Look! Shiny!

It’s hard to be an entrepreneur when you’ve got to learn the industry and run a business. Long term goals, and short term goals start to fight at cross purposes. Maneuvers you take to off set short term problems can have long term implication. Long term plans can have your running into a gorge that “wasn’t supposed to be there.”

If you’re not sure what you’re doing, it’s easy to get distracted, and chase the latest shiniest thing you see. With little to no experience in the sector, everything looks wonderful. The latest/greatest way of doing things always seems to be the most enticing. And since you have to know when to correct your course, it makes sense to go after the closest, most attractive lure.

The benefits of experience come into play at that point. An experienced entrepreneur will be able to distinguish the latest fad from a long term trend. Remember these words “Good judgment comes from experience. Experience comes from bad judgment.”

CA Emissions Cap

AP article on California setting cap warming emissions.

It's getting closer to the point where the US will effectively have an emissions cap. Next, we'll see the New England state start to adopt similar rules. And eventually in order to comply, every company will be under some sort of green house gas regulation. The companies that can adjust and prepare for such changes will have an advantage over the laggards.

As a start-up, is there an opportunity in helping companies comply with these new standards? Will there be opportunities outside of CA in the near future? I believe so. But such success can be short lived, if you don't prepare more than one move ahead. Don't play prison chess. Think about your opportunities, and what to do afterwards.

Different people, different procedures

Investors like to get information in a variety of ways.

But if you want a response faster, go in the order that they prefer.

Personally, I like:
1. e-mail
2. –
3. phone/voice mail
4. written letter

Why is 2 blank? Because by the time I’m done responding to the email requests, I have no time for anything else. I reserve the 26th hour of my day go over the phone and mailed documentation.

I’m not saying never to do those approaches, you will stand out. However you run the risk of being ignored.

Calvert Article 1

Here's an article I wrote for Calvert's website. It's the first intro to the shareholders on what I work on, and what's going on in the world of VC investment.

It's a view that's a little more basic and fundamental than what I try to focus on here. And it does focus more on the companies/investments that are made through the Special Equities Program.

Hybrid cars pay for themselves?

Now they're saying that hybrids will pay for themselves over time. At these gas prices, it's not suprising to see why. However, these are still only first gen hybrids. Not the most efficient systems possible, just the best we got available.

I keep saying they're not the most efficient because standards still only measure tailpipe emissions to estimate the Miles Per Gallon number that's pasted on the cars themselves. The tests presume a constant speed, no breaking, no AC, etc. So the numbers can be very different then the way people drive in the real world.

This isn't to say that the cars don't enjoy an advantage over the other vehicles out there. Only to say that they're not the most fuel efficient vehicles available. Just because it's a hybrid doesn't mean it's the best around.

For futuristic cars, I like the Tesla vehicle, it's only got 4 electric motors, no internal combustion engine in the machine. This is more of what we'd want our final vehicle to look like. It's a plug in electric vehicle. In the interim, a plug in hybrid car would be nice to see.

And the winner is…

Not the US.

It might be a simple clerical error.
Doubtful, but let’s presume this is a case of incompetence rather than malice.

However, eliminating the study of evolutionary biology from the list of acceptable fields of study is worrying. Here’s the NYtimes article that highlights this omission.

As a biotech investor, is this worrisome? Yes.

Serendipity has always been a key element in scientific discoveries. The unplanned, lucky and significant discoveries can not be predicted. However, if no one know what they’ve found after tripping over the discovery, it will remain lost until the next time someone falls over it again.

Maybe it’s nothing.

But as an investor, you can’t presume that everything you don’t see is going along fine. Maybe Singapore will win, and the US will abandon yet another field of science. If the talent is in another country and the education and support is in another country, and the funding resides in another country, will the US end up looking toward Singapore, the way Europe looks towards Silicon Valley?

I don’t want to believe that it will happen. But commoditization, specialization, and history shows that concentrating talent and financing over a long term will bring good results. The cushion we enjoyed in the US is evaporating. No doom and gloom warnings are needed.

Now, we need to adapt. Do the hard work of finding those key minds that will develop new breakthroughs. More and more likely they will not have a US post office address.

100 mil giveaway

Cute article from money magazine, $100 mil for companies.

Here are some ideas that VCs say they'll invest in. But you need to have the right team, a robust idea, customers, etc. Even if you end up with all the requirements, it might not be enough to get a check written. Or the check might not cover all the costs you're going to run into.

