Author Archives: Hervé Lebret

Founding Angels

I was interviewed last Thursday by Martin Würmseher, a PhD student at ETHZ working on the concept of Founding Angels [0]. “Founding Angels help bridge the so-called gap, which exists between academic research and the commercialisation of the new technologies. Together with inventors, they found start-up companies to further develop the research and commercialise the results. The Founding Angels business model is similar to that of Business Angels, but the operational and financial support of Founding Angels begins before the actual founding of the start-up and, as a member of the founding/management team, continues in the founding and building up of the new start-up company.”

Martin sent me yesterday the transcript of the interview and I liked it very much. Martin authorized me to publish it so here it is!

Interview: 16.01.2014, 11:00-11:45, Skype Call

WM: OK let’s start with your professional activities at the Technology Transfer Office for EPFL – if you can just describe your activities? #00:00:16-6#

HLE: OK, so I am not at the Technology Transfer Office, I am the Vice President for Innovation and TechTransfer. The TTO, the Technology Transfer Office, is one of the units and they manage patent applications, licenses or also research contracts. I am managing another unit called “The Innogrants“, which is also part of the same Vice-Presidency and I am also supporting entrepreneurs. I can give them grants for one year, similar to the PioneerGrants at ETH Zurich that Professor Siegwart I think put in place. Innogrants also organizes conferences called “Venture Ideas” with Venture Lab where I invite entrepreneurs. And I try to support entrepreneurs in ANY [!] manner which they need. #00:01:01-9#

And for your information, before being at EPFL, I was in venture capital with IndexVentures in Geneva. So I have been in the start-up world for many, many years. And before being at IndexVentures I was a researcher in applied mathematics. So my background is technologies and venture capital and now I support entrepreneurs. #00:01:21-7#

WM: OK, so for how many years did you work for a venture capital firm? #00:01:23-5#

HLE: Six years, from 1997 to 2003, and I have been with EPFL since 2004. #00:01:31-2#

WM: OK, then it’s a quite senior position now… and experienced person. #00:01:39-1#

HLE: “Senior” I’m not sure but “experienced” for sure! #00:01:41-5#

WM: In which stage do the people come to you? #00:01:51-8#

HLE: Usually they come because they have an idea and they most often come when they are finishing their Ph.D. and they are thinking: “Maybe I have something that COULD [!] have a commercial interest, I would like to work on the idea.” So I give them the opportunity to work on that idea for ONE [!] year, an Innogrant is a one year salary, but it’s open to any students at EPFL. So a Bachelor or Master student could come and I could fund them, too. And I can even fund people outside from EPFL, coming with an idea and then they would be employed at EPFL for a year. But it’s mostly Ph.D. students, statistically it’s for 80% Ph.D. students and then maybe 10% engineers from the outside with an idea – in terms of the people I fund. #00:02:39-8#

WM: But from all academic fields or are you just focused on Life Science or….? #00:02:46-5#

HLE: No, all technology fields. #00:02:48-6#

WM: And how many people are there coming [to you] per year?   #00:02:52-2#

HLE: So in fact, so if you are interested in the details… – but there is a page on the Innogrants and there are documents that you can download – but basically I have about 60-70 people coming to me and I give about 5 to 10 grants – eight; 10 Grants in the good years, 5 grants in the poor years. #00:03:17-1#

WM: My primary focus is on spin-off / start-up companies: How many start-up companies are emerging from EPFL per year? #00:03:27-1#

HLE: So EPFL creates about… -usually said- one start-up per month, so it’s about 12-15 start-ups per year. In the good year it were 20 in the bad year it were 5. Again these numbers you could find on the same document I was mentioning. In fact I am always comparing with ETH Zurich, which always has about twice the number of start-ups we have, they have about 20-24, we are more in the range of 12-15. #00:03:55-2#

WM: Can you please send me the link to the document. #00:04:00-2#

HLE: Yeah, in fact I will send you the link to both, the webpage of the Innogrants and then the PDF-document. […] [sending; see eMails] [..] #00:05:16-3#

WM: And what are in your eyes the main challenges of the young people to create their own start-up company? #00:05:26-9#

HLE: So there are many, many challenges. Let’s try… I wrote a book on start-ups in 2007 and I have a blog, which is called “Start-up book” and you can have a link about it. In fact, yesterday I put on my blog a very long article about the reasons why European start-ups’ failures compared to the American ones. OK, I think the MAIN [!] challenges, the MAIN [!] challenges and people are not aware of that is the fact that in Europe we don’t have an entrepreneurial culture. The culture in the US or in Israel is so developed, it’s much easier for a young guy with no experience to develop something just because he has around him people who know how to do it. So the main challenge is a) about culture… – and we can have debates, but that’s my point. Then there are two more, let’s say, tangible challenges, which is the lack of experience and the lack of financial resources. People don’t know how to build a company because they don’t have the business or just poor product development expertise. So they need to be surrounded with people who can help them because there are maybe GREAT [!] ideas, but no experience and they lack the financial resources. So what is missing is really: Talent and Money. #00:07:12-4#

That’s what I would say: So first culture, then the amount of money. And when I’m saying “culture”, you know the fear of failing, the risk-taking mentality which is… all these elements. But I can send you this in writing if you want. But then it’s really talent and money. #00:07:29-6#

WM: OK, that was exactly the next question: what do you understand by “culture”? But… #00:07:37-7#

HLE: Well let me send you the link to the article I wrote, in fact I wrote it, to be honest, in 2012… – never published it because it was a kind of working document with a colleague and finally I published it yesterday, so it was a kind of accident. And then you will see what I mean by “culture”, so the 2nd eMail that you will receive in a few seconds [see eMail]. But it would be a very long discussion about culture. But it’s really what I called: “Fear of failing”, “Risk taking attitude”, which is basically: it’s better working for Credit Suisse or ABB or Nestlé because you can have a solid career versus going to a start-up where your parents and your friends will tell you: “Are you crazy??! This is really a bad choice to making your life!” Whereas in Silicon Valley, I studied there for 2 years, most of the engineers are thinking: “Well should I do a start-up first because if I don’t do it now, then I will never do it?!!” So it’s what I called “culture”. #00:09:04-8#

WM: OK, I think I understand it. And with regard to the Professors: Are they usually involved or they pushing, or what is their…? #00:09:14-4#

HLE: Well it depends: It’s very interesting, there is one Professor who is very friendly with start-ups and in his lab, there have been 13 start-ups which have been created. Thirteen… – well it’s probably now 15 but I think it was 13 last year and among them you have very successful ones. His name is Philippe Renaud [1] , it’s in micro technologies and he is very friendly with entrepreneurs. There are also Professors, they just don’t care, it’s not that they are against, but they don’t care. They are focused on their academic career, publishing papers, teaching… – and they don’t think that’s in their mission to to do technology transfer or innovation, so they don’t care. I think it’s a pity, but it’s a free world and people should do what they love. There are cases where I have the feeling that people are even AGAINST [!] start-ups, saying that it’s a harder way to create innovation and they should do it with SMEs, small companies, or established companies. But I don’t think this happens often. #00:10:18-4#

WM: Do you think the Professor is decisive for this attitude or…? #00:10:31-6#

HLE: It’s a good question. When I was studying at Stanford University, all the Professors… -well most of the Professors I had were saying: “If you have a great idea, maybe you should think about creating a start-up…” So it’s, again we are going back to “culture”: So the Professors can be inspirational, so they can have a high impact just because they are encouraging. Whereas if the Professor is just neutral, then the students don’t know what it is about and then the impact is zero. Then if you are talking more concretely about the help, yes they do, because when I was over there, most of the Professors were founders of the start-ups, they would never quit their academic position, they were sometimes chief scientists or they were advisors in the Board. Some of them were even taking a one year sabbatical because they were passionate about the idea and I know many of them who have done that. And of course when a Stanford Professor or a famous Professor is in a start-up, when you go to investors it gives much more credibility or weight because investors have the feeling that you have a strong technical background, whereas students who are alone may have less credibility. So the Professors would never be the managers or never be full-time in a company, but they can still have an impact in terms of credibility. #00:11:55-6#

WM: And in your are in Lausanne how are they usually involved? Are they shareholders or are they just in an advisory position? #00:12:06-1#

