Should you hire a veteran or wean & train when building a growth-stage company?

[originally written for Mass High Tech]

In our role as executive search consultants for growth-stage companies, one of the questions that seems to continually vex the CEO is how best to build out their team.   This question often narrows to a discussion around whether it would be better to hire a senior level person first in each of the key functional roles in the organization chart, or rather to hire a more junior level person and hire at a higher level once the company has built up some “traction.” For our purposes, traction can be defined as any or all of a number of indicators, including revenue, funding, or product development milestones.

Short answer, “It depends…”

When asked this question, the CEOs and venture capitalists we talked to universally responded, “It depends….” So then the question became, “On what?”  The answers came back and included the following key variables to balance when trying to decide on whether to hire high or low when you first fill a key position in your early-stage venture—

• • Funding—Money is certainly a gaiting factor for most early-stage companies, and often the largest line item on the P&L is salaries & wages.  Putting in a leadership team too early all at cash compensation that runs north of $150,000 can certainly create a net-cash-burn that would rival the bubble days.   However, “talented people hire talented people,” says Lou Volpe, Managing General Partner of Kodiak Venture Partners.   And talent doesn’t necessarily mean ‘experienced.’ Talent alone is usually less expensive.”
• • Composition of the Incumbent Team— You need to have a balanced team.  Companies are often referred to as “engineering culture,” or sales, or finance-driven.  This speaks to an inherent imbalance in the leadership team.  Kodiak’s Volpe emphasized that, “you need to think of the entire picture, the entire team.  You need to have it balanced.  If you have too much strength in one function, you’ll be out-of balance and the company will suffer accordingly.”
• • Stage of Company— If too early-stage a company, it may be difficult to attract the world-class talent you need.   This conflicts to some extent with the current thinking today popularized by Jim Collins in his book, Good to Great.  In one of the areas Collins explored with the “great” companies he studied, he and his team learned that these companies focused on “getting the right people on the bus,” then deciding where they were going to drive it.  David Power, a Partner at Fidelity Ventures, qualified Collins’ observations, saying, “If you’re a charismatic enough leader, you might be able to get everyone on the bus BEFORE you start to drive, but every company doesn’t have that privilege, especially when young, and often capital-constrained/higher-risk.  You need to be able to give talented executives that you are seeking to attract some general direction, to be able to explain to a ‘hire-high’ A-player why the company and role should have great appeal to the candidate.”
• • Which Function It Is — There are certain functions in an early-stage company where hiring the best is critical early on.  One such critical area is hiring into the leadership roles responsible for the product development in the company—engineering in the case of technology product, or science in the case of biotechnology/life sciences.  CEO Tuan Ha-Ngoc  said that it was critical for Genpath’s success to get the best Chief Science Officer they could find, and they did.   One of the VC’s commented however that the finance function is a perfect example of where hiring low is often the right thing to do—the company only needs a part time finance person at its earliest stages, then a controller later on, and then if the company is looking to go public, a world class CFO.
• • Speed of Anticipated Growth— If the company is anticipated to grow slowly, it is possible that a person can grow in parallel with the company.  However, given the often-cannibalistic nature of technology and sciences companies, “slow” is often not an option due to fears of product obsolescence, time limits on patents, or pure competitive pressures.    Globespan’s David Fachetti put it clearly, saying, “Hire higher for fast growth companies.  The opportunity will grow into the people, rather than the people grow into the opportunity.  Talented and experienced executives will bring up the level of the opportunity to meet their needs, and in so doing will accelerate the company’s growth.”
• • Price point of Product /Service— Enterprise software or very expensive hardware sold into the C-levels within the Global 2000 may put pressure on the upside of the high/low spectrum.  Kodiak’s Lou Volpe feels that if price-points are high, it is likely the company will need more senior/experienced talent to get it to market.

Universal Truths

All those interviewed agreed on a number of best practices.  The one that stood out most is the need to hire what was referred to as “quality.” There are two primary axes on candidate qualifications briefly mentioned earlier—the first is quality or “talent,” and the second is experience.  If you hire someone with both, this defines the “hire high” approach.  If you hire someone with only quality, but less experience, it points to the “hire low” approach.

Hire quality

Those we spoke with also included several other must-have characteristics further define “quality.”  Fidelity Ventures’ David Power ticked off the first four:

• • Motivation
• • Intelligence
• • Integrity
• • Ability to produce results

Joel Rosen, veteran CEO and former venture capitalist  at Charles River Ventures added two more:

• • Passion about the business
• • Cultural fit with the rest of the team

One other CEO punctuated the list:

• • Work ethic

Though no doubt there are many more, these rose to the top of the list when trying to describe what “quality” in a hire looks like.

