Recession Startups: Great Post On Innovation and Entrepreneurship – No Vacation for Entrepreneurs

I love this post from David Hornik.  I guess that I have an addiction because I love starting companies – I can’t help myself.  His real message is simple – many entrepreneur friends are starting companies in this market. Personally, I think that doing startups is like taking a vacation each startup is like a good journey.

The post is worth of a full posting here on Furrier.org.  Thanks David for a great post.

By the end of 2008, Venture Capital had been officially declared dead. Startups were laying people off so fast that even TechCrunch couldn’t manage to keep up. University Endowments and Foundations, the source of the “capital” in Venture Capital, were hemorrhaging so badly from their public company investments that many long-time believers in “alternative assets” declared a moratorium on Venture Capital. And the IPO market was a distant memory. Good times!

Welcome 2009. The public markets remain closed. Venture investors and the investors in venture investors remain “challenged.” Follow on financings have become increasingly difficult, in some instances impossible. And, while there may well be light at the end of the tunnel, it would appear that we haven’t gotten far enough down the tunnel yet to see that light.

So why am I optimistic about investing in 2009? Because entrepreneurship is an addiction, it isn’t a choice. Great entrepreneurs aren’t driven to create companies because it is easy, or because capital is plentiful, or because the public markets are swallowing anything the venture community will throw at them. Great entrepreneurs start companies because they can’t help themselves. They see a problem or a solution or white space or an opportunity and they have to do something about it.

Innovation doesn’t take a vacation during an economic downturn. Innovation is a constant. While the resources an entrepreneur may be able to bring to bear on a problem may vary with the economic climate, the desire — the need — to innovate never goes away. And Venture Capital is the fuel of that innovation. [1]

So I remain excited about the companies that will be started in 2009. There will be great companies started during this economic crisis. Some of them will be born out of the crisis itself. Others will simply be born during the crisis. But, rest assured, there will be important tech companies hatched in the next year or two. And I am certainly hoping to fund them.

Some of you reading this will say to yourselves “starting companies today is so inexpensive that we don’t need no stinkin’ VCs.” More power to you. I don’t mean to suggest that innovation will die without Venture Capital. There are many great ideas that can come to fruition without a meaningfully-large capital infusion. My hat is off to the 37 Signals and Smugmugs of this world. But for those ideas that require investment ahead of revenue to reach their full potential, Venture Capital remains an important resource for company building.

Yahoo Will Get New CEO – Carol Bartz – Good Choice – Lets See Some Bold Moves

Yahoo Inc. is expected to announce that Carol Bartz, former chief executive of software company Autodesk Inc., has accepted an offer to become the Internet company’s next CEO, according to people familiar with the situation.  Boomtown’s Kara Swisher was the first to break this and now it looks like Kara had her ear to the ground in the right spots.

Hiring an operational Silicon Valley insider is a good move for Yahoo.  What Carol needs to do is filter the signal from the noise internally at Yahoo. I’m sure everyone there is jockying for position.  Carol needs to hire from the outside and bring in some ‘mavericks’ to get Yahoo relevant again in both the product side and the corporate side.  She has a big job ahead of her.  I think the thing that no one is talking about is that she makes a great partner to Jerry Yang who obviously has the desire to make Yahoo great again.

From WSJ today. Ms. Bartz, 60 years old, will face a number of challenges as she tries to turn around Yahoo’s flagging performance and stock price. Some investors have been lobbying for a break-up of the Internet giant, for instance. Yahoo faces tough competition from Internet rivals such as Google Inc.

Ms. Bartz still serves as executive chairman of Autodesk, of San Rafael, Calif., which she ran as chief executive from 1992 to 2006. Autodesk is around half the size of Yahoo, with approximately 7,000 employees world-wide.

Ms. Bartz was also an executive at Sun Microsystems Inc. and she sits on the board of Cisco Systems Inc., with Mr Yang. She is also a member of the Intel Corp. board with Yahoo President Susan Decker, who was also interviewing for the CEO job.

In afternoon trading, Yahoo’s stock fell 2% to $11.96 on the Nasdaq Stock Market. The stock remains well below its 52-week high of $30.25.

Ms. Bartz’s appointment will likely reopen questions of Yahoo’s strategic direction, potentially clearing the path for the company to restart negotiations with Microsoft over a sale of its search business. Microsoft CEO Steve Ballmer, who tried and failed to buy Yahoo last year, has publicly said in the past few weeks that a search deal with Yahoo should be made when there is a management transition at both companies. Microsoft late last year hired a Yahoo search executive Qi Lu to lead its Internet business.

Ms. Bartz and Yahoo’s board will also have to turn to other ways to right the business, which is being hurt further by the down economy. That could include striking a deal with another partner like Time Warner Inc.’s AOL or divesting of smaller business units.

With these major strategic questions in mind, Yahoo’s board focused its CEO search on experienced executives with deal and operating experience, according to people familiar with the search. Yahoo Chairman Roy Bostock led an informal committee of directors in the search; the group also included Frank Biondi, the former chief executive of Viacom Inc. Directors quickly zeroed in on a short-list of external candidates, such as former Vodafone Group PLC Chief Executive Arun Sarin, among others.

