All Hallow's Eve

Today in the states, it’s Halloween. The night before all Saints day, and now a celebration of ghosts/spooks/witches and goblins.

What a perfect time to look over the graveyard of investments I’ve made, and wonder what happened to them.



Some are easy to explain, during the dot-com era, we didn’t know what we were doing. More than one company went bust after the bubble, and wandering through the remains during the final close out auction was a learning experience. I saw all the expensive chairs, lighting, plasma screens, etc. that management spent money on.



Reflecting on what we didn’t know, I see the same enthusiasm in many bio-sciences and nanotechnology companies. Not quite as much money has been dumped in, since writing computer code is much cheaper than setting up clean rooms and lab benches. But these cycles have been around for a while, and will continue to move.

Lunch at MidAtlantic Bio

The luncheon speakers were the CEO's from Medimmune and Human Genome Sciences. Both were entertaining, and reminded the audience that business doesn't stop when a company goes public. They also wanted to note they weren't the paragons of success, there was still a lot of work to do. And that when the stock prices fluctuate up and down, they get phone calls from shareholders.

But they also brought to light how being afraid of risk is not the way to run a company. There are some times where you will run into a “bet the company” decision. When that happens, go with the reason the company exists. Don't listen to the critics if you know what you believe in, and what you business can do.

In Biotech, the FDA has a lot of sway. If you make it through a phase I and phase II trial, you feel good about yourself. If you miss on the phase III, the world can come crashing down around you. But at Medimmune, that happened. The company had to decide how they were going to respond, were they going to continue, or fold up shop?

Small companies and big companies face this challenge. The only problem with big companies is that a lot more families and businesses are at stake.

Be an advocate for your company, but be realistic in what it can and can't do.

They also shared Mediummune's rule #1.
Raise money when you can, not when you need it.

A healthy bank account can prevent the awkward and rough financing that occurs when things go bad.

War on Science

This Reuters article focuses on the difficulty the US has in creating smart students, and a more educated population. The problem in questioning tried and true scientific “theories” which have withstood the test of time is not in the questioning. But instead, when dogma is used to give a quick answer, the concept of intellectual discovery is lost.

We have seen other cultures do this over history. The Dark Ages weren't called that because the sun didn't shine. We have seen centers of knowledge, such as the middle east, once world leaders in research, try to come back. The ruins of Rome and ancient Greece still stand. Consider how much has been lost over the years.

What does this mean? The smart people are starting to collect in a handful of cities in the US. There was a luncheon discussion on how to attract more Bio-Tech companies to the DC area. The challenge is attracting good, experienced managers to companies in the neighborhood. In areas known for bio-tech companies, employees are willing to move, because if things don't work out, they can cross the street and join a different bio-tech company. In areas that are trying to start-up biotech companies do not have the large pool of opportunities for potential employees. The risk of failure is high enough that a back-up company is desirable for the employees to go to. This collection of talent also means that there are managers in the neighborhood, and building a team is easier. This is a self fulfilling prophesy. Good, successful regions for companies continue to be so. And alternate areas keep trying.

A war on science benefits the safe havens around the globe willing to sacrifice dogma for progress. Korea, Singapore, China, and India have accepted the leadership role that the US is throwing away. This will not change, and will shape the markets and successes of tomorrow.

Understanding Hype vs. Reality

At the Mid Atlantic Bio event, there was an interesting panel on Hype vs. Reality for venture investors. The questions were focused on what consisted of hype, how hype wasn't always bad, but wasn't always helpful.

In Biotech, there have been waves of hype, from genomics, to personalized medicine, bio-informatics, etc. Some will turn into real businesses and industries, others will fall by the wayside.

We've seen hype in tech companies as well. Artificial Intelligence, Robotics, nanotechnology, etc. have not yet come to pass. Eventually we'll see something come out of the research dollars spent. But not yet. So despite all the attention and ink given to the hyped industries, it will be the second generation of businesses, led by the more experienced entrepreneurs that will succeed.

If it's a real trend, then you'll still make money investing, even in the second wave. And if it's not, then you'll have saved money by not investing.

Cleantech VIII

This morning was opened by some remarks from Global Environment Fund, followed by Senator Hillary Clinton's speach on cleantechnology. She seemed to be familiar with the topic and the problems, but also had some well coached word when confronted with Kyoto, and the current administration's energy bill.

The companies and speakers that presented were of high quality and good interest. Some deals to follow up with, and many many new faces and funds that are now more than just 'interested' in the space.

