Startable - Healy Jones’ & Prasad Thammineni’s Blog

The person who runs the CIC (Cambridge Innovation Center, I think it’s called) has a new idea for a shared office space in Cambridge. To be called the “Cambridge Co-Working Center,” it sounds like it will be a shared office where startups can rent shared desks or couches. Not sure what to think, at $250 a month, but could be a great startup jam-session kind of a place if the right ecosystem of people moved in…

I had the chance to visit the Techstars Boston space last night and spend some time with some of the mentors for the program, Shawn Broderick who is running the program in Boston… and I got to sit with one of the companies that has already set up in the space and is hard at work on their project!

Shawn (and Brad Feld and David Cohen) have put a huge amount of work into getting the seed program going here and recruiting an amazing group of mentors. In the initial companies selected for the Boston program there are some really fun concepts, and I am hopeful that the entrepreneurs will be just as solid. Hopefully I’ll be able to spend some time over there this summer!

An article in today’s New York Times on the recent decline in real estate mobility in the US got me thinking on the importance of location, mobility and venture capital. The Times article has a number of realtors, movers and economists freaking out because the absolute number of Americans who have moved recently fell to the lowest level since 1962 - when the nation was something like 40% less populated.

What does real estate have to do with technology innovation?

Location matters.

Successful companies spawn other successful companies. Usually this happens in the same geographic area where the original company was based, for obvious reasons. Entire ecosystems of startups have come from DEC in the Boston area and a number of great companies in the SF Bay Area have been born out of previous winners like SGI. With critical mass these ecosystems become self-reinforcing and can continue to spark innovative companies for many, many years. 

Academic institutions matter and are location specific. The impact of MIT and the surrounding schools on the Boston area is immense! (The same is true for the Stanford ecosystem.) The students and professors at institution will continue to create commercializable technologies and having the right startup attitudes and resources in the area is very important to taking these technologies from the laboratory to the customer.

VCs like to be near their portfolio companies. Certain regions dominate venture capital and angel funding landscape, and startups in these areas have more venture firms to speak with and more options during their funding search. This tends to beget more opportunities for startups in a particular area.

Gummed up real estate market = bad for innovation

If up and coming technology executives can not afford to sell their homes (say they are underwater on their mortgage) and move to a technology eco-center to join great technology companies than the self-reinforcing cycle of successful startups spinning off new startups may slow down. Technologists and managers need to be able to physically move to the best areas if they are to eventually start a new company there based off of the learnings (and hopefully cash) they gained by working for awesome bigger/successful companies.

There is a limited supply of talented sales people and technology managers, and they need to be mobile enough to move to academically rich areas so that they can help commercialize technologies coming out of universities. While universities may be great at coming up with new technology ideas they often need help taking that technology and making it into a product that customers can understand and use.  There needs to be a deep pool of business talent in an area to cope with the massive amounts of amazing technologies created at a place like MIT, and that pool needs to be constantly refreshed with new talent from outside the area. Finally, students and professors need to be able to frictionlessly move to the institution that will support their research. If the real estate market is too gummed up how can this happen?

Since venture firms like to be near their startups, startup founders often move their businesses to be near their VCs. (I know, it sounds crazy but it’s true!) Venture funds do not want a large part of the proceeds to go to paying off moving expenses, including taking care of underwater mortgages, so the startup ecosystem needs mobility in the real estate market.

Basically, startup founders need to be ale to move to the best location for their startup. Certain areas have deep resources; resources that help people start companies. Support groups, recruiters, VCs/funding, experienced lawyers, landlords who understand it is ok to rent out their property to unknown startups, etc. A lack of mobility in the real estate market hurts founders’ ability to move to the best place for their business. Hopefully the real estate market will begin flowing again!

I’d love your comments and thoughts;

Thanks,

Healy Jones

Over 70% of the founding teams from Atlas’ recent portfolio companies include a critical member(s) who is a 1st or 2nd generation immigrant. 

