Presentation on theme: "Summary We’ve witnessed the greatest, all time, wealth creation and destruction period. Ponzi? Conspiracy? .com era allowed any idea to get extraordinary."— Presentation transcript:
0 High Tech Ventures: August 2001 A Silicon Valley Perspective Gordon Bell Microsoft Corporation&Nanyang VenturesAugust 2001
1 SummaryWe’ve witnessed the greatest, all time, wealth creation and destruction period. Ponzi? Conspiracy?.com era allowed any idea to get extraordinary funding, valuations, and payoff. Little technology!Silicon Valley has capital. But, VCs busy with old projects.Real technology exists and is increasing! But, I don’t see a chance to “spin a yarn” like www!What counts AGAIN, are fundamentals: Team, product, marketing … and execution!Lots can go wrong!
2 Internet Bubble Lessons Laws of economics still applyRisk/reward at a new levelTechnology enablement available to allInfrastructure is means, not endInternet connectivity doesn’t mean integrationBig changes take >5+ years. In the long run, it will all be true!Cash is still king!Company failings is still growing. Peak by year end.
3 It is not even the beginning of the end “Now this is not the endIt is not even the beginning of the endBut it is, perhaps, the end of the beginning”Winston Churchill, 1942
4 BIO INTELLIGENCE AGE AGRICULTURAL INDUSTRIAL TECHNOLOGY DEVELOPMENT INFORMATIONCONSUMER ACCEPTANCETECHNOLOGY DEVELOPMENTBIOINTELLIGENCE2000 BC1500180019002000 ADTIME (year)R. Satava 29 July 99
5 Outline Situation in Silicon Valley / Bay Area 2001 August Unlike our PR, streets aren’t paved with goldYou have to dig for it versus pick it upNow it is much harder than 2 years agoGood business for pick and shovel makers!Bell-Mason Model for a startup and the diagnosis of them … the fundamentals haven’t changedLook at the environment that supports it and compare it with the area in Boston.Lessons for .au?Red flags and flaws … what to look our for
6 Slowdown in the valley: What's ahead Mercury News 5 August 2001Economic recovery may lag The Internet bubble burst, as painful as it's been, follows a historical pattern. Although a slow recovery is predicted, experts say technology is still the key to future growth.BY DAVID A. SYLVESTERSilicon Valley, get ready for life in the slow lane.After five years of turbocharged growth, the tech-dominated economy here is still plunging toward a bottom.
7 WSJ 7/27… technological gloom Mary Meeker … famous for the rise of the Internet …, estimated that $727 billion has been lost by the … Internet companies 12/99-07/01. Ms. Meeker adapted an aphorism from the Great Depression … The "biggest risk we face, is not being willing to continue to take risks."… many venture capitalists are so busy shutting down their existing companies, or trying to arrange bailouts, that they have little time or appetite for new deals.Stewart Alsop, a general partner at NEA, … made 10 or 12 investments this year, compared to 50 in the same period of Instead of griping about excessive valuations demanded by start-ups, he is now steeped in the onerous contract terms that firms impose during "down rounds“.
10 Some statistics and sayings Technology industry: $7.6B invested 2001Q2, vs $24.8B 2000Q2.555 Internet start-ups have closed since the beginning of 2000, >75% in the past eight monthsIn the first half of 2001, 330 .coms shut downConsumer companies accounted for 26% of shutdowns, vs 43% last year,Business-to-business accounted for 33% of shutdowns, vs 22% last year.Electronic commerce start-ups comprised 40% of closings, vs 54% in 2000;ASP shutdowns rose to 10% from 8%.In June, 53 .coms ceased business, vs. May record of 60``the biggest Ponzi scheme in the postwar era,'' says K. Rosen, UC-Berkeley. ``And we were in the center of it, right in Silicon Valley.''
