Good morning MIT

Ric Fulop, founder of A123 Systems

Ric Fulop, founder of A123 System, gave us a talk in our Managing Innovation class. A123 Systems is the Boston based startup (MIT spinoff) that everybody talks about. It develops next generation Lithioum-Ion batteries (high power and fast recharging), 

I already had the opportunity to talk to Ric multiple times earlier this year.

Interestingly he said:

• "If you are in a mature market, you cannot make any mistake with your customers... they will never talk to you again. But if you create a market and the customer wants your product very badly, then you are allowed to make mistakes or be late"

He also discussed about competitive advantages of startups. He said that in a startup you need:

• Either low cost or proprietary technology: With one of both you can knock at the door of somebody.
• Customer integration (supply chain): this is something you develop later (you cannot start there).
• System locking: it is critical for long term sustainability

Interesting links

During the last days I have read some useful blog entries related to entrepreneurship:

• A two-part rule for naming your startup: Use a compound name, with 2 components: one word that relates to the product and a second word that represents a metaphorical adjective that evokes the characteristic of the company's product. Some examples, PayPal, IronPort or Brightmail.
• Increase value instead of lowering the price: Seth Godin says that when your customers or sales force ask you to lower the price what they are actually asking is to increase the value. If people don't want to pay, it is because you are not delivering enough value for the money you are charging. Seth is completely aligned with Ken Morse and Howard Anderson in our Technology Sales class at MIT.
• End of the startup phase: Marek Fodor (founder of Atrapalo) wrote in his blog about when the startup phase ends (and therefore, defines some of the characteristics of a startup). Some of the possible criteria he mentions are: a) you breakeven; b) Most employees do not work more than 8 hours a day; c) The company has a receptionist; d) Ideas launched by the competition are the main source of inspiration; e) founders have separated offices from the rest of the team; and f) Founders can stay away (e.g., on vacation) for multiple days and the company continues working as fine (or better) than when they are there.
• Two important lessons from Dharmesh Shah (founder of Hubspot and serial entrepreneur)
  a) Don't Just be a wannabepreneur: If you've got a passion for startups, you need to be in a startup. Very appropriate for me :-)
  b) Raising VC Funding does not equal success: It demonstrates that smart people believe in you and provides credibility to recruit, have customers, have partners, etc-- but it is not success. VC funding is only an opportunity to create success.

Rafael del Pino, founder Chairman of the foundation sponsoring my MBA, dies

Rafael del Pino y Moreno, founder of Ferrovial Group and the Rafael del Pino Foundation, has passed away. He was 87.

In 2000 he retired from his position as Chairman of Ferrovial. His son, Rafael del Pino Calvo Sotelo (who also holds an MBA from MIT), now heads the Ferrovial Group. We had lunch with him when he visited Boston back in April. In 2006 Ferrovial acquired BAA, the world's largest airport operator, for ~$20Billion. BAA manages seven British airports, including London's Heathrow, Gatwick and Stansted. Major construction projects undertaken by Ferrovial include the Bilbao Guggenheim Museum and major airports around the world. Ferrovial also has a strong presence in the US with the control of the Chicago Skyway highway concesion for example. Ferrovial currently has over 100,000 employees.

Since 2000 Rafael del Pino focused on creating the Rafael del Pino Foundation, with the objective of creating weatlh, competitiveness, and dynamism in the Spanish economy by improving the capabilities and business training of the leaders of the future. The foundation has a competitive scholarship program that fully sponsors MBA studies (about $150,000 per scholarship) in the top business schools in the world. The goal is to contribute to further educate the people that for their academic or professional excellence will be the leaders of the future. The list of awardees is here.

I want to thank his economical and personal effort that has allowed me to study at MIT and put me in the path to achieve my goals in life. I would also like to express my condolences to his family and friends.

"Stay focused", founders of Geo2 Technologies

The two founders of the clean energy startup Geo2 Technologies came to our DLEO class. GEO2 was founded by Bilal Zuberi, who has a PhD from MIT and spent later some time with BCG (I also had dinner next to him about 2 months ago) and by Rob Lachenauer, HBS graduate, who was previously a partner at BCG where he spent 17 years. They both met at BCG. Geo2, which provides the technology to reduce the polluting exhaust produced by automobiles, was founded in 2004 and raised $10M last year in its third round of funding.

GEO2 has an enabling technology with applications in many industries. One piece of recommendation they gave is that every week, somebody would open a door saying "you can use your technology in this market" but if you followed all recommendations you would get lost. You need to stay focused.

