Nailing The Innovation Myths

On February 16, 2010, in Economy 2.0, Publications, Sustainability, VC2.0, venture capital, by Tim

Good to see a new report from the Judge Business School in Cambridge highlighting some of the myths about how high tech firms are created. Much of Europe tends to focus on large multi partner research schemes such as Framework 7 whereas much of business wold prefer something like the SBIR and DARPA contracts common in the US.

The report found little enthusiasm amongst successful, fast growing high-tech firms for the kinds of multi-partner research grants involving university-industry collaboration that are favoured by UK policy makers and, in contrast to the US, a dearth of R&D contracts with public sector customers. It argues that for decades UK Government policy has been based on three fundamental myths about how new hi-tech firms are created:

-       that university research is the key source of technology and innovation for new hi-tech firms

-       that venture capital is the primary source of finance

-       and that the best way for Government to support technology development in companies is by funding multi-partner research collaborations between universities and private sector firms

While the first two points may be true (to some extent) in Silicon Valley (at certain times),  countless billions have been frittered away trying to create new Silicon Valleys in various parts of the world.

The report also calls “for the establishment of “Intermediate R&D Institutes”, similar in some respects to the Fraunhofer Institutes in Germany, to provide a more mission orientated environment than is possible in universities to develop and commercialise technologies with long lead times.”

 
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Is the Venture Capital Business Broken?

On January 15, 2010, in VC2.0, by Tim

That’s the question posed by Charley Polachi at Private Equity Hub.

The results of a survey of over 1,000 VCs seem to indicate that it is, and the industry as a whole is in need of a ‘reset’ – both in terms of the number and type of companies involved, and in terms of their attitude to ‘innovation.’

Although in one conversation, one of the partners shared with me an ironic observation – he works in an industry that preaches innovation and it is all about creating new businesses and investing in new ideas, but the venture industry itself – doesn’t want to change! It is barely a 30 year old industry but slow to change, almost institutional in its view of itself as it relates to structure, fees, compensation, succession planning, etc.

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Got Dem Old European Innovation Blues Again

On December 28, 2009, in Economy 2.0, Europe, VC2.0, by Tim

Lets hope the "innovation economy" works better than the "knowledge economy"

The European Union is getting increasingly interested in innovation, and convened a Business Panel on EU Innovation Policy to help it. The report is here, and  a blogged summary by Diogo Vasconcelos is here.

While it’s all good stuff, and the recommendations about broadening the concept of innovation and creating new infrastructure and financing models are sensible, much of this, and other similar reports tend to ignore the elephant in the room, the question of whether governments can do anything at all abut innovation?

Of course chucking plenty of money around will result in some of it sticking to to something useful, but most of it won’t and of course if huge wads of money are available for innovation then there will be plenty of companies rebranded as innovative that were clean tech the week desperately sticking their paws in the honey pot.

A better suggestion from the Panel is to improve infrastructure, making sure that everyone has access to fast broadband is a step, but one has to wonder whether we are already approaching the stage where everyone who wants superfast broadband internet access already gas it, and piping it into households who have no need or interest in technology will only stimulate innovation in the online gambling and pornography industries.

Rather than building new institutions and putting in soon to be obsolete wiring, Europe should look at what it already has and try to make that more efficient. There s no shortage of decent universities, or of scientific talent. If I were to start throwing taxpayers money around chasing an nebulous concept like innovation, Universities would be a good place to start.

 
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UK Government Announces £1Billion Innovation Fund (for the fourth time)

On December 3, 2009, in Economy 2.0, Europe, VC2.0, venture capital, by Tim
UK Announces £1Bn Innovation Fund and Outstanding Achievements at No.3 Tractor Factory in Hartlepool

UK Announces £1Bn Innovation Fund and Outstanding Achievements at No.3 Tractor Factory in Hartlepool

The UK Government’s £1Bn Innovation Fund was announced for the fourth time this week (although I’m still waiting for the promised explanation from Lord Drayson). I wasn’t too impressed last time it was announced, or this time, and Mark Littlewood at Business Leaders Network is also sceptical

It may well be that the money will be raised and will be used to do something imaginative like backing successful angels and entrepreneurs through side-car funds or some similar mechanism. There are some interesting possibilities here that could make sure that the money is spent to ‘kick start British Technology investment’. But putting it into established funds, particularly ones without decent track records, will just create fund managers who are doing it for the management fees, won’t take the kind of risks that are needed and don’t have the experience to make success happen. Oh and it could create a false market.