Hire experience

The other half of our working definition of “hiring high” we’ve termed earlier as “experience.”  David Fachetti at Globespan Capital articulated four key areas he probes to determine whether candidates he interviews have what he defines as experience:

1. 1. Lifecycle experience: prior experience at a similar stage of company development
2. 2. Domain experience:  prior experience in the same industry sector as the current company
3. 3. Functional experience: prior experience playing a similar functional role (marketing, sales, technology, finance, etc.)
4. 4. Relationships experience:  has the individual worked with others on the team before?

Don’t skimp when it comes to Leadership experience

One more key experience criterion, especially when “hiring high,” is leadership experience.  One CEO emphasized that, “experience and skills aren’t a surrogate for leadership.  If you’re going to be growing a team, you’ll fail without it.”

Determine where you need your best gene pool

Another common refrain was that–in an early stage company–there are at least three key roles where you want to hire high, rather than low.  Dave Fachetti, Principal at Globespan Capital Partners, summed it up, saying, “For a company to have a solid foundation for growth, bench strength needs to exist at the highest functional levels in technology (VP Engineering/CTO), sales, and the senior P&L role of CEO.  Scott Griffith, Zipcar CEO emphasized that each company can differ, so “get the strategy right, and THEN hire high into the key stress points of that strategy.”

One qualifier made by Genpath CEO Tuan Ha-Ngoc was the impact of the differences between technology companies and life sciences companies.  In pure technology companies, there is an additional emphasis on the importance of hiring a high level of experience into the position where the technology meets the customer, someone who has the pulse and understanding of the market into which the technology will be selling.    In life sciences, the pain of disease is more often self-evident, where technology can sometimes mistakenly be developed for technology’s sake, a “build it and they will come” approach.

Make sure executives can “zoom out and zoom in”

The individual has to be able to both lead a function and do the function.  In other words, if the decision is made to hire a VP Sales, that VP Sales has to be able to “carry the bag” and actually do the selling, as well as hire, train, motivate, and manage a sales force when the time comes.    Similarly, an early-stage VP Engineering should be able to code as well as architect early on, until more hands can be hired.  Early on at Yahoo!, the company determined that one of the key hiring criteria for any employee was that they could “zoom in and zoom out.”   Every new hire had to be able to think strategically at the 50,000 foot level, but also be able to go back to ground-zero and execute the strategy.   Zipcar’s Griffith—a licensed airplane pilot—added, “You have to be a pilot, willing to get under the plane and check all the equipment yourself, take off, navigate, AND safely land in order to get successfully from point of origin to destination.”

Biases & Cautions

Not surprisingly there were biases that had formed from the individual operating experiences of each CEO or VC with whom we talked.   And interestingly, despite these biases, many gave examples of a hiring circumstance that ran counter to their bias that worked out particularly well, or a hire that fit their bias that failed.   Following are some of the biases and cautions that stood out.

If you’re the CEO, don’t hire low in an area just because it’s your functional strength

There was a great deal of alignment on this issue, and it’s a chronic mistake the venture capitalists we talked to saw in their portfolio companies.   David Power at Fidelity Ventures elaborated saying that “If a CEO hires a weaker player into a function where that CEO has expertise, say the marketing function, the CEO ends up still managing marketing instead of doing what the CEO should be doing—running the company.  You want to hire at equal levels across the functional spectrum.”  Joel Rosen at Charles River Ventures added, “younger companies don’t have a lot of training infrastructure.  The company is running too fast to have the leeway to train much.  Although this isn’t a law of nature, the biggest gaiting factor to growth is often bandwidth, particularly that of the CEO.”

Don’t hire talent too late

Genpath CEO Tuan Ha-Ngoc put it simply and elegantly—“It is rare that the company fails because you hired high-caliber talent too early.  It’s usually that the company hired too late.”

If you hire high, think about assigning multiple roles

One of the ways you can often get top talent in early-stage companies is to offer multiple roles that will allow the higher-level executive an opportunity to stretch their wings.  Lou Volpe at Kodiak added, “If hiring a senior engineering executive early-on, think about giving them QA, support, and/or manufacturing, even product management.”

The probability of a successful high/low hire is predicated on the clarity of the task

Put another way, the murkier the goals, strategies, and tactics of a particular functional area, the more you will bias your hiring toward the high side of the spectrum of experience.  Conversely, if the responsibilities of the position are well defined and clear, a lower-hire might be just the right fit.  As EquipNet CEO Roger Gallo put it, “Is the hire going to be focused on fulfilling known initiatives,

or rather creating and forging entirely new ones?”