11 California, Here I Go b2c & b2b- back to Cleveland & Boston
12 "New technologies always SOUND HOT…the problem is knowing what’s NOT "New technologies always SOUND HOT…the problem is knowing what’s NOT." -gbell.coms NOT.Moore’s Law drives startups. 10X transistors/die /5 yrs.Microprocessor-based: Java, games, DSP, multiprocessorsCommunications: DSL, switch traffic 4x/yearMEMs, leading to NanotechCommunications: 4x/year traffic growth. They are all in debt!Wireless NOT. Carrier & platform limited. Crowded.Games. Industry is > movieDrug discovery given the genomic map. Bio-x.Opportunities:convergence of computer with phone & with TVEnergy conservation"The technological possibilities are endless ...all we have to do is sort through them."
13 The Bell-Mason Diagnostic A system for ... • Measuring risk • Predicting course • Tracking progress • Improving the odds of success of high tech, high growth, early stage venturesMeasure risk by generating a clear picture of where you are in the venture's development.Predicting the course by providing a vector describing where the venture is headed.Repeated usage as the business develops provides a consistent tracking mechanism.Improving ventures by providing a prescription for the changes during development which reduce risk and keep the venture on track.
14 The Bell-Mason Diagnostic Founding Premise “You don’t have to understand the technology to ask the right business questions.”The Bell-Mason Diagnostic provides the critical technology, product, marketing, and people expertise."You don't ..." key word is BUSINESS questions. The process is really independent of the specifics of the technology within the confines of a particular industry. Biotech developments are similar to Info Tech but with other issues and different time scales.The diagnostic was developed over a period of years based on the best business practices used in the completion of 100's of successful (and some not successful I might add) ventures. These practices have been translated into heuristic rules which have led to a set of over 700 hundred questions which make up the BMD.
15 The Bell-Mason Diagnostic Space Twelve standard dimensions characterize a venture (a chapter of High-Tech Ventures).Time Four, well-defined stages of company development with 7 sub-stages of product and market development.Quantification Clear, yes/no questions (i.e. rules) encapsulate knowledge for evaluating a company.Visualization A relational graph shows company position.The BMD is a space-time model, looking at each aspect of a venture.Stages: can measure transition times to within a weekQuantification: doesn't ask how you got there, it asks whether you did
16 12 Dimensions of Analysis PRODUCTMARKETBusiness PlanManufacturing Service/DeliveryMarketingProductSalesTechnology/CEOEngineeringThis is the space model. It looks at 12 dimensions which are, in effect, orthagonal and can be measured independently.Tech: specs and technology to produce?Product: the product itselfMfg: replicatable?Biz Plan: quality of the plan is key ... Is it what we intend to do or an advertising doc or a contract?Mkt: how good is the plan to capture the marketTeam: top level people ... .leaders of the fcnl parts of the org.Cash: synonymous with timeFinan.: can we get more $Control: is it doing what it said ... will it continue?TeamControlFinanceableBoard of DirectorsFINANCE/CONTROLCashPEOPLE
17 Four Stages of Growth Stage 1 Stage 2 Stage 3 Stage 4 $ $ $ Market DevelopmentStageProductDevelopmentStageConceptStage$SeedStage$$1 day to12 months3 to 12months12 to 48 months24 to 48 monthsThis is the time aspect of the model ... divides the process of venture development into 4 specific stages with clearly defined results for each stage.Concept: develop the idea people ... secure $Seed: prove key technology works through breadboard, refine biz plan including market viewsProduct Development: really 4 stages ... plan and hire, design and build, alpha, beta. Ends with FCS.Market Dev: 3 stages mkt calibration, mkt expansion (1st BE Qtr), steady state operation (6 consecutive BE qtrs)[Stages are not related to rounds of funding (rounds only mean you need more $)]ConceptSeedProductMarket
18 Context for Digital Strategy Ventures 1 day to9 monthsConceptStageStage 1Angel $Idea9 to 12 monthsStage 2+3ProductDevelopmentStageSeed$MarketDevelopmentStage11 to 30 monthsStage 4IPO $This is the time aspect of the model ... divides the process of venture development into 4 specific stages with clearly defined results for each stage.Concept: develop the idea people ... secure $Seed: prove key technology works through breadboard, refine biz plan including market viewsProduct Development: really 4 stages ... plan and hire, design and build, alpha, beta. Ends with FCS.Market Dev: 3 stages mkt calibration, mkt expansion (1st BE Qtr), steady state operation (6 consecutive BE qtrs)[Stages are not related to rounds of funding (rounds only mean you need more $)]1310
19 Bell-Mason Diagnostic Staged Evolution of Questions… from roughly 1,000 for all stages! Concept “Does the company have evidence of product possibilities, given the technology, that customers are likely to buy?”Seed “Does a simple product specification exist with features and functions that can be presented to potential users?”Product Development “Are an appropriate number of beta systems (3 for large systems, >20 for mass marketed software) operating in real user environments with users satisfied and testifying that the product exhibits unique capabilities and/or significant performance and/or performance/price benefits?”The third element of the framework is a series of questions based on heuristics derived from "best business practice" developed through experience with hundreds of projects and companies.A sample is shown here.Questions get more specific at later stages, but the issues must begin to be addressed even at the early stages.
