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A MIT entrepreneurial history – Epilogue : The Impact and some lessons learnt

Degroof has produced one of the best books describing entrepreneurial ecosystems as I have already mentioned in 2 previous posts including Part 2 : Ecosystems & Culture.
In the last part of his book, he switches to the impact of MIT and its ecosystem.

This is a well-known topic as you could read in Entrepreneurial Impact: The Role of MIT. Degroof reminds us (pages 183-89) of the biotech startups around Kendall Square (Biogen, Genzyme) as well as the R&D of big pharma relocating around, such as Swiss Novartis. It’s not only about biotech as Lotus Development or Akamai exemplify. He also mentions some alumni who became famous entrepreneurs or investors, Hewlett (36), Perkins (53) or Swanson (69). He does not mention Noyce (53) though, and his tinkerings (more here and there) or Haren (80) for French people. There could be hundreds of others!

He also adds about the impact of local accelerators from CIC in the late 90s to MassChallenge and TechStars. I am a little less convinced about the international impact MIT had in a more topdown institutional way. What is the exact outcome of partnerships in Singapore, Hong Kong, Abu Dhabi, Spain or Portugal. The Deshpande Center certainly inspired many initiatives including the Innogrants I managed at EPFL in the mid 2000s or even what I do today.

Degroof also develops the importance of teaching and training: “In trying to reconcile the tension between rigor and relevance, Aulet argues convincingly that entrepreneurship should be framed as a craft as opposed to a science or an art. Like a craft, it is built on fundamental concepts. A potter, for instance, needs to master the basic mechanical and chemical principles of his craft. Knowing those does not guarantee success, but they considerably improve the chances. Like a craft, entrepreneurship is best learned through apprenticeship, or learning by doing, rather than relying only on lectures or manuals.” [Page 212]

Again I am a little less convinced about this generally-mentioned point: “There is a strong belief at MIT that entrepreneurship is a team sport. It is based on the evidence that teams of founders tend to perform better than individual founders, and that complementary teams tend to do better than homogeneous teams. Following on the heels of the I-Teams class, nowadays, most teams in entrepreneurship-related courses or contests are required to be composed of a mix of engineering or science students with management students. This has become an important feature and a great strength of entrepreneurship training at MIT. Both groups benefit from each other’s contributions. Engineering and science students discover the market dimensions of the projects with the help of their peers from the business school and learn that it is not enough to build a better mousetrap, while the latter benefit from scientific and engineering insights. Both groups are forced to deal with cultural differences and with more complex team dynamics than what occurs in homogeneous teams. The results are stronger teams and more effective projects.” [Page 214]

Entrepreneurship is a complex venture and entrepreneurial ecosystems are complex and fragile settings. Degroof convincingly describes why Boston has become a model. He does not really develop why it has not been as succesful as Silicon Valley, with a similar culture though. Paul Graham’s Ycombinator had moved from Boston to Silicon Valley as mentioned in Why Boston Should Worry. When I visited Novartis people in Boston, some claimed that Silicon Valley was to Boston what Boston was to Europe. Yes, Boston was more innovative than Europe and that is why Novartis moved some R&D to the West, but when Novartis bought Chiron in Silicon Valley, Novartis discovered going further West was again more adventurous. (See Myths and Realities of Innovation in Switzerland).

But these debates are secondary to the lessons learnt and synthesized by Degroof. A lot of inspiration is to be found. And coming back to the great foreword by Metcalfe : recreating MIT’s renowned entrepreneurial ecosystem is not a simple task. There is no copying MIT’s ecosystem and pasting it into another institution. The founding principles and unique cultural elements that came together to create the “secret sauce,” as Jean-Jacques calls it, the ground-up nature of what has grown and thrived at MIT, are not easy to duplicate. That does not mean that there are no concrete lessons to be learned, that there is not knowledge that can be translated and adapted for other universities and economies. Today, as a successful and seasoned entrepreneur, I still frequently look to MIT in my efforts to build a thriving entrepreneurial ecosystem at the University of Texas. I don’t hesitate to reach out to my extensive network at MIT for answers to questions of theory and practice. From there, I have been able to make great strides in my goal. I may not be recreating MIT, but I am modeling what I do after the very best and adapting it to the specifics I have here in Austin.”