Think about making a “high-low sandwich”

To this point, no mention has been made of the obvious question when talking about whether to hire high or hire low—what about “hiring in the middle”?  Kodiak’s Lou Volpe admits a bias to a combination approach of hiring a low with a high—“Hire high, and then do a step function, and hire low.  In sales for example, hire the VP, and then hire one or two lower-level individual contributors, one or more of which can be step-up candidates into the middle role of manager or director further down the company development cycle.”

What about hiring high/low when it comes to hiring the CEO?

This question is complex enough to support itself as a single topic of discussion with the venture capitalists and CEOs we consulted.  However, Fidelity Ventures’ David Power listed three circumstances where hiring a step-up/“low” candidate into the CEO position can work—

1. 1. When a particular functional area is important to the stage of company growth (hiring a VP Sales or VP Marketing into the CEO position when the company is just entering its revenue stage)
2. 2. When continual technological innovation/engineering is inherent to an industry sector (hiring a VP Engineering or CTO into the CEO position because of the pressures for recurring and sustainable technology innovation)
3. 3. When you can get someone who is traditionally “out of reach” (hiring a superstar VP level candidate into the CEO position because a step-up is the only way you can attract that particular talent)

With all of the above thoughts on best practices regarding hiring for early-stage companies, an image formed to sum up some of the wisdom of the CEOs and VCs we consulted.   Perhaps it’s not too different from how many parents buy clothes for their fast growing child—you pick the color and the style, and then have them walk up the rack trying on increasingly larger sizes until the piece of clothing actually falls right off.  You then step it back one size, and buy that one.   It’s just small enough that it can be worn now, but it leaves plenty of room for future growth.

I have it on good authority that  June has been declared New England Innovation Month, per Scott Kirsner who has been tireless tender of the innovation flame here in New England for years now (http://www.boston.com/innovation).  See the growing list of June events at http://neinnovation.com.

In honor, a few thoughts follow on Innovation in New England.  First, a pointer to a related concept, called National Entrepreneurs’ Day to recognize what entrepreneurs do for this country.  It’s an idea sparked by a fellow New Englander, David Hauser, founder & CEO of successful tech start-up Grasshopper.  The date being requested of the Obama administration happens to be the first day of spring each year.  [Coincidence that the French word for “start up” also references the spring season–“jeune pousse,” loosely translated as “young sprout” or seedling).

See the video clip below for serious entrepreneurial inspiration, and the other link to add your John Hancock (yes, yet another famous New England innovator) to the virtual petition.

* Killer link for entrepreneurial inspiration– http://grasshopper.com/idea

* Link to petition– http://www.entrepreneursday.org/dh

Now, back to June’s month-long celebration of innovation.   Indeed, New England  has a storied innovation past.  However,   what may begin as a strength in our region can at times turn to weakness, the metaphorical double-edged sword.   I’ve penned a wish list of five ideas for innovation here in New England along that thematic refrain, akin to “innovation on innovation”:

• #1 “Coopetition” in New England to foster national visibility
  New Englanders are known for their fierce independence and self-reliance.  We needed this when we came over as settlers 300+ years ago and put our MacGyver-esque skills to the test to survive (note, MacGyver was no doubt was an Irish immigrant from good New England pioneering stock).  It’s been said that unless you can trace your lineage to the Mayflower, you’re still considered an outsider.  New England has never been known for leaving fresh-baked pies for the neighbor who just moved in next door.  In fact, at times, neighbors live next to neighbors for years without getting to know each other, all in the name of “independence” and a desire to not meddle in others’ affairs.  However, New England could benefit a great deal if we pulled together and collaborated just a wee bit more.  Example, Peter Rothstein, recently named Director of the New England Clean Energy Council, has been driving for both State and Federal government resources (Department of Energy and other), to fund the concept of a “Regional Consortium” that would bring together all the components of the cleantech ecosystem in New England in a thoughtful, harnessed approach.    The only way New England can achieve this national recognition (and funding) is via collaboration.  OK, just to prove to hardy New England stock, we’ll call it “coopetition” just to retain a bit the independence streak that runs so deep up here.

• #2 Greater sense for openness for new ideas/ways of doing things
  New England also has a wonderful sense of tradition—Mayflower, Plymouth Rock, the Boston Marathon, Red Sox, clam chowder… we’ve pioneered our fair share of “we were first to….” And “we have the oldest of….”  I’d like to see us bring back a bit more of the revolution versus  evolution.  A bit more General George Washington and Lexington/Concord derring-do, rather than what has grown to be our reputation as conservative  in all things “blue sky”-oriented.  Wouldn’t it be great if we didn’t have to wait for the imprimatur from an MIT lab or a Harvard Business School professor before we tried something new?  New Englanders are possessed with pedigree.  And until something has been anointed with pedigree pixie dust, an innovation often languishes in ignominy.

