Insider View, Twists & Turns in International Venture Capital

In January I delivered a lecture to MBA students, Ross School of Business at the University of Michigan. David Brophy, Director of the Office for the Study of Private Equity Finance & Associate Professor of Finance invited me to speak at his private equity class about my experiences in doing VC since 1986, with what he calls “Tom is 3 feet deep into VC, with mud on his boots.”

If you don’t know David you should, as he was the instrumental force in developing the venture capital and private equity industry in the State of Michigan. He was the creative force behind business plan competitions in the Midwest of the USA, in 1980, way before anyone in the world was thinking of bringing companies and investors together to mix, interact and network around this asset class we know as venture capital.  His event, called the Michigan Growth Capital Symposium is one of the longest running programs in the USA, in operation since 1980.

I quote from the Symposium’s web site, “Celebrating its 31st anniversary, the 2012 Michigan Growth Capital Symposium is the Midwest’s leading event for attracting the best investors from across the U.S. and showcasing high-quality investable companies. In the past decade alone, more than 300 companies have presented. About 70% of these have raised capital totaling more than $1.7 billion in investments and nearly 20% have realized successful exits. Video: MGCS Celebrates 30 Years

Year after year, the MGCS has brought greater awareness and opportunity to startups emerging from research departments of leading universities across the country. Over the past 10 years nearly a quarter of the presenting companies have been university-based spin-outs, raising capital totaling some $430 million in investments. About 70 percent (a total of 49 companies) have come from Michigan’s University Research Corridor institutions—U-M, Michigan State and Wayne State and one-fifth of these companies have realized successful exits.

MGCS is presented by the University of Michigan Zell Lurie Institute’s Center for Venture Capital & Private Equity Finance at the Ross School of Business in partnership with the Michigan Venture Capital Association.

I am grateful to David for his interest in me and his invitation to speak to his students.  David, thank you.

I’ve upload two icons.  Click on the 1st to view the PowerPoint. Click on the 2nd to view the video of the lecture.  If you watch the video, I suggest that you scroll to the eight (8) minute mark to start viewing.

As always, comments are welcome here, or write me directly at Tom@IVIpe.com


The Valley of Death. Market Failure? Or Rational Behavior of Investors to Risk?

Governments, development banks and investors poured billions of dollars to finance entrepreneurs in the ‘Valley of Death.’ Add in the millions of hours of human energy and thought devoted to creating solutions too, and the investment is truly staggering. Yet the Valley of Death still exists.

Conventional thought defines the ‘Valley of Death’ as a market failure. But is it? Or is the Valley simply the rational behavior of investors to risk? If the Valley is a reaction to risk, not a market failure, then perhaps we need to reframe the discussion: what initiatives might influence investor behavior to close the gap that separates entrepreneurs and investment?

I delivered a program at the invitation of the World Bank and it’s investment arm, the International Finance Corporation, ‘Bridging the Valley of Death.’ In it I discuss solutions that match the behavior of investors to risk, to encourage investment to tech SMEs in the Valley of Death.

View the PPT by clicking on the below icon. After the icon is the description of the event and the invitation for World Bank and IFC staff to attend.

I added dozens of slides to make the Powerpoint understandable without my speaking (the audio), but more importantly, to make it a story of solutions and ideas worth spreading to influence the culture of risk and failure, and ways to impact investor behavior in emerging markets.

Add your comments or write me at Tom@IVIpe.com.

Description of the Event 

“Innovation starts with an idea to do something different, to improve the lives of customers, to make work that matters. Each step of the innovation process requires different forms of funding and different institutions to drive ideas forward, from R&D (grants) to Series A (equity-VC). But if the challenge was just to make funds available, the solution would be relatively easy.

US entrepreneurs ‘sell opportunity’ to attract investors, raise funds. This works in the USA since investors are comfortable with risk, ambiguity and uncertainty, and willingly pay the costs of failure when business models don’t work, founders pivot & models evolve into something different from entrepreneurs’ initial intentions.

Except for the very few, most investors in developing countries approach risk differently. They invest in known and understandable risks, mainly the risks of execution. These are the uncertainties they have dealt with as businessmen and investors, and have the experience to help entrepreneurs solve– avoid. The risks of financing innovative firms, i.e., will customers buy, are profits possible, achieve promised performance from new ideas – often technology based– involves a different sort of risk assessment – one that investors in developing countries are not used to. The result is that domestic wealth is not as big a source of funds as predicted, resulting in tech start-ups going unfunded, entrepreneurs frustrated and Governments wondering what to do next.”

In this brown bag lunch, Tom Nastas will discuss how policy-makers have tried to bridge this “valley of death” with a focus on public policy solutions to influence investor behavior toward angel, seed and early stage venture capital drawing on lessons from the battlefield.

1. Successes and disappointments. The cases of Croatia, Russia and Kazakhstan. Encouraging deal flow where opportunity is assured, to circumvent the risks of opportunity and ‘jump-start’ more investing, entrepreneurship and set the conditions for local knowledge creation to begin. The case of Boulder, Colorado — a world class hub for entrepreneurship, technology start-ups and venture capital without world class research universities in the local community.

2. Financing structures, grant programs & funds to better match the (im)maturity of developing ecosystems, solutions to overcome market barriers and smooth the entry of investors to early stage tech.  Role of government, DFIs & PPPs to support & encourage; do more faster.

3. Proof-of-concept program and skill transfer: the Nastas project with Russian Corporation of Nanotechnology, Universities of Colorado, Michigan & Utah

4. Deal flow funds to catalyze more ideas, achieve tech performance

5. SBIC venture lending-type funds to engage local pension funds in early stage SMEs

6. Illusion of ‘fund of funds’ :  when execute, when not to, how channel capital to tech