It might be better if the government could wean itself off the addiction to announcing half baked ideas involving big numbers and actually implement something. It is hard to see the value in constantly re announcing something and the latest news about the fund rings as hollow as a set of Soviet era tractor production statistics.

 
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The World’s Largest Brainstorming

On November 12, 2009, in Economy 2.0, Events, Finance, Nanotech, VC2.0, by Tim
“World’s Largest Brainstorming”
The Summit on the Global Agenda will take place from 20 to 22 November 2009 in Dubai, United Arab Emirates, in partnership with the Government of Dubai. The Summit will bring together over 700 Global Agenda Council Members, representing some of the most innovative and influential thinkers from over 90 countries – including 300 business leaders, 240 academics, 100 leaders from civil society, NGOs and think tanks, over 50 leaders from international organizations and 30 public figures. Together they will address key issues on the global agenda.

I’ll be back in Dubai next week for what is describes as the “World’s Largest Brainstorming”

The Summit on the Global Agenda will take place from 20 to 22 November 2009 in Dubai, United Arab Emirates, in partnership with the Government of Dubai. The Summit will bring together over 700 Global Agenda Council Members, representing some of the most innovative and influential thinkers from over 90 countries – including 300 business leaders, 240 academics, 100 leaders from civil society, NGOs and think tanks, over 50 leaders from international organizations and 30 public figures. Together they will address key issues on the global agenda.
It is an interesting project, to bring together people from across business and society and break them into over seventy different councils looking at everything from Emerging Technologies (my council) to Illegal Trade and everything in between. The overall aim is to bring together “the world’s foremost thought leaders” (blush) to develop an agenda for what is happening in their own area of expertise, and then interact with all the other councils to see how the big picture fits together.
Last year (see the reports here) we discussed nanotechnologies in some detail, but came to the conclusion that the structural issues surrounding it (public acceptance, funding mechanisms, safety, long term R&D strategies etc.) were not unique to nanotech and were indeed common to most emerging technologies, whether synthetic biology or even geoengineering. One challenge this year will be to see how this fits into the bigger picture, and interacts with the issues being discussed by other councils such as Innovation, Strategic Foresight, Corporate Governance,  and Sustainable Energy.
However the major challenge will be moving from discussing issues to taking action to address them. In our case, how can we effectively deploy science and technology to address some of the worlds major problems? In ten days we should at least have an action plan!

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Toto, This isn’t 1997 any more!

On October 15, 2009, in US & Canada, VC2.0, venture capital, by Tim

The Wall Street Journal points to further evidence of the collapse of Venture Capital.  Typical of the doom laden quotes is this:

“Dallas is an entrepreneurial city, but it won’t be driven by venture capital going forward,” said Daniel T. Owen, a venture capitalist at the 16th-floor firm H02 Partners, which plans to wind down its venture business over the next few years. “The pure venture-capital model is really thriving in just Silicon Valley and Boston.”

The bottom line is, in this case the bottom line, as VCs who haven’t managed to make any money for their investors are left bemused by the unwillingness of anyone else to hand over cash. I’m bemused as to whether that’s an arrogant or stupid view of the world.

Toto, This isn’t 1997 any more!

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Is a Half Baked £1Bn Innovation Fund Better Than None At All?

On July 1, 2009, in Economy 2.0, Europe, Finance, VC2.0, venture capital, by Tim

@Lord Drayson had a quick look at my take on the new innovation fund and tweeted

This article misunderstands how this fund will work. I will blog on the BIS site to spell it out.

I’m looking forward to it.

There is no doubt about the commitment of the Lords Mandelson and Drayson to stimulating the UK economy though science and technology, they have been banging on about it for years. It’s rare to see one person in government who ‘gets it’ let alone two, but the devil is always in the details (cue another rerun of Yes Minister)

In fairness, I haven’t heard a squeak about science and innovation from the opposition Conservative party recently apart from a few general remarks to the Royal Society.

Perhaps a half baked plan is better than none at all?

 
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The UK Innovation Fund – Just As Half Baked As Most Business Plans?

On June 30, 2009, in Economy 2.0, Europe, Finance, VC2.0, venture capital, by Tim

I’m probably nor the only one to be underwhelmed by the UK governments new £1Bn “Innovation Fund” – it’s actually £150m but there are hopes that with private sector leverage it could swell to £1Bn by, erm, 2019!

