What is a Convertible Note? A convertible note is essentially short-term debt that converts into equity at the closing of a Series A round of financing.1 Essentially, an investor will loan a certain amount of money to a startup in return for a note with terms defining how the equity distribution will work.2 Generally, the…
When President Barack Obama signed the JOBS Act into law on April 5, 2012, Section 3(a) of the Securities Exchange Act of 1934 was amended to include a new definition for “funding portal.”1 Funding portals, along with brokers, are the lucky players through which all crowdfunding transactions must be conducted.2 But just how lucky are…
So you have a great idea, an idea that will change the world. But you have a few problems: no money, no experience in managing any project, and absolutely no connections whatsoever. What do you do? Believe it or not, there are some companies (or startups) that actually deal with these types of startup problems….
Giants like Facebook and Twitter have entered the public markets with huge valuations, and more tech companies are expected to follow in 2014. However, this is only stirring the debate on whether those popping champagne bottles are the precursor of a popping tech bubble. Some say that we are seeing the dot-com bubble all over…
The Startup Let’s say you and two friends decide to pursue a company in Internet technology, Gray Matter. You three will be co-founders and hope to one day take the company public. Initially, the company will be incorporated as a C Corporation, typical for most public companies or those hoping to go public.1 Seed Money:…
Americans love their reality television. So, it is no surprise that ABC would choose to broadcast a reality competition every Friday at 9 PM. What might be more surprising is the show’s subject matter. The judges on ABC’s “Shark Tank,” are not entertainment industry insiders. Instead of looking for America’s next big star, they are…
Jason Mendelson (@jasonmendelson) and his partner, Brad Feld (@bfeld), visited Ann Arbor and UofM back in the fall. They made the rounds of TechArb, the University Office of Tech Transfer, and even stopped by a Ross School of Business Class taught by Dr. David Brophy that pairs students with budding companies trying to land Angel or VC funding. I was enrolled in the class and I got to pitch Jason on my company… WHAT a great experience! I was REALLY impressed with both of them and I love their dedication to cultivating a culture of entrepreneurship in Boulder, Ann Arbor, and throughout the US more generally. It is definitely something that helped stoke my entrepreneurial fire. However, the best thing I heard was at a lunch talk at the Law School. Both gentlemen raved about Ann Arbor and, while I am way overdue in sharing, this recent post encouraged me to mention their trip.
I thought I would share this blog entry, written by Brad, since it has a number of good thoughts and links to some of the other posts from their visit. Enjoy!
Last semester, Esther Dyson, an angel investor focused on health, biotechnology, and space flight innovation, was featured as a keynote discussion sponsored by the Telluride Association. After Ms. Dyson shared snapshots of her experiences, including her work as a journalist on Wall Street and her completion of cosmonaut training for a future space flight, I invited her to share some of her perspectives on investment with our readers. The following is an edited version of our conversation.
When did you start investing in startup companies?
To give you some background first, I started working as a fact-checker for Forbes. That provided tremendous training for all my work – perhaps the best training you could have – in asking the right questions, and being properly skeptical of the answers. I worked for Forbes for three years and then worked as an analyst on Wall Street for five years. Next, I worked for Rosen Research and bought the company, renamed to EDventure. I wrote its monthly newsletter about the computer industry, and ran its annual conference (PC Forum) from 1982 until 2006. That’s where I learned the most about computers and the internet.
Then, in the early ‘90s, I started spending a lot of time in Eastern Europe. An investor said to me, “Considering the amount of time you spend in Eastern Europe, why don’t you invest?” I had never thought of that; I was a journalist. But, when he offered me $1 million to invest, I closed down my Eastern European newsletter and started investing instead. I learned a lot from these early investments, including how much fun it could be. I started investing in United States startups as well.
You mentioned in our correspondence not having an MBA. Was it difficult breaking into the financial industry without this degree?
An MBA makes it easier to find a job, yes. But once you get the job, it all depends on how well you do it and whether you can learn.
When someone on Wall Street looked at your resume and asked, “Why no MBA?” what did you say?
I told them I worked as a fact-checker and reporter for Forbes for three years, and that I understood business from the players’ rather than from the professors’ side.
What other characteristics do you believe make you a good investor?
Curiosity and enthusiasm. I love what I do! I would love to make money with my work, and I am glad when I do – and of course I need money to keep investing. But for the most part, I don’t do anything I wouldn’t do for free. Fortunately most of it pays off anyway!
How important is it for investors to share ideology with the company receiving their investment?
Oh, very important. When you need to make a tough decision for the company, it is important to have your interests aligned. Startups should be selective when it comes to picking their investors because their investors end up having a big say in the company’s direction.
Do you use investment to promote or change public policy?
No. It’s hard to change public policy. In fact, I am very frustrated with Congress and both political parties. I use investment to do what I can to help companies, ideas, and people fulfill their potential. I do get involved in policy, but not usually through my investments. Unfortunately for most companies, the less they have to do with policy the better – at least until they grow quite large.
What role should public policy play in investment?