HLE: I don’t have the details but I can give you the example of two companies like Kandou or Typesafe , where the Professors were in fact the early CEOs of the companies, so they have taken a one year sabbatical and they are extremely active and hands-on. And I see other cases where the Professors are board members, are small shareholders, advisors. Philippe Renaud is careful because he is helping all his start-ups, he doesn’t have the time to be a board member on all these companies, but he is an advisor for most of them even if it is informal. And I would claim that… -I’m not sure-   but most of the Professors are [co-]founders and shareholders of the start-ups. Yes! #00:12:49-2#

that’s another strategy: they are not managers. #00:12:57-4#

WM: And who is preparing the businessplan of those start-up companies then? Is it….? #00:13:01-8#

HLE: Now I will tell you something that my colleagues at ETH would be shocked about because I know that… certainly Silvio Bonaccio and Matthias Hölling at ETH Transfer… and from what I understand to be an ETH Spin-off, you need to provide a businessplan. When I was in venture capital I was always saying, and I’m saying that to all my students and entrepreneurs, I don’t care about businessplans! The best companies ever never had a businessplan, so businessplans are not important. Of course it’s important for the entrepreneur because it’s a document which helps him to structure his own project. But in terms of the business value of the businessplan, it is nearly zero. So as a venture capitalist I never read a businessplan, I am reading the first page of a businessplan and then I say: “Whow this is interesting…!” Then I go quickly to the team and I say why it is interesting. I put an eye on the numbers, I never believe in the numbers because they cannot be right, they are either too optimistic or pessimistic but they are never right, so I don’t care. So we were just asking for a meeting and in the meeting with them if there was something we liked, we made our own Due Dilligence because you cannot base your decision just on what the entrepreneurs say. And then you decide whether to invest or not. #00:14:23-6#

So who is writing the businessplan?! The entrepreneur, he has to write it and usually it’s a young student… – but again: I’m not sure whether the businessplan is an important element. What is important is: Do these people have the drive to go to potential customers to understand if there is a business [market]. It’s a debate. Of course you need a businessplan, the investors will always ask you for a businessplan, but I think what is important is: Do they have an idea which has some potential and which is credibile? And then they can convince investors by talking to them. [hesitating 3 seconds] #00:15:03-5#

It’s a long debate… #00:15:03-5#

WM: And regarding the financing: Who is responsible for this and when are the Venture Capitalists… ? #00:15:12-5#

HLE: There has to be an entrepreneur right??! The entrepreneur might be a student, might sometimes be the Professor but it’s not often a Professor, but it’s usually a student from the lab. And the one who is writing the businessplan and who is trying to find a funding is this young entrepreneur who is not much experienced. So that’s what I see most of the time. #00:15:33-2#
It’s not… So I’m not sure why you are asking me this but it’s not an external consultant who has some business experience and who is helping the entrepreneur to write his businessplan. There are many such people like the CTI coaches are providing guidance, but the one who is writing the businessplan, these are the people with the idea hereafter, because they are the only ones who understand in this state what they are doing. #00:16:05-2#

WM: OK, and now with regard to external entrepreneurs: Do you have frequent experiences with them? #00:16:18-2#

HLE: Yes we have. #00:16:19-1#

WM: And what are your experiences with external entrepreneurs – are they helpful or are…? #00:16:27-1#

HLE: So are you talking about entrepreneurs who would help these young people… #00:16:34-4#

WM: So a serial entrepreneur. #00:16:37-6#

HLE: Well two things: So it’s clear that if these young people, I am talking to you about, are going to investors it is more difficult for them to find funding. So if they can work with people with experience, like you are saying, it certainly increases the chance of rising money. We have an example, which is a company called “Aleva Neurotherapeutics” which is in the medical field and the technical founders tried for one or two years to raise money and he couldn’t. And today they found this serial entrepreneur and he managed to raise 10 million Swiss Francs. So it’s clear that Serial Entrepreneurs DO [!] bring some credibility. #00:17:20-9#

But I have also examples where these young entrepreneurs could raise the same amount of money with NO [!] Serial Entrepreneur (Examples such as Nexthink, Abionic, Distalmoition). So I am not not… it’s not clear to me that it’s statistically changing the situation. Now let me tell you something about Serial Entrepreneurs… – I am not sure but I think you couldn’t find it on SlideShare; I am also trying to do some research about entrepreneurs; I do not have time to publish serious papers but I go to conferences and I published some papers and I did one this is about Serial Entrepreneurs from Stanford University again, because I have access to a big data base of such people. And what I noticed is that Serial Entrepreneurs with time have a tendency to do worse than better. And I know that there is a paper from a Professor at Harvard (Josh Lerner) saying that Serial Entrepreneurs are important because they bring credibility to firms, and I agree. But they don’t increase… – according to me –   they don’t increase the likeliness of success of companies. So I am not pushing for Serial Entrepreneurs, because Serial Entrepreneurs usually are too self-confident and don’t help young entrepreneurs to do their own homework about learning and doing. So gain it’s a debate, but I am not fully convinced that the young entrepreneur needs to be associated with a Serial Entrepreneur. Now a young entrepreneurs certainly needs to be helped by people who have expertise in start-ups and technology, for sure. But it’s a different story. They may not be entrepreneurs, they may be managers who have worked in other start-ups, they may be former employees. I don’t believe so much in Serial Entrepreneurs. #00:19:10-7#

I am happy to send you the link, I think I can find it on SlideShare… [see eMails] I am sending you now a 3rd eMail with a 3rd link and you can have a look at what I try to do, you will see. #00:19:49-9#

But clearly don’t misunderstand what I am saying: Experience of people in technology IS [!] helping entrepreneurs to build their company, but I am not sure it has to be systematic… – that’s all what I am saying. #00:20:09-0#

WM: I’m just sending you something [see sent eMails with the shortened/extended slides for the Foundation Process] In which cases could you imagine it is reasonable to include an external entrepreneur? #00:21:17-4# #00:21:27-0#

HLE: I think it’s reasonable to include an external entrepreneur when the young entrepreneur is very technically oriented but has no interested in business and is so shy that he does not know how to communicate his idea to the business world… – it can be investors, it can be partners, it can be customers. So if someone is only interested in the technical aspects of his idea, then he needs to be surrounded with the right expertise. But when an entrepreneur who has a great idea is also enthusiastic, knows how to explain simply what he does and he has the drive and energy to do it, I am not sure whether he needs so much people with experience versus just a co-founder who is as enthusiastic as him and can help him in solving the challenges that he will be faced with. So it’s mostly a question of energy versus experience. #00:22:25-5#

WM: For the next question please take a look at the first document that I have sent you [Slides]. So you see here the famous technology transfer gap and on the second slide you see the foundation process: On which step in the foundation process do you see the biggest problems of the young academics in creating their own company? #00:22:59-3#

HLE: So the biggest challenge, and this is something I have heard so many times, is financing! Because, in fact, I am sure to can say it for ETH Zurich and EPFL, having ideas, helping them on the concept, writing businessplans… – you know, you all have these courses sponsored by VentureLab and CTI and even EPFL. Then create a company is not so difficult, you need a little money but it’s not so difficult, and once you have the money it’s easy to find… – even finding office labs is easy. But FINDING FUNDING [!] is a BIG [!] challenge [speaks very slowly and impressive]! It’s a BIG [!] challenge! Maybe because the idea are not good, it doesn’t mean that the money is difficult to find because these people have ideas which shouldn’t be founded. But for me this [rising funding] is for what I see the biggest challenge. #00:23:52-5#

WM: And for the other steps, you do not see any bigger problems? #00:24:03-5#

HLE: Well I am not saying it’s easy, it requires a lot of help, but so I am looking at your second document [extended slides]: Technology Transfer and the Foundation Process. Technology Transfer: some people complain that it’s a lengthy process and it’s difficult to negotiate with universities, but for me there is not much problem. Businessplan competition: There are so many, as you are writing, competitions on courses… – I think someone who is motivated can do it. Consultants: you have tons of consultants from the CTI start-up process, so you can find these people who are helping you. But THEN [!] finding… – I am not even talking about venture capital, because it nearly doesn’t exist in Switzerland, but if you are looking at Business Angels, it’s VERY [!] difficult to convince them and it’s very lengthy and it’s for very little amount of money. I don’t know if you noticed, there was in TechCrunch – this is this big website –   the announcement of an EPFL start-up called BugBuster which raised one million Swiss Francs. And TechCrunch said: “Well the Swiss scene is such that a series A-Round is one million, whereas in the U.S. a 1-million-round is more an Angel round and a serious A-round would be 5 million. #00:25:21-5#

So there is such a lack of understanding about the funding needs, there is a difficulty. Furthermore there is no venture capital. And then technology centers… – you know, you have the Technopark in Zurich, we have our Innovationpark, there are so many office space for start-ups, so I don’t think that it’s an issue. I didn’t see as much difficulties there as in the funding. #00:25:45-3#