A few MAJOR caveats on this data: I didn’t conduct a scientific study; it is entirely based on voluntary email responses from our CEOs. I haven’t heard back from the entire portfolio and don’t expect to. I also expect over the next few days to get a few more responses, so the number could change dramatically. I may have forgotten to email some portfolio companies; I was lazy and used a random email distribution list found by someone else here. I defined 1st generation immigrant as not born in the country where the company was founded and 2nd generation as son or daughter of an immigrant. The Atlas portfolio also has a lot of companies in Europe (which actually seems to bring down the average, which I wouldn’t have guessed.) Probably some other stuff too which makes this totally unscientific. But, still, I find it really interesting.

Even if this number comes down on a % basis it is still meaningful. I think it is really cool that talented people can move to places that have the best environment/ecosystem to start companies and try to make their vision reality. There is significant value to investors to be able to back the best people in the best locations; locations where there are other talented individuals, where there is access to customers and partners and where risk taking entrepreneurs are valued. 

The companies created by these immigrants are also creating jobs. Often times these are highly paid positions. If an area is able to attract a critical mass of entrepreneurial minded professionals then new company formation becomes very “cool.” More people feel like they can take the risk and found a company… they have support system and see the examples of success. 

For example, a study conducted by the Kauffman Foundation on the impact of MIT mentions that Massachusetts has benefited from foreign born students starting companies in the state.

More than 38 percent of the software, biotech and electronics companies founded by MIT graduates are located in Massachusetts, while less than 10 percent of arriving MIT freshman are from the state. More than half of the companies started by MIT’s foreign-student alumni are located in the U.S., creating their primary employment and economic impacts here.

I’m not sure that we were going to announce it yet, but it was picked up in the press and I saw that Jeff Bussgang tweeted it yesterday - Atlas and Flybridge recently invested in a company (DataXu) that fits this description perfectly. Technology out of MIT where a critical founder is not from the US; based in Cambridge, MA. 

I think if we are going to continue to have centers of innovation that are the envy of the world then we need to get as many talented entrepreneurs here as we can. It seems to be working for Atlas, and I’m pretty sure it will continue to work for other venture capitalists in the US.

I’m not sure how I missed it, but Xconomy did a great piece on the technology industry in Massachusetts. Wade Roush, the author, pokes a bit of fun at the inferiority complex that Boston has vs. the West Coast. He then suggests that a plan to commission a study to come up with a new brand name for the region is a lame way to help drive innovation in Boston. 

Wade then lists 5 ideas that he thinks can help create more innovation in the area - and they make a pretty good list. I’m impressed, and since I used to live and work in tech finance in the Bay area I think I’m entitled to an opinion (you may have a different view of my right to have an opinion…)

I really like Wade’s number 2, “Upgrade Boston’s transportation infrastructure…” If there is one thing that Boston has over the Bay Area is that technology companies are actually based IN Boston/Cambridge. Boston is much more fun to live in vs. a suburb of San Jose. A lot of young programmers would probably really love their lifestyle here - particularly if they knew they could easily commute to work on public transportation and live and work in a city. Have you ever gotten off work at 11pm in Palo Alto? It’s pretty boring. But in Davis Square - well, that can be pretty fun.

Boston also doesn’t feel that welcoming because it is so damn hard to get around here. Why don’t half the streets have signs? Are we just supposed to magically know where we are? For some reason most other states can afford to put up signs. Maybe New England should try this. People want to live where they feel comfortable. I don’t think that a person should have to have grown up in a city to actually know their way around. 

Ok, well, this turned into a bit more of a rant than I anticipated. The end position is that the Boston area is a great place to build your startup, and there are some pretty easy things that can be done to make it even better. The area should play to its strengths - great educational institutions, lots of vibrant young people and yes, venture capital.*

Read the Xconomy article and let me know what you think.

*I realize a ton of people think it is impossible to raise VC in New England. It is a bit harder than the West Coast, but raising venture funding is really really hard regardless of where a company is based. It’s easier here in Boston than 99% of the world.

