Twenty years ago innovation was only in Silicon Valley, California, and carried out by a few geeks, according to Phil Wickham, CEO of non-profit Kauffman Fellows, which has trained nearly 500 venture leaders over the past two decades. Now, it is part of the mainstream, he said at our Triple Helix Venturing (THV) conference at the Ritz-Carlton in Half Moon Bay (pictured) this past week. This is because technology and globalisation driven by market forces combine to deliver an “adrenaline rush” of living in the “most disruptive time in the past 100 to 200 years”.
The question is what comes next?
On one side, Greg Becker, president and CEO of financial services provider SVB, in a keynote at the DLA Piper Global Technology Leaders Summit in the Valley gave the above quotes and added: “Enjoy the ride, it will soon be over.”
After leading a Socratic debate on whether we are in a bubble – two-thirds of the audience said “no,” details below – Becker said as well as enjoying the ride we needed to be willing to embrace disruption as the less-risky option than trying to avoid it. But, to do this, Becker said organisations needed to focus on their people and the culture being set so the group could go through the bad as well as the good times.
For many entrepreneurs, of course, these are the best of times. SVB’s analysis of high-performing companies (HPC) among its banking customers found the number valued at or more than $1bn had jumped to 66, a third of the total number of HPCs it tracks, compared to 19% just three months ago. (See below for Global Government Venturing’s unique data on $100m rounds from the third quarter for a snapshot on some of these HPCs.)
However, in a question-and-answer with Global Government Venturing, Becker warned that a few winners from these HPCs would do little to offset the “social disruption on employment [from disruptive innovation to established businesses]. This will be a big factor in the next five to 10 years and the impact of regulators on innovators is not priced into valuations, which are often priced for perfection.”
A Europe-wide petition launched this week, calling on the European Union to drop the proposed Transatlantic Trade and Investment Partnership deal with the US, has more than a quarter of a million signatures in the first few days on concerns “it would threaten democracy, slash food safety and environmental standards, and bring increased privatisation”, according to the World Development Movement, which helped organise a day of protests on Saturday.
There is work underway to look more closely at where these disruptive HPCs come from. James Spohrer, director of US-listed technology company IBM’s global university programmes, and Andrew Clark, director of corporate strategy at the company’s venture capital group, in a fireside chat at Triple Helix Venturing said IBM was analysing where these HPCs came from to try and predict where they might then be found around the world.
While finding and investing them through its $100m corporate venturing fund, Watson, and potentially others that could be formed, Clark said IBM’s focus was on building the cognitive ecosystem so the supply of staff and potential acquisitions to fuel its growth could continue to keep pace with its ambitions.
IBM has acquired about a company per month over the past 14 years. About half of these takeovers have been venture-backed (many from third-party VC funds the company has committed to) but Sophrer said even more – two-thirds – started in the university ecosystem.
To fuel this rich source of HPCs, he said IBM was funding courses at universities so students and faculty could be trained on the next generation of artificial intelligence or cognitive computing. Ten such courses at universities, such as Stanford and Berkley, have now been formed, which is expected to grow to 100 next year and 1,000 the year after that.
But with change and disruption comes risks that some people or regions would be left behind. Spohrer and Clark said IBM along with other tech companies were meeting with academia, non-profit associations and the government to explore how the US could now catch up with China as the world’s largest economy through the use of prizes and grants to encourage American science and its commercialisation.
Others are trying to do the same. In THV’s lively opening keynote, Erik Vermeulen, vice-president at healthcare company Philips and professor of law at Tilburg University in the Netherlands, said the consequences for a region if its companies fell behind rivals could be significant. In his region of Eindhoven the two largest companies in the 1990s (Philips and truck maker Daf) subsequently made 35,000 people redundant after flirting with or falling into bankruptcy.
This was despite Eindhoven (named Brainport by locals) being recognised by authorities, such as the Organisation of Economic Co-operation and Development, which represents many of the world’s largest countries, as the “world’s smartest region” for its highly-educated workforce developing patents.
