Archive for the ‘Innovation’ Category

New Study: Market Structure is Causing the IPO Crisis

imagesI’ve been speaking publicly for over one year about the disastrous impact of the capital markets crisis in accelerating the demise of small emerging company IPO’s.  To be clear, this process began over eleven years ago and, in my view, it is the single most important issue for the venture capital community because it jeopardizes an entire generation of innovative American companies. In addition to revitalizing America’s slipping global competitiveness, restoring emerging company IPOs in the U.S. will efficiently create new jobs and drive a new, sustainable economic growth cycle in our country.

Grant Thornton LLP’s Capital Markets Group today announced the release of Market Structure is Causing the IPO Crisis, a white paper examining the demise of initial public offerings in the United States, and offering remedies to resurrect the IPO market.  The paper is a follow up to Grant Thornton’s original study, Why are IPOs in the ICU?, which was published in November 2008.

The new white paper provides fresh market data and incorporates additional insight gleaned from discussions with a wide range of key market participants, including former senior staffers at the SEC and senior executives at “bulge bracket” and “major bracket” investment banks.

Co-authored by David Weild, Senior Advisor at Grant Thornton, founder of Capital Markets Advisory Partners and former NASDAQ vice-chairman, and Grant Thornton Senior Advisor Edward Kim, the updated study continues to focus on how technological, regulatory and legislative changes have combined to chisel away at the U.S. IPO market.  Although conventional wisdom holds that the U.S. IPO market has been going through a cyclical downturn exacerbated by the recent credit crisis, the paper points out that in reality, the market for underwritten IPOs, given its current structure, is closed to 80% of the companies that need it.

“Despite the recent uptick in IPO activity, over the last several years, initial public offerings in U.S. have nearly disappeared,” noted Mr. Weild.  “Our findings since publication of the original white paper have served to reinforce our thesis that the loss of the IPO market in the United States is due largely to changes in market structure.  By killing the IPO goose that laid the golden egg of U.S. economic growth, the combination of technology, legislation and regulation undermined investment in small cap stocks, drove speculation and killed the best IPO market on earth.”

The white paper proposes  a solution to this crisis – an issuer and investor opt-in capital market that would make use of full SEC oversight and disclosure, and could be run as a separate segment of NYSE or NASDAQ, or as a new market entrant.  It would offer:

  • Opt-in/Freedom of Choice – Issuers would have the freedom to choose whether to list in the alternative marketplace or in the traditional marketplace.
  • Public – Unlike the 144A market, this market would be open to all investors.
  • Regulated – The market would be subject to the same SEC corporate disclosure, oversight and enforcement as existing markets.
  • Quote driven – The market would be a telephone market supported by market makers or specialists, much like the markets of a decade ago.
  • Minimum quote increments (spreads) at 10 cents and 20 cents and minimum commissions – 10-cent increments for stocks under $5.00 per share, and 20 cents for stocks $5.00 per share and greater, as opposed to today’s penny spread market.  These measures would bring sales support back to stocks and provide economics to support equity research independent of investment banking.
  • Broker intermediated – Investors could not execute direct electronic trades in this market; buying stock would require a call or electronic indication to a brokerage firm, thereby discouraging day-traders from this market.
  • Research requirement – Firms making markets in these securities would be required to provide equity research coverage that meets minimum standards.

To view the full paper including updates, please visit: www.gt.com/ipo.

ACORE REFF West Conference Keynote Abstract, September 30

imagesThis coming Wednesday I will be speaking at the REFF West conference in San Francisco about the capital markets crisis and its impact on American innovation. Given the recent upwelling of popular press articles heralding the return of IPOs, my views, which are supported by newly released long-term statistics,are likely to generate some discussion. An abstract of my remarks follows:

The capital markets crisis has put an entire generation of American emerging growth companies at risk. America’s traditional leadership in entrepreneurial growth and innovation is now visibly faltering. This is the result of decades of government and corporate emphasis on short-term development at the expense of funding long-term, basic breakthrough research. Our nation’s lawmakers do not broadly recognize the public policy agenda implications of the fact that technology innovation has gone global. Recently published comparative international economic data reveals long-term declining rates of growth in U.S. government, corporate, and academic Research & Development (R&D) spending, particularly in Information Technology (IT). Further, a new study of the global capital markets illustrates the steep decline of the U.S. global share of public company listings for over a decade while other global stock exchanges have grown and flourished. All of these signs point to America’s slipping global competitiveness.