A MIT entrepreneurial history – Part 2 : Ecosystems & Culture

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I continued reading the excellent From the Basement to the Dome by Jean-Jacques Degroof and found more inspiring elements about ecosystems, culture and also technology transfer from academic institutions after my first post. Here they are:

6 ingredients of the MIT ecosystem

Degroof gives us the cultural elements of the ecosystem: But what is it about this culture that has been supportive of entrepreneurship? The argument of this book is that entrepreneurship is particularly congruent with at least six elements of MIT’s culture: a well-ingrained, bottom-up organizational dynamic; excellence in all things that one studies or attempts to do, as well as a belief in hard work and fortitude; an interest in problem-solving and having a positive impact on the world; a belief in experimenting and a tolerance of failure; the pride of being viewed as rebels, sometimes eccentric and even a bit geeky, pursuing unconventional solutions; and the tradition of a multidisciplinary approach to problem-solving. [Page 90]

Why startups?

Here is an interesting comment about academic technology transfer: “Established firms are seldom interested in licensing emerging technologies from academia for several reasons. They don’t understand the potential of the technology; the time frame to develop the tech into a viable product exceeds the time horizon that most firms are comfortable with, or else they fear that they could cannibalize their existing business. As a result, in 1987, the TLO’s new director, John Preston, took the initiative to license technology to new ventures in exchange for equity, first as an experiment because there was a great concern at MIT about potential conflicts of interest. During the first year of this policy, six companies were formed based on such licenses, including ImmuLogic and American Superconductor. Sixteen more companies were formed during the second year. [Page 34]

Degroof then describes the multitude of ecosystem tools, all in a bottom-up logic, with serendipity (chapter 6) as a fairly common mechanism. The beginning of chapter 8 on technology transfer with the example of Amberwave is another must-read:

Often the initial performance of the new technology is either lower than that of existing solutions or not high enough to justify the switching cost for potential clients. As a result, established companies often don’t see the potential of new academic technologies. Moreover, in the few cases when the technology’s advantage is obvious or clearly promising, established companies are often concerned lest they cannibalize market share from their existing technology—a technology in which they have invested time and money, and around which they have built whole supply chains and other infrastructure.
It is estimated that an investment equal to 10 to 100 times the cost of the academic research is needed to bring an academic technology to market. This process also requires patience and perseverance. It can take at least two to three years for a patent to get issued once it is filed. When a company finally licenses a technology, it might take an additional five to ten years before it generates revenue. All in all, the uncertain performance of developing academic inventions, the associated costs, and the time lag between invention and revenue generation make investing in embryonic academic inventions extremely unattractive.
This does not mean that large firms never license patents from universities, but more often, inventors are the only ones to understand and to believe in the commercial potential of their technology. They are, therefore, frequently the only candidates interested in founding (and sometimes funding) a company to commercialize their technology. This process involves obtaining a license for the patent or patents based on their invention from their university, since, following the Bayh-Dole Act of 1980, the university owns the intellectual property of government-funded research. The edge that inventors have is the extensive and unique knowledge that they have accumulated through their research efforts and exposure to industry over the years. [Page 156]

Managing technology transfer

And more interesting information here about avoiding conflicts of interests at MIT: Policies do not allow faculty members to use students for research and development (R&D) related to a start-up in which that professor has equity, nor may students be employed by such a start-up. A start-up in which a professor has an interest is not allowed to fund research in that professor’s lab. Similarly, a professor is not allowed to conduct federally funded research in collaboration with such a start-up, with the exception of SBIR and Small Business Technology Transfer (STTR) funding. A start-up venture may not be located in a lab. Employees of a professor’s start-up may not be involved in the research activities of the professor’s lab. Research in the lab may not be influenced by a professor’s other professional activities. A faculty member’s full-time employment at MIT prohibits significant managerial responsibilities in a start-up. [Pages 161-62]

Or about making money with Technology Transfer: Many universities expect their technology transfer activities to be profitable and bring in revenue. Although MIT is one of the most successful and experienced universities in terms of technology transfer, its experience shows that this kind of financial gain is a misleading expectation. “Any university that counts on its tech transfer to make a significant change in its finances is statistically going to be in trouble,” said Nelsen. To that end, her motto during her tenure as head of the TLO was, “Impact, not income.” [Page 162]

Many startup stories

Degroof adds anecdotic descriptions of individual companies, rich with lessons: these are BBN (1948), Teradyne (1960), Analog Devices (1965), Prime Computer (1972), Apollo Computer (1980), Thinking Machines (1983), Harmonix Music Systems (1995), Amberwave (1998) ThingMagic (2000), Momenta Pharmaceuticals (2001), SmartCells (2003), Ambri (2010), Firefly Bioworks (2010), Sanergy (2011), Wecyclers (2012), Nima Sensor (2013), Bounce Imaging (2013), ReviveMed (2016), Biobot Analytics (2017), not forgetting Robert Langer’s 40+ spinoffs from 1987 to today!