The main worry is that the UK government has made a habit in recent years of announcing things and then forgetting about them. There was a a £750 million fund for innovation to “stimulate growth in the UK’s industries of the future” announced in April, and according to the Telegraph

This new ‘UK Innovation Investment Fund’ is not the first initiative launched this year. The much heralded £75m Capital for Enterprise fund, set up in January to take stakes in over-indebted companies, has still to announce its first investment. A women’s enterprise venture capital fund, launched almost a year ago, has also so far resisted the temptation to profile its progress.

One has to wonder whether the true purpose of these initiatives is simply to produce sound bites such as

“This fund will help build Britain’s future by investing in key sectors. It will provide crucial support for our most promising start-ups and existing small companies just when they need it most. Venture capital finance is the lifeblood of innovation and crucial to ensuring the commercialisation of the discoveries coming out of our research base. The fund will boost future UK competitiveness,” the Prime Minister said..

or headlines like this

Government Launches £1 Billion VC Fund!!!!

The fund hopes to make investments by the end of the year, but the maths does look a bit dodgy, even for the VC industry as discussed here

We’re obviously not in receipt of the facts (and this sort of addition might be responsible for MP allowances scandals). £150 million of public money plus equal participation from the private sector equals £300 million and not £1 billion. Now – we can make allowances that this is over 10 years so the revenue gained from licensing and exits of companies funded might contribute sufficient back to increase the value of the fund. Might.

Either way, the £150 million will barely cover the administration fees of the various private VC funds that will be needed to make up the other £850 million to make this into a £1 billion fund.

Given that the Lords Mandelsonand Drayson are passionate about the need for technology investment, I’d love to think that we are missing something and that there is a solid and well thought out initiative behind this announcement, but for the moment it does look somewhat half baked, especially in light of the fact the government doesn’t appear to have any money to pay for any of this!

 
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Class R Stock – A New Mechanism For Funding Science Based Start Ups?

On June 19, 2009, in Economy 2.0, Nanotech, VC2.0, by Tim

One of the biggest threats to scientific innovation has always been the lack of capital. Venture capital only really makes sense if companies can grow rapidly, and most other equity investments tend to be illiquid until an exit is found.

Brian McConnel at Gigacom takes a look at ‘Class R’ stock, a possible investment model that is halfway between a conventional investment and a loan. Here’s how it works.

Let’s say for rough numbers that a group of angels invest $500,000 for a 10 percent stake in an early-stage company and 5 percent of gross revenues with a 5X cap (total payout: $2.5 million). The company does OK and turns into a nice small business with revenues of $2-$3 million dollars a year. Happy with that, the owners decide not to sell or try to grow much bigger. The investors in this situation will be receiving $100,000-$150,000 per year (off $2-$3 million/year in revenue), which is not a bad annual return, and will get up to $2.5 million over the life of the agreement. In other words, everyone wins — the entrepreneur is rewarded for creating a viable business, and the investors do well without having to force a sale. And they still have 5 percent equity so that if, 20 years later, the founder retires and the company gets bought, they are very happy vs. just merely happy.

Of course there is no downside protection, but then again there rarely is. However it does address one of the major problems with commercialising technology, that of what happens if the company is just a nice company, rather than a spectacular success. In some respects it’s not too different from paying a dividend, which most companies prefer not to do, certainly in the early stages, but it may be a way , combined with tax breaks, that would actively encourage much needed angel investment.

PS it’s worth looking at the comments for some other alternatives.

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Tech VCs Hope For A Quick Recovery

On June 3, 2009, in VC2.0, credit crunched, venture capital, by Tim

The chart below shows the recent decline in valuations of late stage venture backed companies as reported by the Wall Street Journal.

valuations_g_20090601101946

It’s a decline that hurts everybody, with cash starved companies taking whatever they can get, which is often a far cry from what was promised and according to the WSJ, existing investors are increasingly resorting to propping up valuations, something that is clearly only sustainable in the short term.

In the first quarter, 57% of all venture rounds in the U.S. were done by insiders only, according to VentureSource. The prevalence of such financings has raised concerns that venture firms are propping up valuations to avoid write downs that would affect fund performance. A new investor is more likely to question whether a company is over-valued.

No doubt everyone is hoping that a recovery will take place ans valuations will soar once again, but if we are in for a longer slump it;s a dangerous game to play and we will see more VCs becoming over exposed and undercapitalised.

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