Issue of China and India

Clean Energy
Clean Water
Waste Management

These are all issues that face both China and India right now.
But there's a hidden secret in China's 9% GDP growth. Their energy usage is higher than the established “first world” countries. As a matter of fact, the cost and raw material usage is 4 times as much. For energy, it is 14 times as much as Japan.

So, while China grows at a brisk pace, their energy consumption is growing at 14% annual rate. China has consumed over 50% of the cement manufactured world wide.

Also, recognize that throughout India and China, the wealth is not distributed evenly among the population, or the regions. Similar to the US, where there are areas which would be considered 3rd world countries anywhere else, China and India will have such economically depressed regions. This is the reality of what's coming down from the future. BRIC, only Brazil has done a large clean energy movement. The rest may not leapfrog the current technology.

Busy season

This week both the cleantech venture forum, and the Mid Atlantic Bio event are occurring.

So both energy and biotech will be on my plate. This is the fun part of the job, along with all the other fun portions.

But I'll be a little distracted again.
If the investors you want to have pay attention to you during this busy season, then you've risen above the noise.

However, if you find your business plan shunted off to the side. Then you know how seriously the investor is interested in you.

Standing still

What are you doing to progress forward? Sometimes it gets to wear you down, and you begin to take it easy. That's fine, rest if you need to. But if you want to accomplish something big, you'll need to get back up again. It's not easy, and it can be difficult to start up again. But you need to do it.

Having a declared goal is important. It's too easy to stop running, take the simple job, and not pursue. Most of the times, people don't fail, but fail to try.

Rest when you need to, rest when you can. You don't know when you'll be in position to run again, and when you have to fight it out.

Change in VC

This redherring article on how VC has changed in the past 5 years.

It's nice to hear someone say it. VC's are undergoing a change in methods, focus, and process. Oh, personnel are changing as well.

Dot-com era funds won't be around in the future.

Who/what replaces them, and which emerging managers come up is the question.

The investor has become more sophisticated, the entrepreneurs more experienced. And it is no longer the domain of Silicon Valley to determine what the next great thing will be.

We can't stay US focused any longer, because people outside of these boarders are smart, willing, and able to enter this market.

We are willing to pay for quality. We are not willing to pay for the "made in the USA" label.

From the other side.

I had the opportunity to hear Steve Huber, the Chief Investment Officer of the State Retirement Agency of Maryland. What does this mean? He's the guy who's money goes into the VC firms out there.

He had some interesting things to say.

1.There is a firewall between the state and the investment decisions.
2.States funds are late to the world of Private Equity, Foundations and corporations have been investing in PE for a much longer time
3.If you are going to be investing in Private Equity, then in order to justify the resources needed to manage PE, at least 5% of your assets should be in PE.
4.States have a difficult time attracting and retaining skilled staff, especially given the competition from the private sector.
5.Institutional investors treat alternate assets as a spectrum. From early stage VC to LBO's and buyout
6.Many groups use a public benchmark + % hurdle rate. For example, S&P 500 + 400 basis points (S&P + 4% IRR return)
7.Some States are being locked out of fund because of the FOIA issues
8.Access to top quartile funds is difficult.

Some points are more important than others. This focus on the top 25% means ¾ are ignored. But not everyone is going to be in the top 25%.

FOIA is an issue for some funds, to the extent that some states have legislated that the Private Equity investments need not comply with FOIA.

It's interesting to see how the funder's funder thinks. It helps you understand, as an entrepreneur, what your VC is trying to comply with as they make an investment in you.

Trust Matters

This article is about Refco. But the reality is trust is important in the financial business. We trust the folks we deal with to tell the truth. We trust our companies to pay on debts, and collect on what is owed.

The final line about having people start collecting in 10 days instead of 30 is important. When there is the hint of trouble at your company, instead of letting you have some extra time to make good, you'll find suppliers demanding payment upfront. And you customers, well, they'll stretch out payments as long as they can. Figuring, if you go bankrupt, they won't need to pay you. Or they'll be able to negotiate with your creditors and pay cents on the dollar.

It's not fair, and it's not nice. But this is the reality of what happens in small companies. When you're a healthy company, your suppliers will allow you the 30 days credit, even 60 days, in order to keep your business. Your customers however, will still try and stretch their payments. The best way to avoid this? Have a discount for early payment. Then you'll see who pays fast, and it'll give you a hint if anything is bothering your customers.

When someone who has been paying early for the discount suddenly asks for 90 days to pay, you might ask about what's going on at that customer.