WM: OK, you now mean…?! What is not the difficulty? #00:25:52-3#

HLE: So the difficulty is ONLY [!] in funding and everything else is… – it’s a challenge, but it’s a small challenge compared to finding money. #00:26:00-7#

WM: But my question / research question now is on external entrepreneurs. If you go in the second document and there on the first slide you see that the BAs and VCs they enter in a later stage in the foundation process, but exactly in the very early stage there is a financial and operational gap. And here I am working on an idea that was developed by a colleague of mine called “Founding Angel”, those are people who do provide funding… – yes, but they are just co-founders, so it’s from the idea very close to Business Angels, but they start right from the beginning in the area of business idea and business concept development, and then they are co-founders. Typically they have a technical background as well but also experiences in start-up creation. And I am working on the evaluation of this concept whether this would make sense to have such a model besides BAs and VCs. Because as you already mentioned there are some severe difficulties with these two types [of actors] and those difficulties might be overcome by such a FA. #00:27:53-8#

HLE: You are absolutely right. In fact if you look at the best, the biggest success stories in the U.S. in technology, you would often find such cases, as early as in the 50s or the 60s with Fairchild and Intel and then with Apple Computers and then again even with Google and Facebook recently. You find such people, if you have seen the movie “The Social Network” on Facebook, you would see that you have Sean Parker and Peter Thiel, who were such people who helped Mark Zuckerberg and then they went to VCs. If you look at Apple Computers, Steve Jobs and Steve Wozniak had no experience but there was a guy Mike Markkula who became a kind of manager and Business Angel. But what is interesting is that these people are OFTENTIMES introduced to the entrepreneurs by Venture Capitalists, saying: “Guys your idea is very good, but it’s still too early for us but maybe you should work with that guy, he might help us! And then depending on the development we WOULD fund you.” So and then in the case of Apple Computers, Mike Markkula was introduced to Steve Job and Steve Wozniak by Don Valentine, he was a famous Venture Capitalist, and then later he (Valentine) invested in the start-up. #00:29:22-8#

The difficulty in Europe is: Who knows these people? Do they even exist?! Because the big challenge is that a start-up has nothing to do with an established business. So if you go to Nestlé, if you go to a big SME, asking these people to help these entrepreneurs, they may provide traditional business advice, which has nothing to do with the advice we need for high-growth companies. A high-growth company is a very specific entity, so what you need are people who know exactly how start-ups need to grow and these people do not exist in Europe because they have never done start-ups themselves, they are more managers of established companies. So in the U.S. it works, but in Europe in many, many cases I have seen such people who have have given BAD [!] advice to entrepreneurs. #00:30:12-0#

But it’s still a good idea. #00:30:15-3#

WM: But isn’t it exaclty what I say: so these Founding Angels, they are typically experienced founders, so serial entrepreneurs with a technical background and they line up with researchers in a very early stage, so they go into a university to Professors and talk to them informally about new ideas and then they decide if the personal chemistry is right… #00:30:43-7#

HLE: Now let me ask you a question: In the Zurich area, there have been some similar examples but it’s not exaclty what you are telling me now, because what I see is such people are not going to the professors to evaluate ideas. They are going to young entrepreneurs who have already decided to do something and then they help them. If you look at the case of Sensirion which is a very good spin-off from ETH Zurich, right: Felix Mayer, for example the founder of Sensirion is now helping entrepreneurs like the founders of Optotune. So he is doing what you are mentioning, but now he is helping entrepreneurs, I am not sure whether he is helping Professors. The difficulty I see is that I have the feeling that Felix Mayer is very friendly with the concept of building a big SME, but I’m not sure he’s building start-ups the American way. But he is doing that, so it’s an example. #00:31:42-2#

But I am not sure Felix Meyer has the time to go in the labs and assess technologies, he has the time to be the board member for entrepreneurs who want to do things themselves. I don’t think Felix Meyer would leave Sensirion, but he has the time to be a board member. #00:32:01-4#

Well I have the feeling that you are talking to me about people who would become manager of the start-ups, maybe the CEO. Whereas I’m telling you, I see people becoming board members and giving very good advice. Do we agree on what I understand from what you are telling me? #00:32:13-4#

WM: Yes, I know what you want to say. But I have to say that I am personally a little bit involved in a small start-up company through a part-time job, which is in the biotech area. And there was a Professor from the University of Frankfurt in Germany in Biochemistry, he has developed some yeasts for producing 2nd generation biofuels and then he matched up with such a Founding Angel, who is by the way also my boss and they decided together: “Hey let’s found a company together!” The Professor is still at the university and they are developing their technologies further, but the other guy is managing the company, they have 50:50 shares, so it’s an equal participation. #00:33:19-5#

HLE: But if the company needs to grow, to go to the next step of going to funding: Who would manage the company? Would this Business Angel [means FA] be able to be the full-time CEO or is he just… #00:33:32-7#

WM: He is the CEO until financing is guaranteed and then there is a full-time CEO hired. #00:33:47-3#

HLE: Who is managing the technology? #00:33:47-3#

WM: The technology is developed by the academic scientists. #00:33:54-8#

HLE: But then you have to be careful, very careful about the way you manage all this, right. Because is the company just an extension of the lab or is it an independent entity which has it’s own employees? It’s always very difficult to manage such things right, because you still need someone who is technically oriented, but he is part of the company. Or maybe it’s still early, OK, I see your point. I understand what you are saying, it’s something which I have seen sometimes, not so often because there is always a difficulty of how do you manage the TIME [!] of the people involved and are you sure that you are not creating distortions because the business guy and the technical guy are not fully aligned in terms of strategy and on the things ongoing. So it MAY [!] work, but do you have examples of famous start-ups that have been built this way? That’s my question to you. #00:34:53-5#

WM: The problem is that this expression, this idea is quite new; there are maybe several examples, but they are not aware of this name [so “Founding Angel”] or that this is a distinct model with different characteristics compared to Business Angels or Venture Capitalists. As you saw in my last eMail, I have sent you a second eMail […] #00:35:35-7#

I just know one of my colleagues at ETH, Lesley Spiegel, she is very active with start-ups, and there are also some students coming to her asking for some advice for a start-up. I think at the beginning it was more planned as a coaching role, but now it has developed and now she is a co-founder. But she had never heard about this expression before. #00:36:19-7#

HLE: You know what is interesting Martin: If you look at the biotech industry, particularly in the Boston area around MIT and Harvard University, the Venture Capitalists themselves, the good ones, Versant and Polaris, are doing precisely what you are saying. They become the CEO, they put a little money, more than 10’000, usually up to half a million or a million, they do the job and when they have early validations, then they put a lot of money in it with other funds. So the Venture Capitalist are doing precisely that in the biotech industry. Why in the biotech??! Because in biotech, the business is quite simple, you have a molecule, if it works, it might be a blockbuster drug and if it does not work you stop early, but then you need to pull tons of money. And because these Venture Capitalists are usually medical doctors, they understand precisely how it is. But outside of biotech, it’s not so binary – does the molecule work or not?!? In all the other fields, medical devices or anything in information technology it’s about product development and it’s about understanding if the technology you provided is bringing something to the future product. And THEN [!] it’s much more difficult, because these Founding Angels, as you call them, need a VERY BIG EXPERTISE [!] in the field where they are. And then it’s difficult to have them to do it systematically for many ideas one after the other. In biotech a medical doctor can do molecules one after the other, so every three years you can change up to another one (A famous example is Christoph Westphal [2]. In that cases it’s very difficult to build an activity, an industry of these people who would create funds or their own money and they would do it systematically because the challenge for you or for an entrepreneur is: How do I find such people?!? How am I sure that for my specific project I find, in Switzerland, in Europe or in the U.S. someone who is eager to do that? So the concept is good but the matching is the challenge #00:38:33-8#

WM: But usually it should be… – maybe it’s actually not the case, but the perfect situation or how it should work is that they offer themselves to the technical scientists or at least to give the technical scientists… to be popular/known at the department if they [the technical scientists] have an invention… – this is the perfect situation. If they have a good invention and want to create a company but don’t know how, they would know who to call, that they always have the the tickmark next to the desk: “If I have something I would know who to call.” And such a person should only involve in such a project where is technically familiar with because it’s also his own risk, the risk of failure. If it turns out that he has not the glue e.g. about health sciences. #00:39:51-4#

