Boston VCs don’t want to let another big one get away(washingtonpost.com)
washingtonpost.com
Boston VCs don’t want to let another big one get away
http://www.washingtonpost.com/business/boston-venture-capitalists-dont-want-to-let-another-big-one-get-away/2011/07/07/gIQA3Wck5H_story.html
22 comments
Unfortunately for the Boston VCs, they can only fix part of the problem. Boston VCs have in the past been timid and unimaginative, and they may be able to fix that by making a conscious effort to be more aggressive. But the biggest problem with Boston may be the weakness of the angel community. It's true that VCs are starting to make more angel type investments, but it seems unlikely they can completely replace angels.
Two years ago, I would have agreed with you about the angel situation - it was pretty dorky and very clumsy. But something big has changed here very recently and the energy is unlike anything you saw when you lived in Cambridge, Paul. I assure you, there is a substantive tangible energy in the air around town these days.
Whether that translates into anything big still remains to be seen.
Whether that translates into anything big still remains to be seen.
Energy does not replace early stage money. Angels, of which there are thousands in the valley, provide early stage money.
The explosion in angels has not skipped Boston. A few recent acquisitions will certainly increase activity as well.
Interesting view. But I think this FB case, maybe it just happened that way..
Aside from the size of startup & investment communities, there are still lots of great early stage investors e.c. JBoss backer David Skok of Matrix. - one of my favorit VCs. At least these guys sometimes do very very early stages.
And I doubt that they'll get aggressive like their counterparts in other areas of the country. People in this region are tighter with their money and need to fully understand the lifecycle of a entity before throwing money at it, versus having an urgency to be an early-stage investor like you may have out in SV.
But if we're going to go through the numbers that this old chestnut provides: http://wadhwa.com/2011/03/04/boston-vs-silicon-valley-compar...
But if we're going to go through the numbers that this old chestnut provides: http://wadhwa.com/2011/03/04/boston-vs-silicon-valley-compar...
Having moved to the Bay Area from Boston when I started doing startups, I can say that the problem is more of a structural issue than just "not letting the next big one get away."
Whenever we talked to East Coast VCs, they wanted our startup (pre-revenue and basically pre-product) to have a clearly defined business model and revenue strategy. In doing that, they do somewhat reduce the downside, but they also eliminate the very top of the bell curve.
West Coast VCs seem to have much more of a shoot for the moon mentality. While the latter does lead to a lot of flops, it seems like it also yields some huge winners that the more conservative approach may miss.
Whenever we talked to East Coast VCs, they wanted our startup (pre-revenue and basically pre-product) to have a clearly defined business model and revenue strategy. In doing that, they do somewhat reduce the downside, but they also eliminate the very top of the bell curve.
West Coast VCs seem to have much more of a shoot for the moon mentality. While the latter does lead to a lot of flops, it seems like it also yields some huge winners that the more conservative approach may miss.
Exactly! Nothing captures this structural difference like this search:
http://www.google.com/search?q=silicon+valley+failure
edit: you can't invest in "the next big one" without investing in 90 failures and 9 small or medium ones.
http://www.google.com/search?q=silicon+valley+failure
edit: you can't invest in "the next big one" without investing in 90 failures and 9 small or medium ones.
The "VCs let Facebook get away" theory seems to imply that Facebook could have been built in Mass.
Could facebook have been built in MA?
In SV, Facebook could poach from Google's mothership and the alums, not to mention Yahoo, etc. Are there enough comparable people in Mass?
And, even if there are, are they available? Doesn't Mass have enforceable fairly-general non-competes? Do the Mass companies that currently employ the folks that Facebook would have hired use them?
Could facebook have been built in MA?
In SV, Facebook could poach from Google's mothership and the alums, not to mention Yahoo, etc. Are there enough comparable people in Mass?
And, even if there are, are they available? Doesn't Mass have enforceable fairly-general non-competes? Do the Mass companies that currently employ the folks that Facebook would have hired use them?
Agreed.
Also, California has this lovely law that guarantees that your employer doesn't own what you develop on your own time without using company equipment in areas that aren't the company's business. Which means that in California, an awful lot of people who would otherwise have continued working for HP, Shockley, IBM, Apple, and so on, went out and started companies — the companies that have, over the last 30 years, brought the people that Facebook needed to hire to California. Not to Massachusetts.
Also, California has this lovely law that guarantees that your employer doesn't own what you develop on your own time without using company equipment in areas that aren't the company's business. Which means that in California, an awful lot of people who would otherwise have continued working for HP, Shockley, IBM, Apple, and so on, went out and started companies — the companies that have, over the last 30 years, brought the people that Facebook needed to hire to California. Not to Massachusetts.