Internal venture capital – The Engine

My experience with academic venture capital funds is mitigated to say the least. So this is an interesting experiment: Faced with this perceived market failure, MIT’s leadership pointed to the need for patient capital to bring ventures that are trying to commercialize tough science and need more time than do digital businesses to reach a stage where they are ready for venture capital. […] In October 2016, President Reif announced the creation of The Engine, https://www.engine.xyz , a for-profit but public benefit corporation, separate from MIT, that would act as an accelerator for start-ups trying to commercialize “tough techs” by providing advice and physical facilities, as well as an investment fund of patient capital. […] In addition to going against MIT’s policy of not funding entrepreneurial projects, The Engine also broke with Institute tradition by incubating the entrepreneurial projects of its members, which certainly raised substantial objections within the MIT community. [Page 64]

The Engine has a double bottom line: it seeks financial returns and it seeks impact. The Engine raised $200 million for its first fund, with MIT contributing $25 million. […] The fund invests from $250,000 to $2 million per venture, and its investments are not exclusive to MIT-related firms. The investment is made with a time horizon of eighteen years, rather than the typical five to eight years given in the case of venture capital funds. […] Second, The Engine gives start-ups access to infrastructure, such as expensive, specialized equipment, including some from MIT, that otherwise might represent a barrier to entry to firm foundations. The Engine’s facility was initially located in 26,000 square feet of space in Cambridge, with the ambition of expanding to 200,000 square feet through a network of offices, labs, and prototyping and makerspaces a few blocks from Kendall Square. […] Third, the new initiative comes with a network of professionals and mentors in the so-called hard-tech space. [Page 173]

In 2020, The Engine raised a second $250M with $35M from MIT and Harvard University joined as a new LP. Is this different than VC? Will it succeed? Time will tell…

A MIT entrepreneurial history by Jean-Jacques Degroof

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With an impressive foreword by Bob Metcalfe (the inventor of Ethernet et cofounder of 3Com) who rightly renames MIT a “Innoversity”, Degroof explains in From the Basement to the Dome that entrepreneurship is engrained in the MIT history and culture, not so much from a political decision but from serendipitous events.

Its motto (Mens et Manus, “Mind and Hand” in Latin), its logo, the right given to professors to spend 20% of their time in consulting since the 20s and the creation of the patent committee in 1932 are all indications that practice is as important as theory in engineering science. The importance of military funding through the creation of OSRD was also critical to the richness of MIT’s inventions.

The culture is exemplified by Ray Stata, a cofounder of Analog Devices : “It’s like ‘monkey see, monkey do.’ If you see others start companies and become successful, you say, ‘If they can do it, so can I.’ Whereas if you don’t see that up close and personal, there’s a fear and a mystery about how to do it. The entrepreneurial spirit at MIT gives you confidence.” [Page 17] And what about his experience in business: “I don’t have a clue about how to be a president, but I’m going to take the next twelve months to learn. And if at the end of that twelve months you guys collectively decide, or if the board decides, that I’m not the person who can provide leadership, I’ll step down. But in the meantime, while I’m learning, you’ve got to help me.” Fortunately, Stata’s direct approach worked. “Everybody dug in, and there was then no way I could fail. Over the next twelve months I learned how to be a president, and that process has continued for four decades.” [Page 18]

If you didn’t know Ray Stata, you might have known the building on MIT’s campus with his name.

I wondereed before beginning the reading if Degroof would mention the debate about why Boston did not end being as successful as Silicon Valley. And he does! Early in his book, on pages 24-25. This is a must-read and I am not finished yet. Degroof quotes famous Regional Advantage by AnnaLee Saxenian. I will let you discover.

This table that I had copied a long time ago is another illustration of the differences, not so much between Stanford/Berkeley and MIT/Harvard but about the number of firms spun-off from established firms. Just compare what happened at IBM on the west and east coasts. (PS: I had not initially mention the source of the table, it is part of High-Tech Startups and Industry Dynamics in Silicon Valley, Public Policy Institute of California, Junfu Zhang (2003) San Francisco, California.)