Don't want to be right

Heard from a colleague today about the energy industry. I'd been talking about how most of the developments that would occur are not the earth changing, Schumpeter revolutions. Instead it would be marginal improvement for the next few years.

The scary thing is the industry sounds like it agrees with this prediction. I don't want this to be true, and hopefully a contrarian will go off on her own and invent the widget that proves us all wrong.

But I haven't seen it. Perhaps it's a simple sterling engine. Or a fisher-tropsch refinery process. In any case I want to believe it's out there. Doesn't mean I'll be smart enough to invest if it shows up, but I do want to know it exists.

I do know this, even slow industries need to change. And if we have reached peak oil, then it's a simple economic curve to see what prices will go to from here.

No, there is no magical tap that creates more crude oil, but I do agree with the folks who believe that with a higher per barrel price, oil sands and shale oil become economically viable, as long as we ignore green house gas emissions. And for now, it does not appear that GHG will be a factor. When it becomes regulated, post Kyoto, then the economic conditions change, and while fossil fuels won't run out, the costs of making them clean goes up.

I want something else to be out there. I also want someone else to be smart enough to recognise it when it comes.

Who do you listen to?

When things get rough, who's there to guide you?
When you're looking to bounce ideas off of someone, who can make the time for you?

Which advice do you trust? Which role models do you follow?

Finding a good team is important, finding a good board is important. But finding someone who sticks by you is also necessary. This can be a spouse, assistant, dog, whatever you need to keep your sanity, and someone who can provide a reality check.

As you guide your business, and refine the business plan, remember where the advice you get comes from. Some of it is valid, other advice is just words. Even this blog is all wrong, some parts are just less wrong than the advice you've been following.

Bad things

Not being able to make payroll is a problem.

But it's a problem you can see coming. If you have good financial discipline, you can see this coming for weeks ahead. Good companies can know thier budget well enough to understand what day they run out of money. As it gets closer you can continue working and know what's going to happen.

The other important thing is that your investors can understand and know what will happen.

Surprises are bad, even good surprises are bad. It means you're not fully aware of what affects your business.
Bad surprises are even worse.

Surprises that shouldn't be surprises, calls into question the leadership and management of the business.

Cash in bank vs. Burn rate is one of those things.
Customer pipeline and closure is another one.

One business I've had problems with never really trimmed their pipeline of customers. After a while, management was presenting businesses that they had been talking to for 18 months as still viable sales opportunities.

Truth tell, you must know the average sales cycle for your business. If it's been 25% longer than normal, start to trim those businesses off, they're not interested. Make the call, ask them, point blank, if they're going to write a check in the next 2 weeks. If not, thank them, and move on.

It makes your work load a lot lighter. fewer follow ups, and the ones you will follow up with are more likely to buy.

you don't have much time to make sales, to make calls, to cover your payroll, time that's not productive towards that is wasted.

Cash is the lifesblood of every business, never let it run out, and never let it get out of control

Because I'm on the board

The I Do Foundation is up for a $20,000 grand prize in the BBC World Challenge competition, and we could use your vote today at http://www.theworldchallenge.co.uk/.


The I Do Foundation is one of 12 finalists in the BBC World Challenge – a world-wide competition honoring grassroots enterprise and innovation. The I Do Foundation is being recognized for it efforts to transform weddings into an opportunity for charitable giving. To learn more about the I Do Foundation, visit www.idofoundation.org.


As a finalist, the I Do Foundation and one of our couples were featured in a great segment on BBC World. Now, the grand prize winner will be decided by an online voting process that concludes Saturday, October 15.



As a nonprofit organization, the I Do Foundation keeps our overhead extremely low so that our services remain free while we create new sources of donations for our charitable recipients. A $20,000 prize makes a big impact for an organization like ours, and with your online vote, we’ve got a great shot.



To vote, go to www.theworldchallenge.co.uk/ and follow these steps:

1) Select the button for “Vote Now”

2) Click on the picture for “My Big Fat Ethical Wedding”

3) Scroll down to the bottom of the page and select “Click to Vote”

4) Cast your vote and enter your info so that a validation e-mail can be sent

5) When you receive the e-mail from BBC World, please complete the final step so that your vote will be validated. If you do not complete this step, your vote won’t count.

There's probably more

The first bit in this Redherring article on how Limited Partners are requesting and getting more rigorous on the funds they invest in. Smaller carry, or more complete disclosure from the fund itself. There are also claw-back provisions that have more teeth in the new documents. CALSTRS dropping their percentage in VC from 25% to 15% is more in line with normalcy. VC is still a high risk investment, and having a quarter of your money in this asset class doesn't make sense in the long term, especially given CALSTRS
mandate.