HLE: So let me ask a 2nd question, which is the following: The idea is very early, as you are saying on your slide it’s the very early stage – how much money will you need to reach the state where you can go to the next, which may be Business Angels or Venture Capitalists? So how much time and funding do you need for the Founding Angel to validate the idea? #00:40:18-0#

WM: So I would say about two years. #00:40:18-9#

HLE: Two years; so how much money? #00:40:20-5#

WM: It depends… #00:40:24-5#

HLE: Let’s say half a million right, it’s half a million – two years, half a million. #00:40:27-1#

WM: Yes, typically this company is founded and the research is still done or further developed by the scientists employed by ETH. #00:40:47-1#

HLE: I am not saying the half million is provided by private money, it could be a CTI contract, but you need money. And of course this guy needs to feed himself, he needs at some point…. or he is rich enough, he does not need to work, or he still needs to have his own money. And if the research is done at the lab, I think you are right, it can be developed and it may work. But you have to think about: How does this guy fund himself?   #00:41:17-0#

WM: This is his own problem, there is no salary, he is only shareholder. #00:41:23-2#

HLE: Because many times I have seen people coming to EPFL saying: “I want to help labs and entrepreneurs!” And I am almost asking them: “Do you need to be paid for that or you don’t need??” If you don’t need to be paid, then it’s great because you can do exactly what you are telling me. But if he needs to be paid, then we are in trouble because we don’t know how to pay these people. And most of the time, I tell you, they need to be paid. #00:41:44-2#

WM: No in this model, they are not paid, they feed themselves with former/previous exits, so they are financially independent. As long as… #00:42:03-4#

HLE: So Martin we have such people around EPFL, I can give you the name of people like… – maybe you have seen them also around Zurich. There is one guy called Colin Turner [3], there is another guy called David Brown [4]… (I give you more names in note [5] #00:42:15-9#

WM: Yes can you please send me the contacts – just afterwards. #00:42:21-5#

HLE: I will send you the name and then I can try to find the eMail and then I can even make introduction if you wish. #00:42:34-1#

WM: Yes, just send me the the name or the website. #00:42:34-5#

HLE: Well I’m just typing them in an eMail […] [see 3rd eMail] What is interesting is that these guys are precisely doing what you are saying, they are not asking to be paid, but they don’t become the entrepreneurs, they are board members. They are Business Angels and board members and they are most of the time founding Business Angels, but they don’t have a management position, they are on the board. #00:43:06-7#

WM: But this is also a characteristic: The Founding Angel, he is the manager as long as there is no other person. As soon as there is… afterwards when a BA or VC is involved and there is enough financing to hire a full-time CEO, then he goes to the board. #00:43:29-3#

HLE: You will have to check again, if these people who are founding Business Angels, can work with just the professor or if they really want to work with someone in the lab, who has the drive to become a technical founder, the CTO. Because a professor will become the CSO, the chief scientist, but someone who will become full-time… Do they need someone who will become full-time a technical guy in the company. That’s for me the key, one of the key elements… – another key element. OK I will send you the eMail about the 3 names. Anything else. #00:44:07-8#

WM: No that’s it, thank you. #00:44:14-1#

[…] #00:45:14-7#

HLE: But you have a good idea and it’s something many universities are trying to work on… – for sure. You can check what Alto is doing in Finland, the technical university in Finland, they have putted in place many things called Alto Ventures and they are all inviting formal entrepreneurs from the Finnish scene to help the people. So you could see there similar concepts. #00:45:44-6#

WM: OK I will take a look at it. Thank you very much for taking the time.

[0] Martin gave me more references on Founding Angels:
–Founding Angels as an Emerging Investment Model in High-Tech Areas by GUNTER FESTEL AND SVEN H. DE CLEYN,THE FALL 2013 JOURNAL OF PRIVATE EQUITY. (You may remember I had a post in teh past about De Cleyn’s PhD thesis…)
– Founding angels as early stage investment model to foster biotechnology start-upsGunter Pestel, 2011, Journal of Commercial Biotechnology Vol. 17, 2, 165–171.
[1] Philippe Renaud, the professor with 13 start-ups and http://people.epfl.ch/philippe.renaud?lang=en
[2] Christoph Westphal
[3] Colin Turner, http://www.linkedin.com/in/colinturnerswitzerland,
[4] David Brown http://www.venturekick.ch/index.cfm?page=129749&profil_id=2365&BackPage=129757,
[5] Francois Stieger, former Oracle executive, http://www.forbes.com/profile/francois-stieger/,. Another idea might be former CTI coach and executive, Jean Marc Wismer http://ch.linkedin.com/pub/jean-marc-wismer/0/a1/2a8 who is now CEO of Sensimed. Finally Jean-Pierre Rosat (http://startuptraining.ch/fr/portfolio-items/jean-pierre-rosat-2/ ) and Jacques Essinger (http://www.linkedin.com/in/jessinger) are quite famous here in the medtech field.

Lessons from Failure: a rare and interesting account from Everpix

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Two EPFL entrepreneurs asked me what I thought of the Everpix story. If you do not know it, you should read the following links:
– A very good article from the Verge: Out of the picture: why the world’s best photo startup is going out of business. Everpix was great. This is how it died.
– A very detailed account of the Everpix story by its founders on Gifthub with tons of documentation and archive: Everpix-Intelligence

I knew some actors: Pierre-Olivier Latour is an EPFL alumnus whom I met during my Index years and again in 2006 when I visited Silicon Valley with the future founders of Jilion. Neil Rimer, one of the investors in Everpix was my boss before I joined EPFL.

From left to right, Zeno Crivelli, Pierre-Oliver Latour, myself and Mehdi Aminian in 2006 in Silicon Valley.

The story will certainly feed the recurring debate about taking VC money or not, and I think it is a bias debate! You can read my recent posts about Founders Dilemmas, which address the issue:
– The Founder’s Dilemmas – The Answer is “It depends!”
– Swiss Founder’s Dilemmas
Again taking VC mmoney is not an easy thing. It is tough to get and when you have it, the constraints increase. You can watch the video Venture Capital Is a Time Bomb from the founder of 37signals if you do not know what I am talking about.

I think the debate is biased because it is not about VC vs. no VC. Not many entrepreneurs have the choice of not taking investor money (Business angels are not that different from VCs.) It is about do you want to have an impact and grow (then you often need investors) OR do you want to control and stay independant. And it is often OR not AND… I know many people (including entrepreneurs and investors) disagree with me. My recent experience has not changed this belief that I’ve had for 15 years.

You should read Founders at Work if not already. One of them claims: “VCs? you can’t live with them, you can’t live without them.” I think this is closer to the truth. He said exactly: “VCs are an interesting bunch; you can’t live with them, you can’t live without them. They are instrumental in your success because they give you money and a really strong endorsement. They have this mafia-like network of connections and they help you with deals and find the right executives. They are really working your case. In my experience, it rarely happens that they turn against you, because you’re a team and if the team isn’t working, the company will likely fail. Occasionally, when you’re a screw-up, they’ll have to make a tough decision and fire someone, but that’s rare in my opinion. Because they wouldn’t invest in your company if they didn’t believe in you and your team. So I’ve always had a good experience working with VCs.”

So back to Everpix. I do not really have a point of view as I did not know the details. But let me quote both actors from The verge article: “The founders acknowledge they made mistakes along the way. They spent too much time on the product and not enough time on growth and distribution. The first pitch deck they put together for investors was mediocre. They began marketing too late. They failed to effectively position themselves against giants like Apple and Google, who offer fairly robust — and mostly free — Everpix alternatives. And while the product wasn’t particularly difficult to use, it did have a learning curve and required a commitment to entrust an unknown startup with your life’s memories — a hard sell that Everpix never got around to making much easier.” “It succeeded in every possible way,” said Jason Eberle, who built the web version of Everpix, “except for the only way that matters.”

While the investors point was: “While the product was clearly superb and had a very small but very loyal following, we were not comfortable enough with the other aspects of the business to kick up our level of investment,” said Neil Rimer, adding, “Having a great product is not the only thing that ultimately makes a company successful.” There is the remaining issue of how much value creation VCs want and can all entrepreneurs address it: “You guys seem to be a spectacularly talented team and some informal reference checking confirmed that, but everyone here is hung up on the concern over being able to build a >$100M revenue subscription business in photos in this age of free photo tools.” Said a partner at another firm: “The reaction was positive for you as a team but weak in terms of whether a $B business could be built.”

The debate will no doubt continue, but it is close to what can inspire me this story. Not to forget the conclusion of Latour: “I have more respect for someone who starts a restaurant and puts their life savings into it than what I’ve done. We’re still lucky. We’re in an environment that has a pretty good safety net, in Silicon Valley.”