Let me finish this 1st part with another quote by Lita Nelsen, former head to MIT’s Technology Licensing Office: “People say to me, ‘Does MIT have an incubator?’ And my classic answer has been, ‘Yes, it’s called the city of Cambridge.’” [Page 26] This reminds me a quote of Richard Newton, a former professor at Berkeley. He had written stating a colleague of his: “The Bay Area is the Corporation. […When people change jobs here in the Bay Area], they’re actually just moving among the various divisions of the Bay Area Corporation.” This is a critical explanation of ecosystems, they are not so much about institutions but about the fluidity of exchanges between individuals.

The father of venture capital: Georges Doriot

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Not many people ever heard of Georges Doriot. I knew his name because I know a little about VC (you can always check my visual history of VC). But I did not know much about him. Now that I read Creative Capital by Spencer Ante, I know much more. As usual, when I comment books, I mostly do some copy-pastes. Here they are:

In 1921, Doriot came to America on a steamship. Even though he had no friends or family in the United States, never graduated from college, and dropped out of graduate school, the Frenchman became, arguably, the most influential and popular professor at Harvard University’s Graduate School of Business. Over three generations, Doriot taught thousands of students [Page xiv].

He was early to recognize the importance of globalization and creativity in the business world. “A lot of the things that were attributed to Peter Drucker [link blog] were Doriot’s ideas” says Charles P. Waite [Page xv].

He believed in building companies for the long haul, not flipping them for a quick profit. Returns were the by-product of hard labor, not a goal. Doriot often worked with a company for a decade or more before realizing any return. That is why he often referred to his companies as his “children”. “When you have a child, you don’t ask what return you can expect” Doriot was quoted in a 1967 Fortune story “Of course, you have hopes – you hope the child will become President of the United States. But that is not very probable. I want them to do outstandingly well in their field. And if they do, the rewards will come. But if a man is good and loyal and does not achieve a so-called good rate of return, I will stay with him. Some people don’t become geniuses until after they are 24, you know. If I were a speculator, the question, of return would apply. But I don’t consider a speculator – in my definition of the word – constructive. I am building men and companies.” [Page xvii]

“A creative man merely has ideas; a resourceful man makes them practical.” [Page xviii]

[He] ushered a new era of corporate culture. At Digital, the engineer was king. Hierarchy was out. Controlled chaos was in. Like Jack Kerouac and the Beat Generation, Digital was a petri dish in which the counterculture was spawned in the late 1950s. “He was definitely part of a social revolution that loosened things up.”

For 20 years Doriot was a professor and a business advisor. “How did a man with hardly any experience running a business come to be such a world-class businessman? The answer is that during those years, dozens of companies hired the professor to help guide them through the worst disaster that ever hit the American economy. In that dark decade, Doriot gained a lifetime experience as an officer, director and consultant” [page 64].

American Research and Development Corporation (ARD)

The idea of an entity helping companies by making risky investments was born before World War II but could be implemented only in 1946. On June 6, 1946, the American Research and Development Corporation (ARD) was incorporated under Massachusetts law. It believed in “innovation, risk-taking and an unwavering belief in human potential”. They also realized that organizations with fiduciary resources and the seasoned operators running them were not daredevils skilled in the art of invention and that, conversely, inventors were struggling creative types with no money. ARD sought to bring together these two independent yet largely separate communities.

Typically, ARD preferred to take a hands-off approach. They were there to coach, guide and inspire. Running the business was the job of the entrepreneur. But quite often, circumstances called for more drastic action. [Page 121]

“Never go in venture capital if you want a peaceful life”. [Page 126] In 1953, Doriot was gloomy about the state of venture capital. “Venture capital is not fashionable anymore.” Waves of technologies seemed to come out of nowhere and crash onshore every twenty or thirty years. The trick of a venture capitalist was to catch the wave several years before it crested ad to bail out before it crashed. [Looks like speculation, or doesn’t it?] It is interesting to see how the great interest that existed seven or eight years ago in venture capital has disappeared and how the daring and courage which were prevalent at that time have now waned” wrote Doriot. [page 138]

More about ARD’s facts and figures in the table below.