It depends on what the policy is. Generally, the best policy for free markets is antitrust enforcement. Competition and transparency are crucial for building companies and fostering success of the best players. Maintaining consumer choice is also important.
Most markets work well. If you introduce public policy in the market, such as subsidies for health care, you should make sure the policy has no adverse side-effects. Moreover, these policies should be clear, transparent, and have discrete objectives. For example, it’s usually better to subsidize people rather than specific products. You can help the poor or the ill without interfering with their ability to choose. Though I would support policies such as prohibiting the purchase of cigarette or soda pop with food stamps.
For me, areas in need of public spending are health incentives – not just health care – education, and our country’s infrastructure, such as roads and bridges and mass transit.
Thinking about your involvement as a board member for 23andme, what role should public policy play to protect privacy? For example, should public policy protect privacy over consumer health information?
The government should foster clarity and informed consent, and leave privacy choices to individuals. People should have access to their own data and retain control over whom to share it with. However, if individuals want subsidized health care, they have certain obligations to provide accurate data to be used in the context of that care – but mostly not in the context of an employer making job-related decisions.
The problem, however, is not privacy. The problem is how the data may be used and society’s overall economic and health-related policies. I would hate to see people with diabetes being charged an extra tax on junk food, for example.
Unfortunately, we are conflating economic issues, such as who should pay for health care and what they should pay for, with privacy issues, such as what health information individuals should be required to reveal and to whom these disclosures should be directed.
How should companies properly use the data they receive from consumers?
They should use it only in the way they have contracted with the user to use it.
Switching gears a little, and in closing, what are your most memorable accomplishments?
First of all, I like to say that I’m not done yet. I don’t sit around and think about everything I have done. I am proud of having trained as a cosmonaut and I am proud of being one of the first ten to publish my DNA with the human genome project. I am also proud of 23andme. But there are so many things I still need to learn and to do.
For more information about Esther Dyson please visit EDventure Holdings or check out her contributions on Project Syndicate.
The University of Michigan Board of Regents has approved a University-housed and managed venture capital fund.
The permanent allocation, part of the $7.8 billion endowment, will be called Michigan Investment in New Technology Startups (MINTS). The $25 million fund will be invested over 10 years and be co-managed by the University’s Office of Tech Transfer, a department that manages and funds technology spin-offs, and the Investment Office, which manages the University’s long-term endowment fund.
The Office of Tech Transfer has spun off a number of prominent venture capital-ready investments, as is recognized by Dr. David Brophy’s “Financing Research Commercialization” course at the Ross School of Business. The creation of this fund is further acknowledgement that the Office of Tech Transfer is going to be a growth engine for the University and that this technology center will be profitable enough to be worthy of the University’s investment attention.
The initial investment may seem small, but this fund will allow the University to make several small-to-mid-sized investments per year, a number that would be about average for a new fund in this area.
One can only hope that the creation of this fund will attract other venture capital firms to increase their focus on Michigan. Additionally, this new fund will provide students in the Zell Lurie program and the Ross School of Business a vehicle through which they can receive early exposure to venture capital investing. What a great development for the University and southeastern Michigan.
The New York Times DealBook column is a useful source of interesting information. However, this week a few things struck me as particularly intriguing. Apparently the United States Department of Defense (DoD), the $600B+ entity that runs the largest supply chain operation in the world, has discovered the power of venture capital. The Defense Venture Catalyst Initiative is a collaboration between the DoD and venture capitalists that seeks to “utilize private sector Venture Capital (VC) expertise in discovering and evaluating the merits of emerging technology” in order to solve DoD problems. It is a huge vote of confidence for the VC industry, something most Americans are unfamiliar with and unsure of, to have the DoD explicitly acknowledge that venture capitalists have unique and important skills. While the government might not be broadly popular, the Department of Defense is a completely different entity, and I think their vote of confidence will speak to a large sector of the public.
Once the government acknowledges that venture capitalists can contribute meaningfully to the largest public sector agency, there can’t be much left out there, right? (Insert your “the government is the slowest adopter” joke here.) Actually, the NFL announced this week that it is looking to join the venture capital game too. The league, managed by some of the country’s wealthiest and most successful businesspeople, is looking to start its own $30M+ venture capital fund. The owners might even let the Players Union invest alongside its fund. While the NFL owners are looking to be active in the “angel” space rather than the traditional venture capital arena, you would have to think that the MLB, the NHL, and the NBA can’t be far behind the curve here. This, like the DoD involvement, is a positive step for the VC industry as a whole; if there is anything that can help shape a positive view of venture capital with Main Street America, its good old football.
It’s no secret in the financial industry that venture capitalists are skilled entrepreneurs with a keen eye for trends and good investments. However, having two giants like the NFL and the Department of Defense openly acknowledge that the industry offers a unique skill set is a great thing. It is good for the investors, and it’s good for the profile of the Venture Capital industry as a whole.
The Defense Venture Catalyst Initiative website can be found here: http://devenci.dtic.mil/
The NFL investment reference can be found here: http://www.sportsbusinessdaily.com/Journal/Issues/2011/10/17/Leagues-and-Governing-Bodies/NFL-fund.aspx