Europe, wake up!

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This is a short text I wrote in 2012, and my friend Will from Finland had made comments about it which I added. Thanks! I read it again this morning and thought it might be worth publishing it now…

Intel, Apple, Microsoft, Oracle, Genentech, Cisco, Google, Facebook, Skype. You probably know these companies. They were at the origin of major innovations for our societies. Maybe you are less aware of Niklas Zennström and Janus Friis, Mark Zuckerberg and Dustin Moskovitz, Larry Page and Sergey Brin, Leonard Bosack and Sandy Lerner, Bob Swanson and Herb Boyer, or Larry Ellison but you know much better Bill Gates and Paul Allen, Steve Jobs and Stephen Wozniak, Bob Noyce and Gordon Moore. They are entrepreneurs; the founders of companies that were all start-ups one day in the not-so-distant past, but are global titans today. Europe does not seem to understand the importance of high-tech innovation produced by these young entrepreneurs. Skype is the exception in the list and the Americans were able to produce hundreds of such success stories. Why have we failed and what can we do to change the course of history?

Innovation is a culture where trial-and-error and uncertainty have huge roles. Failure, unfortunately or maybe fortunately. Just as life! The European culture in all its diversity has provided welfare to its citizens since the end of World War II. Ironically, the comfort-level we all appreciate will actually accelerate its end. A culture can only live with creativity and renewal. As a recent article in The Economist illustrated it well [1], we Europeans are no longer able to innovate, our businesses are too old, at least in technological innovation (e.g. Nokia or Alcatel) and we do not create enough innovations. The causes are probably numerous, but fear of trying is the most serious. And I’m not sure that we are aware of it. Do many Europeans understand that innovation through high-tech entrepreneurship is critical? I fear that we would rather have well-educated children to enter the large established firms than creative individuals willing to try their luck. Worse, what models do we have?

Bob Noyce was a model and a mentor for Steve Jobs.

In this unique place, Silicon Valley, thousands of entrepreneurs try each year. “The difference is in psychology: everybody in Silicon Valley knows somebody that is doing very well in high-tech small companies, start-ups; so they say to themselves “I am smarter than Joe. If he could make millions, I can make a billion”. So they do and they think they will succeed and by thinking they can succeed, they have a good shot at succeeding. That psychology does not exist so much elsewhere” wrote Tom Perkins, co-founder of the legendary Kleiner Perkins fund.

Europe is not fully unconscious of the problem. In 2000, the Lisbon agenda proposed by theEuropean Union had the ambition to make of Europe in 2010 “the most competitive knowledge-based economy”. This has been a total failure. A variety of support mechanisms were created, but the Europeans seem to have forgotten that innovation is primarily a question of adventurers, pioneers – these types of people by definition are not looking for safety and support. Entrepreneurs live on their passion. “Launching a start-up is not a rational act. Success only comes from those who are foolish enough to think unreasonably. Entrepreneurs need to stretch themselves beyond convention and constraint to reach something extraordinary” says Vinod Khosla, another Silicon Valley icon. A start-up is a baby whose founders are its parents. Not surprisingly, founders often start the adventure as a couple, because they have the intuition it will be difficult and they need more than one mind and body. They are often migrants. Probably because migrants do not have any existing network or “right” connections in the new places where they have settled, they simply work passionately on their innovation, again raising the probability of success. Half of the entrepreneurs in Silicon Valley are not Americans. Why are we afraid of that opportunity in Europe? Silicon Valley is an open culture where even competitors like Apple, Google or Facebook talk and cooperate. This is REAL open innovation, not high-level top down roadmaps, but grassroots, bottom up collaboration. Interestingly, entrepreneurs are often young. While this is not always the case, youth does not give up on creativity easily, largely because they have not lived through the many failures that the rest of us have. Silicon Valley is a unique place in the United States that no one could replicate. And yet every state, every region of Europe is desperately trying to create its own! Let’s work together. By no longer seeking to create the Holy Grail, one unified “European technology cluster”, and by instead deciding to cooperate on a practical level to enable innovators rather than trying to do the work for them. While our egos are still too large to give up our dreams of global domination, at least let us work together without unnecessary waste! In a recent talk [2], Risto Siilasmaa, the young chairman of Nokia, called for a similar reaction and added that “entrepreneurship is a state of mind, which implies pragmatism, ambition, dreams, perseverance, optimism and give-up-&-start-again attitude”. Without a large ambition, it is not worth trying.

One concrete area to focus on is creating an infrastructure where risk-taking investors can thrive. Entrepreneurs cannot succeed alone. Very early in the innovation process they need investors to enable them to embark on the adventure. America has created the best tool out there so far, venture capital: former entrepreneurs who become the supporters of the next generation once they have already succeeded, financiers who have “been there and done that” [3]. These VCs know the start-up culture because they have been there! This experience complements the expertise provided by others who have spent years in large corporations; a perfect storm of competence and culture is needed. It also requires employees who also digested this culture, employees who can take a stake of the future success of the company through stock options. I said stock option, the word that became a bad word, the tool to fatten those who do not deserve it. Stock options should go to those who try. No doubt it will also require some labor flexibility for start-ups as they face uncertainty and rapid cycles. But it should not be assumed that the absence of these mechanisms is the cause of our failures. It is the absence of this culture of innovation that hurts us. Do not be afraid of failure. Failure is the mother of success, says the Chinese saying. Does the child successfully ride the bicycle on her first attempt?

Failure will always be part of innovation. This is why we need a critical mass. In one single place or not, in Europe. And failure should not be stigmatized. I think everyone interested in innovation needs to experience the Silicon Valley culture, to spend time to understand. Weeks or even months. Without fearing that our children will not come back. It is better to try out there than be safe back here. They will return to teach us, at worst, and at best return to set up Europe’s future growth companies! We also need to support high energy mobility among entrepreneurs across European hotspots, as we have done very well for our students. Universities are still critical once the students have left to provide landing zones for mobile entrepreneurs. You may criticize me for being too fascinated by the American culture and technological innovation. “Europe has other ways to innovate,” I am often told. It innovates with large corporations such as Airbus or with German- or Swiss-like SMEs, or in services. And you believe that US companies do not?! I am told that venture capital is in crisis, that Silicon Valley innovates less, and that may well be true – outside of the web, creativity seems to slow down. Schumpeter, the great economist, has built a theory where large established firms die and are replaced by new entrants when they do not innovate anymore. Why would the twenty-first century be different from the previous one? Maybe … but our energy, aging, health problems are not going to require new innovations and new entrepreneurs? I do think so. Europe needs a new ambition, a new enthusiasm and we Europeans are aging. We owe this to our children, to our youth. From primary school onwards, let us our children express their creativity, let us teach them to say no, and tell them that this is positive. A career is meaningless unless it includes passion and ambition. Let us not encourage them to follow the paths of certainty that may be deadly. Steve Jobs in a wonderful speech in 2005 [4], indicated that we were all going to die one day, and before that day, we needed to stay hungry, to day foolish. Let us follow his advice. Let us help our children!

Hervé Lebret supports high-tech entrepreneurship at EPFL. He is the author of the blog Start-Up, www.startup-book.com.
[1] Les Misérables – Europe not only has a euro crisis, it also has a growth crisis. That is because of its chronic failure to encourage ambitious entrepreneurs. The Economist, July 2012. www.economist.com/node/21559618.
[2] Risto Siilasmaa at the REE conference. Helsinki, Sept. 7, 2012.
[3] Do not miss the movie SomethingVentured which describes wonderfully and humorously the early days do venture capital, www.somethingventuredthemovie.com.
[4] Stay Hungry, Stay Foolish. ‘You’ve got to find what you love.’ http://news.stanford.edu/news/2005/june15/jobs-061505.html.

Again a few key points:
• Europe is behind USA and Asia in innovation.
• Entrepreneurs are not considered heroes in Europe.
• Trial and error, uncertainty, and failure are integral parts of innovation
• Our high level of comfort will accelerate its own end (again creative destruction).
• Fear of trying is the most serious problem with innovation.
• Europe’s 2000 mandate to become the world’s leading knowledge based economy has failed.
• Open Innovation is bottom up, not top down.
• Youth are creative because they have yet to experience failure.
• We must create an infrastructure where risk-taking investors can thrive.
• All students that show interest and ability in innovation should experience the Silicon Valley Culture. We should not worry that they will no come back.
• Europe’s leading universities can be the game changers, the catalysts, by agreeing on what is important (what innovation, what education, what tech. transfer) and investing in it.

