VCs betting on ‘known entities’

I just met up with a local journalist and in casual chat about the venture capital scene in Boston came up a discussion around Boston VCs wanting to bet on ‘known entities’, i.e. entrepreneurs that either the same VCs or others have bet on before, and have been somewhat successful with. I have heard this term a few times now and since I am still new to the field, trying to make sure I understand it well. Obviously interested in learning what you think. Some thoughts:

• When you look at some of the more successful VCs, they seem to have killer instincts for entrepreneurs. Not so much the technologies, but people who drive businesses to success. So yup, people matter a lot and one should certainly bet on them before anything else.
• So who are the people we should bet on? Are these wild eyed first-time entrepreneurs who dare to think big and whose passion is infectious and scary crazy at the same time?, or those who have carefully thought through answers to our questions?
• Are the ‘known entities’ in our circles really the big hitters? or do we risk restricting ourselves to entrepreneurs who have had small successes in the past and can’t see past that to those billion dollar exits VCs would like to see? There are not that many billion dollar  ‘known entities’ around, esp in Boston. At least not in my (admittedly small) circle.
• Should we worry about what I call a ‘closed box syndrome’, i.e.  – group-think – if we keep talking to the same entrepreneurs on their 4th, 5th, 6th business plans? How do we think out of the box? I have observed a tendency among some entrepreneurs to think VCs must know what they are talking about and hence they change their pitches dramatically to suit the VCs. Generally it is not a good idea. Yes, take advice, but your idea is your idea and I am only reflecting on it from the outside.
• How do you marry the ‘known entities’ with the aspiring first-time entrepreneurs to create the potential killer team? Maybe this is one place where VCs can help as matchmakers? But this is not a recruiting role. The passions have to intersect as founders for the creative juices to flow.

Anyways…just thinking aloud. Good VCs bet on great entrepreneurs, and as I observe my senior partners at GC, I see that in practice. I need to find those great entrepreneurs myself. So if you think you are one, and open to a conversation, just drop me a line.

Yes I got to see President Obama, in person at MIT

President Obama visited MIT today and gave a speech on probably the biggest challenge USA and the rest of the world faces: Energy and Climate Change.  I somehow landed with an invite to join the limited audience (thanks REBN and NVCA), and my thoughts on his speech are below:

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What a proud day for MIT! President Obama delivered a speech today at MIT on energy policy to an audience of almost 1,200 (from my MIT days I remember that being the official number of people Kresge can hold). This represents an important milestone in the journey of many MIT researchers, faculty, students, and alums who have worked hard to make MIT the mecca of clean energy research in the world. Obama came, joked about his motorcade being placed on top of Building 10 (referring to hacks that MIT’ers like myself hold sacred), enthused the audience about the great challenges and potential that lay ahead for all of us, and left after a few hugs. All in a matter of less than 30 minutes.

I had waited for over 2 hours for him, but it was worth the wait (and the quick clearing of my calendar). I left wanting more from him. We all do on issues we care about deeply. The President’s job today was to celebrate the successes so far, and get us jazzed about his commitment to face the challenges ahead and I believe he succeeded. I like what I heard:

1. Nations are engaged in a peaceful competition to determine what technologies will provide the clean energy of tomorrow. And the nation that wins the competition will dominate the global economy.
2. The biggest threat to our progress is pessimism. America can solve problems and act collectively.
3. Innovation and discovery is in our DNA, but the challenges of this generation are also bigger than before.
4. The Recovery Act is the largest investment ever in energy in history ($80 billion). Not only in technologies of today, but also in science for technologies of tomorrow.
5. The Pentagon has declared dependence from fossil fuels is a threat to our security. “Operation FREE” is in effect!
6. Young people realize clean energy is the challenge of their generation. All MIT community members are heirs to a legacy of innovation…one gets excited just being there.
7. Ed Markey and John Kerry are working across the aisle to turn all the work on energy and climate into an act of legislation. The naysayers are being marginalized, but the closer we get, the opposition will fight harder.
8. Obama believes this nation will lead the clean energy economy of tomorrow. Yes, I too believe the same!