• #3 Be more “what you know” versus “who you know”:
  As an outgrowth of #1 and #2 above, New Englanders often suffer from an acute case of “who you know.”  This to some extent is a derivative of the circular logic involving #2 above on pedigree.   Despite our reputation as the nexus of sophistication and erudition, New England seems to grow more and more insular in letting outsiders into board rooms as well as bar rooms.  New England, despite being the original crucible of diverse cultures, has homogenized. Amazing ideas and innovations come from equally surprising and diverse sources.  One of the best examples of “what you know” is exemplified in one of my favorite recent Malcolm Gladwell articles in the New Yorker Magazine (dare we say also a New England masthead), chronicling a Silicon Valley entrepreneur from India who heretofore knew nothing about the sport of basketball, who—when tasked with coaching his daughter’s middle school basketball team—innovated game strategy to turn a weakness into a strength and a last place team into a near division winner (see http://www.bostonsearchgroup.com/blog/type-leaders-required-to-outpace-competitors-in-recovering-economy/ )

• #4 “Hold” vs. “Fold” or “Sold”
  OK, so I’m not pioneering this idea, but if imitation is the highest form of flattery, I’m a big fan of this growing mantra in the innovation community here in New England that goes like this.  Massachusetts used to have an incredible set of tech & science crown jewels:  in biotech, Genzyme, Biogen & Millennium Pharma.   In tech, companies in hardware and systems like Data General, Digital, Wang, 3COM, and Banyan Systems.  In software & Internet the likes of Lotus & Lycos.  However, over the years, these companies have either been sold or forced to fold.  One of the few remaining companies embracing the “hold” mentality is EMC, preferring to buy others than sell themselves out.  However, just one EMC, or even a handful more doesn’t make for a robust, sustainable innovation ecosystem.  Innovation can metaphorically be cast in the same light as combustion– that combination of spark, oxygen and fuel that powers innovation and drives creativity.  Spark is the new idea, fuel is the money provided from investors in the idea.  And oxygen is the people who take the idea and the money, the business-saavy entrepreneurs who partner as the steel to the innovator’s flint to spark the novel idea, tech innovation, or scientific breakthrough.  I wish we were making more oxygen in New England.  This type of oxygen only comes from the talent that grows up and makes small companies into big companies.  These bigger companies serve as a training ground for the next generation of entrepreneurs to cut their teeth, get their training, build their network.  These larger companies offer entrepreneurial training wheels.  When we sell companies too early, they never get the chance to develop a critical mass of next generation talent who can apprentice at the knee of others and with greater security to make mistakes without having each decision be a bet-the company-one that risks putting the company in mortal peril.  When there is no larger company safety net, fewer young talents practice jumping into the uncertainty of innovation acrobatics, often key experiences required to be able to drive younger companies to success later in their innovation careers.

• #5 Create a “Celebrate the student Week”
  I’ve always been in awe of many of the Asian countries who celebrate things that we in the U.S. might find odd.  I believe they have a day that celebrates children.  And a day that celebrates the elderly wise ones in their communities and cultures.  There is likely no region in the U.S. that has more undergraduate and graduate students than New England.  And these students are the equivalent to our regional “innovation fountain of youth.”  Undergrads, Masters students, PhDs, Post-docs, Fellows.    I wish we could celebrate them.  What better time to do it than during New England Innovation Month.  Make them feel welcome.  Give them social stature to counterbalance the grumblings around U-Haul vans that descend like locusts in late August, or parties that get a bit too raucous.   New England students should be lauded.  Perhaps a regional “student innovation awards” as capstone to this celebration.   OK, at minimum, a free scoop from yet another New England innovation legend, Ben & Jerry’s.  A  scoop of a new flavor in their honor, “College Cram Crunch.”

One of the many challenges for early-stage technology and science-driven companies revolves around compensation for founders.  When a start-up is created, how do those there at the beginning get compensated?  When there isn’t any cash in the bank yet, and there may be a period of time where products are in development, do founders get compensated, and if so, how?  When angel investors seed the company, what happens then? Founders usually will get cash compensation, but perhaps not at the same levels as when the company later gets venture capital funding.

We were asked by one of our clients to help determine appropriate compensation parameters for an angel-funded enterprise.  From this, there were clear norms that emerged–

Looking at a half-dozen angel-funded companies in the New England region (Boston, Massachusetts, New Hampshire), we assembled some data that helped inform the above mentioned principles.

Note that there are rarely more than 2 founders.  Therefore, two can initially split the equity 50/50, and even with significant dilution, still end up with a meaningful equity stake after either angel, venture capital rounds, or both.  If a higher number of co-founders split the equity pool, fully diluted equity stakes can dwindle to amounts that make it hard for those founders to retain meaningful upside in their enterprises at later growth stages.