I can't speak to the VC environment in Boston, but I do think there are lots of support resources for tech entrepreneurs in the Boston area, through events (TechStars, Lean Startup Challenge, etc.), meetups, support groups, startup spaces (such as the Cambridge Innovation Center) and educational networks fostered by MIT, Harvard, and other schools (even BU offers a mentoring service, modeled roughly on a program that MIT started).
There is also a small but strong media cohort that helps spread the word. It's nothing like Wired/TC/VentureBeat/assorted blogs/MSM bureaus in the Bay Area, but people like Scott Kirsner (Innovation Economy, a column in the Boston Globe), and the staff of the MIT Technology Review, Xconomy, and some of the IDG publications write frequently about local startup activity.
There is also a small but strong media cohort that helps spread the word. It's nothing like Wired/TC/VentureBeat/assorted blogs/MSM bureaus in the Bay Area, but people like Scott Kirsner (Innovation Economy, a column in the Boston Globe), and the staff of the MIT Technology Review, Xconomy, and some of the IDG publications write frequently about local startup activity.
Boston is certainly no Silicon Valley (and perhaps never will be), but I'd argue it's still a great place to start a company. Through MassChallenge I had an opportunity to really connect with the community up there and can say from experience that it's a vibrant and helpful one that is turning out some great companies. The article is probably correct in the way it characterizes Boston VCs. But the local VCs are only one small part of what makes a city startup-friendly.
Part of the problem with Boston is that it isn't hip to be doing a startup here like it is in SV (this is getting better. A few years ago it was awful). Boston is an old-fashioned town that values aristocratic careers (Lawyer, banker, doctor) and name-brands (John Hancock) far more than pave-your-own-way careers. This sounds a bit trite but it is a significant cultural barrier for a 22-year-old to overcome. You'll be far more accepted if you move west, so most do.
Facebook — turned down by Battery Ventures and MetroPCS — is valued at $82.4 billion on SharesPost, a secondary exchange for shares of private firms.
This is like passing on Lady Gaga in High School because she was, well, odd. It has to be hurtful.
This is like passing on Lady Gaga in High School because she was, well, odd. It has to be hurtful.
The degree to which the premise of this story (which has been printed elsewhere) is absolutely ridiculous, is pretty astounding.
The premise, of course, is that Mark somehow "got away" from Boston and was always destined to be more "successful" [your definition here] than any other founder. So there are really two main points: that this proves Boston needs to catch up with the Valley, and that there's another Mark lurking out there somewhere that must have been missed.
Let's start with the first part. Boston has needed to catch up with the Valley since the decline of Digital Equipment Corporation, if not before. That was, if I've got my facts straight, in 1992. So it's been nineteen years that Boston's tech scene has been dying. When I was at Harvard trying to get undergraduates excited about technology entrepreneurship in 2003, the club ended up electing me President because only eight people showed up and half of them were my friends. Apparently things have gotten better since then, but I'm still on the Harvard entrepreneurs mailing list and there's not much going on.
As for Mark, I've said plenty in the past. The key points are A) that people like Mark don't innovate; they copy; and B) if as much money was poured into another company as has been poured into Facebook, then we'd all be talking about that company and founder instead. (Twitter, anyone?)
If VCs are just looking to fund copycats, that explains an awful lot, but they should just admit it and stop pretending that they exist to support entrepreneurs. In the meantime, their returns will continue to decline as they ignore people who actually do come up with novel approaches to problem solving in favor of the coy and disingenuous who can convince millions to waste their time in a uniform manner.
There are a lot of bad ideas in Silicon Valley and a lot of bad ideas in Boston. But there are definitely some good ones, too. If VCs can't distinguish between them, they should either just fund everything in the hope that they'll just get lucky, or step aside and get out of the way.
The premise, of course, is that Mark somehow "got away" from Boston and was always destined to be more "successful" [your definition here] than any other founder. So there are really two main points: that this proves Boston needs to catch up with the Valley, and that there's another Mark lurking out there somewhere that must have been missed.
Let's start with the first part. Boston has needed to catch up with the Valley since the decline of Digital Equipment Corporation, if not before. That was, if I've got my facts straight, in 1992. So it's been nineteen years that Boston's tech scene has been dying. When I was at Harvard trying to get undergraduates excited about technology entrepreneurship in 2003, the club ended up electing me President because only eight people showed up and half of them were my friends. Apparently things have gotten better since then, but I'm still on the Harvard entrepreneurs mailing list and there's not much going on.
As for Mark, I've said plenty in the past. The key points are A) that people like Mark don't innovate; they copy; and B) if as much money was poured into another company as has been poured into Facebook, then we'd all be talking about that company and founder instead. (Twitter, anyone?)