When they were asked what kind of people you need in a startup they mentioned:

1. Good people: but not necessarily deep expertise into one topic because you need multipurpose people
2. Risk takers, for whom compensation is different (and they understand it)
3. Doers, not advisors close to retirement

"The art of selling," Doug Levin, from Blackduck Software

Doug Levin, serial entrepreneur and founder of Blackduck Software, gave us a talk about the art of selling and how important is for a startup to have sales people with experience. He mentioned that you sell to customers because they have greed or fear. His company Blackduck sells against fear and pricing here is tricky. He mentioned an anecdote about his first sale at Blackduck: He thought that he had selling skills because he had already managed a P&L at Microsoft, so he managed to sellt his first product for a specific amount of money. Then he recruited a VP of sales who sold the same product for 20 times more!

"When to start a company", Jeff Bussgang (partner at Flybridge and founder of UPromise) - part II

I want to add that when Jeff was asked about the right moment in a career to start a company he replied "if you are consumed by starting a company, go for it and do not be so methodological. If you think about it in class, in the shower, or when you walk in the street then go for it."

Jeff Bussgang, general partner at Flybridge Capital Partners and founder of UPromise

Jeff Bussgang, general partner at Flybridge Capital Partners and serial entrepreneur gave us a talk about his background and his experiences as an entrepreneur. Among other things, Jeff was the cofounder of UPromise (acquired by Sally Mae in 2006 for an spectacular amount), spent some time at BCG, and is an HBS graduate.

• His dad came to the US without money and bootstrapped to make the American dream. He says that he has a "kitchen table MBA" and entrepreneurial DNA since he would talk with his dad every day about business, HR, operations, etc.
• Jeff's first entrepreneurial experience was with Openmarket, which had the IPO in the late 90s at a valuation of $1.2B a the peak market cap was $2.5B.
• He later cofounded UPromise which in 2001 with only 20 slides and 2 people (him and Michael now at General Catalyst Partners) raised $34M at a $90M premoney valuation!!!!. He does not think that this would ever happen again. Through my internship at Care.com I have met a lot of people that were involved in UPromise (Sheila and Ron Marcelo, Donna Levin or Dave Krupinski).
• Then he joined IDG ventures with Chip Hazard. In the first fund they raised $100M in 2002, in the second fund they raised $200M in 2005 and recently they have raised an additional fund of $280M.

Some of the lessons he gave to entrepreneurs:

1. "Value of the network": somebody you know introduces to somebody else. See who is doing interesting things out there. Luck happens for a reason. Put yourself in a position to be lucky.
2. "You can't chase the money". You have to follow the passion of shipping a product, build a new application or build a new market. The money will come.
3. Roles of mentors: Every word and experience could be a lesson. Try to learn from everybody.

He gave some numbers about the VC indutry. For him, a successful VC backed M&A exit is in the range $75M-$150M. If a VC owns 20%-25% at exit, the returned capital is $15M-$50M. If the VC aims a 3-5x return in 5 years, invested per company must be $3M-$10M at post-money valuation of $15-$40M (typically over 2 or 3 rounds).

One colleague asked him if Silicon Valley was better than the Boston area for entrepreneurship. He said that the right place to be is where you want to be for a long time. The network matters so you cannot go hopping in different areas.

Another colleague asked him whether it is true than in the US failure in startups is considered good (e.g., you learn from your mistakes so you do not repeat them in the next venture). He said that failing is acceptable if you went/joined a startup situation that was credible (e.g., well backed up, good market, good people, etc.) because it was a good judgement and you look back and you would have made the same decision. However, failing is not fine if you joined a startup based on a bad judgement (e.g., you joined a startup only because you were offered a lot of equity or you were offered a CXO position)

Finally he was also asked about the role of an MBA profile in a startup. He said that it is difficult to fit in because you are not an engineer and you are not a sales person. A good position to start is product manager.

"Do things NOW and not soon", Noubar Afeyan (Flagship Ventures)

Noubar Afeyan (serial entrepreneur and Managing Director of Flagship Ventures) gave precious pieces of advice in his last class of New Enterprises:

• Cynism is very negative in a startup. It is very easy to be cynic when there is uncertainty, when you make up the price of your service/product, when the first customer calls, or when you make fun of the logo, to name a few. Startups are heaven for cynic people. "But start laughing about things you do and the startup is dead."
• Never provide a premoney valuation in early discussions with investors. If the VCs ask you, tell them "let's have the discussion when you are ready to commit".
• VC people are waiting for a reason to say NO. Don't give them the reason.
• In startups you just have to do things NOW and not SOON. If the competion does it now and you do it soon, you are out.

Noubar also talked about typical salaries of the management in a startup in a post round A or B of financing (which sounded surprisingly high):

• CFO: $180K-$250K
• VP R&D $160K-$240K
• CEO $200K-$350K

(ps. Noubar experience is mainly in biotech and he was talking about very senior external management that you bring to the company, not the founders)

Finally, when asked again how much funding startups should raise, he repeated "CASH IS KEY, CASH IS KING: it is counterintuitive but having a lot of funding attracts talent".