Category Archives: Start-up data

The Anatomy of an Entrepreneur

Leave a reply

A new report has been published thanks to the Kauffman foundation. The study, entitled “The Anatomy of an Entrepreneur,” led by co-authors Vivek Wadhwa, Raj Aggarwal, Krisztina “Z” Holly, and Alex Salkever gives very interesting features about the background and motivations of entrepreneurs.

The paper can be found on the Kauffman foundation web site and here are some key lessons:

– founders are generally well-educated, middle class; they have a family and experience. So this kills a little the school drop-out, young, nerdy entrepreneur…

They do not always or often think about becoming an entrepreneur early in their life:

Another interesting element is about role model or mentor:

Now, when the study focuses on young entrepreneurs, the view is slightly different:

It is where the Yahoo, Google founders come in the picture probably.

Finally, there are many serial entrepreneurs. I am a little surprised because I am not sure succesful entrepreneurs are necessarily serial entrepreneurs. In any this would not contradict the findings and this is interesting:

If there is one thing I want to add, it is about the definition of “founder” that the authors have used:

a “founder” was “an early employee, who typically joined the company in its first year, before the company developed its products and perfected its business model.”

Depending on how many of these founders were employees rather than entrepreneurs may have an impact on the data which are provided here. A well-funded VC-backed company may attract in its first year very experienced people who are not necessarily entrepreneurs. But this being said, all this is of real interest.

Bob Swanson & Herbert Boyer: Genentech

7 Replies

Here is my second contribution to Créateurs, the Geneva newsletter, where I have been asked to write short articles about famous success stories. I began last quarter with Adobe and its founders John Warnock and Charles Geschke, here is now Bob Swanson, Herbert Boyer, founders of Genentech.

Bob Swanson and Herbert Boyer: Genentech

In the start-up world, biotechnologies do not seem to belong to the same world: they seem to always be reserved to high-caliber scientists not to say Nobel prize winners that investors would back with their money. So… where is the entrepreneur?

The story about the Genentech beginnings is probably the best illustration that a visionary entrepreneur is also necessary in biotechnologies. Much more than just a start-up, it is an entire industry that Bob Swanson founded.

The legend says that Bob Swanson, a 29-year old venture capitalist, met Herbert Boyer, a professor at the University of California in San Francisco (UCSF). The money of Bob and the ideas of Herbert made possible the creation of Genentech in 1976, followed by its IPO in 1980. The story deserves however a little more attention. Bob Swanson was not really an investor. He is an entrepreneur. he has been hired by Kleiner and Perkins (KP) who had understood that the real value of a venture capital firm is to create company and not only to fund them. They understood this after the success of Tandem and Jimmy Treybig whom they financed from day 1 in 1974. (See KP first fund).

Bob Swanson is fascinated by the potential of biology and genetics. (He has a BS in chemistry from MIT and an MBA). After helping KP for one their portfolio company, he leaves the fund to dedicate himself to his new passion. He meets many professors in the Bay Area but all of them explain him that their work is about science, leading edge science for sure and very far from commercial applications.

Herbert Boyer is not a typical professor. Together with Stanley Cohen, he is the inventor of a patented technology, which was not common in the academic world of the seventies. Known as the Cohen-Boyer patent, it describes how to manipulate the DNA and it is so fundamental that any new technology in the field needs to use this patent, which means obtaining a license on the technology and paying royalties to its owners, Stanford University and UCSF. In total, more than $250M was generated in royalties over 20 years.

The beginnings of Genentech are a combination of history and legend. Swanson calls Boyer who tells him he is very busy but he agrees on a 10-minute talk on a Friday afternoon. Swanson is obsessed about one single thing: the applications of research. Boyer replies that there is certainly some potential but it will require another 10 years of research. “Why, why, why?” Swanson does not stop saying to the point that Boyer finally concludes “why not? May be it can be faster.” The 10-minute talk has become a 3-hour discussion. Genentech is born, at least in two minds full of beer!