The global financial crisis has drained risk capital from the private sector at the worst possible time, compounding the effect of decades of neglect of our nation’s IT R&D infrastructure. Of direct consequence to the emerging Cleantech industry, the continuing IPO drought is a symptom of a deeper systemic liquidity crisis for small capitalization companies.

Predictions that U.S. IPOs are about to come back in a meaningful manner are wishful thinking. The current threshold criteria for liquidity as defined by the dominant underwriters in the U.S. accommodate only a small minority of the viable private companies seeking public growth capital. The severity of this untenable situation is compounded by a lack of awareness among our nation’s policymakers that all of these factors are interrelated (the announcement by the White House of an American Innovation Strategy last Monday notwithstanding).

It is not too late to address these challenges with realistic, achievable solutions that will enable structural capital markets reform. We must take specific actions to reverse the unintended consequences of a series of securities regulations bolted onto a framework that has been eclipsed by electronic trading and increasingly left behind in a fundamentally transformed global competitive environment. We must also recognize that, just as we nurture our startups in the unique environment of Silicon Valley, we must provide a public market structure that nurtures our fledgling IPOs and that allows middle market underwriters to support these companies with sufficient liquidity and with thorough, responsible research coverage.

Achieving these goals in the public equity markets does not require the relaxation of Sarbanes Oxley or of other recently implemented measures of corporate governance oversight and director accountability. To respond effectively, however, our legislators and regulators must share a sense of urgency to develop a coherent national innovation agenda that acknowledges new capital formation and new job creation through IPOs as top national priorities.

Business Week Report on “Radical Future of R&D” Misses Critical Capital Markets Link in Innovation Ecosystem

imagesThe cover story of the September 7 issue of Business Week reports on the “Radical Future of R&D“, focusing on the internationalization of research and development led by global corporations such as IBM and Hewlett Packard.  The magazine includes a story written by Adrian Slywotzky, “How Science Can Create Millions of New Jobs.” Mr. Slywotzky  is an “author of several books on profitability and growth” and currently a partner at the management consulting firm Oliver Wyman.  While the article makes important points about the sorry state of the American R&D ecosystem, the author neglects to mention that, in order to achieve the goal of new job creation,  healthy U.S. capital markets are essential and intimately linked to new funding commitments to basic scientific research.

The article cites the extraordinary decline of Bell Labs over several decades as an example of the model that we must seek to restore, and he makes other basic points about the decline in our nation’s R&D efforts.  These valid observations may be drawn from primary research sources such as the work published by the National Academies, whose most recent report, Assessing the Impact of Changes in the Information Technology R&D Ecosystem: Retaining Leadership in an Increasingly Global Environment, was released several months ago.  The article points to America’s innovation crisis along lines that have been articulated in greater detail by thought leaders including Judy Estrin and Norm Augustine.

Unfortunately, Mr. Slywotzky makes an important assertion about venture capital that is incorrect. I believe that, if he understood the reality of the venture capital industry today and its inextricable link to the Initial Public Offering (IPO) drought, his otherwise well-written article would have taken a markedly different direction.  Below, I quote several parts of the article that I found particularly useful, and I point out the error:

First, the positive:

“America needs good jobs, soon.  We need 6.7 million just to replace losses from the current recession, then an additonal 10 million to keep up with population growth and to spark demand over the next decade.  In the 1990s the U.S. economy created a net 22 million jobs, or 2.2 million a year.  But from 2000 to the end of 2007, the rate plunged to 900,000 a year.  The pipeline is dry because the U.S. business model is broken.  Our growth engine has run out of a key fuel– basic research.”

PASCAL’S COMMENT:  Basic research is a key fuel, but, in fact, the part of the U.S. business model that drives job growth in emerging growth companies is IPOs.  More on this below.

“It’s tempting to ascribe current job losses in the U.S. to the deep recessionor to outsourcing, but the root of the problem is the absence of high-value job creation.”

PASCAL’S COMMENT: Correct!

“… in recent years, outsourced software and manufacturing jobs have largely been replaced by millions of low-wage service jobs in fast-food, retail, and the like. . . . Of the roughly 130 million jobs in the U.S., only 20%, or 26 million, pay more than $60,000 a year.  The other 80% pay an average of $33,000.  That ratio is not a good foundation for a strong middle class and a prosperous society.”