Vermeulen noted that these patents had failed to be translated into new companies as a source of jobs to replace those lost at Daf and Philips. He said nine startups received venture capital between 2007 and 2014. Six of these nine companies had been Philips spin-outs but one of the most successful, Shapeways, moved its headquarters to the US after its American investors said it should be closer to them and its larger market.
This relocation “irritated Eindhoven a lot,” Vermeulen said, as it seemed that the region’s attempts to transform from an industrial to knowledge economy through a triple helix of government leadership, academic success and corporate involvement was failing to bring tangible economic benefits.
But he held out a straw of hope that a corner was being turned. While it was remaining a US company with American VCs expected to reap the majority of rewards from their investment, Shapeways had recently decided to set up a three-dimension printing factory in Eindhoven. Vermeulen added the region was starting to market itself as a good place for hardware-focused entrepreneurs and investors.
This latest strategy of trying to collaborate with the “borderless” ecosystem of talent and investors by marketing its strengths had already led to success, with an Iceland-based company relocating to Eindhoven and raising money from French investors.
Research by Vermeulen had found flotations of global companies with a US-based VC in the syndicate had on average nearly a four-times higher market capitalisation than those without one, while 45% of venture-backed deals in Europe now had a US VC invested.
Vermeulen termed this the “borderless construct” and the new normal for economic development to avoid trying to replicate Silicon Valley but instead collaborate with it.
In part of an exclusive conversation with Toby Lewis, editor of Global Corporate Venturing, ahead of some lively comments at the Venture Alpha West conference co-hosted with Triple Helix Venturing, Peter Thiel, the first outside investor in social network Facebook and co-founder of payments provider PayPal and data analysis company Palantir Technologies, said: “Both globalisation and technology are important themes, but I think technology (because it is always new and one-of-a-kind) is less well understood than globalisation (because it involves copying things that works and that are tried and tested).
“It is for this reason that most investors are more comfortable with plays on globalisation – they correctly sense that they understand them much better. And it is for the same reason that I prefer plays on technology — because I think it is far more likely that I will be able to get some sort of ‘edge’ and understand something that other people don’t (which is always the key, in my mind, to making great investments).”
While investors are looking for their own “edges”, the consequence of such a search for innovation has been time has seemed to have relatively sped up.
Heidi Mason, managing partner at consultancy Bell Mason Group, in her éminence grise keynote at THV said as well as entrepreneurs having less time to develop so their investors often only had three years to prove themselves. They could survive and thrive through developing a portfolio worth more than the sum of its parts through creating an ecosystem map and value enablers, such as mergers and acquisitions and portfolio roll-ups, she said.
Nagraj Kashyap, head of US-based semiconductor company Qualcomm’s corporate venturing unit and who was ranked second in the latest Global Corporate Venturing Powerlist 100 published at the Triple Helix Venturing conference’s evening reception (see box), in his panel earlier in the day said: “The innovation paradigm has shifted. Now, young companies go international quickly, from day one. This requires either a lot of capital and brings operational risk. Or they can develop the right corporate relations and partner with them.”
This has required corporations to change to want to work with the entrepreneurs. Russ Conser, founder of oil major Shell’s Gamechanger programme for innovative ideas and now leading the Regenov8 development firm for the US state of Texas, said corporations had gone from a 1990s’ mentality of wanting to drive and control entrepreneurs and gain exclusivity on the innovation to an “outside-in” mentality to help shape developments. His metaphor for this was to act as gardeners to nurture the ecosystem through collaboration rather than build castles to keep others out.
Kashyap noted that universities – the third leg of the triple helix alongside industry and governments – remained in “castle mode” to control intellectual property developed by students and faculty. He warned university administrators that this was starting to be undermined as student-run accelerators were formed and entrepreneurial courses being taught.
