act of 1980, taking us right to the present day. His analysis wove in the scientific norms of Sociologist Robert K. Merton,  the effect of the Ransdell Act of 1930, and the pioneering work of Vannevar Bush (one of the gentlemen pictured above), who drove so much of the ground-breaking government policy in this field. Lastly, I'll say that Geoff’s conclusions were not what one might have expected from a venture capitalist. He has a real reverence for the singular importance of basic research to our society.

I left the talk and ensuing discussion with both a deepened historical perspective and greater appreciation for the transformative effect on our society that a century of American policy evolution in university tech transfer has wrought.  I also emerged perhaps with a keener understanding of its boundaries.  Fascinating stuff and many thanks to Geoff.

For Part Eight in this Series, click here

University Spin-Offs (6): Amazing Historical IPO Rate

This is part of my Series on University Entrepreneurship.

 Soon after getting involved with university spin-offs I came across Scott Shane’s book, Academic Entrepreneurship: University Spinoffs and Wealth Creation.  Scott is a Professor of Entrepreneurship at Case Western  Reserve in Cleveland, OH.  You can find his impressive credentials and scholarship here. He is also one of the few scholars that has closely studied the world of university spin-offs.

One of the outputs of his research was a staggering statistic that has been quoted widely. He found that university spin-offs were 108 times as likely to go public as a company with no ties to a university.

The National Council for Entrepreneurial Tech Transfer has put forth a similarly impressive statistic, indicating that 8% of university spin-offs have actually gone public.

I believe that this disparity has a great deal to do with the fact that the crème-de-la-crème of university start-ups are no doubt the end result of years of research, know-how, incubation, testing, federal funding, development and patenting within the university prior to being spun-out. When such a package is licensed to a talented entrepreneurial team, we have a formidable recipe for success.

For Part Seven in this Series, click here

Raising Capital (2): Five Myths About Raising Capital

This is part of my Series on Venture Capital.

Let’s start by dispelling some myths about raising capital.

Myth #1: That because you've started a company, someone ought to fund it.

Fact: Actually, no one owes you anything. VC’s are in business to make money, not to take a bunch of fliers.

I am consistently amazed at how often I hear people complaining about how “vc’s don’t want to take any risks”.  Of course they don’t ! They want to de-risk deals as much as possible. Venture capitalists are already in the highest risk class of the alternative investments category.  Definitely keep this in mind when you are pitching your company to investors. Remember, fewer than 1% of start-ups actually receive venture funding.

Myth #2: That a first-time entrepreneur can raise Venture Capital money.

Fact:  Of the less than 1% of start-ups that actually receive venture backing each year, you can be assured that with few exceptions the leadership/track records of those companies are well-spoken for in the venture community.

If you are a first-time entrepreneur, 99.9% of the time you will be looking at funding your company with your own money, friends and family money, or, with angel money.

Myth #3: That investors will actually read your business plan

Fact: Investors do not read business plans. If they did, they wouldn’t be able to get any work done.

The way deals get done are through referrals to investors from trusted colleagues. A one-page executive summary is an acceptable way to initially share one’s company profile with an investor.  So never bother sending your 50+ page business plan  to someone unless they’ve asked for it. If you don’t believe me, see these links below from actual studies that have been carried out.

http://bit.ly/O4kO4   http://bit.ly/Cj92J

Myth #4: That a first-timer can raise money without serious proof-of-concept.

Fact: Unless you are Marc Andreesen or an uber-successful, cashed-out entrepreneur who has made his investors a lot of money, you will need to demonstrate a certain amount of traction before professional investors will even consider investing in you.

What I mean by this is as follows:

·        If you are a biotech entrepreneur, you will need to show at least strong results in animal studies.

·        If you are a medical device entrepreneur, you will need to show a working prototype, validation and support from multiple clinicians who would use such a product, as well as a clear path through FDA approval.

·        If you are a tech entrepreneur, you will need to show heavy traffic and consistent month on month growth to your site.

Myth #5: That because you have spoken to a venture capitalist about your company you are “in talks with investors”.

Fact: What this simply means is that you met someone that may or may not be interested in your start-up.

Spare yourself a lot of heart-ache and lower your expectations. If you’ve had a conversation or pitched someone who happens to be an investor, don’t get your hopes up until they are actually ‘in diligence’ and you have a term sheet.

Raising Capital (1): What’s it Really All About?

This is part of my Series on Venture Capital.

‘Raising Capital’ for one’s start-up is perhaps one of the most talked-about and important aspects of early-stage entrepreneurship there is.  And despite the amount of attention and discussion the topic receives, I also think it is perhaps the most misunderstood of all.

At some point, all start-ups, (whether they be university spin-offs, services/consulting companies and/or technology companies), that aspire to some conventional measure of growth and success will require operating capital of some kind.   As someone who over the past sixteen years has raised millions of dollars in capital both for my own start-ups and for several dozen university spin-offs, I’ve definitely developed a feel for what I believe works and for what doesn’t work.

In this series we explore the challenges, myths and rules of thumb that apply to this process and of course welcome your input.