Just food for thought for those who are creating new companies in today’s market conditions.

CEOs and executive leaders of innovation-stage companies often ask themselves what is the best approach to employee appreciation, productivity and retention.

We’ve all heard the stories around the lengths some venture capital-backed companies go in their efforts to service the needs of their employees.  What started as the water cooler and drip coffee pot, fast-growth companies have super-sized, continuing to up the employee pampering ante–  installing company-paid cappuccino machines and Kurig coffee makers with what appears to be an endless supply and variety of coffees and teas.  Keeping well-stocked office kitchen pantries with either favored junk food, healthy snack choices, or both.  Catering lunch, breakfast, dinner, sometimes all three meals plus a midnight snack that rivals food options found on luxe cruise liners.  Car valet services, onsite dry-cleaning pick-up/drop off, massages, yoga, concierge services, onsite daycare/nanny service, bring-your-pet-to-work options.  And on and on and on, the calories and comfort food arms race continues its grim march toward caffeine OD and adult-onset diabetes.

However, there’s a moral and dilemma CEOs often face when trying to strike the right balance of perks and austerity.

The argument for pampering:  In the new knowledge-worker driven economy, there is often precious little machinery or automation.  So every time an employee walks out the door to Starbucks, Dunkin’ Donuts, the sandwich shop, or the drycleaner, the corporate engine slows down a notch.  Therefore, the logic emerges that if you can remove all interruptions for employees, you’ll get far more in productivity out of them than junk food and pampering you put in to them.

The argument against:   It’s expensive.  It creates a sense of entitlement in employees.  It creates a false sense of prosperity in a company that may be pre-revenue and in need of several more rounds of funding before it can stand on it’s own two financial legs.

Some might say that economic recessions pound the potential for excess back to square one.   OK, so perks have slowed down a bit after each economic set-back in the last decade, starting with the Internet bubble bursting and post-Y2K malaise, the aftermath of 9/11 on the U.S. economy and, most recently, the banking sector melt-down.  However, after each setback it seems a new “floor” gets set that’s just a bit tonier than the last one.

So how do CEOs handle this arms race in employee perks you ask?

Below are a few lessons learned and secrets shared by a number of CEOs who know a bit about the word “value” in serving up employee perks-

Perks Case Study A: Intra-office “micropreneurship.” The secret of the concession license

One venture-backed CEO wanted to offer some of the perks, but not all when it came to stocking the pantry.    So, rather than facing an all-or-nothing approach, the CEO decided that a business principle was in play that could be exploited in a win-win-win fashion–  what the company had as an asset was the equivalent of a monopoly.  He reasoned that employees were a captive audience.  If the CEO offered the “vendor concession” contract to an aspiring employee who wanted to make a few bucks, the company would offer exclusive stocking/inventory rights to that employee to stock the pantry.  However, in trade, the employee had to agree to offer below-market pricing on food and beverages, and also manage the “SKU requests” that the employees would log from time to time regarding food selection and preferences.  His formula in a nutshell looked like this:

-          win for employees-as the got a below market food and beverage offering, the equivalent of a “company subsidized” pantry offering

-          win for the “intra-preneur”-who was given the food concession to run, and could make a few extra bucks running the business

-          win for the company-the company didn’t have to provide all the food gratis, nor had the headache of fielding all the requests from employees

Perks Case Study B:  Serving dinner not as an entitlement, but only to the truly meritorious

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One of the questions we as executive recruiters often get asked  is the trade-off between experience and aptitude.   Both sides of the equation are prone to asking it, clients and executive candidates alike.  Sometimes this teeter-totter is referred to as “domain expert versus best athlete.”

What do they mean when they ask?  There’s actually a lot of nuance in the question-when are skills and experience most important to success in the role versus pure talent and aptitude?

• •    Just because a CEO is moving from one industry to another, does s/he lose his ability to successfully lead?
• •    If a VP Sales has been successful at one stage of company growth, can s/he take that same sales toolbox and be successful in another stage company, say either emerging-stage or mature-stage?
• •    Can a VP Engineering be equally effective managing in large companies and small?
• •    Do companies look for the same types of leadership in good economic cycles as well as bad?
• •    How does an executive’s move out of their wheelhouse of skills and experience impact their compensation and/or level in a new industry and company?

These questions are only a few of the factors that impact the answer.    The following discussion is aimed at trying to lend some clarity and context to question.