However, while corporation and universities remained important in the underpinning of the innovation ecosystem by governments was seen to be in danger. Robert Rodriguez, former secret service agent and founder of cyber-security network backed by the US Department of Homeland Security, said over the past two years government’s research and development dollars had been “decimated” in all areas bar cyber-security even as they started to take more “risk” in procuring startups’ products and services.
Errol Arkilic, who helped found the US National Science Foundation’s ICorps programme to accelerate commercialisation of federal-funded research and is now CEO of M34 Capital, which backs academic-derived startups, said there had not been enough due respect paid to government-inspired innovation.
But as all parties in the triple helix or beyond grapple with the implications of faster and borderless innovation the lines between groups can blur or change.
George Foster, Konosuke Matsushita professor of management and director of the executive programme for growing companies at Stanford Graduate School of Business, the university that has done more than perhaps any other institution to develop Silicon Valley and the venture ecosystem, on his THV panel said: “The best academic department in the world is now at [search engine provider] Google.”
There seems to be no danger of what SVB’s Becker called the greatest risk – not facing up to the disruption – occurring. Disruption, therefore, is at everyone’s door even if what it brings remains less clear.
Are we in bubble or rainbow times?
There’s been plenty of debate as to whether at least parts of the venture investment community has been fuelling a bubble in the technology sector.
Greg Becker, president and CEO of financial services provider SVB, in a keynote at the DLA Piper Global Technology Leaders Summit in the Valley brought out many of the arguments for and against this being a bubble or what he termed a “rainbow” time leading to a pot of gold for investors and entrepreneurs.
The case for a bubble:
Over-valuation – 66 (33%) of the high-performance companies SVB tracks at now at or above $1bn in valuation, compared to 19% three months ago;
Tour buses are back in Silicon Valley visiting venture capital offices on Sand Hill Road;
Entrepreneurs are in the drivers seat, using different classes of stock to stay in control of their companies even after raising venture capital;
Burn rates of cash in many industries are higher even than they were in 1999’s dot.com bubble;
Similar companies are raising money;
In the second quarter $12bn was raised, a high comparable to year 2000, and half in internet businesses;
New entrants to venture investing are emerging, from mutual funds;
Traffic on route 101 (between San Francisco and the Valley around Palo Alto) has increased;
Parties are bigger and more lavish on a scale last seen in the dot.com bubble; and
10-year leases on property required for startups;
language of “this time is different” and “business model doesn’t matter”.
The case against:
Disruption in unprecedented numbers of sectors: Becker said in 21 years he has “never seen so many companies go from $0 to $5m in revenues to $50m to $250m;
The market capitalisation of just three companies (Apple, Google and Alibaba) is $387bn, enough to fuel unprecedented buying of VC-backed companies; and
Startup costs are down and company formation is up and they can find customers as big companies are prepared to use them.
Result: two-thirds of the 100 Valley cognoscenti said “no bubble”.
Global Corporate Venturing’s Powerlist 100
To show leadership requires a team. And only together can the most remarkable results be seen.
In their acceptance speeches when collecting their Global Corporate Venturing Powerlist 100 awards, Arvind Sodhani, president of Intel Capital, and Nagraj Kashyap, head of peer Qualcomm Ventures, ranked first and second respectively, both made it clear that their own successes were due to their teams’ efforts, rather than just their own.
Under Sodhani and Kashyap, both Intel Capital and Qualcomm Ventures have shown that venture capital can be a large, successful and multinational business.
In the first six months of the year, Intel Capital, which has a team of 200 managing more than $11bn, saw $162m returned from its portfolio company exits, adding to the 567 over its near-25 year history.
But in an era of ever-faster technological and societal change, when CEOs can expect to last only three years at a listed company, true leadership comes from having the time to see ideas put into practice.
As Toby Lewis, editor of Global Corporate Venturing and author of the Powerlist 100, notes in his awards supplement only one individual in the top 25 list has left the industry of more than 1,100 units in the past two years. This requires the ability to grow and shape teams as well as have their buy-in to grow together.