A star is born – 1957

“In the early 1950s, the postwar euphoria of the previous decade that had infused Americans with a sense of infinite possibilities morphed into a Cold War miasma of fear and paranoia. Yet underneath the surface of fear, a subculture of experimentation and rebellion flourished. In the early – to mid-190s, Allen Ginsberg, jack Kerouac, and William Burroughs developed a radical new form of literature that emphasized “stream of consciousness” writing. Modern abstract painting by Jackson Pollock, Willem de Kooning, and Mark Rothko overthrew European conventions of beauty and form. And in laboratories and universities across the northeastern seaboard, a bunch of scientists and engineers tinkered away on strange but powerful new electronics and computer devices that promised to completely change the way people communicated and conducted business. “ [Page 147]

In the spring 1957 Ken Olsen then at MIT would team up with his buddy Harlan Anderson. They had an idea and a plan. They needed some money. They approached General Dynamics, who “turned them down flat because we didn’t have any business experience.” Then they contacted ARD. ARD had the perfect formula: two grade A men paired with an outstanding idea. ARD offered $70,000 for a 70 percent stake. Ten percent was reserved for a seasoned manager (who would never be found or hired) and the remaining 20% to the 2 founders (12% to Olsen and 8% to Anderson). Because computers were not fashionable, the company project name was changed from Digital Computers to Digital Equipment Corporation (DEC). [Pages 148-150]

The birth of a new industry

1957 was a critical year. America was shocked by the Sputnik. Public money flowed both to R&D with the creation of ARPA (later DARPA) and to venture capital through the new SBIC program. “Many of today’s most successful venture capitalists rightly point out that the SBIC program never created a company of considerable or lasting success. But if the SBIC program did little to advance the art and practice of successful venture investing, it did help propel the venture industry by attracting talented young men who later became pioneers of the field.

In 1957, Doriot also worked at the creation of INSEAD in Paris which was opened in September 1959. Doriot would have 3 careers in his life, a professor at Harvard business school (including helping in the creation of INSEAD), a consultant and even a administrator for the Army, the reason why he was a general and finally a VC with not only ARD but also at the origin of TED (UK), CED (Canada) and EED (Europe).

The success of DEC would make ARD highly successful but would also contribute to its end… As an investment company, ARD was highly regulated; compensation of its employees would become a long battle with SEC and IRS. Only 4 ARD employees would get DEC shares (worth $20M for each individual) and the allocation looked arbitrary to many. “Pressure was growing on ARD to divulge its growing mess of regulatory problems, and to take Digital public. But Doriot did not think Digital was ready to deal with the unforgiving spotlight of public ownership.” [Page 186]

Doriot did not prepare his succession, incentives were low for employees. Some left. Elfers was first and founded Greylock, Waite would follow him. “There was one more reason Elfers left. He realized along with an increasing number of investors in new companies that venture capital and the stock markets mixed as well as oil and water. For Elfers, the solutions to many of ARD’s problems was to take advantage of a new organizational form: the limited partnership (LP). In 1959, the first LP was organized in Palo Alto: Draper, Gaither & Anderson. Then in 1961, Arthur Rock, a former student of Doriot formed Davis & Rock. There were distinct advantages. General partners who ran the firm received not only a management fee, they also received a share of the capital gains. A limited partnership would avoid the glare of public disclosure.” [Page 190]

Still the DEC IPO was a success (see table). “The Digital IPO amounted to a financial revolution. It was really mind-blowing that you could take such a small amount of seed capital and get ownership of a company that was worth more than IBM in a fairly short period of time.” [page 197]

The emergence of Silicon Valley

“Today many financiers and entrepreneurs assume the west coast always dominated the VC business. They simply do not realize the industry was pioneered by ARD and a few other northeastern firms in the three decades following World War II. So why did Silicon Valley take over leadership?” [page 227] Spencer Ante explains that with MIT, Harvard, in Boston and New York as the financial capital, the East Coast had a huge lead; but a hospitable climate, ethnic diversity and the vision of Terman at Stanford were critical for the West. “Terman was disturbed to find most of his top students fleeing to the east coast. In 1934, two of his best students, Dave Packard and William Hewlett, followed the same path. Terman wooed them back.” [page 229] Then following Fairchild, semiconductor makers started popping up all over northern California. “All It needed was a steady supply of venture capital.” It’s ironic to read that Tom Perkins declined joining ARD. He wanted to launch his own firm. With Sequoia, Kleiner Perkins would become one of the top 2 VCs in Silicon Valley. The rest is history… ARD was merged with Textron for $400M in 1972. It had made more than $200M in DEC from an initial $70k seed investment.