20 Evolution of the “Ideal State” at Each Stage: Entrepreneurials Stage IV.Market DevelopmentBusiness PlanStage III.ManufacturingMarketingProduct DevelopmentProductStage II.DevelopmentSeedSalesStage I.ConceptTechnology/CEOEngineeringControlTeamFundabilityBoard of DirectorsCash
21 Bottom lineThe startup process can be codified and measured according to a modelDeviating from “best practices” is a risk to company and investorsThere’s rarely a shortcut for starting a successful venture
22 Context for New Ventures How do you support them?Look at Silicon Valley versus Boston’s Rte 128Needs of area to support venture
25 Si Valley vs Route 128 (Hi Tech Employment 000’s) Saxenian 1994
26 Rte 128 and Si ValleyVCs behave as bankers VCs behave as investor/partnerFinance focused Content, contacts & assistanceEstablished industries Growth from new companiesMilitary contract companies Large, and many startupsVertical integration (DEC) Horiz. Integration & compon. Key ideas: IC, Micro, disk!MIT… few rich profs. Stanford, UC/Berkeley (Close to Washington DC) (Close to industries)Protection of IP Free flow of people & ideasSilicon failed (large co’s) Silicon from the beginningHi-tech is just another biz Hi-tech is the only bizGen. Purpose infrast. Hi-tech focusRisk is to be avoided Risk is admired & rewardedWork to live Live to work& pay for lifestyle
27 Exogenous Effectors for Each Dimension Reasonable expectations,patience,Tech workforce, sub-contractors, componentsMarket, infrastructure for"complete" product, partners,strategic alliances, PR, etc.CompetitiveProducts, co-componentsCustomers, sales personnel,channels to international mkt.Eng, sci., tech, tech svcs, uni’s, other companies, consultantsTrained pool of gen. mgrssuccessful "role models"Trained personnel to hire, area-specific consultantsAcctng, legal, financial/financing infra- structureCapital market supplyCash & financing experience, "patience"BOD with Industry, market, product, engineering, financial experience
28 An “ideal” Venture Capitalist Has a reasonable sized fund, but not too large…Has access to friends who have plenty of funds including bankers and M&A folksHas “done it” before as an operational professionalKnows your industry.Customers and suppliersConsultants, potential employeesKnows infrastructure: acc’tng, legal, recruit, PRGreat company salesperson & recruiter“You’re happy to be with them in a law suit.” -DoerrPast success: knows difference between luck & skillSmarter than you are… and willing to teach you
29 Personal Failures… when I didn’t luck out Failure to use the BMD! NO due diligence…use 2 sec. Gut!Buying a dream or idea, NOT team|plan.A lone ranger’s algorithm, isn’t a product or companyFeatures, UI’s just aren’t products, let alone company!No viable biz plan… just an idea that one could exist.Gut > logic… just like the idea or team.CEO problems or Sociopath on the team?Team turns on each other. Won’t|can’t hire CEO or x.Friends: “helping” in some capacity!Flattery|need: we need you on the BOD!Do it for money… w/o due diligence.Poor “money manager” post IPO
32 I. Concept Stage Activities "Inspiration and Speculation"Average Duration: monthsPrincipal Activities and Achievements:Formulation of idea for technology/product innovation.Initial field investigation to "test" application vision.Acknowledgement by 3 reputable outside sources of a product and business.First business plan (6-10 pages).First funding to go to Seed and make a proper plan.