It was a fantastic show of force by the local clean energy community. As someone remarked, it was the best cocktail hour they had ever been to. Executives, entrepreneurs, investors, lawyers lined up to get in and mingled until the announcement was made for the singing of the national anthem. It was a celebration of sorts, and a moment of reflection that despite the turbulence in the economy around us, there could be no worthier industry than clean energy to be working for.

What would I say to a 1000 techies (at MIT)?

I was jotting down some thoughts on what would I say if I was speaking to 1000 techies at a place like MIT. Since I am not speaking to them anytime soon, I will share them here . Obviously there is a lot more to say than the few points below.

1. Techies should focus on Big ideas. Big problems. Big markets. There are 7 billion customers worldwide for most innovations we can come up with.
2. Geographies matter less now than ever before in today’s globalized world. Technologies developed in US/Europe are bringing people closer the world over, e.g. Facebook and Twitter are helping people connect as far away as Brazil and Ghana, and are providing momentum to political movements in places like Iran. Similarly, technologies scaled in India and China  are bringing cheap clean power to the West, e.g. Suzlon.
3. Techies are often worried about sharing their ideas with others in case they are stolen. While there is an important role for intellectual property (IP), and proper IP advice should be taken in order file patents etc in time, in general good ideas become better when shared with others. Techies should find trusted advisors in their professors, experienced entrepreneurs and helpful investors who can guide, advise, and not just show but help form a path to success from the early stages on.
4. Technology and Engineering design are helping shape peoples’ lives, livelihoods and futures everywhere: from the IPhone use interface innovation to the design of a car for the masses (i.e. Tata Nano). It is often at the intersection of multiple disciplines that the most creative, and valuable solutions are found.
5. There is no bad time for entrepreneurship and for people to start companies. Entrepreneurs are eternally optimistic, cautiously skeptic, and driven to succeed. The best entrepreneurs have emerged in the most difficult economic times.
6. Techies should focus on solving real world problems. It is not just rewarding in a financial and moral sense – but it is also intellectually stimulating. I could not be more excited about the opportunity I have at General Catalyst to interact with young, bright, aspiring and inspiring entrepreneurs. In that spirit I want to highlight ENTER – a program I am proud to have founded that is devoted to breaking down the barriers of communication between aspiring student entrepreneurs, venture capitalists and seasoned executives and CEOs. Join the fledgling group on facebook at http://bit.ly/3m8Tx.

What about the entrepreneur contributes most to startups’ success?

I read two very interesting articles this week on entrepreneurs. Thanks to MM and JC for sharing them.

Paul Graham (of Y-Combinator fame) writes on his blog that “Determination” of the founders is a good proxy for high likelihood of success. He then goes on to provide “The Anatomy of Determination”. See the full article here.

We learned quickly that the most important predictor of success is determination. At first we thought it might be intelligence. Everyone likes to believe that’s what makes startups succeed.

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If determination is so important, can we isolate its components? Are some more important than others? Are there some you can cultivate?

The simplest form of determination is sheer willfulness. When you want something, you must have it, no matter what.

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Being strong-willed is not enough, however. You also have to be hard on yourself. Someone who was strong-willed but self-indulgent would not be called determined. Determination implies your willfulness is balanced by discipline.

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If this is true it has interesting implications, because discipline can be cultivated, and in fact does tend to vary quite a lot in the course of an individual’s life. If determination is effectively the product of will and discipline, then you can become more determined by being more disciplined.

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Ukraine got talent – Beautiful Sand Animation!

Fantastic. I loved the entire program, the music, the story, and most importantly the art (Sand Animation). Highly recommended.

