This is more than a little dated(originally done in 2006), but with recent discussions, is still largely relevant.

1. February 18, 2008
MIT/East Coast Overview
Timothy B. Jones
Sloan Fellow 2007

2. Agenda
Boston vs. Silicon Valley comparisons
Hybridization of Risk Capital
MIT Organizations and Institutions
MIT Innovation Update and Regional Deal Metrics
Opportunity areas
© 2007 MIT Sloan School of Management

3. Regional Advantage
As predicted by Dr. AnnaLee Saxenian, Rte.128/Boston lags
Silicon Valley in
– Sustainable Innovation
– Job/Company/Wealth Creation
– Serial Entrepreneurship
The Regional differences in performance
are increasing not decreasing in the Post-Bubble Environment:
…But WHY?
© 2007 MIT Sloan School of Management

4. Boston vs. The Bay
Rte. 128 Silicon Valley
– Distance from innovation – Geographic proximity to deals
– Vertical Integration – Network-Centric
– Proprietary Development – Open Innovation
– Intolerance for failure – Try, Try, Try again
– Case Study approach – Life is the classroom
– Talent Flow: OUT – Talent Flow: IN
– Result: Inertia – Result: Acceleration
VS
© 2007 MIT Sloan School of Management

5. Observation #1:
Different Post-Bubble Activities
In SV:
– Unsuccessful Entrepreneurs went to work for large companies, but
kept building business plans
– Successful Entrepreneurs took vacation, retrenched, then went
back to the garage
In Boston:
– Unsuccessful Entrepreneurs went into consulting, banking, or
consumer products
– Successful Entrepreneurs took vacation…then went into real estate
Notable exceptions:
– Jeremy Allaire, Brightcove
© 2007 MIT Sloan School of Management

6. Observation #2:
Insufficient Diaspora
In SV, successful companies created a Diaspora, an emigration to new
ventures while maintaining ties to previous companies as collaboration
partners
In Boston, successful companies created tighter vertical integration
and control over complementary assets…but not new spin-off firms
Where are the successful spinoffs of:
– Akamai
– NetGenesis
– Sycamore Networks
– EMC
– ATG
– ?
© 2007 MIT Sloan School of Management

7. Observation #3: Angel Ossification
Boston Angel community splitting into two distinct groups
– Professional Angel Funds (Common Angels, North Shore Angels)
funding deals in $250k-$2M range
Companies only requiring up to $20M, so little life sciences or
energy investing
Medical Equipment dominant sector followed by software
1-2 investments/quarter; invest in 1 of every 100 deals
– HNW individuals trolling MIT Enterprise Forum doing deals in $25k-
$100K range
Not enough deals being done with sufficient funding to
create a vibrant early stage community
© 2007 MIT Sloan School of Management

8. Observation #4: Cultural Resistance in
Venture Community
The last 4 years of internet-oriented investing focused on
consumer-driven activity, enhanced collaboration, and
social interaction
These are precisely the weaknesses of New England’s
regional culture
As a result, few new media, Web 2.0/consumer internet,
Open Source, etc. deals. – missed the “boomlet” in returns
post bubble
Waiting for next Telecom, Enterprise SW (via Appliances)
capital spending cycle => dormant for last 6 years
© 2007 MIT Sloan School of Management

9. Result: A Growing Lead for SV
Silicon Valley has 3x the deal
execution of New England
Silicon Valley still provides more
funding than the next four table
entries combined, by dollar
volume as well as deals
executed
Source: PWC Money Tree Q4 2006
© 2007 MIT Sloan School of Management

10. New Risk Capital in later rounds
Private Equity and Hedge Funds London Stock Exchange - Alternative
– 9000 Hedge funds with over $1T in Investment Market (AIM)
capital – No minimum company size, capital
– 15-25% Side Pocket funds – search for raises comparable to
Alpha B and C rounds ($10M +)
– Decision cycle in days-<1Month – $1M in compliance costs vs.
– Convertible Debt, Convertible Preferred $3M(SARBOX)
vs. Participating Convertible Preferred – Fidelity Investments (largest
– Particularly appealing to cash-dependent shareholders) driving Fidelity Ventures to
biotech firms pursue these exits
– Actively recruiting GP’s from east coast – Alternative to later stage venture capital
firms to run venture portfolios for existing VC-backed firms
– Key Players: – Alternative to VC for closely held private
firms
DE Shaw
– Aggressive Nominated Advisors
TPG (NOMADS) cold-calling CEO’s of East
Fortress Investment Coast startups
– Key Deals: “it takes just as long to fly to London
Microbia ($75M) as it does to SF”
Merrimack Pharma($65M)
© 2007 MIT Sloan School of Management

11. Changing MIT Institutions
Desphande Center
– Up for funding review and renewal
Only one exit (Brontes, $95M on $8M Series A)
Resistance to deep diligence
Technology Licensing Office
– Low Profile
Life Science Labs stealing the limelight, talent and the funding
– MIT changing requirements to include life science in core
– Whitehead, Broad
Media Lab
– Frank Moss replaces Nick Negroponte
– Less focus on whimsy, more on corporate return
– Increasing emphasis on mobility- (eLens project)
© 2007 MIT Sloan School of Management

12. MIT Deals
Visit TBJ Investments Cambridge Techwatch:
http://tbjinvestments.typepad.com/
Notable
– Timothy Swagert, Lemelson Prize Winner 2007
Explosive Detection Sensors using Optical Fluorescence
– Erich Ippen – EECS
Polarization-resistant photonic circuits
Diligence being conducted by Ralf Faber (SF ’07, sold NetOpix to
Corning for $2.1B)
– Tomaso Poggio
Visual Recognition using neuron simulation
– Michael Stonebraker
Morpheus Project: Data Transformation
© 2007 MIT Sloan School of Management

13. New England Deal composition
2:1 Advantage of Biotech over
Software in $’s, Software still
leads in # deals
Industrial/Energy overtook
medical devices in last year to
become 3rd place sector
Despite the fact that 70% of
US economy is consumer
driven, Consumer-oriented
product/services are 3rd lowest
category
Source: PWC Money Tree Q4 2006
© 2007 MIT Sloan School of Management

14. Interesting Areas
Enterprise 2.0
– Google, Convera, Oracle, et al moving inside firewall with search
– Replacing Enterprise software with Web 2.0 Generation Technologies
– Google Apps taking on Microsoft on the desktop
– Jeff Immelt, GE – Concern about how to manage blogs/internally
generated content
Semantic Web
– Tim Berners-Lee and Decentralized Information Group (DIG)
Convergence of Digital and Physical
– Center for Bits and Atoms (Neil Gershenfeld)
Life Science overlay on multiple disciplines
– Computational Chem/Bio
© 2007 MIT Sloan School of Management

15. Thanks for your time!
© 2007 MIT Sloan School of Management