But it's a way to see what the VCs are thinking. It also shows what they feel most comfortable with, and the types of ideas they feel confident in.

Water in the desert

Here's an article on how water is being treated in the desert.

I've often said that selling a necessity is easier than selling something that's "good to have." Here are companies trying to solve a fundamental problem in a warzone. This is not insignificant in its scope.

Desalination plants are out there, but the price needs to drop a bit more. Water treatment plants that increase the salt in the soil end up poisoning the land more than helping.

Water is one of the few problems that the US faces as well as the rest of the world. It's something with huge implications. Hopefully one of these ideas will be it. Even if it's not one of them, there are other plans. There is a lot of space for successful companies.

Private Equity ready for a fall?

CNN/Money/fortune’s take on the entire Private Equity market, and how it might have reached it’s high point right now.

Timing is everything. But we’re close enough to strage valuations that everyone says, we’re due.

And while it’s schadenfreude to hope they fail.
It's delusional to say “Their deals are all hyped up, but all MY deals are undervalued”.

Yet that's what I heard during the bubble.

And if that's what people are starting to hear again, then it's cause for worry.

Climate Change Obstacle

WashingtonPost letter on how politics is affecting climate change.

Fundamentally, the folks who have the most to gain are the least able to affect climate change. China wasn’t part of the original Kyoto accord nations that had to cut back on their emissions. India is also in the race as growing and contributing a lot of green house gasses. Along with the US, those three countries sit on huge amounts of coal reserves.

And everyone is trying to figure out how to get these countries to change. The only way I can see is economic/fiscal incentives. These countries governments will be dragged into addressing the climate change situation after everything has already been resolved. We are seeing it being ; California’s agreement with Great Britain.

India and China will have industries adopt the cleaner technology. Not because it creates less emissions. But because by using fewer raw materials on the front end, you can end up with less waste on the back end. Efficiency and financials will determine the winning processes, not compliance to loosely enforced regulations.

Singapore as Stem Cell Haven

NY Times article on how Singapore is taking the lead in Stem Cell research.

Global problems have global solutions. This is not an isolated factor. That one country would focus on a specific opportunity, and become a global player, is a recipe many others can follow. In this case Singapore with stem cells, India with software, China with white goods and hardware.

What does this mean for businesses? Move up or move out. Go up along the value chain. Or go to those countries. But trying to set up a research group in the heartland is going to become more and more futile. When someone from Kansas asks why they can’t get a share of the biotech pie, the answer rests half a world away.

Crediting the US Federal government for highlighting the attractiveness of Singapore is correct.

Here’s another NY Times essay on how to make sure children are scientifically illiterate.

It might not be fair to pick on only one state. Many others are one election away from being in a similar situation.

As an investor, or entrepreneur, take careful stock of the resources available to the business in the neighborhood. This ranges from utilities, transportation and climate, to the people who will work for you and with you. Without the support of the community, challenges become harder, if not impossible to survive. There are enough reasons why good businesses fail, no need to add more hurdles.

Climate Change thoughts

Presuming that climate change is occurring, what are the right areas to invest in?

Climate change in this case means shifting wind patterns, changing rainfall, greater temperature fluctuations, drought conditions, etc. We’ll experience more weather extremes and less of the weather we’ve had historically in all parts.

I’m also making the assumption that there is going to be some inertia on the part of businesses and people from picking up and moving away, unless dramatic changes (dust bowl) occur.

Therefore, the companies that exist today, and will prosper during the early stages of climate change are the businesses that help people cope, and allow them to stay where they are, and keep doing the things they’re doing TODAY. Technologies that provide a current cost advantage and can compensate for climate change will be the ones that survive the exogenous shock.

Thus, companies that will make money will include: building climate control systems, insurance, agricultural supplement/assistance.

Let’s look at a few of these:
Building systems:
As climate change occurs, the weather patterns and exposures to the cities/buildings where we live will be different than the conditions they were originally designed to withstand. Hotter/cooler it doesn’t matter, the fundamental answer is that the climate is different. Therefore these buildings will need to be retrofitted, or changed to compensate for the different climate. This could be as simple as more insulation. But also encompasses HVAC systems or roofing/structural augmentation. What was previously acceptable under certain building codes may be found inadequate with climate change.

