Boston vs. the bay


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

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Boston vs. the bay

  1. 1. February 18, 2008 MIT/East Coast Overview Timothy B. Jones Sloan Fellow 2007
  2. 2. AgendaBoston vs. Silicon Valley comparisonsHybridization of Risk CapitalMIT Organizations and InstitutionsMIT Innovation Update and Regional Deal MetricsOpportunity areas © 2007 MIT Sloan School of Management
  3. 3. Regional AdvantageAs predicted by Dr. AnnaLee Saxenian, Rte.128/Boston lagsSilicon Valley in – Sustainable Innovation – Job/Company/Wealth Creation – Serial EntrepreneurshipThe Regional differences in performanceare increasing not decreasing in the Post-Bubble Environment: …But WHY? © 2007 MIT Sloan School of Management
  4. 4. Boston vs. The BayRte. 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. 5. Observation #1:Different Post-Bubble ActivitiesIn SV:– Unsuccessful Entrepreneurs went to work for large companies, but kept building business plans– Successful Entrepreneurs took vacation, retrenched, then went back to the garageIn 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. 6. Observation #2:Insufficient DiasporaIn SV, successful companies created a Diaspora, an emigration to newventures while maintaining ties to previous companies as collaborationpartnersIn Boston, successful companies created tighter vertical integrationand control over complementary assets…but not new spin-off firmsWhere are the successful spinoffs of: – Akamai – NetGenesis – Sycamore Networks – EMC – ATG – ? © 2007 MIT Sloan School of Management
  7. 7. Observation #3: Angel OssificationBoston 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 rangeNot enough deals being done with sufficient funding tocreate a vibrant early stage community © 2007 MIT Sloan School of Management
  8. 8. Observation #4: Cultural Resistance inVenture CommunityThe last 4 years of internet-oriented investing focused onconsumer-driven activity, enhanced collaboration, andsocial interactionThese are precisely the weaknesses of New England’sregional cultureAs a result, few new media, Web 2.0/consumer internet,Open Source, etc. deals. – missed the “boomlet” in returnspost bubbleWaiting for next Telecom, Enterprise SW (via Appliances)capital spending cycle => dormant for last 6 years © 2007 MIT Sloan School of Management
  9. 9. Result: A Growing Lead for SVSilicon Valley has 3x the dealexecution of New EnglandSilicon Valley still provides morefunding than the next four tableentries combined, by dollarvolume as well as dealsexecuted Source: PWC Money Tree Q4 2006 © 2007 MIT Sloan School of Management
  10. 10. New Risk Capital in later roundsPrivate 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. 11. Changing MIT InstitutionsDesphande Center – Up for funding review and renewal Only one exit (Brontes, $95M on $8M Series A) Resistance to deep diligenceTechnology Licensing Office – Low ProfileLife Science Labs stealing the limelight, talent and the funding – MIT changing requirements to include life science in core – Whitehead, BroadMedia 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. 12. MIT DealsVisit TBJ Investments Cambridge Techwatch:– 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. 13. New England Deal composition2:1 Advantage of Biotech overSoftware in $’s, Software stillleads in # dealsIndustrial/Energy overtookmedical devices in last year tobecome 3rd place sectorDespite the fact that 70% ofUS economy is consumerdriven, Consumer-orientedproduct/services are 3rd lowestcategory Source: PWC Money Tree Q4 2006 © 2007 MIT Sloan School of Management
  14. 14. Interesting AreasEnterprise 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 contentSemantic 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. 15. Thanks for your time! © 2007 MIT Sloan School of Management