Saturday, October 6, 2007

NEVCA Lunch: A Critical Look at the New England Market's Demise

The New England Venture Capital Association gave its annual networking luncheon a provocative title: "California Dreamin': A Critical Look at the New England Market's Demise."

Two two speakers were introduced as Muhammad Ali and Smokin' Joe Frazier; in real life, they were Paul Maeder of Highland Capital Partners in Lexington, and Tim Draper of the Sand Hill Road firm Draper Fisher Jurvetson (that's Draper on the left). Playing the role of Michael "Let's Get Ready to Rumble!" Buffer was Tom Finneran, host of Finneran's Forum on WRKO. The main event was held this past Thursday, in the Regattabar at the Charles Hotel. (And unfortunately, there was a lengthy musical interlude.)

Maeder and Draper, it turns out, were classmates at Harvard Business School.

Draper spoke first, giving a rambling talk that was anti-architecture and anti-history.

"Everyone I know in Boston is always quoting people from the past," Draper said. There are constant references to the Boston Tea Party, the Green Monster, "the British are coming." He said Boston needs to "maintain the philosophies" that made us so revolutionary in the 18th century, but "blow up the buildings," which he seemed to see as representative of some kind of crusty thinking or ennui. Apparently, bricks inhibit innovation.

But aside from that, Draper didn't take many digs at Boston or New England. He cited a few of the companies that have made DFJ money here, including EnerNOC, AthenaHealth, and Parametric Technology Corp. (He skirted the issue of whether DFJ will continue to have an affiliate fund locally ... there used to be DFJ New England, in Cambridge, but that fund has separated from the mother ship and become New Atlantic Ventures.)

Draper spent a lot of time talking about how "entrepreneurs are heroes," and how most of the "solutions to society's problems come from business," not government; Finneran, former Speaker of the House here in Massachusetts, tried not to wince. Draper listed a number of successful companies that have taken on "something that's old and decrepit and needs to be changed":

    Hotmail reinvented the post office
    Overture reinvented advertising
    Skype reinvented telecommunications
    ...and so on...

None of Draper's examples were Boston companies.

Toward the end of his talk, Draper launched off into la-la land. He talked about how the future is "a la carte government," where citizens will be able to choose to abide by the corporate structure laws of the Cayman Islands, the religious freedoms of America, the healthcare of Sweden, etc. (Not sure exactly how that will work.) He talked about the potential for "near-thought communication," and something called a "food drop," and the need for the human race to "get off this planet."

Draper wrapped up by singing -- no, caterwauling is the better word -- a song he wrote, a capella, to the tune of John Lennon's 'Imagine.' Some random lines: "Imagine there's no business".... "Imagine there's no VCs" ... You get the picture. I fully support Yoko Ono in demanding a couple million in royalties from Draper for this "performance." (Maeder sang back up, so he's on the hook, too.)

Maeder's talk actually had some shape to it, focusing on "how we can make New England better than it is."

He started by slyly taking apart the notion that Massachusetts is somehow lagging California, using a lot of stats.

    1. Nobel Laureates
    California has 74, Massachusetts 56
    But if you adjust it per million population, California has 2.0, Mass has 8.8

    2. NIH grants
    California has received 5192, Massachusetts 7464

    3. Small companies
    California has 1.4 million, Mass has 296,000
    But adjusted per million population, California has 39, Massachusetts has 46

    4. Patents
    California has been granted 25039, Massachusetts has 4368 (not sure of the time-frame here)
    Adjusted, it's 688 to 683

    5. Average temperature
    San Francisco is 53 degrees Fahrenheit, Boston 52

    6. 2007 tech IPOs by region, <$400M
    California has had 11 so far, New England has had 8

    7. 2007 tech IPOs by region, >$400M
    California has had 5, New England 6

    8. VC IRR (internal rate of return) over the last 15 years
    California VCs have chalked up a 44.4 percent IRR, Massachusetts 57.8 percent

Maeder did concede that 39 percent of the US companies that have $1 billion or more in annual sales are headquartered in California, and then he went on to focus on three really interesting problems.

First, Maeder argued that "we sell just a wee bit too soon...we take the money and run." Cisco, he observed, got big not by selling out, but by becoming an acquirer of little companies. "We have been selling the seed corn," he said.

A second challenge is that Harvard, the top-ranked university in the world in terms of faculty publications, hasn't been doing a great job of commercializing its inventions; Harvard falls off the list when you look at number of patents issued, leaving MIT, CalTech, and Stanford on top of the heap. (Draper chimed in later, observing that "we see nothing from Harvard," and theorizing that "the people who get into Harvard haven't there's a fear of failure." It's unlikely that you'd become an entrepreneur if you fear failure, he said. "You don't create a monster business by being smart," he continued. "You create a monster business by being dumb. It's an irrational thing to do.")

Maeder's third hot-button issue is that non-competes are enforced in Massachusetts; not so in California. Enforcing non-competes is "a silent killer, like high blood pressure," Maeder said. "It has a dampening effect on innovation," discouraging employees from big companies from going off to give life to new start-ups.

Draper, loopy as he was, conveyed that uniquely West Coast sense of possibility: pitch me on an all-electric sports car, and I just might invest. Maeder was logical, focused, and methodical: pure East Coast.

The dessert served at the lunch may have biased me (Boston cream pie, one of our city's great innovations), but I thought Maeder won this match.

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Blogger G-Fav said...

Scott -

Just wanted to say that I enjoyed this piece.


October 7, 2007 9:35 PM  
Blogger Mike Champion said...

Thanks for the writeup, definitely an interesting read. Though I think Maeder should have listed Boston's sports dominance as another plus for the area ;-)

October 8, 2007 1:23 AM  

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