Agriculture supply companies:
Weather is a big factor in growing crops. With current crops having been reduced to a limited number of genetic varieties, some will be more susceptible to changing climate than others. Businesses that will assist the growth cycle and production of these less-fit crops will be more successful. This can be as simple a more nutrients, or it could mean augmenting and replacing some of the soil microbes and conditions that are affected by a different climate.

Insecticides/Fungicides/Herbicides:
New climate conditions can create favorable growing temperatures for a whole slew of life forms. We are already seeing West Nile Virus in the regions of Canada. Kudzu is growing and reaching further north than before. We have seen the “killer bees” Africanized honey bees, spread further in the US. These and many other species will see their habitable zones shift and change with the climate. People will be more reluctant to change geographic addresses, so companies that help the folks stay where they are, will see an uptick in sales.

Water:
Changing climate means changing rainfall patterns. In some parts of the world, areas dependent on glacial ice melt, changing weather means no more water. This is a big thing, and it will be bigger soon. Many mountainous regions and cities are going to lose their water supply. Other regions, where drilling for fossil water is common, are also going to have problems when the water runs out. Fossil water is water trapped in the ground, with no replenishment source.

Businesses that can address these problems now, have customers today. And they will continue to have customers in the future. They will survive and succeed in the new environment.

Lots of Cleantech

Redherring article on how VC investment in Cleantech has increased.

This, along with the article that shows how saving energy has become as interesting as making energy.

But the numbers, while encouraging, are a little deceptive. With money going into big projects, or into PIPEs, it's not the same as if the money was spent in traditional series of investments. But money is money. And you can't ignore the sheer amounts that have been poured into the sector.

Energy has always taken more cash than a software services startup. But compared to a few years ago, the number and quality of deals has increased. There are still some dogs out there, and a few deals that are of questionable quality. This is just part of the investment environment.

Anyone who's delusional enough to believe that every single deal out there is a great moneymaker has issues.

New funds, new investors, new blood. This is going to be one interesting phase of investment.

Porn not deciding HD-DVD vs. Blu-ray?

Well, if this Redherring article is correct, the porn industry will be the late adopter to the technology.

I still disagree.

The porn studios will hedge their bets, or hold back. But money will be the main motivator for them. As soon as their customers have made a choice, the industry will follow.

As frightening as it may be, we might need to look at the fringe of the fringe to see what will drive the main stream consumer in the end.

But a good point was made. In moving to VHS-> DVD -> Internet the distribution model for the industry was improved. It’s a little harder to see the argument with HD-DVD or Blu-ray as improving the distribution (read profits) of the sector as immediately. Thus the lack of full drive behind adoption/absorption of the technology.

If there's no more money to be made in changing to a new format, then no one will bother making a decisive move. But with new technology, I do believe there will be an opportunity for a new player.

Carbon trading

Washingtonpost article on how states are looking at Carbon trading.

With CA talking to England about carbon credit trading, it’s only a matter of time before the North East/New England states approach the same market. By that point, it will be a short jump to get all the major corporations to become involved in global carbon trading.

Unfortunately, it's unlikely the fed will lead the way in this case. The most they can do is claim control over interstate commerce. But it's unlikely the states will wait for leadership from this current government.

Perfect investment

What's the perfect investment?

The one where I can fall in love with the concept, the people, and then fail to find reasons to say “no”. Something I can understand, and feel confident about.

Pretty vague, right?

A company that has customers, willing to pay for the services, and understand what the customers are paying for. A situation where the needs, expectation and wants of the customers are all understood.

Something that's legal.
Ethical and moral are also on the list.

Something that solves a core need.
Not a nice to have.

A management team that inspires confidence and trust.

An investment where I can see how much I'm going to put in, and understand how I'm going to get the exit.

Notice the times I'm trying to reduce risk. And other points, I'm hoping for better returns. But as long as I get peace of mind that this is the right thing to do, it's probably when I'll write the check.

Caveat, even if I find this mythical business, it doesn't mean I'll recognize it or fund it.

PWC Moneytree Q2 2006

I went to the PWC moneytree event this morning.


The good news is that the sector saw more money and more deals invested than any time in the past few years.


Nationwide the numbers were:

$6.3 Bil invested in 856 deals during Q2
This was the highest number of dollars and deals since Q4 2001.

Expansion stage investments hit a 4 year high, and the number of new bets in new deals hit a 5 year high. The investment community is currently very active. But there is a gap for series B investors right now.