Changing insurance

This article from the WashingtonPost is pointing out that insurance companies have been changing their policies recently. It mentions that global warming could be the reason.

The fact is, industry is paying attention, and decisions have been made, today. These decisions are in response to changing weather patterns, environmental and business conditions.

Seeing a few companies make changes is not a surprise, this happens in every industry. To see the whole industry shift, especially the largest of the large, and knowing that insurance moves when it needs to, not when people want it to. This is the disturbing part. This shift indicates a larger move, not just in the insurance industry, but in many others. The shift will be larger, more encompassing, and more disturbing than many people will admit today.

How will you prepare for this? This is one of the "over the horizon" indicators I mentioned. Preparing yourself for this now, will position you well when it hits. The main disadvantage? Your industry might be "saved" by the government and you won't get any assistance, since you were prepared. But do you really want to plan for them to help?

Customer Yes, Investor No

Why would I use a company's product, and not invest in them?

A good business and a good product are different things. A good investment and a good product are very different things.

Having a chance to see the books of several companies, I am allowed a peek into their operations. When a company is selling a $1 for $0.50. I'll buy. Always.

I will NOT invest.

As a customer, I love it. As an investor, I hate it.

So just because I use your services doesn't mean I'll invest. It might mean the opposite.

More early stage VCs needed!

Here is redherring's article on the lack of early stage VC's.

More early stage VCs needed!

Translation:
Sacrificial lambs wanted. One time only!

Early stage investing is hard work. Going on experience, gut, knowledge, and luck, to make good investments. I'd appreciate all the help I can get.


However, if funds are leaving the sector, going to bigger investments, and bigger deals, then it's part of the investment ecosystem. When companies are no longer able to be big enough for the larger funds, some of those funds will die off: no dealflow, no destiny.

And once one of the early stage investor makes money, then interest will be renewed on how to make a 1 mil investment become 50 mil, intead of taking 150 mil and coming back with 200 mil. After all, we can't all be wrong, can we?

Who wants biotech?

Biotech investing is being courted in many states, this MSNBC article says 41 different states want to have biotech centers.

Two comments got me thinking.

"Why not?" referring to why any given region couldn't be successful in biotech.

And "That's a gap," referring to venture capital in the area.

Both comments showed an inexperience with biotech investing, and for a few of the 41 states looking for biotech, there is a huge chasm in skill sets required for biotechnology, and the population of the region.

States and counties that try to control the science education of their population should simply give up on ever trying to get a successful technology center in their region. As an entrepreneur/employer, I want the employees to know and understand what the company is doing. As an investor, I demand that the entire team know what the company is doing and why. Trying to hide the science is destructive to the company.

Areas where teaching "intelligent design" is a controversy, where teaching evolution in a controversy, should ignore biotech. Without the support of the local populace, without an intelligent and useful workforce to draw from. There is no reason to set up a business in the area. You can make the argument that there are intelligent people who support intelligent design. I disagree, but they could be smart in other areas. However, for a biotech firm, these people, no matter how smart they are, will NEVER be useful.

That is the "Why not?" answer.


The gap with Venture capital will continue. Not because it is a coordinated effort, but because business conditions in those areas are not helping businesses survive. Businesses will fail, because they can't find good people. Investments in those business will dry up because those businesses fail. People will try, and keep trying. But after a while, the rationale comes to make investments in sectors/areas that have been successful. Why try something new and fail, or something old and fail, when success is right next door?

Scientific Happiness

Article from TimesOnline on Happiness

This is interesting, since happiness seems to be a pursuit in the US. It also seems to make things "A good idea at the time."

The scientists are from England, and they seem to have a different outlook on Happiness.

Being able to quantify and measure happiness is one thing. Understanding how you, as a person, become happy, and what it takes is important. It's part of the drive and energy you have to succeed.

Sometimes I guess right

Article on how schools are using biodiesel for their buses.

Biodiesel being used in school busses. I thought it would have been industry to make the first change. But schools do make a lot of sense. I initially thought that one of the large trucking firms, or WalMart would be the leader, then thought a restaurant group would take the initiative, since yellow greases (used fryer oil) would be a good source. School districts have the capability to be both supplier of yellow grease, and consumer of biodiesel. The final step would be a small refinery at the bus depot.

Fairfax County is already responsible for more busses on the roads than the national bus chain. This is hopefully the start of alternative fuels in the US.