33 I. Concept Stage Flaws and Flags No clear articulation of vision or competitionFaulty or non-existent business planThe vision constitutes research or hopeNot a company, but a: feature, algorithm, one product eventOver-reliance on new components or new suppliers or new infrastructureLack of credible sources who support the technology/product premiseNo acknowledgement of competitionNO team or the wrong team... (e.g. too many new tricks for old dogs?)No risk assessmentOver financing without going to Seed (planning) Stage
34 II. Seed Stage Activities "Exploration and Resolution"Average Duration: monthsExploration key technologies to prove feasibilityProduct Specification and Products RequirementsFirst product devel. schedule made with teamExploration and refinement of key market assumptions and positions, models, applications, and channelsPreliminary Customer/Application Profiles builtFull, formal business planFunding for Product Development
35 II. Seed Stage Flags and Flaws Insufficient technology feasibility (product may be research); or it may not be unique or differentiated; or it may be one shotNo clear product specification (and no predictability on scheduling and real resources required)No "design for manufacturability“ or “delivery/support”?Engineering and Marketing both have a great product vision -- but they're contradictoryNo Product Requirements Document or Lack of Market VisionUntested market assumptions and modelsNo written Customer/Application Profiles and loose definition of market segments
36 II. Seed Stage Flags and Flaws-2 Insufficient model of the lead-time to sale by segment and channelMiss-perceptions re: competition and advantageFlawed team: lack of credentials and no clear solution to attract the right talent and fill voids"Penny-wise, pound-foolish"-- delaying expenditures for critical resourcesBusiness plan is a fund-raising document, not a dynamic control document -- i.e. the top line is unrealistic; sales forecast is just a 'hockey stick'The Board is just founders and VCsCompany misses Seed milestones
37 III. Product Development "Construction" Average Duration: 12 to 48 months (avg. 24)Principal Activities and Achievements:Engineering team is hired and product is built, according to specification. Development goes through four phases:a)hire the team, specify the product in detail and plan the project and all support processesb)test the specification and simulate its operation, building operational prototypesc) integrate and alpha test under operational conditionsd) beta test in the field at customer sites.
38 III. Product Development-2 "Construction" Engineering and Marketing iteratively refine FFB's and product positioning according to Customer/Applications Profiles and requirements.By end Beta, delivery organization and process, including manufacturing is completely formed.Marketing works iteratively, closely with Engineering throughout this stage.Marketing's programs are in place at end Alpha and beginning to be implemented in Beta. (Note: Beta is the last opportunity to test under a shield of privacy and confidentiality.)Additional funds are often raised to finance market entry and calibration, based on Beta progress.III ends with product introduction.
39 III. Product Development Red Flags and Fatal Flaws Technology-to-product translation simply didn't work as planned (too low, too high, too elegant)Company needs new tools to develop the product -- couldn't invent or obtain given current plan.Company reliant on other vendors for product performance.No product architect.Schedules/milestones are constantly missed; funds used faster than forecast.Product isn't Beta Tested.Systems integration problems.Manufacturing can't produce product for target cost.
40 III. Product Development Red Flags and Fatal Flaws-2 Business Plan isn't updated, and reflects unrealistic break-even point.Key customers aren't identified per segment.Pricing and availability are still in flux.Strategic partner candidates not interested.Product is introduced before it exists.Sales is on too early; marketing is on too late.Marketing is vision-less and has no written plan.Marketing has no Market Segment Development Schedule.Sales and/or channel strategy is mismatched to product.Team is at war, and there's no consensus.