PASCAL’S COMMENT:  This is astounding and very bad news indeed.

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Now, the mistake:

“Venture capitalists are sitting on plenty of cash and are good at bringing startups to the market.  We just have to rebuild the upstream labs that focus on basic research– the headwaters for the whole innovation ecosystem.”

FULL STOP.  First, the venture capital business is contracting severely:

From the April 18th, 2009 NVCA/PWC Moneytree report: “Venture capitalists invested just $3.0 billion in 549 deals in the first quarter of 2009, according to the MoneyTree™ Report from
PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters.  Quarterly investment activity was down 47 percent in dollars and 37 percent in deals from the fourth quarter of 2008 when $5.7 billion was invested in 866 deals.  The quarter, which saw double digit declines in every major industry sector, marks the lowest venture investment level since 1997.”  for more industry statistics, CLICK HERE

Second, it’s just not that simple.  Mr. Slywotzky is ignoring the fact that over 90% of job growth from venture-backed companies occurs AFTER their IPO, and this has been the case since the 1970’s.  We have an IPO drought that has killed the small IPO, and it is systemic, not cyclical.  I have been speaking to this point publicly since March 2009.

A new study is going to be released in the next several weeks which will bring to light very important data about the long-term secular trend of declining public company listings in the U.S. Not only does this add tothe mountain of data showing America’s slipping global competitiveness, most importantly, the study develops a model establishing a direct relationship between this trend and American job losses.  Publicly traded emerging growth companies are the most rapid job creation engine in America, and successfully harvesting the long-term economic growth fruits from basic scientific research is tethered to this post-IPO job creation engine.

To be clear, IPOs, particularly IPOs raising less than $50 million, have become largely extinct due to unintended consequences resulting from a series of securities regulations that followed the rise of electronic trading networks in 1996.  The new capital markets study, which this blog will point to as soon as it is released, is written by David Weild and Edward Kim of CMA Partners.  Weild and Kim are also the authors of the important white paper published last November by Grant Thornton, ‘Why Are IPOS in the ICU?’.

Yes, we need to restore the U.S. Government’s commitment to funding breakthrough innovation in basic scientific research.  But we also need to take aggressive actions to protect critical elements of our nation’s innovation ecosystem and stop treating it as a series of loosely connected elements.  Government research centers, university centers of research excellence, corporations, and venture capitalists are commonly bound to the most important element of this ecosystem, the entrepreneur.  It is naive to believe that just promoting basic research will magically ripple though the innovation landscape and restore America’s lost greatness.  Understanding the complexity of this issue requires interdisciplinary and unconventional thinking. It also requires an understanding of how capital markets actually work and applying real world solutions to resolve an urgent problem– the death of the small cap IPO.

Barron’s Article on Tech IPO’s Misses the Importance of the Extinct Sub-$50 million IPO

On Monday, August 10, Barron’s ran a story “Does the IPO Market Shun Smaller Companies?”, written by Mark Veverka, asserting that “venture capitalists want to widen the playing field for the underwriters.” The story includes quotes from former National Venture Capital Association (NVCA) chairman Dixon Doll of DCM and investment banker Paul Deninger, who is the vice-chairman of Jefferies & Co. It accurately points out that, when it comes to IPOs, many venture capitalists have mistakenly defaulted to choosing the large investment banks (such as Goldman Sachs, Morgan Stanley, and Credit Suisse) as lead underwriters for their portfolio companies.  This practice has created “a near oligopolistic hold on tech IPOs” by these large investment banks.  Such market power allows bankers to shapes the profile of those companies worthy of going public to favor the natural demand from their largest clients: short-term trading focused hedge funds and large institutional investors that demand highly liquid public securities.

The collateral effect of this market reality is that the vast majority of emerging VC-backed companies are effectively barred from going public.  To be clear, there are plenty of strong venture-backed companies today that should be public but that do not meet the valuation or liquidity criteria of the three large remaining investment banks (more on this below).  Unfortunately, outside of the IPO-syndicate-bias and the much-maligned Sarbanes Oxley, the article does not address far more serious systemic regulatory consequences that further exacerbate the problem– such as the combined impact of decimalization and the Spitzer decree (taking trading commissions down from $0.125 per share to $0.01 or $0.02 per share and requiring that equity research be paid for by commissions ) which have effectively gutted both the after-market trading and research support that emerging company IPO’s need.