Let’s take a look at the hour-glass graph below to lay down some of these factors against our “expert or athlete” question:

1)     Level of management: The first factor is where an employee sits in the organizational chart.   In general, skills and experience are most critical at the “waist” of the hour-glass graph-mid-to-upper level management, starting at manager, through director- and VP-level.  At the top and bottom of the hour-glass, aptitude often ends up as the greater emphasis in “hireability.”  This may be fairly intuitive for many.

a.     Entry-level: When you first get out of school, employers often hire for a combination of attitude and intelligence and look for those who exhibit room to grow or “headroom.”   In fact, at entry-level, skills and experience for those roles are often a liability.  Employers may feel someone is overqualified, or a “flight risk” if that employee finds another better-paying and/or higher level position at another company.

b.     CEO-level: When you achieve P&L/CEO status, employers often will place more emphasis on the track record a CEO has in leading a company versus a tenured career history in a specific industry area.  Can a CEO move from rust-belt manufacturer to biotech?  Likely not.  However, there isn’t the same granularity of fit applied at the CEO-level as at the middle-management layer.  If a CEO has been broadly successful in in a number of software companies, it often becomes less important what type of software, or what industry vertical that software was developed for.  Certainly some screening is applied to industry, with some of the below more general industry characteristics takingi precedence-

i.      Experience in selling to similar customer base, B2B vs. B2C or government

ii.      Experience raising equity capital from venture capital or private equity

iii.      Experience creating exits for investors that have generated good returns for those investors

iv.      Experience taking a company from one industry into other industries, popularly referred to as “crossing the chasm”

c.     Mid-to-upper management:   Mid and upper management are where skills and experience over mere aptitude are often most sought after by employers.  Those who are hiring at this level will often even emphasize industry skills and experience above managerial experience, giving the edge to a candidate with industry-relevant background and a lesser degree of leadership experience, assuming that management is a learned skill and can be taught or picked up on the job.  Is this right?  That’s not the focus of our discussion here.  Rather, our goal here is to describe corporate hiring  norms from our observations.

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An annual event in Boston punches up the fact that we have an incredible cleantech cluster-New England Clean Energy Council’s annual Green Tie Gala.

Although this event took place back during Clean Energy Week in November, I was reminded of it when out in Denver recently.  Denver has some great stuff going for it.  NREL (National Renewable Energy Lab), University of Colorado with multiple campuses in Denver and Boulder that have significant funding from both Federal and State agencies, and a history of technology oriented companies, albeit with a heavy emphasis on telecom (Qwest, Level 3).

However, what there isn’t as much of in Denver is what some call the “ecosystem.” Others call it the “cluster.” This is a body of people who hold different but overlapping responsibilities in the entrepreneurial ecosystem and whose fusion is its wellspring–

• Academics: These are those most often with the new disruptive technology or science breakthrough that serves as the seed of a new company
• Business entrepreneurs: those who have experience taking the seed of an idea, and building a company around it
• Investors: The first friends & family, then angel investors, and often venture capitalists or corporate strategic investors who pour money into these new ideas to fund the business entrepreneurs scale the disruptive idea
• Professional services providers: These are often the “connectors” in the ecosystem. They’re comprised of lawyers, accountants, executive search consultants, and start-up advisors. They act as the glue between the prior three categories, more often than not introducing one to another, supporting the growth of these companies with their area of specialty

[Footnote: If you compare Boston to Silicon Valley however, Boston is shallower in large technology and sciences companies that serve to spawn "runners" to new start-up companies.   The biotech industry is perhaps better in Boston at doing this than the pure technology industry in the last decade, with a growing base of larger biotech and pharma companies including Genzyme, Cubist, Biogen and Sepracor.  Medical devices companies also fair better in many ways to large tech, with Boston Scientific, ThermoFisher, and Perkin Elmer.  In technology hardware and software, beyond EMC, there are precious few large technology companies left in Massachusetts. ]

Details on the Gala?  This year’s Green Tie Gala was held at the JFK Memorial Library in Boston (last year was held at the Museum of Science).    There are many organizations in the innovation sector here in Massachusetts that have done a good job at galvanizing a broad cross section of constituents, including the Mass Biotech Council, as well as MITX (formerly MIMC), and the Massachusetts Technology Leadership Council, or TiE Boston (Indus Entrepreneurs).  However, we’ve had yet to participate in a gathering of any that approaches that of the cleantech cluster here in New England.

Senator Markey gave the opening address to punctuate the cocktail hour.  To a person it seemed, everyone knew everyone.  Yes there were a few outsiders (a small contingent from the UK had come over as part of a trade mission coordinated with Clean Energy Week in Massachusetts because of its target rich calendar), yet all of these were welcomed by the larger fold, and the gathering seemed to virtually breathe together as some sort of larger unified body, a cluster with so few degrees of separation that walking from group to group or table to table was akin to going back to your high school reunion…. You knew at least half those sitting at every table.  For those who have experienced the annual Nantucket Conference, it is this atmosphere if intimacy and familiarity that presides.