I have read somewhere that the music was from Ukraine and the artist is Apocalyptica. From their album “Apocalyptica plays Metallica”.

Former President Musharraf in a light moment: singing

Even Presidents of a country (and former Presidents)have a social life outside their work. In Pakistan, somehow we never get to hear much about the personal lives of our political leaders…as though its a crime to know leaders as ordinary people. I wish people just let leaders be people sometimes…so at least we could relate to them and they could relate to us.

Here is former President Musharraf of Pakistan singing happily at a private reception. The duet (with Ustad Hamid Ali Khan) is singing a very famous classical song … and I tell you, Musharraf does a great job. Love it. He even improvises along the way and doesn’t miss too many beats. And most importantly he is having a wonderful time with his family around him. How nice to see that.

The only people having a less fun time are the politicos around him….

Delivering a polite ‘no’ is part of a venture capitalist’s day job

I am reflecting today on something I have to do a lot as a venture capitalist:  Say ‘no’ to investment opportunities.

At GC, just in the clean energy group alone we see >100 investment opportunities a month. You do your math, and it comes down to me looking through several ideas a day. It is great to see the best deals out there and to learn, but we try to be respectful to the entrepreneurs and if it is not an investment opportunity for us, we politely (and in as timely fashion as we can), say no.

Needless to say, since we only provide funding to a handful each year, we have the job of saying ‘no’ to a lot of companies. Often this job falls to me. This is probably among the toughest parts of my job. Sometimes it feels like I crush people’s dreams. Not a good feeling at all, and no matter how hard I try to deliver my message with constructive feedback and compassion etc, I am admittedly still an amateur at it.

Having been an entrepreneur in the not so distant past myself, I feel like I must make an extra effort to empathize with the entrepreneurs who try to deliver their months, some times years worth of work to a VC in a 45-60 min conversation (if you get to it, that is), and then hear a no. VCs take some time to provide constructive feedback (and nurture relationships with entrepreneurs), but lets face it…the reality is that once they have decided on declining an opportunity, they have to quickly move on to the next big idea. It would really help if entrepreneurs recognized their probability of finding a match when they walked through a VCs door. Obviously there are many things involved in approximating such a probability aside from the deal flow at any VC (such as past successes of the entrepreneurs, prior relationship with firm, VC interest in sector, etc). We try to give early indications as well, but entrepreneurs’ expectations are obviously to convince us this is the best idea since slice bread.

Regardless, a decision of ‘no, thank you’ has to be delivered and I keep searching for good, positive ways of doing this part of my job.

I list below some of the reasons why I have had to say no in the past:

• The team is just not that good –> this is a tough one to deliver since it gets personal. Obviously you are making snap judgments on people who often know much more about their business than you do…but making gut calls is a part of my job, and if I am not impressed with the team and the lead founders, I just don’t see a way for us to move forward.
• The idea is just not big enough –> we are looking for transformative, breakthrough ideas and while the technological innovation may be  exhilarating, if it does not have a big enough impact on society and markets, we just don’t see us getting excited about it. Incremental improvements don’t capture the imagination and generally don’t create significant value.
• Markets are not large enough –> We are trying to invest in technology companies that are attacking large markets to make a huge difference, and to bcome very large companies. Sometimes we feel entrepreneurs, esp technologists, get excited about extremely niche markets and don’t  try to look beyond that box.

Wind power at a tiny fishermen island in Pakistan

Is this the beginning of a “Butterfly effect“?

Will small steps like this make a lasting difference in how communities view their energy security and usage? I have often wondered why communities in cities, towns and villages that have rampant power shortages don;t come together and install their own distributed power generation systems. Instalation of wind turbines, distributed solar, or even large diesel generators would be so much more efficient (and in the long term cost-effective) than the UPS/small gen-set system that is currently prevalent.

In the 80’s, when security was abysmal in cities, communities (mohallas) came together to install gates, hire their own guards, and created locally/self-protected neighborhoods. That was a good example of a community banding together for something more substantial than just an annual Haleem meal cookout.