While the article notes that “the objective is to get back to late-80s, mid-90s practices, allowing more start-ups access to capital so they can remain indepenedne tand create more opportunities for venture capitalists to cash out”, the emphasis on who is cashing out is misplaced.  More accurately stated, the institutional investors who fund the venture capital partnerships need more opportunities to cash out– and these institutions are largely public pension plans, college endowments, and other true long-term investing financial institutions.  Why do they need to cash out?  Because they are also the main players who have historically reinvested in the next generation of innovation.

Sadly, the article completely ignores the implications of this systemic liquidity crisis.  If we look at the historic record, the most important point overlooked by this story is that smaller companies need to go public because they are the engines of growth that drive the U.S. economy– both in terms of job creation and GDP growth.  The IPO chasm that exists today is the result of the death of the sub $50 million IPO.  For a clear example, see the following list of 17 companies that went public and raised $50 million or less between 1971 and 1996:

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These companies only raised $367 million in the public markets and they account for 470, 000 U.S. jobs today. Adjusted for inflation andmeasured in 2009 dollars, the $367mm in total dollars raised by this group equals$670mm, and only 2 of these 17 companies’ IPOs (EMC $80mm; and Oracle $70mm) exceed $55mm in 2009 dollars.  While today these companies are household names, when they went publicthey were largely unknown. How many companies are unable to go public today  because they aren’t big enough to merit the attention of the large investment banks who cater to short-term traders?  How many future engines of U.S. GDP growth and job creation will be still-born and be forced in to a merger?  Should they be starved of liquidity because they need to cash out investors, build working capital, but it is unavailable to them because they need less than $50 million?

Deninger points out in the article that “In recent years, VC firms have become too dependent on mergers and acquisitions as the exit strategy of choice. . .. In fact, most tech-start-ups are ‘built for acquisition’, as opposed to being built to become the next publicly held Microsoft or Oracle.” An addendum to his quote should be that merger synergy is code for firing peopleMergers trigger job losses; IPO’s create jobs.

In my view, it is wholly inconsistent with the Obama administration’s economic growth objectives for the current systemic liquidity crisis in our equity capital markets to be strangling our emerging technology growth companies while they are still in their venture capital cribs.  We need to raise awareness of this severe problem because it threatens an entire generation of American innovation.  Venture capitalists only make money if their investors make money, and many of their investors are the stewards of America’s pension plans.  VC’s need to build companies that are cash flow positive as private companies, not only so that they can improve their negotiating leverage in the event of an acquisition but, more importantly, so that they can wait to go public until the regulatory constraints that have killed the sub $50 million IPO are lifted.

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In closing, the article incorrectly asserts that “ironically, the tech IPO market is re-awakeining just as the NVCA prepares to roll out its initiative.”  The few IPOs so far this year are drops of water in the desert, and those that are in the queue, while they represent outstanding companies, do not represent a sufficient number of companies to make a material difference for the institutional investors and the many entrepreneurs who have the most at stake.  Let’s not misinterpret false positives at the expense of the future of the American economy.

Keynote Speech at the Global Security Challenge, Chicago, September 22

imagesI will be the keynote speaker at the America Midwest Regional Final competition of the Global Security Challenge (GSC) on September 22nd in Chicago.  This event is part of a global competition to deliver innovative solutions to pressing cybersecurity problems.  The GSC Security Summit 2009, which will be held November 13 in London, will see the culmination of the six regional finals held around the world in September and October.  The Summit will include the final pitches from each regional finalist in the SME and Start-up categories, as well as the ‘Dragon’s Den’ style closed-door Q&A with the expert Judging Committees. The award categories are:

  • Best Security SME
  • Most Promising Security Start-up
  • Most Promising Security Idea

Top contenders from previous Global Security Challenge competitions have subsequently raised over $55 million in new capital.  The current open competition is for the “Most Promising Security Idea”:

The GSC committee recognizes that there are many potentially disruptive innovations that have yet to reach commercialization. Through the Most Promising Security Idea category, the GSC encourages innovators to continue to pursue their ideas and efforts. The award is designed to support and promote researchers, infant companies (with no revenue), and any other inventors who just have an idea for a security solution.