To cap the night off, venture capitalist Chuck McDermott of Rockport Capital led his band in an after-hours session that continued the beat of familiarity both given its leader as well as in its musical selection (Chuck stating that the band only plays “songs popularized before 1960″).

Scott Kirsner recently penned an article in the Boston Globe on interviewing tips, what not to do.  Great compendium (our contributions excepted perhaps but for you to judge in the article sidebar on page 2) of what some might think intuitively as “faux pas”, but many simply may not think of at all, and are at risk of committing.

http://www.boston.com/business/articles/2010/01/10/you_have_your_foot_in_the_door_how_to_keep_it_there_1263010162/?page=1

A weekday morning in late November.  A brownstone residence on Beacon Hill in the shadow of the State House.  A dozen of the foremost experts in technology transfer and intellectual property in the Boston innovation cluster.  And a representative from the Department of Energy.  We at BSG Team Ventures had the recent opportunity to host a salon-style meeting in a home of a friend of the firm during Clean Energy Week here in the Commonwealth (for more on Clean Energy week, see http://greenovationconference.com/conference-info/cew.html).

The purpose?  Bringing the best minds in the Boston venture, entrepreneurship and innovation community together for a brainstorming session with the Department of Energy around best practices in technology transfer out of our national laboratories.   Attending the meeting were Alan Gordon from Harvard University Technology Licensing Office, Chris Noble from MIT’s TLO, head of the Mintz Levin cleantech practice Tom Burton, Peter Rothstein from the New England Clean Energy Council, Director of the Massachusetts Technology Transfer Center Abi Barrow, Director of Partners CIMIT John Collins, General Partner at Flagship Ventures Jim Matheson, and CEOs Chris Hobson and Peter Vandermeulen each running cleantech start ups with technology licensed out of several of the national labs themselves.

The challenge the current Obama Administration is taking on under Secretary of Energy Chu is how to better mine the metaphorical gold created inside the U.S. Department of Energy-funded  national laboratory network of some 15 that are spread across the country.  Some of these labs are household names–Los Alamos and  Sandia (New Mexico), and Lawrence Livermore (California).  Others are less well known-Argonne (Illinois), Brookhaven (NY), and Ames (Iowa).  Even the National Renewable energy Lab (Colorado, known more often as NREL), are not as well known as one would hope.  The history of these national labs springs from energy research spurred by World War II.  What the layperson may remember is that many of these labs were where secretive nuclear energy research was conducted.  However, much of the mandate for these labs some 60 years later is focused on discoveries that will broadly contribute to advancing the United States’ understanding of energy, renewable energy, energy conservation, and all the various scientific disciplines that can contribute-physics, materials engineering, chemistry, and more.  These labs are panning for a 21^st century gold-energy discoveries and breakthroughs that will create new batteries using renewable resources, wean the U.S. dependence on oil and coal as primary energy sources, and break new barriers in energy efficiency.

However, the problem has been that these labs have explored a lot, and engaged in extensive primary research, but have punched below their weight class in bringing innovation from discovery through to successful commercialization.  The DOE budget in FY 2009 topped $25 billion.  The national labs budget made up approximately $10 billion of that.  And with the Obama administration’s  stimulus package, these numbers only look to be increasing.  One example brought up in the conversation to punctuate the problem from one of the Boston-based attendees was that fact that Argonne National Laboratory in the last decade has created less than a dozen successful out licensing/royalty events that generated meaningful returns.   Logic holds that in terms of return-on-investment, there remains much room for added improvement.

So, two hours later, what were the issues that were brought up by the braintrust, and potential solutions that were tendered to improve the return on investment the DOE makes in the national laboratory’s innovation mission?

Some of the key issues with the current structure that came out of the dialogue:

•    Risk aversion of national labs researchers to leave the security of the lab to spearhead a risk-laden venture

•    Innate interest of lab researchers is more geared toward research and “discovery” versus market-matching and commercialization

•    Low/no financial incentive to take a discovery beyond research phase

•    No business ecosystem or business-savvy catalysts to help focus lab research talent on “known problems,” or the sifting through lab breakthroughs to match-make with existing  business  problems

Suggestions for improvement focused around the three ingredients that are key to metaphorical “combustion” of the innovation commercialization engine: More…

I had the opportunity to be out in Denver for the 22^nd Annual National Renewable Energy Lab’s (NREL) Growth Forum.  As many know, the U.S. has more than half a dozen national labs, some of the best known being Los Alamos and Lawrence Livermore, and Sandia.  These labs are scattered across the U.S., and each often has a specific focus (nuclear research for instance is what has kept the National Labs in the public eye most often).