“In 1978, there were 23 venture funds managing $500 million. By 1983, there were 230 firms overseeing $11 billion. “ [page 250] No doubt, the East Coast missed some of the features that the West would develop with an open culture and the right incentives, in addition to what Doriot pioneered on the East Coast… He dies on June 2, 1987. He was 87 years old.

New rankings of the best technology clusters: the USA still leads.

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There are so many articles, studies about technology clusters or ecosystems that I am not sure exactly why I write this. The only explanation is that I have read a couple of simultaneous studies, all mostly going in the same direction. Whereas there’s been a trend claiming the decline of the USA in favor of Asia or predicting the decline of Silicon Valle (SV), these ones show the opposite: the USA still leads, and among the American clusters, Silicon Valley is by far #1.

The first study is the Startup Ecosystem Report 2012 by the StartupGenome. You can read for example what techCrunhc says about it: Startup Genome Ranks The World’s Top Startup Ecosystems: Silicon Valley, Tel Aviv & L.A. Lead The Way.
The following table was kind of a surprise to me, not because SV is leading (this has been obvious for me for many years), but because Boston is #6 only.

I read the report and changed the ranking method with their own data and got the following new graph. I basically weighted all parameters (Output, Funding, Performance, Mindset, Support, Talent, Trendsetter, Differentiation to SV) on the horizontal axis, but deleted the last two ones on the vertical axis as I was not convinced about their role. It obviously shows there is a lot of subjectivity in rankings! The only thing which does not seem to be debatable is that SV is number 1.

There’s been another interest study: Ecosystem 101: The Six Necessary Categories To Build The Next Silicon Valley. It’s a good complement to the Startup Genome work, which is weak on Asia. The criteria here are Market, Capital, People, Culture, Infrastructure and Regulations. Again the USA leads, but weakness here is that we do not have a more detailed description of local clusters.

Finally, there’s been a strange analysis comparing US universities, whowing that Stanford leads and MIT is not even number 2. This is about VC money. The University Entrepreneurship Report – Alumni of Top Universities Rake in $12.6 Billion Across 559 Deals

Well, Silicon Valley might be declining, btu my feeling is it will be a long time before it loses its #1 position…

High-tech start-ups: the new star system.

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America loves its heroes! Two recent events seem to show that after Hollywood’s Walk of Fame and the Hall of Fames in sport, high-tech entrepreneurship is creating its own star system:

– it began with Boston’s Kendall Square. See for example the Xconomy article: Entrepreneur Walk of Fame Opens in Kendall Square: Gates, Jobs, Kapor, Hewlett, Packard, Swanson, and Edison are Inaugural Inductees.
– it was followed by Stanford recent Engineering Heroes project. This one is a project only with a very long list of more than 60 nominees.

Well you could build your own list. I think Boston missed Robert Noyce. Stanford will have to decide on its initial winners. The value of such lists is obviously the role model effect it should induce.

The Social Network

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The new movie about Facebook’s founder, Mark Zuckerberg, is a great movie. It does not matter so much if it is a description of reality. You may watch it as a piece of fiction, and it would remain a great movie thanks to the actors and screenplay.

It is also great because it describes the start-up world in a very accurate manner. It is not a movie about start-ups really, but there are details which reminds me a lot of real-life stories.

The first lesson is that money and friendship seldom work together. The stories of Eduardo Saverin, the founder soon to be diluted, Sean Parker, the exhuberant founder of Napster and Plaxo and mentor of Zuckenberg and the short appearance of Peter Thiel are such examples.

It also shows the old world of Boston where people think ideas are crucial and the new world of Silicon Valley where what matters is implementation. It’s why Silicon Valley is the Triumph of the Nerds. It shows how right Paul Graham is when he says Silicon Valley is about nerds and money. You see the crazy, sad, exciting, depressing life of these hard-working people. You may like it or not, but it is mostly what start-ups are about.

I just looked for what some key people thought of the movie. So, for example, Eduardo Saverin said here: “The Social Network” was bigger and more important than whether the scenes and details included in the script were accurate. After all, the movie was clearly intended to be entertainment and not a fact-based documentary. What struck me most was not what happened – and what did not – and who said what to whom and why. The true takeaway for me was that entrepreneurship and creativity, however complicated, difficult or tortured to execute, are perhaps the most important drivers of business today and the growth of our economy.”