The winners of this category will receive:

  • $10,000 cash grant, sponsored by Accenture.
  • Mentorship from Mark Shaheen, managing director of Civitas Group.
  • Unparalleled networking opportunity with government officials and industry leaders.
  • Invaluable publicity.
  • Examples of our areas of interest are (but are not limited to): biometrics, detection sensors, cyber security, video surveillance, RFID, personnel protection, encryption software, data-mining, biotechnologies, and explosive trace detection. Who can Apply?: Eligible entrants must be a company, or one or more individuals, whose idea did not generate revenue in 2008.Deadline for Submissions: September 1, 2009 at 11.59 GMT.

For more information on the GSC CLICK HERE.  I am proud to be involved with this competition as it represents the type of innovation challenge that drives entrepreneurs to develop breakthrough ideas into real companies.

Wall Street Journal Opinion Column: Don’t Strangle Venture Capital With Miles of Red Tape

The Wall Street Journal published a combined version of  my letter to the editor in response to the Washington vs. Silicon Valley editorial of August 7 with letters from Harry Edelson (another First Boston alumnus from the ’80’s), and Ryan Phillips (whom I do not know).  My blog post of yesterday is a longer version of the letter that I sent to the editor.  Scott Austin has written a lively column today on this topic in Venture Capital Dispatch.  The opinion piece elicited 60 comments as of the date of this post covering a wide range of opinions on this important topic.

I think it’s very important that readers separate their personal feelings about venture capitalists from the capital markets issue.  Small cap IPO’s are necessary to restore job growth in America, regardless of whether they are venture backed or not.  If we don’t restore a robust market for initial public offerings of companies raising less than $50 million, America loses, and that has everything to do with promoting entrepreneurs.

Reversing Unintended Consequences From Regulation is Critical to Restoring Small Company IPO’s

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I liked the Friday, August 7 Wall Street Journal editorial, Washington vs. Silicon Valley, but it does not go far enough.  In Silicon Valley, Boston, Austin, and other innovation centers across the country, entrepreneurs and their backers (who are not limited to venture capitalists) are all keenly aware that Washington’s addiction to enacting hasty, one-size-fits–all financial regulation will continue to have far-reaching unintended negative consequences for the U.S. economy:

“… Sarbanes-Oxley compliance costs, Eliot-Spitzer’s stock analyst settlement and the economic downturn have created an historic drought in venture-backed companies going public.  . . .  It boggles the mind that Washington would enact new policies sure to prolong this (IPO) drought and strike at the heart of American innovation.” (from the WSJ editorial)

The U.S. IPO drought testifies to a systemic liquidity crisis for emerging growth companies that is putting at risk an entire generation of innovative American companies.  IPO’s are essential to job growth in America and to maintaining a balanced innovation ecosystem for two important reasons.  First, the National Venture Capital Association has published data revealing that over 90% of the jobs created by venture-backed companies occur AFTER they go public—and this relationship holds over the past 40 years.  Second, emerging growth companies lose negotiating leverage in acquisitions when they have no other viable liquidity alternatives.  Between 2001 and 2008 mergers and acquisitions (M&A) accounted for 87% of venture-backed company exits, up from an average of 44% in between 1992 and 2000.

Large corporations are generally not known for being innovative and even less for creating new jobs after acquiring other companies (merger “synergy” is code for firing people). In the current liquidity starved environment, some acquirers are able to drive draconian acquisition terms, including features such as two-year contingent calls on up to 100% the cash proceeds to selling investors.

Venture capital partnerships are typically ten-year partnerships with historically proven expectations that significant liquidity will be delivered from successful partnerships to investors by year 6. The median age of a venture-backed company at the time of its IPO has increased from 4.5 years in 1998 to 9.6 years as of year-end 2008.  The median company age at the time of an M&A exit has increased from 3 years to 6.5 years over the same time frame.

What makes this combination untenable is that the IPO drought, combined with lengthy “tails” on lower-value merger payouts, pushes liquidity out much closer to the end of life of the partnerships themselves, making it impossible for investors to re-cycle their prior risk capital to fund the next generation of innovative companies based on previously valid asset allocation models.  The massive institutional investor losses incurred from investments in asset classes unrelated to venture capital due to the global financial crisis have only fanned the wildfire fire burning in the American innovation forest.