Let’s hope Pakistanis will learn a lesson from these fishermen. For more details, click here:

KHAROCHHAN, Pakistan: A tiny island of fishermen is light years ahead of the rest of Pakistan, powering homes and businesses with wind turbines – protecting the environment and improving the quality of life.

The government may lack the cash to harness hydro, wind and solar resources on a large scale in the electricity-starved country but charities are lighting the way forward by putting wind power to work in remote villages.

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Lying 150 kilometers due south of Pakistan’s financial capital Karachi, Kharochhan is an island of thatched homes where fishermen scrape by on $75 a month and never dreamed of having electricity.

Khosla is right. Hype around cleantech created by those who don’t get it.

Agree with Vinod. Hype has not helped cleantech. We need people who understand technology, get the long-term development cycle in clean technologies, and understand the impact of disruptive technology on society.

Khosla, a legendary venture capitalist and one of the most active investors in cleantech through his firm Khosla Ventures, said some of the books that have helped generate buzz were “probably written by English majors who could not get a real job,” he said onstage at the AlwaysOn Summit at Stanford University.

Read more here on WSJ Blogs.

Day Two: Visiting Pakistan

Karachi is a crazy place. People regularly eat dinner post midnight, and then complain of heartburn in the morning. You can see wives, kids and goats seated at the back of a motorcycle, and donkey-cart races take place on major streets of one of the largest cities of the world. Life is frantic, and everybody sweats profusely even when they are not even moving an inch.

These are some observations from day two of this stay in Pakistan:

• I decided to not leave the house very much. So stayed home and watched TV, read Urdu newspapers, and debated the merits of a carbon tax on fuel sold in Pakistan. Yes, Carbon tax. While US legislators are taking decades to figure out how to levy a fine on pollution they are spreading at a tremendous rate, Pakistan went through the cycle of a state imposed carbon tax, supreme court declaring it illegal and forcing its withdrawal, and then the same percentage imposed in the form of a petroleum development levy  – all in a matter of days. Two days to be sure since I observed this crazy tax business play out over the past 2 days.
• Since I stayed home  I noticed what a labyrinth like electrical infrastructure has developed at homes to deal with the power/electricity problems. Let me give you a taste of it:
  • When you reach the entrance to my house you will notice an oddly placed, rather visible (and ugly) meter installed on the wall. Turns out the meters are now installed outside the homes so people cannot steal power. Fine. But could they not find a spot a bit less visible?
  • Note that a typical Karachi home at this time of the year doesn’t get power for roughly 6-10 hours in a day (loadshedding – the most dreaded word in Karachi vocabulary). So inevitably, if you can afford it, you end up buying generators or UPS backup power systems.
  • Everyone seems to know exactly how many kwh units are used to run each major appliance at home. Ask my dad and he will tell you that the UPS is 20% efficient – so you waste 80% of power when charging it up – an air conditioner uses x units of power a day and each unit of power costs y Rupees. A rough calculation tells me that these days our bill is running into hundreds, probably thousands of rupees a day since I have the air conditoner on whenever I can. When I am not here, my parents manage that resource much more frugally.
  • My father has installed a UPS backup power system that runs a few fans, lights and the TV. he used to own a generator but his neighbors complained it was too loud. He typically would tell them to buzz off, but this particular neighbor happens to be a big shot minister in the government and he could cause some serious damage if we pissed him off.
  • The UPS backup power system has an SOP associated with its operation. When power goes out, my mom goes around the house shutting all major electrical appliances. Then my father goes to a main board in our garage, turns a few knobs, turns off a circuit, turns on another switch, and then turns the UPS system to ON. Backup power starts juicing our appliances. He has also installed a manual bell that he periodically tries to test for ringing – which is an indication that power from main lines is back on. In which case, the procedure is repeated in reverse to turn the UPS off.
  • These days a most elaborate industry has evolved around diesel and gas generators, UPS backup systems, and fixing of electrical appliances due to constant on and off.  My father has 3 refrigerators from relatives sitting in the garage since his trusted repairman is now a favorite of the extended family.
• A cousin came to visit me and we had a delightful discussion on the world of cricket. He is a big fan and so am I. Tuns out he is of the age when street cricket becomes all the rage. He is the captain of the his local team and organizer of night-cricket tournaments on the streets. They use a tennis ball wrapped in electrical tape and set up flood lights to play at night. I asked him who pays for the power and his response? a sly grin and then statement that we use a kunda. Now what in the heck is that? Turns out one of their team mates is an electrician and his contribution to the team is that he hooks up a connection in to the main transmission lines to steal power for their night cricket. Yes, I scolded him for stealing like an elder brother should….but it was clear he was thinking I am so out of touch with the reality of daily life in Pakistan. He listened with one ear and let it out the other.
• An uncle called and I heard the story of his car getting stolen. He also owned a crappy car, in fact crappier than our car. So I was surprised it was stolen. But I guess he had at least one valuable item in his car – a CNG conversion kit which allowed his car to run on cheaper CNG fuel onstead of petrol. He told me that after weeks of running around (and using all the bigwig connections he had because of his job with a major newspaper), the Police had finally located his car. Alas, the CNG kit was gone, as expected, and since he had not bothered to ever repair the hole that had developed in his rusted fuel tank, he now doesn’t know how to recover the vehicle and drive it back. I am invited to join him on a search for a second hand fuel tank that would fit his car. No, thank you.
• My parents and I spent the entire afternoon going through old photographs. So cute! I see how my empty-nester parents hold memories of our childhood so dear. My father went under his bed and pulled out a large box of Bata Shoes in which he has hid a treasure trove of old photographs. I had a great time reminiscing old times – when I danced to Michael Jackson’s Beat It at weddings, and my father used to dye his hair jet black. Life is a bit different now, except that I hear dancing to Michael Jackson’s Thriller is back in vogue at weddings! My father also pulled out osme of my earliest photographs and tried to prove that my daughter looks more like me than my wife. I wonder how she would feel about that.
• In the evening I decided to get a haircut from a local hairdresser. I had been saving it for a cheaper cut here (SuperCuts in Boston now costs me $18/cut which feels like a lot). Well, this was fun. The shop was airconditoned – though the owner kept turning the airconditioner off every 5 mins to save power. I was given an awesome haircut for a sum total price of $0.75. No machines to speed up the process. Old fashioned styling…But then the guy mumbled something in my ear and I thought he was asking if I wanted some gel in it. I agreed. He went away and I dozed off feeling the cold air wiff through my wet hair. When I woke up he had already plastered some white crap all over my face. I freaked out. I thought he was going to give me a waxing or something. Turns out he was massaging my face – I was getting the royal treatment typically bought by grooms on the day of their wedding. But now I had no choice but to sit through the experience. Four layers of massaging creams into my face later, he washed my face, andbrough out a large mirror for me to look…and as I examined the damage and dreaded the facial breakout that may result, he cheered me on: “Look how fair you look now. The sun had really made you dark but now your true fair color is showing”. Fantastic! It seems I had just received the Michale Jackson skin treatment! Shit. But at least I looked fairer, something admired around here.

OK, I should go now. Its morning againand I have asked the rental car to come in again to take me to my tailor. I have been using this guy to get my suits tailored for God knows how long. This time is no different and I am scheduled to show up today for a fitting session for a couple of suits. He has instructed me to not show up in sneakers but to wear proper shoes, and to wear a shirt with a collar. He is bossy, isn’t he? But he is 70+ yr old and I wouldn’t mess with him. As I am finishing of this system, loadshedding has begun again. Thank God for the backup batteries in my laptop.