Friends,

I sit here one week before the Presidential election and am thinking about the state of the country, but not so much the candidates to be honest. Not sure what that means but here is what I see (and do not see):

1. We are going through the worst economic mess since...well before I was born.
2. The US is the 3rd best performing country stock index over last year...ouch.
3. We are throwing around TRILLIONS of dollars like they are pennies...twelve 0's in a trillion.
4. Over 20+% of US mortgages are “under water”...but long-term, is this a bad thing?
5. Unemployment should be at 7-8% within 9 months...and those numbers don't include people NOT looking.
6. States are on the cusp of bankruptcy...or “pulling an Iceland” as it is now called.
7. Goodbye Princeton, hello University of Illinois...college fund/401K drops and Risky Business reference for everyone my age.
8. The Fed will be lowering borrowing rates to at or BELOW 1% tomorrow...and it is irrelevant due to credit blockage.
9. I attended my first home auction in my “McNeighborhood” recently...auctioneer was from Oklahoma City, the least expensive city in US. Go figure.
10. And on and on and on...it really is amazing the amount of news every day that matters.

But one thing I don’t see...where is ANY government help and investment in what REALLY drives the US: education, innovation and infrastructure? We are quick to bail out the mortgage industry (don’t think we aren’t) and Detroit (now there is a great return) and aggressively throw into the bailout ridiculous things about arrows and other stuff I am too insulted to comprehend. Some say that this is the democratic process....well I think it’s [editor's note: explicative removed].

Therefore, I am calling for a 1% “Innovation Tax” for the US effective immediately. Imagine what that could do to spur growth. Did you know we could have seeded 700,000 entrepreneurs and start-ups (at $1 Million each) with that 700 Billion dollar (which is now about double by the way) bailout? Think that would create more high-paying jobs than the bailout? Think we could invest 10X more in University commercialization and tech transfer and get a better return? Think we can train more people in science and technology? Yes I know we have some STEM initiatives going on and they are helpful, but why not THINK BIG and develop an innovation platform for which the NEXT generations can prosper? 1% should do it.

Oh well, enough of my soapbox, just some random musings on what I consider important, I guess more than who the next President will be.

Gary

Quiz time: The last venture-backed IPO in 2008 was when? How many in 2008 YTD?

I was reading the daily Venture Wire blurb last Friday. Usually these are "quick reads" and sort of a mix between a story in the LA Times and Food and Wine, but the content in this one was particularly fascinating and alarming at the same time.


The last IPO this year was on March 19th. It was CardioNet , which is a great company Jim Sweeney started/runs down in San Diego (and participated in OCTANe's CA Medical Device Forum in 2006) at the intersection of health care and wireless data. (Congrats, Jim). However, that was MARCH 19th and it's June now!! There have been hundreds of venture-backed investments since March 19th, but none of the existing investments have gone IPO?

Sure many have been bought or "monetized" by VCs, but what is going on? The total number of IPOs is six for 2008 per the article and no "tech ones" since Valentine's Day? How much love is that? The trend is alarmingly getting worse as detailed below. Some points to ponder....

1. Is this tied to the subprime mess? Does a "spooked" capital market in one asset class bring down the whole capital chain as far as investment capital realization and availability?

2. Is an IPO not a real relevant option for VCs anymore and companies are being "built to be sold; not built to prosper?"

3. Will global, non-US markets with less regulations, be the choice going forward for IPOs?

4. Are we producing just "incremental innovation companies" instead of TRUE disruptive innovative companies? (Everyone these days talks innovation and brands it, but where is it?)

5. Or is it just one heck of a St. Patty's Day hangover....

Well 12 companies are filed and ready to go and let's wish them well as risk taking venture capital needs liquidity options to prosper; staying private usually does not pay the bills.

Interesting factoid ... last time there was this IPO lull was 2003, oil was about $25-$30 a barrel. Here in 2008 it is around $130. So while we lament our VC-backed IPO drought, we also get to regret not buying the oil futures index 5 years ago.


Thoughts?

VC fundings down...tied to economic recession?

Was having pleasant cup of joe reading the paper (yes once in awhile I still like the "print dinosaur") when I read the article on slowing VC fundings in 1q 2008. Both PWC and E&Y do a great job covering the field.

On the same page or close to it, was an article on recession and unemployment rising. So is there a link? Who is the tail and who is the dog? (I will skip the easy analogy of an ass). Is there correlation between the two and what is the lag effect, if any?

My 2 cents...a recession, oil at a gazillion dollars a barrel and gas at $4 a gallon does not make people feel good. Quick poll, who has gone over $100 on an SUV fill-up? Let me start the list, but I digress.

If you were a VC, why would you deploy risk capital - particularly early stage - in a time of upcoming economic uncertainty? For the most part, the answer is - you wouldn't. You'd cherry pick your opportunities and be conservative and ride out the storm. I think this is much truer in the IT world than in biomedical, as biomedical sectors are influenced more by reimbursement, government, legal and market issues than consumer spending. (Note: Botox has passed milk in the family home and happy hours in the single home on the list of “critical needs,” so that isn’t really a discretionary spend).

Hence as VCs take a breather and raise more money/new funds as many are now doing, entrepreneurs should keep plugging away, increase business value and be realistic that although there is a lot of money out there, it might stay “out there” for awhile. Focus on capital efficiency and position for a stronger 2009.

Thoughts?

What's tougher...An Entrepreneur getting funded in OC/So Cal or Portland State winning the NCAA Basketball Tournament?

I was filling out my winning March Madness Basketball brackets .. oops .. I mean while I was thinking about a hypothetical (and used to be harmless) NCAA basketball contest that doesn't exist to the best of my knowledge ... and I got to wondering, what is easier: an entrepereneur getting venture capital in OC/So Cal (or really anywhere not Sand Hill Road) or a "no-name" team winning the NCAA college basketball championship?

The answer? It depends.

Probability Scenario #1 - The "Duke, North Carolina, UCLA's of the world" - if they were entrepreneurs, they would have good chance to get funded. Have "been there, done that", get great talent, have a powerful network, are serial winners ... they are kind of like the prom queen/king(s); usually they get a date. Venture capital and angels sort of find them rather than vice versa.

Probability Scenario #2 - The "Portland State, Siena, Texas Arlington's of the world" - if they were entrepreneurs, well, the movie Rudy comes to mind ... HUGE underdogs. Probably a combination of "first time tryouts", talent, network and/or even if they had a good idea, it would need some/a lot of "work" and also lack of localized seed capital would hurt it even more. This does not say that entrepreneurs should quit or it can't become a "nice little business", but it is a tough road sometimes; just know what you are getting into.

Probability Scenario #3 - The "Wisconsin, USC, Clemson's, #5 seeds of the world" - this is the interesting group of entrepreneurs. Passionate and talented people that have "something" but are still "not quite there" .. THIS is the critical piece that we need to focus on. If these entrepreneurs can continue to work hard, got some momentum, build a talent pipeline (patents/people/network), they can develop in the top tier. I will contend this group is the key for regions to focus on and develop. How do we increase/help this group? "Minds and Money" is the answer.

We need to help grow more innovative businesses and provide a platform; a mix of online and offline resources to nurture and advance this group. A serial entrepreneur network, a relevant and ACTIVE angel investor, a university advisor, a "mentor mindset VC", a "kind" lawyer etc... this is what will move the needle and get more entrepreneurs and in the words of Dick Vitale "to the dance, babeeeeeeey!!!!!!