If VCs are just looking to fund copycats, that explains an awful lot, but they should just admit it and stop pretending that they exist to support entrepreneurs. In the meantime, their returns will continue to decline as they ignore people who actually do come up with novel approaches to problem solving in favor of the coy and disingenuous who can convince millions to waste their time in a uniform manner.
There are a lot of bad ideas in Silicon Valley and a lot of bad ideas in Boston. But there are definitely some good ones, too. If VCs can't distinguish between them, they should either just fund everything in the hope that they'll just get lucky, or step aside and get out of the way.
> The key point is that people like Mark don't innovate.
James and Orville Wright didn't invent the airplane. Henry Ford didn't invent the automobile. Thomas Edison didn't invent the lightbulb. Ray Croc didn't "invent" McDonald's. James Walton didn't invent EDI or data-driven retailing. etc.
But as an investor, you sure wouldn't go broke investing in them. That's the kind of person you want to set up shop in your town if you care about the economic benefits, not necessarily another PhD developing technology years before its time. ("MIT graduates develop technology. Harvard graduates hire MIT graduates and build businesses." was the old saying.)
I think Boston's non-life-sciences tech scene is doomed for a variety of reasons, but thinking everyone needs to invent one amazing new scientific advance ("idea") to build a world-changing business, vs. lots of correct, incremental decisions along the way ("execution"), is a major reason.
James and Orville Wright didn't invent the airplane. Henry Ford didn't invent the automobile. Thomas Edison didn't invent the lightbulb. Ray Croc didn't "invent" McDonald's. James Walton didn't invent EDI or data-driven retailing. etc.
But as an investor, you sure wouldn't go broke investing in them. That's the kind of person you want to set up shop in your town if you care about the economic benefits, not necessarily another PhD developing technology years before its time. ("MIT graduates develop technology. Harvard graduates hire MIT graduates and build businesses." was the old saying.)
I think Boston's non-life-sciences tech scene is doomed for a variety of reasons, but thinking everyone needs to invent one amazing new scientific advance ("idea") to build a world-changing business, vs. lots of correct, incremental decisions along the way ("execution"), is a major reason.
I didn't say "invent." I said "innovate." All of the people you have listed at least created products of unambiguous value to society.
And your point is that Facebook isn't a product "of unambiguous value to society" I suppose? And that Zuckerberg's supposed lack of "innovation" is the cause of this deficiency?
Facebook may not be your thing, but I'd have to say the fact that tens of millions of people enjoy the benefits that Facebook brings to their lives, enough to visit the site multiple times a day pretty much proves its value to society.
And I believe pretty strongly that taking ideas that were innovated by other people and improving upon them counts as innovation in its own right. Facebook may not have done anything earth-shatteringly new, but what it did do, it did better.
Facebook may not be your thing, but I'd have to say the fact that tens of millions of people enjoy the benefits that Facebook brings to their lives, enough to visit the site multiple times a day pretty much proves its value to society.
And I believe pretty strongly that taking ideas that were innovated by other people and improving upon them counts as innovation in its own right. Facebook may not have done anything earth-shatteringly new, but what it did do, it did better.
Actually, Facebook has changed how hundreds of millions of people interact with each other.
I find it curious that the haters always want to take facebook down a notch for not being innovative. I haven't logged into my account in several months, but I still respect what facebook represents in the evolution of the Internet.
I find it curious that the haters always want to take facebook down a notch for not being innovative. I haven't logged into my account in several months, but I still respect what facebook represents in the evolution of the Internet.
I have no idea whether or not you're right about Mark / FB, but even if you are correct, I think the issue raised by the author still stands.
Let's say Facebook owes all its success to getting a ton of money from investors - any other social networking company would have achieved the same level of success with the same amount of money.
The question still remains - why did Boston VCs not invest in Facebook like SV investors did? Or some other similar company (which according to your theory, would have given them the same outcome as what SV investors in FB got)? Clearly they are worse off for not having done so.
Not claiming that Boston VCs should have been expected to invest in FB - just saying that the underlying issue raised by the article stands regardless of why you think Facebook is successful.
Let's say Facebook owes all its success to getting a ton of money from investors - any other social networking company would have achieved the same level of success with the same amount of money.
The question still remains - why did Boston VCs not invest in Facebook like SV investors did? Or some other similar company (which according to your theory, would have given them the same outcome as what SV investors in FB got)? Clearly they are worse off for not having done so.
Not claiming that Boston VCs should have been expected to invest in FB - just saying that the underlying issue raised by the article stands regardless of why you think Facebook is successful.
New England VCs have been some of the most difficult people I've talked with. SV and regional VCs have been much friendlier/easier/helpful. So saying they won't let another big one get away... they need to change their attitude for the most part. (IMO).