The Immigrant, Factor of Creation

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Here was my last column in 2013 for Entreprise Romande, with a subject that is dear to me, the importance of migrants.

The paths of innovation and entrepreneurship are paved with a myriad of dilemmas. Clayton Christensen a few years ago had explored the first topic in his Innovator’s Dilemma and last year Noam Wasserman has published the interesting Founder’s Dillemmas. The uncertainty of the market, youth vs. experience, disruptive vs. incremental innovation, the new vs. the established are just a few examples of these difficult choices. A more controversial and politically sensitive subject is the contribution of migrants and foreigners in the field of creation.

Just when he debate is growing in Europe as well as in Switzerland about the threat that would represent those who are different and come from elsewhere, it is perhaps worth remembering more positive elements about the importance of openness to outsiders. The Swiss history [1] reminds us that the watch industry is linked to the arrival of the Huguenots in the sixteenth century; a part of the textile industry in St. Gallen has its origin in England. There is also a French origin in the Basel chemical industry. Perhaps it interesting to recall that Christoph Blocher has distant German roots. But what about Nicolas Hayek, the savior of the watch industry, rocked by his Lebanese and French cultures.

Much further, Silicon Valley, the world champion of innovation and entrepreneurship, owes much to its migrants. Of course America is a land of pioneers, but the San Francisco area pushed the logic to an extreme. More than half of the entrepreneurs in this region are of foreign origin and for example Google, Yahoo, Intel had founders with foreign roots.

While Europe has a temptation of closing its doors due to its economic difficulties, in the United States, the Start-up Act 2.0 intends to streamline visas for foreigners and to regularize children of migrants to enable them to enter higher education. Japan was another major country for innovation a few decades ago nut it may have suffered from its low level of migration; the country is aging and has not really reinvented itself.

Switzerland is a land of migration, let us not forget it. This is one of its strengths. Today, the campus of EPFL and ETHZ have a great deal of students but also of researchers and teachers with foreign origin. The proportion increases much more if you focus on those who create businesses. For those who have received an entrepreneurial scholarship to EPFL, the proportion rises to 75% including 25 % of non-Europeans.

Would foreigners be more talented and creative? The answer is rather a larger experience of what is unknown and uncertain. Migrants have agreed to leave their homeland, sometimes leaving everything behind. And they know by experience that we can recover from this loss. They know well that it is always possible to start again and the fear of failure is reduced. He also learned to domesticate novelty. It should be added that a migrant has less access to established circles and is stuck by “glass ceilings”. They must often build they destiny. From this point of view, they do not take the jobs of anyone, they create new opportunities, that will become beneficial to others!

[1] http://histoire-suisse.geschichte-schweiz.ch/industrialisation-suisse.html

Space Invaders were also in Geneva

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It was tough not to add the Geneva invasion by the Space Invaders after the one in Lausanne (After Banksy in NYC, Space Invader in Lausanne). But this one is far from perfect, many images are missing and I did not take the time to go on site.

Still, you can download my pdf compilation of what I found online as well as a Google map of the places.

Afficher Space Invader Geneva sur une carte plus grande

Swiss Founder’s Dilemmas

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Following my recent post about Wasserman’s book, The Founder’s Dilemmas, let me react about recent (and less recent) events related to Swiss start-ups and founders. Do we have here the same dilemmas Americans face, that is building a company which is either control-oriented or wealth-oriented? If you do not know what I mean, read the blog or let me just add that there is this binary model of either slowly creating value with your customers and partners with not much investor money or taking the risk of fast growth with investors, in anticipation of customer demand.

The ultimate example of this in Wasserman’s book is Evan Williams who founded Blogger, Oddeo and then Twitter, with diverse strategies. Paul Graham addresses the issue often (for example in Startup = Growth or in How to Make Wealth) and for a young entrepreneur, getting a million can be very important. At the macro-economic level, there is also a debate which I honestly never really understood. I think an ecosystem is (or should be) interested in fast growing companies, and slow growth should be less of a focus, not because it would not be important, but because it has always existed and will continue to exist with or without public support… However, because there are many SMEs in Switzerland, the support to small firms seems to be important. So is the situation very different from what I know in the USA? Let me try a simple description.

Sensirion is a very succesful Swiss start-up which is a good illustration of the debate. In an article written in 2008, its co-founder, Felix Mayer wrote about “How to finance the Growth? Being somewhere in the middle between the “US American” who is shooting for the moon and the Swiss who develops his technology on the cash flow of a one man company we did not choose the classical venture capital path to finance the first growth phase of the company but were able to find a private investor. In Switzerland, if you look for private investors, you may find experienced entrepreneurs who are willing to invest into a promising business. They are also known as “business angels”. It took quite a while to get from a prototype to a product family or from 1 to 10 to 100 as described before. You need knowledgeable and patient partners to survive this phase with many ups and downs. Usually, it takes longer than you expect. Nevertheless, at the end of the day, you have to get to the point where you generate growth by your own cash flow, which Sensirion reached 6 years after its incorporation. Since then, we generate enough cash flow to finance our yearly growth of around 30%-40%. In order to manage this growth we are of course continuously looking for excellent people!”

Is Sensirion a different model? I went to the Swiss register of commerce and looked at Sensirion financing (the Canton of Zurich is offering very detailed information). It was not an easy exercice and I am not sure about the accuracy (You will see the figures differ slightly!). I tried also to show the dilution of founders over time:

and here is Sensirion employee growth since its inception

Sensirion is clearly a success story, but is it that different from the US model? There might be no VC, but the private investor(s) have put a total of CHF13M with a valuation of CHF190M at the last round. The growth was as fast as many VC-backed start-ups, so I am not sure the investors were more patient and the exit might be less of a priority. This is very similar to many US start-ups… But Sensirion is often mentioned as an example that start-ups would not need venture capital (hence investors). There is not that much difference between a private investor and a VC (or is there?)

Now it is true that many of the Top 100 Swiss Start-ups raise very little money with business angels In the order of CHF1-2M. Recently EPFL’s Jilion has been acquired by Dailymotion for an undisclosed amount and the local press mentions Jilion had raised about one million. Optotune in Zurich is a similar model with 200’000 raised according to the register of commerce. Techcrunch was concerned recently about BugBuster (small) CHF1M A round. Dacuda raised about one million too at a CHF7M valuation. LiberoVision raised CHF200k with Swisscom at a CHF2.5M value before being bought for about CHF8M (it might have been more with upsides). Netbreeze was acquired by Microsoft after raising about CHF5M from one group of investors which owned 80% of the company. Wuala was acquired by LaCie 2 years after its creation and it was totally self-funded. And the list is nearly endless.

But there are also fast growing companies. Covagen, GlyxoVaxyn, GetYourGuide, InSphero, Molecular Partners, Nexthink, TypeSafe, UrTurn have raised a lot of money with VCs. And people who would say Switerland is about health related firms will see it is more diverse…

Company	Field	Money raised	Latest valuation	Investors
Covagen	Biotech	56M	NA	Gimv, Ventech, Rotschild
GetYourGuide	Internet	16M	50M	Highland
GlycoVaxyn	Biotech	50M	37M	Sofinnova, Index, Rotschild
InSphero	Biotech	4M	16M	Redalpine, ZKB
Molecular Partners	Biotech	56M	115M	Index, BB Biotech
Nexthink	Software	15M	NA	VI, Auriga
Sensirion	Electronics	13M	190M	Undisclosed
TypeSafe	Software	16M	NA	Greylock
UrTurn	Internet	12M	36M	Balderton

And of course, the founders have been diluted. I will not specifically show the dilution in each company but anonymously illustrate this with the data I could found online (non confidential data).