They still have to convince the skeptics. Among them, the potential investors. A week later, Tom Perkins meets with the two men and he remembers: “the technical risks were huge. I was very skeptical. I did not know anything in biology.” Kleiner is however very impressed by the energy of Swanson and the expertise of Boyer. He decides to try, step by step in order to diminish the risks and minimize the initial investment. Kleiner invests $100’000 which will last nine months.

The rest is History. Genentech synthesizes insulin in 1978 and growth hormone in 1979. Genentech also raised $10M with private investors before going public on Nasdaq in 1980. For the first time, a biotech company goes public with no revenue and its first product is not approved yet (it will be in 1985 only). In 1990, Roche and Genentech will sign a strategic partnership which makes the Swiss company its major shareholder. In 2009, Roche acquired all the remaining shares of Genentech.

Swanson was not an investor, but a visionary entrepreneur. Boyer was not a professor in his ivory tower. They were also lucky to have the best of mentors, Tom Kleiner. A lot of energy and passion, great ideas, some money. It is an almost accidental meeting which is responsible for the growth of a industry worth tens of billions of dollars.

Icing on the cake, the Genentech capitalization table at its IPO:

Pour en savoir plus:

Internet Archive:
http://www.archive.org/search.php?query=genentech

The Genentech web site:
http://www.gene.com

Next quarter: Women entrepreneurs, Carol Batz and Sandy Kurtzig

Index Ventures, Minsh, Poken and others

2 Replies

Last Friday, I organized “venture ideas @ EPFL” with Jordi Montserrat from venturelab. We had the opportunity to have great entrepreneurs from Minsh, Poken, Basisnote and the 20 winners of the ventureleaders program.

Last but not least, Neil Rimer, founder and general partner of Index Ventures shared his thoughts about Thinking Bigger.

More on the EPFL’s venture ideas page and the past events.

A success story: Adobe Systems – John Warnock and Charles Geschke

14 Replies

Créateurs, a local newsletter asked me to  write short articles about famous success stories. I decided to begin with Adobe and its founders John Warnock and Charles Geschke. You will find the full text below as well as the usual data I like to give about start-ups: the capitalisation table of the company at its IPO and how shareholding evolved from foundation to public offering. Here is the article you may found in french in the Newsletter.

John Warnock and Charles Geschke: Adobe

Start-ups are very often associated to their founders. Entrepreneurs such as Steve Jobs or Bill Gates are obviously linked to the company they created. John Warnock and Charles Geschke may be less famous but their story is as fascinating.

Without the profile of the atypical entrepreneur (they are not “school dropouts” who launched their venture in their twenties), Warnock and Geschke founded Adobe Systems in 1982 when they were more than 40-year-old. Adobe is famous for some of the most popular software worldwide such as Acrobat and Photoshop.

From the printer to the printing protocol
It all began in the 70’s, at the renowned Palo Alto Research Park of Xerox, the vendor of copy machines. The two engineers are more and more frustrated. Xerox may have enabled the development of the computer mouse, word processing, email or Ethernet, but it has been incapable of transforming them in commercial products. Warnock and Geschke cannot convince their management of the potential of their research. “Part of it was fear and misunderstanding” but they also admit that “in fairness to the management, I think we as researchers were a little naïve about what it would take to get these things from conceptual operating prototypes all the way to full-production, supportable products. But we sort of hoped that they would hire the people who could do that.”

They left Xerox in 1982 and raised $2.5M to develop their project: high quality printers and a system which connect them to computer networks. When they met potential customers (Apple, Dec), they discovered that nobody is really interested. Steve Jobs explains to them that he needs their printer protocol, Postscript, for the Macintosh he is developing. They immediately change their business plan. Adobe became a software company with the success we all know.

Some good advice
Their vision of what is an entrepreneur is enlightening. It was more an accident than a destiny. But today their advice is worth reading.

You should always be flexible. You should try and explore many solutions, test them with customers and abandon the wrong ones very fast. They have the same views on the personality of entrepreneurs: “99% of founders fail because they cannot change and want to control too much”.

Passion, risk taking and self-confidence seem to be the critical strengths of entrepreneurs combined with intelligence and hard work. “But this is not sufficient. Luck also plays a major role.