New Venture Capital Model Is Coming? Limited Partner Investors Seeking New Avenues

NOTE:  Visit the siliconANGLE blog for a community of bloggers on Social Web and Technology Opinion and Analysis.  THANKS

Is this financial market mess going to put the nail in the venture community? Today’s Venture capital has been struggling for sometime with ony a few small hits and very handful of big returns. The problem is that entrepreneurship is stuck because of venture capital. We need to modernize the venture capital business so entrepreneurs can get busy. I am seeing more early stage creative development then in years past. The entrepreneurial process will never die but it will evolve. These are the pains that we are seeing now with startups. The capital markets are a mess and with no liquidity market today’s venture capital firms are spinning their wheels. The good news is that capital markets are efficient and will work around the bottleneck we are seeing. This NYTimes story is an early indicator that big money will find new homes.

NYTimes has a very interesting story…

Investors in venture capital and private equity funds who want out are discovering that their stakes are worth less than they paid for them.

As returns on venture capital investments sour and investors’ wealth deteriorates, some of these investors — the universities, foundations and pension funds known as limited partners — have been unloading their stakes in the funds. When they decide they can no longer supply the money they had previously committed, they sell their stakes at a discount to what is known as a secondary firm.

In the second half of 2008, as more limited partners tried to sell their stakes, the price they could get for those stakes fell to 61 cents for every dollar of face value, according to a report from Cogent Partners, an investment bank for institutions looking to sell their holdings on the secondary market. That is down from 84.7 cents on the dollar in the first half of the year and a 4 percent premium in 2007.

A stake in an early stage venture capital fund that has already been fully invested, for example, would be worth 10 to 30 cents on the dollar, Mr. Gull said. “It would have relatively young portfolio companies, some number of them will need additional capital so the fund will get diluted and there are not going to be any exits for some number of years.

A 40 percent loss is no different than investments in the public markets, Mr. Gull noted, and investors would prefer to have the cash. They think, “It’s a sure thing that I can redeploy in some other activity I think has a larger chance for return,” he said.

Mr. Gull said he could not predict when pricing would improve, but his firm is betting that it will not see any meaningful returns from private equity and venture funds until late 2010.

New Reality: Silicon Valley Wealth Machine – The Rebooting Meritocracy

Businessweek has a post about Silicon Valley wealth machine. Silicon Valley is going through another downturn. It’s the second major downturn in less than 10yrs. I’ve been on the ground for all of those years. It’s down, but not completely ‘out’.

Silicon Valley is a special place for entrepreneurship, and it continues to be. The issue is not that there is a wrench in the machine, but that the machine is broken. It’s rebooting.

One thing I love about Silicon Valley is that there are no handouts. It’s the ultimate entrepreneurial meritocracy. Change happens and it happens both from the bottom up (entrepreneurs) and the top down (capital market). The question is which force is driving the change.

Redistribution of wealth is upon us. The entrepreneurs and investors that move on this current market opportunity will capture the proverbial “chips on the table”. As an entrepreneur, I love this market. Opportunities are everywhere. Unlike the dot com bust, this tech (entrepreneurial) market never really crashed. Everywhere I look I see discounts and new opportunities. Smart money will move around, but in select places. Is the market scary? If you’re an incumbent it sure is scary.

Silicon Valley Web 2.0 is hurting, but not for the obvious reasons. A bigger force is at play here – massive redistribution of wealth is taking place. Some are scared, and some are welcoming the opportunity of possibly acquiring the wealth “on the table”. I think that Facebook and Twitter are great examples of what might be possible. Facebook will become the next Google. The only thing holding them up is that the ‘new revenue’ model that is soon to arrive at the “station”. When that “train” arrives (and it will) Facebook will say Goodbye to all the naysayers.

Research & Development Void?

The bigger picture is more long term and that’s all about research and development. Judy Estrin recently came out to talk about something really important – the innovation gap. Let me translate her thesis – we are screwed if we don’t have steady research unencumbered by short term agendas. Think how important institutions like Stanford, MIT, and SRI have been to Silicon Valley and entrepreneurship. Without these deep research institutions we would not have many innovations that created wealth – hello Ethernet; hello Apple; hello Cisco; hello Google, ..etc.

The lack of institutional research leaves a void in the Silicon Valley ecosystem. John Markoff postulates in his book “What the Dormouse Said” that the culture and research of the 60s drove the PC revolution. The question now is what revolution are we developing and where is the research? Will we miss the next important energy, medical, or tech breakthrough? Where is our modern day moonshot mandate?

How will it play out? The future is unwritten.

Update: The Wall Street Journal has a great perspective on how regulation is hurting entrepreneurship. Add the lack of research mentioned above and the opinion is complete.

Silicon Valley VCs Are Actively Investing

All the talk about Silicon Valley being dead is bull. In fact many of the top VCs are actively investing like True Ventures, Norwest, Benchmark Capital, Foundation, among others. There are some top tier guys who are really hurting. I’ll post more on that later.