And Dustin Moskovitz said there: It is interesting to see my past rewritten in a way that emphasizes things that didn’t matter (like the Winklevosses, who I’ve still never even met and had no part in the work we did to create the site over the past 6 years) and leaves out things that really did (like the many other people in our lives at the time, who supported us in innumerable ways). Other than that, it’s just cool to see a dramatization of history. A lot of exciting things happened in 2004, but mostly we just worked a lot and stressed out about things; the version in the trailer seems a lot more exciting, so I’m just going to choose to remember that we drank ourselves silly and had a lot of sex with coeds. […] I’m very curious to see how Mark turns out in the end – the plot of the book/script unabashedly attack him, but I actually felt like a lot of his positive qualities come out truthfully in the trailer (soundtrack aside). At the end of the day, they cannot help but portray him as the driven, forward-thinking genius that he is. And the Ad Board *does* owe him some recognition, dammit.

And Zuckerberg himself!

Watch live video from c3oorg on Justin.tv
This is from Garham’s start-up school and here is part 2

Watch live video from c3oorg on Justin.tv

Of course, this looks like corporate language, we should remember these guys have FaceBook shares! Talking about shares, there was another thing I did not like recently, the fact that according to Forbes, Zuckerberg would be richer than Steve Jobs. I had a discussion with a friend over the week end and he agreed with the statement whereas I disagreed. It may be a detail: but as long as Facebook is not quoted, Zuckerberg’s wealth is mostly paper value he can not really trade. I am sure he is already rich, he probably has already monetized some of his shares but not all of them whereas Jobs owns shares which are liquid. It may not be a big difference given the success of Facebook, but I have seen to many stories of start-ups where people thought the paper value of the stock was real wealth and the next day worth nothing…

When my daughter told me yesterday, she might at least explain her friends what her dad was doing. i.e. working in the world of start-ups, I thought the movie had at least reached that goal of reaching a large audience towards this important topic!

Final point, a recurrent topic in my blog: Facebook cap. table and shareholder structure. As Facebook is private, it is a challenge to know what’s true and what’s myth. I have still tried the exercice from what the Internet gives. One interesting feature is Saverin’s dilution from 30% to 5% whereas Zuckerberg went from 65% to 24%, not really pro-rata! We shall see when Facebook goes public, who wrong I was!

Can Business Schools Teach Entrepreneurship?

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An interesting post by Xconomy on the topic. It’s been a on-going topic and there are no clear answers.

Check the post at Can Business Schools Teach Entrepreneurship?

In “vibrant ecosystems” such as Route 128 and Silicon Valley, business schools are embedded and students easily find or develop ideas. But I am less sure Business Schools really teach. They explain, they expose and of course they teach management. As I comment on that post:

There is a talk by Prof Byer (Stanford) about the Silicon Valley and Stanford ecosystems, where the author claims about 5% of companies are direct transfers of technology:http://spie.org/documents/Newsroom/audio/Byer.pdf
It is not clear how many companies Stanford alumni have created. At least 2′500 but probably many more. Now the role of business schools is another subject of interest. You have stories on both sides, i.e. pure engineers or scientists (Google, Yahoo, Cisco in the academia, Apple outside) or entrepreneurs from bus. schools (Sun Micro, eBay).

Entrepreneurial Impact: The Role of MIT

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A new report has been published about the Entrepreneurial Impact of MIT

It is full of data and even if obviously self-serving, it remains very interesting. Let me just quote what I noticed:

– Growth: the number of “first-time” firms has increased from about 2’000 in the 70s to 6’000 in the 80s and 10’000 in the 90s.

– Origin: Non-US founders had slight visibility in the 40s, grow to 12% in the 90s and 17% in the 00s. 30% of MIT foreign students founded a company at some point.

– Age: Before and during the 70s, 24% of first-time entrepreneurs were under 30, growing to 31% in the 80s and 36% in the 90s. There is no real difference between industry segments.

– Serial entrepreneurs: I have a small disagreement on that point as I am not sure serial matters, but… about 40% are serial entrepreneurs so 60% are not…

– Engineering vs. business degrees: EE/CS degrees is 22%, management is 16% for the 90s. Clearly science and technology matter.

– Location: in the 50s and 60s, majority of companies were in Massachusetts, but thereafter Silicon Valley has become a critical locus. In the 00s, 26% are in MA and 22% in CA.