41 IVa. Calibrate the Market “Commercialization" Average Duration: 3 to 9 months (avg. 6 months)Principal Activities and Achievements:Every line of business plan is now operable and tuned for determining profitability.Every department's operations and plans are tested.Engineering responds to field problems and joins in team sales.Modifications to product, enhancements, next releases, new products are handled by Phase Review product planning process.
42 IVa. Calibrate the Market-2 “Commercialization" Manufacturing is fully staffed and delivering product on schedule at the correct cost, quality and volume commitments.Marketing and Sales drive the company.Marketing validates/recalibrates its Market Segment Development Schedule, positioning, unique selling propositions per segment, sales gestation times.Sales hones its prospecting and pre-qualification filters, and tunes its forecasts.Making sales is the top priority of the company (meeting 3 and 6 month forecasts).Financing for IVb Market Expansion is often undertaken.
43 IVa. Calibrate the Market Red Flags and Fatal Flaws Engineering ships a buggy product and spends all its time fixing the product in the field.Weekly meetings to cover product status and categorize/prioritize change requests don't happen (changes are ad hoc and priorities are not established).Departments aren't following their own plans as central control and measurement documents.The Phase Review (or some other similar process) isn't instituted as a means to organize cross-company communication and decision making re: the product and follow-on's.Engineering is understaffed to handle field maintenance and new development.
44 IVa. Calibrate the Market Red Flags and Fatal Flaws-2 Engineering ships a buggy product and spends all its time fixing the product in the field.Weekly meetings to cover product status and categorize/prioritize change requests don't happen (changes are ad hoc and priorities are not established).Departments aren't following their own plans as central control and measurement documents.The Phase Review (or some other similar process) isn't instituted as a means to organize cross-company communication and decision making re: the product and follow-on's.Engineering is understaffed to handle field maintenance and new development.
45 IVa. Calibrate the Market Red Flags and Fatal Flaws-3 The product is introduced far before it can be shipped ("vapor").Manufacturing can't product the product at appropriate unit cost, according to committed schedules, and the quality levels aren't met (DOAS, bad installation procedures, lack of service, no spares, etc.)Marketing's assumptions, positioning and unique selling propositions are off (beyond fine-tuning).Marketing's specifications/programs for customer service and support are insufficient to maintain "satisfaction" level (e.g., can't respond to problems within 24 hours, inadequate documentation, insufficient level of initial and ongoing training, many complaints).Marketing doesn't have a completed Market Segment Development Schedule and a completed market plan to drive Its own operation and strategically direct Sales.
46 IVa. Calibrate the Market Red Flags and Fatal Flaws-4 Marketing and/or Sales' forecasts of lead time to sale per segment are off.Marketing has a completed Market Segment Developmenth Group 1 early adopters, but can't transition to Group 2 segments to expand the market position and sales volumed Engineering stalemate on action required by changes to FFB's; political infighting and finger-pointing starts eating up time and energy.Marketing and Sales have presold functionality that now can't be attained in real product operation in the field (in specific applications, or "across the board").
47 IVa. Calibrate the Market Red Flags and Fatal Flaws-5 Marketing is short on strategy and long on tactics.Marketing Is understaffed, or inappropriately staffed.Marketing doesn't strategically drive Sales with segment targets, key reference customers, training and support necessary to make sales (e.g., Sales is on its own).Sales doesn't agree with Marketing's Market Segment Development Schedule, market plan, or with specific identification and prioritization of sales targets.Sales is completely opportunity and personality-driven that makes forecasting unpredictable, at best.Sales has hired the wrong type of sales people for the product/company.
48 IVa. Calibrate the Market Red Flags and Fatal Flaws-6 The company's third-party distribution agreements, now operable, are in conflict (e.g., the company has an agreement with a retail chain and begins mail order sales in the same areas.)Marketing has underestimated the level and cost of support for third-parties (e.g., VARs end up requiring more training and assistance; company must team-sell to close VAR sales; volume doesn't Justify support costs; VAR getting deeper discount, but is operating like, a non-value added distributor.Marketing hasn't created enough interest in the product in the end-user markets (through marketing communications and key sales) to motivate aggressiveness from OEMs and other third parties.