Here is a post from Benchmark partner Bill Gurley. I first met Bill when he was an analyst years ago before he joined Hummer Winblad then Benchmark. Bill not that technical but is very skilled at analyzing and reading the market. I think his views are right on the money (pun intended).

Bill says…
What is driving our enthusiasm to be optimistic while the general perception is that we should be “scared”? Here are four answers on a roll:

1) We make money investing, not sitting on our money. Innovation and disruption are constant and not subject to the whims of the overall economy.

2) We believe that environments like this tend to sort out the true entrepreneurs from the pretenders. When money is easy in Silicon Valley, it tends to attract short-term opportunists looking to make a fast-buck rather than build a lasting company. Only the best entrepreneurs set sail in rough seas like this.

3) We like the probability for startups (especially Series A deals) in this environment. Consider that people are easier to hire and rent is cheap. Incumbents are cutting their R&D budgets, and there will be fewer startups in each space, all of which means less competition. These are good things.

4) Graham and Dodd said it first and best, but one “… should try to be fearful when others are greedy and greedy when others are fearful.” Pretty clear what time it is.

Web 2.0 Summit – Just Doing Business – What Bubble

I have to say that I was a bit skeptical about the recent Web 2.0 Summit.  I thought that it would be a bust.  In fact first impressions were that it was trending that way.  However after Jerry Yang’s conversation with John Batelle the Web2.0 Summit pickup up the pace.

I had a chance to speak with many of my friends in the space, and it was clear that doing business and building ventures was on the mind of many.  Unlike recent years where the Web 2.0 Summit felt a bit bubbly, this year was different.  Many were talking about ideas and sending signals of open collaboration – many among serial entrepreneurs.  For companies in the Web 2.0 space the conversation was on doing business.

It was an environment of executives doing deals.  What a concept.  The reality of the market is now on doing business.  The event was successful and for the first time I felt a strong sense of business focus.  Industry participants actually looking to build an industry.

This begs the question:  was there ever a bubble?  Sure some companies are flashy and ajaxy but in reality we never had a bubble or bubble burst.  The financial reality or depression didn’t originate from Silicon Valley or Web 2.0.  The crisis vectored in from mainstream financial systems.

Future of Web 2.0 – Just Do Business.  That’s on the mind of entrepreneurs, VCs, and large corporations.  How refeshing.

Is Yahoo Being Served Silicon Valley Divorce Papers ? It Needs Big Game Changing Product

I’ve been thinking about the Jerry Yang conversation yesterday with John Batelle and it hit me – Yahoo has for years being the outsider in Silicon Valley. The recent blog and press coverage of Jerry’s comments yesterday make it clear that the core culture in Silicon Valley is frustrated with Yahoo and by default Jerry Yang.

Two posts stand out in my mind that got me thinking about this. Mike Arrington’s post and Om Malik’s post (other coverage is basically saying the same thing) speak to the core feelings about Yahoo.  I know both Mike and Om love Yahoo for it’s storied history, but like they and others (me included) are frustrated by the bungled execution.

What’s really going on here?  Yahoo losted a ton of great people in the years that it milked it’s dominant portal status.  That is compounded by a misdirection in strategy one that during the Semel years (the media focus) saw Yahoo lose many of their top product and engineering mavericks.  Innovation is the culture of Silicon Valley and Yahoo lost that years ago.  The recent pile on going down is just built up frustration by Silicon Valley on Yahoo and Jerry Yang is taking all the heat.

I’m pulling for Jerry Yang because I respect the ‘guts’ that it takes for the founder to come back.  It’s very noble of Jerry, but trying to transform his company into a platform player will take years.  It will take new leadership underneath Jerry.  Fact is they just don’t have the ‘chops’ on the product and engineering side.  Silicon Valley wants nothing to do with a ‘false’ prophet.  Jerry needs to move faster or the ‘mob’ will take them down (as Mike Arrington suggests).

Turning the Yahoo battleship will take time.  All Yahoo needs is one game changing new product.  This reminds me of the old minicomputer days.  Yahoo is the Digital Equipment Corp (DEC) of Web 2.0.  They’ve been on this portal and media thing why to long (similar to DEC on the minicomputer) – it might be too late. Some minicomputer companies like HP got new relevant products (hello LaserJet) that fueled a reinvention.

If Yahoo doesn’t get the new product and engineering mojo back Silicon Valley and others will completely turn on Yahoo.

It’s doable for Yahoo due to their ‘huge’ installed base of users, but the window is closing. They need a new product that is relevant – a new flagship.

Run Jerry Run!  Get it done.

I would love to see the founder take back his company and make the turn around.  The question is “do they have the people to do it”?  Silicon Valley doesn’t thinks so.

I’m not convinced yet of Yahoo’s demise and will wait to judge Yahoo.  I think that they can. I vote for the founder to stay – Jerry should stay, but he needs a new management team that will follow the founder in his vision.  I blame Semel not Jerry.

What do you think that they need to do?