Then the report talks about the culture and the ecosystem. It is also very interesting. We should always remember that:

– Tons of money went to research from the militaries and space agencies.

– MIT had more of a tacit and hands-off role, but much encouraging.

– Role models: “entrepreneurs could name about ten other new companies before they started their own”. Authors compare to another study where “Few of the Swedish entrepreneurs could name even one or two others like them”. They quote Schumpeter: “The greater the number of people who have already successfully founded new businesses, the less difficult it becomes to act as an entrepreneur. It is a matter of experience that successes in this sphere, as in all others, draw an ever-increasing number of people in their wake”

– Feedback loop: there is a positive impact of such examples and this may be the main reason of the creation to tech. clusters.

– Culture: the best is a quote by Bob Metcalfe, Ethernet inventor, founder of 3Com and now a partner at Polaris Ventures: “It’s not just that MIT’s entrepreneurial environment flourishes under its institutional commitment to technology transfer,” he said. “It’s also that MIT includes both ‘nerds’ and ‘suits.’ Divergent life forms, yes, but necessary to and working together at MIT on entrepreneurial innovation. And what keeps MIT’s entrepreneurial ecosystem accelerating is that nobody is in charge. There are at least twenty groups at MIT competing to be the group on entrepreneurship. All of them are winning.”

… Nobody is in charge…

– Tech. transfer: the majority of the exclusive licenses go to startup companies. The TLO’s strategic dependence on startup companies has been the reluctance of large companies to invest in “university-stage” technologies, because the risk and cost of development is high and the time to market is long.

– License deals: For startups, instead of cash up front and in lieu of some of the royalties, the TLO usually takes a small equity ownership that is less than 5 percent of the new firm.

And some conclusions:

– Universities that are strong in research and technology are at the forefront of knowledge creation and potential application. When the university is able to couple this capability with the inclination and resources needed to connect ideas and markets, impressive possibilities exist for generating entrepreneurship-based economic impact at the local, as well as national and global levels.

– Numerous changes are needed in most universities over an extended period of time in rules, regulations and, more important, attitudes and institutional culture.

– Until quite recently, MIT had followed a “hands-off” approach toward entrepreneurial engagement, in contrast with many other universities in the United States and abroad. MIT has neither created an internal incubator for ventures nor a venture capital fund to make life easier for prospective startups.

– Instead, MIT has relied internally on growing faculty, student, and alumni initiatives, especially during the most recent thirty years, to build a vibrant ecosystem that helps foster formation and growth of new and young companies.

– Educational programs require investment in and acquisition of faculty to develop and teach such programs. Effective and well-trained academics are, unfortunately, still scarce in most entrepreneurship related disciplines. Fortunately, successful practitioners are available everyplace and the MIT history indicates that they are quite willing and enthusiastic about sharing their time and experiences with novice and would-be entrepreneurs.

For those who have been so far, first you should read the full report and second I aggregate below a few tables from the report:

Why Boston Should Worry

1 Reply

I refer again to the excellent Xconomy with the post Paul Graham on Why Boston Should Worry About Its Future as a Tech Hub—Says Region Focuses On Ideas, Not Startups

I had to react so I posted my own comment on their site, which I copy here:

There is no doubt Paul is right (unfortunately). I do not care about Boston too much but about the ROW. The debate, I think, was definitely closed when AnnaLee Saxenian published Regional Advantage (I think in 94). She had predicted before that SV would suffer from too much activity: “In 1979, I was a graduate student at Berkeley and I was one of the first scholars to study Silicon Valley. I culminated my master’s program by writing a thesis in which I confidently predicted that Silicon Valley would stop growing.” She admits she was wrong at a conference in Stockholm in 1998! So what?

SV is the only place on earth where the right environment for start-ups exists. Read again Paul’s essays on his web site www.paulgraham.com. One important element is that Fairchild gave birth to hundreds of start-ups and this is well documented. The start-up culture emerged at that time. I am so passionate about the subject that I have published my own book and [this] blog (”Start-up, what we may still learn from Silicon Valley”). But if you do not like self-promotion, you may also want to read Junfu Zhang’s extremely detailed work: “High-Tech Start-Ups and Industry Dynamics in Silicon Valley” that you can find online I think and where you will discover the different dynamics at work there (vs. Boston again)…

Boston is by far nb2, no doubt, but we, the nb3 and below, should be worried that even Boston does not manage to compete with SV…