When their age and experience is mentioned, Geschke adds that “I don’t think there’s any mystery in running a business. I think it helped that we were in our 40s, that we had worked for a variety of organizations. We had worked in other companies, but tried to leave their bad ideas as proprietary to them. We tried to pick the best things that we saw.” What is essential is to have a vision of what you want to do. “I am not a hunter, never have fired a gun, but I’m told that if you want to shoot a duck, you have to shoot where the duck is going to be, not where the duck is. It’s the same with introducing technology: if you’re only focused on the
market today, by the time you introduce your solution to that problem, there’ll probably be several others already entrenched.”

The ingredients of success
From the initial frustration which is at the origin of their departure from Xerox to the success of Adobe, the lessons are many. Never be a one-product company; technology cannot be simply transferred, you need to add brain power, hire good professionals; and as founders, you need to have “the intellectual capability, inherent honesty, ethical behavior and principles by which we lead [your] personal and business lives.”

In a few sentences, the ingredients of success are numerous, complex as well as simple and probably common to all great entrepreneurs.

To know more about Adobe:
The Revolutionaries: www.thetech.org/exhibits/online/revolution
Adobe Systems, Computer History Museum: www.computerhistory.org
Founders at Work, J. Livingston, Apress (2007)
In the company of Giants, R. Jager and R. Ortiz, Mcgraw-Hill (1997)

Next Article: Bob Swanson: Genentech

Now the cap. table in 1986

and the shareholding structure from 1982 to 1986:

Sharing the Wealth in a Technology Startup: How Much Stock is Enough?

Leave a reply

An interesting post from the interesting web site Xconomy.

Robert Beyster gives his views about how much stock a founder should keep and his answer is….

“8 to 10 percent of their company”.

This is quite an unusal piece of advice as most accounts on the topic try to maximize the stake. Beyster focuses on value creation and incentives to all parties.

This is consistent with what I teach about equity (see the post equity split in start-ups dated October 30, 2008).

About Kleiner Perkins first fund (episode 1)

1 Reply

As I mentioned in my previous post about returns of venture capital, I was lucky enough to see the performances of Kleiner Perkins first fund (launched in 1972). Here is the slide I discovered in mid-December.

I was extremely surprised to find such data. They are usually difficult, not to say impossible to get. I asked the author where he got them. He thought he had read them from a book by a Kleiner Perkins partner. I contacted him and he replied: “Not possible that it came from me. I don’t have such information. Not sure I have ever seen the returns for KPCB 1. I don’t know where the information could have come from.” Too bad.

I also try to “measure the bars” and rebuild what it could have meant in terms of numbers. Here are my measures.

A couple of comments (if we admit all this is true):
– Genentech and Tandem were two home runs (out of 17 deals).
– Even if these two had not worked, the fund value would be $17.8M, i.e. a 2.8x multiple. This would have been a decent return compared to even the best VC funds…

But is this true? You will have to wait for episode 2!

Equity split in start-ups

4 Replies

Following a few case studies I posted earlier this year (Kelkoo, Skype, mysql), here is a more generic analysis about the process of equity splitting. The document is a pdf file I have used a number of times with students, entrepreneurs and I think it is helpful even if not new. At the end, there are also cap tables of other famous and less famous start-ups.

equity.gif

From the inception where a few founders share the initial equity between them to the exit (IPO or M&A) through a possible number of financing events, shares of a start-ups will be shared, distributed among founders, employees and investors. It is one of the most important decisions in a company’s life and should be handled with care.

Google’s First Steps

Leave a reply

An interesting interview of the Google founders dated 1998!

googl-pagebizcard.jpg

Quite interesting lessons:

About the network of people: “Sergey: Basically, we talked to our advisers and other faculty whom we knew. And they just pointed us to other people. Pretty soon, we had investors, we had a lawyer, we had everything that we needed.”

About risk taking: “Larry: Silicon Valley is a little bit different. There’s not so much risk to us. If you fail in starting your company, you’re actually more fundable. You may have failed for some reason not involving yourself at all, just [due to] some random factors... Sergey: The main risk is really our time. We’re working much, much harder than we would in a normal job. It’s not a 40 hour a week job.”

more…

The Next Google?