I’m a few days behind here due to my vacation, but I do think that the WSJ (and I guess the US Federal Trade Commission…) have been talking about allowing the online targeted ad world to self-regulate. The WSJ’s article on this suggests that the FTC is asking for clear disclosure and the ability to opt-out of target advertisements. Of course, any given consumer could opt-out by clearing their cookies, but the thought of an active opt-out is nice.

My personal belief is that targeted advertisements are not bad nor are they intrusive. However, I clearly understand that there is a large segment of the population that feels that this is not appropriate. We’ll call this segment… “old people.” Since Congress happens to have a large number of “old people” I’m willing to bet that eventually some crotchety old person is going to get all upset and pass an annoying law that messes up the online ad market. Therefore, I’d really prefer that the FTC put out some sort of real regulation and prevent old people from destroying the entire targeted ad space.

Ok, back to my vacation. Let’s hope that the beer is London is not too warm tonight.

This is the time of the year to make resolutions… so here are a couple as they relate to my venture capital career in 2009:

Meet more senior executives

Last year, one of the most helpful things I did was to introduce several startups to experienced executives in their industry. In a couple of instances these experienced executives ended up providing very valuable advice to the startup founders, and some are in discussions to join the startup teams as board members, advisors or potentially as employees. I continue to be amazed at how open experienced yet entrepreneurial executives are to spending time with, making introductions to potential customers for and generally helping startup. Additionally, the right experienced executive joining a startup’s team can really make a company “fundable.” This year I will make it a goal to meet more of these entrepreneurially minded experienced executives and get them introduced to the best startups I can find. Read the rest of this entry »

The Wall Street Journal has a pretty negative article on Google’s innovation programs and cost cutting efforts. (Thanks to Prasad for finding this and highlighting it via his Twitter account.) Here is why Google’s innovation efforts matter to me as a venture capitalist - investors and technology entrepreneurs have a fear of Google. In meetings I often hear, “why can’t Google just do this with their engineers’ spare time?” or “why can’t Google come up with something like this and crush you with their distribution?”

From the article:

…with the U.S. economy in a recession, Google is ratcheting back spending and cutting new projects. “We have to behave as though we don’t know” what’s going to happen, says Google Chief Executive Eric Schmidt. The company will curtail the “dark matter,” he says, projects that “haven’t really caught on” and “aren’t really that exciting.” He says the company is “not going to give” an engineer 20 people to work with on certain experimental projects anymore. “When the cycle comes back,” he says, “we will be able to fund his brilliant vision.”

The thought among VCs was that, with millions and millions of people viewing the Google search page each day, Google could easily launch and test all sorts of crazy new services, like Google Checkout or Google Finance or Google Base or Gmail. Some of these have really taken off, and with the early(ish) success of Gmail VCs were quaking in our collective boots that Google could easily leverage its distribution power into huge market share for any new product its engineers dreamed of creating.

But maybe Google’s distribtion heft isn’t enough? 

Anyways, this was more of a long tweet than a real blog post. There is no real conclusion here, just a thought I wanted to throw out there.

As I continue to have my thinking cap on regarding cloud computing for the enterprise, I’m trying to come up with the different “pins” that will need to get knocked down for real enterprise adoption. I was turned on to a post on ElasticVapor on a cloud computing interoperability effort via a CNET post. The basic tenant of the article is that in order for enterprise to get really excited about moving applications/data into the cloud that they will have to be able to easily port data between different cloud computing providers’ systems.

Since my relatively dense previous post on cloud computing adoption and the enterprise wasn’t all that well loved by this blog’s readership base, I thought I’d post another… Read the rest of this entry »

In how to choose the right business idea, I introduced the concept of the Idea Funnel.  Like me, you could use the idea funnel to narrow down a bunch of startup business ideas into few viable ones. I talked about stage 1 of the due diligence process, namely, “Is the idea viable?”. In this post, I will present the second and final stage, namely, “Can I execute on it?”. 

Stage 2: Can I execute on the business idea?

In stage 2, you are focused on things that you need to successfully take your business idea to the market. Here are the few things you need to have:

Read the rest of this entry »