We must solve the IPO problem, and a review of historic IPO data pre-technology bubble suggests that we need to achieve an average of 130 IPO’s per year to restore equilibrium to the venture-backed company liquidity cycle.   While Sarbanes Oxley compliance costs and the stock analyst settlement are part of the problem, the root causes include the decimalization of stock trading commissions and the death of the sub $50 million IPO.

Investors take risk in order to reap rewards.  Washington needs to recognize, first and foremost, that entrepreneurs, venture capitalists, institutional investors, market markers, and underwriters all seek to be rewarded for committing risk capital (which includes sweat equity) to making these highly risky ventures successful.  If the upside is taken away by regulations that make the risk/reward equation unattractive, risk capital and entrepreneurs will leave the U.S.  That exodus has already begun, and it is evident in many statistics that testify to America’s slipping global competitiveness since 1999.

Sadly, risk aversion is the order of the day in Washington at a time when we need risk takers to lead America to a new cycle of sustainable economic growth through new job creation.  It’s past time for our policymakers to unwind the unintended consequences of a decade of ill-conceived securities regulations that have already weakened our innovation ecosystem.  Let’s start by advocating policies that will bring risk-taking entrepreneurs and technology innovators back to the table before the American cupboard is bare.

Bob Ackerman of Allegis Capital– America Depends on Entrepreneurs While Current Public Policy Assaults Them

Images On June 25th I moderated a panel on the implications of America’s
Innovation Crisis for Cybersecurity at the National Press Club in
Washington, D.C.  The full transcript of the slides integrated with my
prepared remarks is now posted at www.levp.com .  This event was sponsored by the non-profit Security Innovation Network.

At the end of the panel I asked each of the panelists, Bob Ackerman of Allegis Capital, Professor Randy Katz of Berkeley, and Dave Robbins of BigFix, to answer the following question:

“In closing, I would like each of our panelists to comment on the most
important change that they would like to see implemented in order to
promote the protection of our nation’s critical infrastructure.”

Bob Ackerman’s answer follows:

“The solution to the critical needs of our country  – whether it is in reinventing our economy or the innovation that is essential to protecting our nation’s critical infrastructure – will depend on the creativity and drive of entrepreneurs. At precisely the same time that political leaders are calling for expanded innovation to meet our national needs, there appears to be an almost all out assault on entrepreneurship in America – by deed if not by word.  Capital and talent are the two most valued and at the same time portable assets in the global economy.  For more than three decades, the United States was the destination for the best and brightest minds from around the world.  In the US, brilliant entrepreneurial risk takers found the resources they required to implement their dreams and an environment that rewarded those that took the risks associated with innovation – and succeeded.  Today, we are making it increasingly difficult for the best and brightest to come the US and stay to contribute to our economy. For those that are here, we are increasing the regulatory hurdles associated with building successful businesses while increasing the taxes associated investments make in long term innovation.  Stock options – once the great wealth builder for employees in start-up companies – have had much of their value striped by regulatory changes.  When combined with the current political overtones that suggest people who have achieved wealth must have somehow “cheated”  – we have created an environment where the risk/reward associated with high risk entrepreneurial innovation is seriously out of balance.  At precisely the same time where we are more dependent than ever on an innovation-driven economy and our competitors have borrowed our historical playbook – we are effectively erecting barriers to innovation in America.”

How should we respond?  We need to attract and retain the talent and capital necessary to fuel the engine of innovation.  We need to attract capital and encourage focused, systematic innovation through modifications in our tax code.  Lower tax rates for long term innovation is an excellent place to start.  We need to rethink our approach to regulation with a more constructive understanding of the levels of risk associated with (and appropriate regulation) companies as they grow and prosper.  A successful start-up company and a multi-billion dollar global player should not be subjected to the same level of regulatory oversight – in most cases. Further, our immigration policies need to focus on encouraging the world’s best and brightest to come to the United States, benefit from our educational system and remain here to contribute to our economy.  Today, our policy in this area can almost be described as “Here’s your PhD. – now go home!”.  Rest assured – the capital will follow the talent.