The bad news is the IPO markets are sluggish, and the M&A exists were also lackluster. Of the 31 M&A deals, only 4 had returns of 10x or more for investors, 10 of the M&A deals ended up losing money for the investors.

The DC area was 4th in terms of deals and dollars for Q2 with $634 mil invested into 100 local companies.



From the MAVA surveys:

More time spent closing deals, less time looking at new deals.
52% of the funds are fundraising right now, or planning to start fundraising before the end of 2006.
74% of the funds did at least one deal in Q2.
88% of the funds expect to do at least one deal in Q3.

Compared to Q2 2003, the mood of investors is more upbeat, and many feel that we’re on the upswing in investments.

English is important.

This is about how grammar can be important in contracts.
You've seen how much a slipped comma can cost.


I’m glad I’m not writing those contracts myself. But it is important to make sure that both parties agree on what's being done. Trusting lawyers to do all the proof reading for you is dangerous.

This is a good example of why trust is so important in business. If you can't trust your partner, then you run the risk of something like this happening.

If there was trust between the parties, then even with the wording of the contract, an ameniable solution could have been worked out.

Green Buildings examples

Here is a quick list of green buildings in the Washington DC area from the Post.

In looking at these examples, it does show that it's possible to build these types of buildings. Unfortunately, as long as people are forced to pay additional for the green benefits, there will be a disadvantage to this type of construction.

Few folks want to calculate the monetary benefits of being green. When the additional benefits are available at no additional cost, then the demand is apparent.

Green buildings

Washingtonpost article on green buildings.

This trend is encouraging. And with the latest heatwave. the economic benefits of a green building are more apparent.

As long as the retrofits and redesigns save more money than they cost, people will be interested. And it looks like people are getting interested.

5 warnings for engineers

Found this off Digg, 5 things engineers should know.

From someone who’s obviously done this before. There are many parallels between how the engineering process gets you to a product, and how the company should run to get you to success. As an entrepreneur, you're creating/engineering a successful business.

Any of the anecdotes could derail a small company, and styme a large one.

Teaching at American

I was at Al Mink's class at American University this Thursday. Here are the slides I used during the presentation.

For all the folks who are wondering, yes.
I know I broke the 5 words per slide rule.

And there should have been more graphics on the Communications slide instead of words.

For anyone who's been looking at this blog for a while, you recognize most of the themes and even some of the anecdotes I'll be using.

The class was focused on how new technologies can create new companies. I focused on customers, and the other presenter, a working entrepreneur, also used the same touchstone.

It's always a good reminder to meet and talk with folks who don't have to invest 24/7. Understanding what the misconceptions are, and how VC's arperceiveded always helps me in working with entrepreneurs, especially earlystage entrepreneurs.

I don't understand

I must be an idiot

Here’s redherring’s article on how Altra raised $120 mil.

It’s an impressive list of names:

Kleiner Perkins Caufield & Byers, Omninet Private Equity, Sage Capital Partners, Angeleno Group, and Khosla Ventures

Many folks who have been in the industry longer than I have. Smart folks who want ethanol to succeed.

But only 30 mil gal/year right now. And on something that's going to prime the pump for cellulosic ethanol. Something that's a temporary solution? Or do they think temporary will be longer than we thought?

I’m probably showing how much of a rookie I am, when I say “I don’t get it.” I’ll just put it down as something else I’m wrong about.

Kyoto Secret

Fortune’s look at how no one is going to meet the requirements of the Kyoto Accord.

I’m a simple person, if there’s no economic incentive to do something, it won’t get done.

Economic incentive doesn’t just mean money. But money has been used as a proxy because it is fungible, and currency.

There is also the time element. We presume that everything happens at this current time/now. But in dealing with climate change/global warming/etc. the total costs are not always apparent, or bundled in. For person A to get the benefits, and have person B pay the costs sounds like a fantastic deal (for person A). And it is. Person B loses by getting an undue burden.

When these folks are in the same time and place, something can be negotiated, or fair compensation can be achieved, sometimes. But when these folks are not in the same time, or place. Then, enforcement of free market rules are harder to enforce. This is where the concept of enforcers enters in. Enforcers make sure that the transactions agreed upon are enforced.

Unless some enforcement begins, we'll have wasted the time, beliving that Kyoto was a good step forward, when no one moved at all.

What does this mean for investors? understand that regulatory risk means both the rules that will be enforced, the one regulations that won't be upheld.