Company	Founders	Seed	A	B & Later	ESOP
1	9%		26%	65%
2	30%		33%	31%	6%
3	34%		32%	33%
4	40%	7%	12%	41%
5	43%		47%	10%
6	35%	11%	27%	28%

I am not sure, with all this data, that Switzerland is qualitatively that different… I will finish with an interview of Daniel Borel, the co-founder of Logitech: “The only answer that I may provide is the cultural difference between the USA and Switzerland. When we founded Logitech, as Swiss entrepreneurs, we had to enter very soon the international scene. The technology was Swiss but the USA, and later the world, defined our market, whereas production quickly moved to Asia. I would not like to look too affirmative because many things change and many good things are done in Switzerland. But I feel that in the USA, people are more opened. When you receive funds from venture capitalists, you automatically accept an external shareholder who will help you in managing your company and who may even fire you. In Switzerland is not very well accepted. One prefers a small pie that is fully controled to a big pie that one only controls at 10%, and this may be a limiting factor”

Click on picture to enlarge

After Banksy in NYC, Space Invader in Lausanne

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Another post which does not have much to do with my favorite topic, start-ups. But after discovering Banksy’s work in New York, I saw his movie Exit Through the Gift Shop. A very loose link is Space-Invader, another street artist, who appears in the movie. Another loose link is that Space Invader has produced some work in Lausanne where I work. So I looked for his invaders and the result is that attached pdf: Space Invader and Spaceramik in Lausanne (Note that it is a rather large 24Mb pdf document)

An unidentidied Lausanne Invader

I am far from the first one to do this. For example Alain Hubler blogged about it in 2007 and helped me in finding the final place I was struggling with (thanks!) And I nearly know nothing about Street Art. But it was fun to look for his work.

As a strange coincidence Xavier Delaporte on French Radio France Culture had an interesting chronicle last Friday about our new ways to walk in the street in the Internet Age, Les nouvelles façons de marcher (avec nos outils numériques) This is just another example!

Space Invader, just like Banksy and many other Street Artists, remains anonymous. He has his own web site, www.space-invaders.com. He has his fans like Monsieur Chat who follows his production in Paris and many others who put pictures of his work online. Unfortunately, most of the work has disappeared, either the buildings have been destroyed, or the art has been stolen and/or replaced by others. There is also a second artist, Spaceramik, who put his own video on YouTube. The picture I put above might not be from Space Invader neither from Spaceramik, hence the term “unidentified”.

A final point here is the Google Maps of Invaders in Lausanne.

Display Invaders in Lausanne directly on Google Maps

PS: (February, 8, 2014) Pierre Corajoud and Space Invader
Pierre Corajoud is famous in Lausanne for publishing very nice little books about walks around Lausanne. I learnt through Mirror Mosaic Man that he had published such a booklet about Space Invader in Lausanne. I thank Pierre Corrajoud here again for offering me a copy of his book because unfortunately, many works have been destroyed or stolen after its publication and Corrajoud took his book out of the shelves.

PS: (December, 24, 2013) A year of Street Art

The Founder’s Dilemmas – The Answer is “It depends!”

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The Founder’s Dilemmas is at the same time a fascinating and frustrating book. Fascinating because it’s providing very seldom seen (and mostly unknown) data about founders and high-tech start-ups. Frustrating because it is also seldom providing answers to the dilemmas founders may face. It took me the full reading of the book to finally understand that the answer Wasserman provides is that there is no best solution for a founder facing a problem, but that if he knows all possible situations, he might better decide based on his own motivation and … personality. So she or he might decide, not on rational criteria but more because of his personal inclinations!

The best illustration of this is Evan Williams who was a founder of Blogger, and then of Odeo (and then after the book was designed of Twitter). Williams had a very different behavior with the two start-ups. He was “control-oriented” with Blogger, hiring people in his close network, taking friends and family (and close network) money only and keeping management control to the point of firing everyone including his former co-founder and girlfriend. With Odeo, he had initially a “wealth-oriented” attitude, taking VC money and having a different hiring strategy. His inclination made him however buy back his investor’s stake, as he needed to control his start-up again.

Wasserman shows that the “3Rs” (Relationships, Roles & Rewards) are key features for decisions about the key dilemmas founders may experience. These dilemmas are classified according to the chapters of the book: Career, Solo-vs.-Team, Weak vs. Network, Positions, Compensations, Hiring, Investors, and Succession. Wasserman explains (or better-said describes) the various dilemmas founders face when taking decisions and shows that their decisions are very often dependent upon their motivation. Do they want to be Kings (power or control-oriented) or Rich (wealth oriented)? He does it with anecdotes (not so good and quite well-known) and with statistics (very good and not so well-known)

In summary I saw it more as a book for academics than for entrepreneurs and founders who apparently will not take better decisions after reading this book as they will be driven by their motivations, not their experience! At least they will be aware of it. It may be another illustration that youth and enthusiasm are as important as experience and rational behaviors!

One interesting puzzle Wasserman addresses is why individuals decide to become entrepreneurs, often thinking that they will become wealthy whereas this is entirely wrong. This has to do with control vs. wealth. You will need to read Wasserman if you want to know more.

Here are some more notes taken when reading. The next table is probably an essential part of the control-vs.-wealth dilemma.

Table 1.2 (& 11.1) – Wealth-versus-Control Dilemmas

Wasserman has many more interesting data and let me show a small sample:
– There are no real pattern in becoming a founder (age, experience, childhood influences, personality, family status, economic status), however early influences and natural motivations seem to be important.
– About age, he has seen a wide variation with an average of 14 years of work experience before becoming a founder (higher in life sciences). There is a specific group of founders with 0-4 years of experience.
– The main motivations are either control or wealth, but having an impact counts.
– Wasserman shows strong differences related to gender correlated with age. This is a must read but too long to be explained here…or are they, let me try [pages 33-35]

Tables 2 – Motivations of male and female entrepreneurs

– Ethnic homogeneity occurred 46 times more often than not (and still 27 times more often to control for family ties). And it diminishes conflicts risks, they are therefore more stable.

Size of founders’ teams

Founding with friends…
– 40% of teams had prior professional relationships and 17% family ties.
– Each such relationship added a 30% likelihood of founder departure.
– As a summary

“A friendship built on business can be glorious, while a business built on friendship can be murder.” [Page 104]

Jobs and Wozniak is a good example: they did not clarify crucial issues and “he got paid one amount, he told me he got paid another. He wasn’t honest with me, and I was hurt… But you know… he was my best friend, and I feel extremely linked to him.” They eventually parted ways. [page 109]

About decision making: “Two people at the wheel is the worst way to drive. You end up going straight when either a right or a left would be better.” A reason why being three might be good.

Equity sharing

Woman compensation
There is a much greater gap in the preponderance of women than in their compensation. Only 10% were C- or VP-level (17% in life sciences) and 3% and 7% were respectively CEO. But the compensation was 5% below.

Investors

On BAs vs. VCs, Wasserman shows the usual dilemmas. Dick Costolo about too many BAs: “It was a recipe for disaster. I had 13 people who, now that they had $20’000 invested, wanted to call me and ask about […], taking 45 minutes of the CEO’s time when he should be running the business.”

Succession of CEO

Conclusion

Wasserman strangely mentions here: “What is entrepreneurship? A widely used definition is a process by which individuals pursue opportunities without regard to the resources they currently control”. It sound even romantic, but it has a dark side: founders are 60 times more likely to be resource-constrained than have all the resources they need. Lack of resources lies behind all the dilemmas described. [Page 333]

Founders who had kept control held equity stakes which were [half] as valuable as those held by founders who had given up both CEO position and board control.

There are hybrid paths, compromises between control and wealth, using “second-tier” solutions (hiring, investors) but Wasserman shows it is even riskier. Consistent decisions give a higher likeliness of desired output (either control or wealth).
So the answer to dilemmas is “it depends.” Be knowledgeable about options and consistent in your choices!

Wasserman opens new directions for research:
– Who are these special animals which obtain both control and wealth (Gates, Ellison, Jobs 2.0…)
– Serial entrepreneurs: they receive larger equity stakes, remain CEOs longer, negotiate better investment terms and might be more successful. Are they?!! (cf Serial entrepreneurs: are they better?)
– How often is a control-oriented founder able to sell a start-up for which he owns 100%, for $5M and how often is a wealthe-oriented founder able to sell for $100M a company of which he owns 5%…
– Wasserman is aware all this is specific to high-tech and the USA. What about outside these boundaries?

“Any honest model of a complex human phenomenon has to acknowledge many unknowns”

I plan to come back on the Founder’s Dilemmans with a look at recent Swiss start-ups situation…

Silicon Valley unicorns on a map

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Twenty years ago, I loved the Silicon Valley high-tech maps which were regularly printed. You could see the density of famous start-ups around Santa Clara, San Jose, Cupertino, Mountain View, Redwood City or Palo Alto, cities which would be unknown and uninteresting outside the technology world. Just have a look at some examples in the end of the post.

When playing with Banksy’s adventures in NYC, I used Google for building a customized map. And a few days later, I thought about doing the same for Silicon Valley unicorns. Remember the unicorns are the rare companies which reach a $1B valuation. According to the 2013 SV150 there are 94 such publicly-quoted companies. Too much for an interactive map. So I did the exercise with the $10B+ companies (I found 23 with their roots in Silicon Valley).