49 IVa. Calibrate the Market Red Flags and Fatal Flaws-7 The product's current feature set is insufficient to support third-party requirements.Sales forecasts for the first 3 and 6 months weren’t met.Sales forecasts for the first 3 and 6 months were met, but do not support the business plan's model of operation for the next months (IVb), pushing out break-even.Funds were raised based on a plan that is no longer feasible.The company is unable to raise more funds, or can do so only by diluting current stock value, because of disappointing performanceIVa.
50 IVa. Calibrate the Market Red Flags and Fatal Flaws-8 The CEO isn't current on the issues across the departments and through exec staff MBOs.The CEO makes far-reaching decisions too quickly or too slowly.The CEO isn't making weekly or bi-weekly customer visits and key sales calls.The CEO is an Ineffective spokesperson for the company and product.The CEO is totally immersed in Sales and neglecting ongoing strategic business planning for the company.
51 IVa. Calibrate the Market Red Flags and Fatal Flaws-9 The Board of Directors is involved in day-to-day operations and decision making (i.e., the CEO isn't in control).Cash flow is unpredictable (e.g., accounts out greater than 60 days).The company's expenses are higher than forecast.The company isn’t managing to the “bottom line”, but is hoping for a miracle.
54 Stages of New Venture Growth New Venture ModelsStages of New Venture GrowthConceptSeedProductDvpt.MarketDvpt.Estab’d.BusinessIndependentStart-UpCorporateVenturesThe stages of venture development are common to virtually all new technology based ventures. We feel it is useful to consider separately independent startups and corporate ventures.Much of the public lore of venturing has been based on successful experiences in independent start-ups such as Compac, Intel, Apple, Conner.The issues in corporate ventures differ in many ways from the independent model. I will focus on the corporate venture side this afternoon.We will see some of the differences in this (the next) slide.VentureCapitalFundingSelf -fundedJointVentureStrategicAllianceSpinoutInternalAcquisitionBusiness Unit Marketing Engineering
55 Entrepreneurial vs. Intrapreneurial Ventures Venture goalsFunder’s measures of successCompetitionResourcesStructureStaffingIndependentProfits, ROE, IPO/AquisitionExternalScarceSimple, stand aloneCEO+ small teamSet by parentRevenues, strategic business position, market shareInternal & externalPlentifulComplex, ties to corporationLarger teams, matrix organizationsAlthough in many situations, the CV is blessed with greater resources than the typical venture-backed startup, the issues of organizational structures, staffing, and venture portfolio management are much more complex.
56 Entrepreneurial vs. Intrapreneurial CategoryEntreIntraTech./Eng. no process, few people many processes, questionable goalProduct more related to a market likely to be "Field of Dreams"Mfg. often out-sourced forced to be internalPlan: crisp,but often unreal variable (0 to very detailed)Marketing weak, hard to do unrealistic, hard deal-makingventure $s drives a plan no early market planning incompetence is size & organization independentSales built as needed co-mingles with corp,CEO/GM founder or vc choice often missing, hard to findTeam focused on venture diffused throughout organiz.Board important mgmt. comp. missing$s too few, easy to hire/fire blank check... few people ²sFinanceable a concern, easy to stop blank check, hard to stopControl lax over-control, long time const.
57 Summary Observations: Imperatives for Success Corporate body guiding new ventures must understand new venture development modelCorporation must inventory and leverage core competencies (otherwise, true roulette)Start-up’s don’t naturally live in established, large corporations: must be structure that provides early insulation and (much) later assimilationEntrepreneurs don’t exist naturally in established, large corporations: personnel must be continually trained and self-selected— and importedNew ventures must acquire understanding of missionary marketing/sales techniques and build new positions/job descriptions that reflect it