Leave a reply

There’s been plenty of activity in search in the recent years so entrepreneurs are apparently not afraid of Google. Today, a new one appeared, with a lot of Venture Capital: cuil. What is most remarkable is that the founders left Google… good luck!

cuil.jpg

Not related is the release of Ilog being acquired by IBM for $340M. Ilog was one of the European success stories. After the acquisition earlier this year of mysql by Sun, another European company is acquired by an American giant…

ilog.jpg

Cap. Table: Kelkoo

Leave a reply

Kelkoo is a great case study. It was one, not to say the, success story of the Internet in France and even in Europe. It was acquired by Yahoo for €475M in 2004. It was extremely ambitious from its foundation and had an amazing pan-European strategy thanks to acquisitions in Spain, the UK and Scandinavia: DondeCom, Shopgenie and ZoomIT. Kelkoo raised more than €45M in less than 12 months! Therefore the founders faced a huge dilution linked to three rounds of financings and these three mergers & acquisitions (“M&As”).

The capitalization table and the figures below show the evolution of the numbers. I am aware that these data are dry, tough to read, but if the reader accepts to follow me, he or she may find them of interest. Let us begin by the last table which describes the financing rounds. In 1999, Kelkoo was founded by five individuals (Chappaz, Lopez, Amouroux, Odin and Mercier) and immediately financed by two venture capitalists (“VCs”): Banexi and Innovacom. The two funds provided €1.5M in December 1999 (A round) and then a little more than €4M in March 2000 (B round). There is an important detail to notice: there was a 1 to 50 stock split between the two rounds; it explains the huge difference in the numbers as well as the fact that the price per share of €24.67 of the A round is equivalent to €0.50 after the split. The price per share of the B round was €1.45. The five founders had shared their stock as 1/3 to Chappaz, 1/3 to Lopez and the remaining between the three others. However options were granted to Chappaz and Mercier at B round to give a new founders’ balance. The pies below give therefore different ratios. Dominique Vidal is not a founder but was working with Banexi when Kelkoo was founded. He joined the founders to become a managing director and received initially 338’000 shares. He received more shares with time but the final number is not known (so I make an assumption in his case). Finally a stock-option plan was created to incentivize employees. Those had virtually 19% of the company at round B. We were only in March 2000 and the data are already complex. The capitalization table can be read on the right part with number of shares or on the left part as percent of the company.

(Click on pictures to enlarge or download)

kelkoo.gif

The situation is even more complex with the acquisitions. First DondeCom (Spain) and ShopGenie (UK) in June 2000. Kelkoo kept about 50% of the shares and the new entrants the other 50%. Also in June 2000, Kelkoo raised its C round of €30M. In September another €6M were raised with the same terms. Initially the price per share was €1.99. But there was a major condition: Kelkko had to provide an exit, a liquidity event to the investors in 2001 or the price per share would decrease to €1.70. There was no IPO or M&A for Kelkoo, i.e. no exit, so that the investors received free shares to reduce the price per share. This implies a valuation of €96M for the C round and the investors of that round owned 37% of Kelkoo. Then came the ZoomIT acquisition, which gave a little less then 30% to the new comers.

Yahoo bought Kelkoo for €475M meaning a price per share of €5.7 if the reader accepts that the total number of shares is correct. The last column therefore gives the value of their shares for all stockholders (but it does not indicate it much these cost; this cost would have to be deducted to know the profit before tax). I can not be too far from real numbers but as I said with my previous examples (Skype, mysql) these numbers are never sure at 100%. The capital increases are however well described in documents from the register of commerce that I bought for this study. The exact number of exercised shares is however unsure. These documents were my only source of information for this study. The history of Kelkoo is also written in the book “Ils ont réussi leur start-up” at Village Mondial (Pearson France). Pierre Chappaz is today the CEO of Wikio and is also the author of an excellent blog, Kelblog. Finally, Pierre made a great presentation of his stroy at EPFL in 2005.

Source: www.euridile.fr

(Click on pictures to enlarge or download)

kelkoo-share.gif