Given the Obama Administration’s commitment to renewable energy and innovation, it was an upbeat gathering.    The attendee list was well-balanced between entrepreneurs, venture capitalists, and academics.  Geographically, the majority of attendees either hailed from the Colorado area (with Boulder as the epicenter for cleantech in CO despite the NREL lab being located in Golden, CO), the West Coast (Silicon Valley entrepreneurs and venture investors), and New England (Boston-skewed).

What was surprising is how small the renewable energy community truly is.  It’s still a very close knit group.  And the community tends to shift from one location to another to pursue the next opportunity to contribute to the national cleantech ecosystem.  Two notable examples are Tod Perry, who now is the Program Manager of the Clean Energy Entrepreneurship Center for NREL.  Tod had originally started as a cleantech entrepreneur 5 years ago in Boston, pioneering a water purification technology, and a contestant in the first Ignite Clean Energy Competition in 2005.  Another Bostonian who’s moved out to Colorado recently is Trent Yang, formerly a principal at Globespan Venture Partners, now Director, Entrepreneurship and Business Development at RASEI in Boulder (Renewable and Sustainable energy institute), part of the University of Colorado commitment to innovation in the renewable energy sector in the Rocky Mountain region.  Other notable Bostonians sited at the conference included Peter Rothstein of New England Clean Energy Council, Bob Metcalfe of Polaris, and Chris Hobson, CEO of BandGap Engineering.

While out there, stopped by the Finals for the Cleantech Open’s Rocky Mountain Finals.  New Sky Energy, Rivertop Renewables, and SunTrac Solar were the winners, now headed to the Cleantech Open Finals for all 3 regions up in Silicon Valley.

For more on the winners, see http://www.metrodenver.org/news-center/metro-denver-news/mayor-hickenlooper-announces-cleantech-open-winners.html

On September 24, 2009, BSG Team Ventures hosted the 3rd annual Charity tennis tournament at Longwood Cricket Club in Chestnut Hill, MA.  The format is a la Davis Cup, with venture capitals pitted against entrepreneurs.

We’ve been graced with great weather all three years, and this Thursday was nothing different, with a touch of Indian Summer in the air.

Although the teams were a bit smaller in number this year, many remarked (including the blogger) that there has never been a higher quality of play, or sense of competition.

The beneficiary of the charity tournament all three years has been Tenacity, the brainchild of Ned Eames, who founded it a decade ago this year to use tennis as a tool to help build discipline and academic achievement in inner-city at risk youth.   Their 10 year Gala is coming up in the next week or two, so be sure to visit www.tenacity.org to learn more and register.  It too will be held at Longwood, and is guaranteed to be a memorable evening with hundreds of supporters sharing food, tennis, and a shared mission together.  Ned Eames is pictured below, with one of the Tenacity students, addressing this year’s tournament and conveying his story as to the value Tenacity has brought to his life and his family’s.

This year’s winners of the Longwood Charity Cup 2009 were the entrepreneurs, both the entire team, as well as the play-off match-up of best VC team and best entrepreneur team.

Per Suneby and Doug Denny-Brown played in the finals for the entrepreneurs, against the best VC team from the day’s play, represented by Will Peppo of Revolution Partners and Dan Waintrup.  In a fiercely fought super-tie-breaker format, the entrepreneurs brought the Cup home for the year (above pictured winners Per and Doug).

Given the competitive nature of participants, several asked for statistics from the team score cards reported.  The format dictated that each doubles team played together for the entire afternoon, and there were a total of 5 teams each, VC and entrepreneur.

The mean total game score for entrepreneurs?  22.6 games per team.

Mean total game score per team for VCs? 16.5 games.

Grumblings from both sides sounded very similar, with a refrain echoed that “[VCs/entrepreneurs] certainly had more time to practice this summer than we did….”

A special thanks to our sponsors, Silicon Valley Bank and Xconomy without who’s support the event would never have happened.  Jim Maynard was much missed from SVB, but Jim’s bank colleague, Mike Quinn, held his own, and will clearly be coming back next year with Jim to present a fearsome twosome.

And this year we honor our first female competitor, Lynn Calkins, playing for the Xconomy team, and racking up a total game score with her partner than came in a close second in total team game scores.  Thanks Lynn for coming out, and Xconomy for once again blazing the path of innovation in building their corporate team.

Finally, no reflection on the day would be complete without a total two-team photo of all who contributed their time and energy.  Note that only one player dared play barefoot.  Next year, we’re going to mandate that the last two games of the tournament will both be played shoeless by all teams.  It’s an experience that needs to be added to everyone’s “bucket list”….