In parallel with the above, we need to take concrete steps to encourage companies to grow in the U.S.  This is a combination of the steps I have previously mentioned while making it easier for young companies to go public – tapping the capital they need to continue growing and adding high paying jobs to our economy.  Regulatory reform can address some of these issues but the venture industry also needs to take responsibility for re-invigorating the investment banking environment upon which a vibrant IPO market is dependent. This is an area where experience will matter.  For example, venture professionals who have lived successfully through these challenges in the past – have an invaluable historical perspective that can contribute to this revitalization.  Unfortunately, many have left or are leaving the industry.  Why – it’s become harder and harder to be successful while the rewards are being diminished.  They either retire – or they follow the entrepreneurs who are voting with their feet and talent and moving to greener pastures – in other countries.

Dave Robbins– BigFix CEO, on Top Priorities for Protecting U.S. Critical Infrastructure

Last Thursday I moderated a panel on the implications of America’s Innovation Crisis for Cybersecurity at the National Press Club in Washington, D.C.  The full transcript of the slides integrated with my prepared remarks is now posted at www.levp.com .  This event was sponsored by the non-profit Security Innovation Network.

logo_subAt the end of the panel I asked each of the panelists, Bob Ackerman of Allegis Capital, Professor Randy Katz of Berkeley, and Dave Robbins of BigFix, to answer the following question:

“In closing, I would like each of our panelists to comment on the most important change that they would like to see implemented in order to promote the protection of our nation’s critical infrastructure.”

Dave Robbins’ answer follows:

First, I would like to see all federal IT groups focus on building a stronger foundation within their core network.  Often, an IT organization gets caught up in the purchase and implementation of a myriad of tools that don’t really solve key and basic problems.  In order to be more secure, you have to have better real time situational awareness: how many assets do we have; where are the assets located; where in the world are those assets now; what applications are running on the asset; what non-approved applications are on the asset; what is the patch level; is AV running.  Secure your core configuration and the rest of the task of security becomes much easier.

Second, make the entire process of selling to the U.S. government easier.  I find it sad and ironic that it is easier to sell governments throughout the world compared to my own. Far too many complicated buying processes and far to many acronyms and archaic terms (skivvy-skree is actually patch management!?!) create an impenetrable wall between young innovative companies and selling to the government.   Dealing direct with the government would make it easier instead of being forced to work through resellers and integrators that have little real knowledge of what makes an innovative company special.

You have to remember, if you want access to new innovative technology, you must find ways to work with smaller companies. Large companies don’t innovate, they increment, which is the antithesis of innovation.   Patents don’t equal innovation…products equal innovation.

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Aspen Ideas Festival—The Founding Fathers of Blogging Discuss the End of Media

imagesI am at an early morning session where Jason Calacanis, CEO of mahalo.com, Nick Denton of Gawker, and Jeff Jarvis of BuzzMachine and the New York Daily News, discuss the challenges of printed media’s transition to online digital media. This topic and Twitter are big themes at this year’s Ideas Festival, with everyone from Steve Brill to Michael Kinsley, Norman Pearlstine and Katharine Weymouth discussing the former and Peter Hirshberg driving an army of Tweeters at #AIF09 to develop a use case for the latter.

What amazes me is that the discussion on the demise of the traditional media model amounts to a collective shrugging of the shoulders by these experts.  Given that the business model for traditional newspapers is so broken, the disagreements as to the way forward run very deep.

Some of the suggestions in this morning’s breakfast discussion include that every print article should disclose  metrics as to how many people have read it in order to establish popularity benchmarks—this becomes a way of judging market reach as well.  Risk: ‘The New York Times could become the Paris Hilton Times’.  This tension between the eroding credibility and gravitas of the “traditional press” and the “deep but unverified assertions” of many blogs is at the heart of the problem.  Building a business model that scales to capture the high ground of credibility at a large scale online is in the process of evolving.  100-journalist strong online media news organizations are now thriving (meaning profitable), per the panelists.

Chaos currently reigns. Jeff Jarvis recommends reading Clay Shirky’s Thinking the Unthinkable.

Commenting on Twitter— the speakers highlighted the asymmetry of Twitter between The Followed and Followers. Finally the discussion has turned to the fact that Twitter makes no money.  The speakers believe that the Twitter business model will turn into search-based advertising and feel that Twitter is so revolutionary that the successful business model for Twitter is at hand.

I’ve been a Twitter skeptic but am starting to see it as a useful public utility for crisis situations and spontaneous viral group eruptions (from the incipient Iranian revolution to the Aspen Ideas Festival).

Follow me on Twitter @plevensohn and check out #AIF09 in the Twitter stream to see what is going on at the Aspen Ideas Festival in real time.