Choosing the market capitalization is debatable. I could have taken sales or profits. Companies such as Electronic Arts, Juniper, Xilinx, AMD, nVidia would have appeared but the group would have been similar. I just add to choose. You can open the map directly in Google maps for a better interface.

Diplay Technology companies on a bigger map

Again there is something fascinating about this density. People claim the center of gravity of the region is moving north to San Francisco because of the web 2.0. This remains to be seen over the long term…

Myths and Realities of Innovation in Switzerland

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Xavier Comtesse has just published an excellent report The Health of the Swiss innovation – Ideas for its strengthening, which he gave a summary on his blog, Innovation in Switzerland: it is primarily the domain of Health! This is a very interesting report and it is challenging for me because it “proves” that Silicon Valley is not and should not be a model for innovation in Switzerland: in his introduction he states that “the success of Switzerland in this area is still largely and for many people a mystery, especially since the only model actually known and studied is that of Silicon Valley and it does not fit, as we shall demonstrate, that of Switzerland. Although this model has made California the envy of all, it seems to have finally not been fully copied by anyone.”

But as Comtesse is a bit “Contrarian” (as I am also – my friends often accuse me of debating with myself), he cannot be satisfied with the health of the Swiss innovation. “As soon as the lines of the Swiss model will emerge, it will also show its weaknesses. This will allow us to propose changes to the current situation for a successful future evolution.”

He begins by showing the strength of R&D from the private sector – 75 % of the 16 billion spent in Switzerland. He adds that Roche and Novartis in pharma represent a large portion of this amount (approximately 30% of all R&D spent in Switzerland) and they invest more abroad.

A first point of divergence, R&D is not innovation … In simple terms, innovation is the creation, closer to entrepreneurship than to R&D. Apple has always innovated and much better than other companies, but its R&D ratio is very low.

(Click on image to enlarge)

Then he compares Silicon Valley and Switzerland: “Silicon Valley massively encourages the emergence of new actors (start-ups) in the field of information technology and communication (ICT) while the Swiss model promotes rather large incumbents in the field of health.” [Page 20] and even [page 25] “Silicon Valley has deliberately chosen the new technologies of information and telecommunications (including the Internet) as the innovative axis of its development.” He concludes with: “You could say that Switzerland is for health what Silicon Valley is for ICT.”

Second point of divergence: Silicon Valley is not the Mecca of ICT, but that of high-tech entrepreneurship. Genentech and Chiron were the leaders of biotech before being bought by Roche and Novartis respectively. Intuitive Surgical is a leading medical technology company, Tesla Motors could become a major player in the automotive industry and there are hundreds of other start-ups in the fields of energy (massively financed by funds like Khosla or KP), in clean technology and health. Furthermore Silicon Valley has also large established companies such as HP and Intel which are no longer startups.

Comtesse is convinced that Switzerland is less fragile. “As amazing as it may seem, the Swiss model is more robust and efficient over the long term than Silicon Valley because it is less dependent on global rivalries and Silicon Valley may be under threat from Korea, China or any other part of the world. Switzerland is less so because the entry ticket in the field of health, namely the huge investment to develop higher education, university hospitals, research centers, the creation of companies producing blockbusters (products reaching the billion in sales) is so high that few regions can compete in this field.”

Third point of disagreement: I do see how Korea (through Samsung and LG) has indeed become a threat to Silicon Valley but I cannot see why it could not be in the field of health. Investments in electronics and telephony were also huge. Also, the higher and higher reluctance of emerging countries with intellectual property protection (patents) on drugs and the emergence of generics seem to me equally destabilizing.

Finally Comtesse also describes the weaknesses of innovation in Switzerland: “But the question that no politician really wanted to answer was the lack of good projects. If this question is asked the answer is obviously not the creation of science and technology parks, or even the transfer of technology, let alone coaching. It is the creativity that is lacking. How to make Switzerland and especially young people from higher education to be more creative?” Neil Rimer, from Index Ventures, said similar things: “There is innovation in Switzerland, but few entrepreneurs are ready to conquer the world” and “To attract [ … ] you need a critical mass of start-ups so that there are other options available in case of failure. […] Switzerland and its cantons seek to attract traditional companies or the administrative centers of large corporations. […] My biggest wish would be that the authorities encourage the creation of jobs creation in engineering, design, marketing and management. This is how we will attract a critical mass of professionals who create and grow start-ups in Switzerland.” (See L’innovation en Suisse d’après Neil Rimer).

There is a slight difference. Neil Rimer is not talking about good or bad projects, but about ambition. He even said on this blog a few months ago : “I continue to be amazed to hear that there is not enough support in Switzerland for ambitious projects. We and other European investors are perpetually in search of global projects from Switzerland. In my opinion, there are too many projects lacking ambition artificially supported by institutions – who also lack ambition- which gives the impression that there is enough entrepreneurial activity in Switzerland.”

Comtesse then returns to the role of government by distinguishing incremental innovation and disruptive innovation . “Indeed what matters to a nation is its overall innovation capacity including disruptive innovation. But if the State does not take all the risks, then nobody will do it. That is why it is urgent to give further instructions or guidelines to the CTI. Financing incremental innovation should not be its task, or only marginally.” [Page 27] “The Commission for Technology and Innovation (CTI) tends to support incremental innovation projects, which are less risky and easier to implement. These should be the prerogative of private companies and therefore should not benefit from government support. On the contrary, disruptive innovation, similarly to basic research, should be largely the responsibility of government.” [Page 30] “So on the one hand our innovation system is supported by large companies, and on the other hand by innovative SMEs as well, but those do not reach a sufficient critical mass to make often a difference. The idea would be not to finance individual projects as does CTI in general, but multi-partners programs led by one of the major Swiss companies.” [Page 28] “This approach does not preclude the emergence of new start-ups but these would be placed under the protective wing of medium and large Swiss companies. This would avoid start-ups to be immediately sold to the Americans (a phenomenon called “born to be sold”) or and help to counter the fact that they are never able to grow. It should be remembered that over 80 % of our start-ups do not perish in 7 years, while the “normal” rate is 50 % (one might well say that “never die” is another Swiss phenomenon).” [ Page 31]

I agree with him on the analysis, less on the implemention solutions. I find interesting the idea of giving priority of government support to disruptive innovation. It reminds me of the excellent analysis of Mariana Mazzucato about the Entrepreneurial State. I remain much more cautious about the idea of a consortium of major companies to develop and protect our start-ups. I understand the desire to reduce the risk of the sale, but I do not think the concept is realistic. Which real entrepreneur wants to be protected or controlled by a big even if nice brother… I also have some doubts about the ability and entrepreneurial desire of large corporations.

In a little artificial manner, Comtesse adds the idea of a tax incentives for innovation companies. “The Swiss tax system does not explicitly provide incentives for companies that conduct R&D. The simplest solution is the tax credit for innovation that would, in various ways, decease the burden of corporate tax based on their spending in innovation. Many large countries (the United States, Canada, England, Spain and France) have already implemented such an instrument. It is not, however, about encouraging any sector by this tool but rather to create an emulation for long-term innovation in the country. This device must provide to companies, especially SMEs, more freedom of maneuver to face the innovation process.” (See again Comtesse’s blog).

Here I can speak of complete disagreement. You can read again my analysis of Mazzucato denouncing tax optimization in this area. I never believed in tax incentives and I could be wrong. I understand the greater effectiveness of the approach, but I believe there are more perverse effects than real positive ones. Just look at the plight of the American Taxation system of the large technology companies.

Despite my criticism, this is an excellent report. Like all Contrarians, I focus more on disagreements but there are, in this analysis, extremely interesting points about the myths and realities of innovation in Switzerland. A short reminder as a way to end this post: Comtesse published a few months ago a Prezi presentation on the same topic, and you can read my comments about the Swiss model innovation : is it the best?

Company	Founders	Seed	A	B & Later	ESOP
1	9%		26%	65%
2	30%		33%	31%	6%
3	34%		32%	33%
4	40%	7%	12%	41%
5	43%		47%	10%
6	35%	11%	27%	28%

Company	Founders	Seed	A	B & Later	ESOP
1	9%		26%	65%
2	30%		33%	31%	6%
3	34%		32%	33%
4	40%	7%	12%	41%
5	43%		47%	10%
6	35%	11%	27%	28%

Company	Founders	Seed	A	B & Later	ESOP
1	9%		26%	65%
2	30%		33%	31%	6%
3	34%		32%	33%
4	40%	7%	12%	41%
5	43%		47%	10%
6	35%	11%	27%	28%