Posted: February 29th, 2012 | Author: Ted Rogers | Filed under: Brazilian Venture Capital, Macro Environment, US Venture Capital | 6 Comments »
Many experts in VC will tell you that venture capital, like politics, is a “local” business. It’s true, of course: the VC needs to know entrepreneurs face-to-face; they need to know the market into which their companies are selling; and they need to build the local networks that lead to quality deal flow. In addition, it’s difficult to effectively assist portfolio companies that are not nearby.
On the other hand, social media and inexpensive voice/video conferencing services enable effective communication over great distances. That, combined with sufficient travel, makes successful, geographically-diverse venture investing very feasible.
In fact, the world of startups, and thus venture capital, is increasingly global. Online media is melding together various markets into one international popular culture – the same YouTube videos go viral in the US, Europe and Brazil; Jeremy Lin is as massive a cultural phenomenon in China as in the US; people in Lebanon follow the same Twitter feeds as people in NY.
Regarding language, for better or worse, English seems to have become a common language of business and culture. This is not unprecedented – for many decades, French was “the language of diplomacy” – if you wanted to travel in international circles, especially diplomatic circles – you needed to learn French. Perhaps someday soon we will all need to know Chinese or Portuguese – many Americans are currently scrambling to learn one or the other – but right now it’s English.
Aside from that, translation services continue to level the playing field. It’s recently become possible to “get by” in most markets despite not knowing the language. Google Translate functions imperfectly but well enough. Other services like MyGengo increase efficiency and accuracy in translation. US personnel in the Middle East use handheld devices to communicate instantly in Farsi or Arabic. A high-quality smartphone app for the rest of us cannot be far behind.
The most intractable barrier to the globalization of startups/VC is bureaucracy. By that I mean anything from shipping to taxes to trade barriers. (Perhaps “logistics” is a better choice than “bureaucracy” but you get the idea.) These barriers, however, cause problems mainly for companies that require physical fulfillment of goods or services. For a great number of companies, this is not an issue. Facebook, Twitter, Google and Skype serve as obvious examples of companies largely unaffected by logistics/bureaucracy.
In sum, the importance of "local" in startups and VC remains but the importance of global perspective has increased. The pace of globalization is accelerating, almost in the same proportion as the pace of technological innovation — it’s as if there's a Moore’s Law in effect for globalization. As such, VC funds that are built for global investing, such as DST, may have the greatest future success.
Posted: February 18th, 2012 | Author: Ted Rogers | Filed under: Brazilian Venture Capital | 3 Comments »
More and more resources exist for entrepreneurs in Brazil. Below I list sources of support in Rio de Janeiro. Some of these sources provide capital, some provide mentoring and some provide both.
I’m sure I am forgetting some people or organizations; if you are one of them, please accept my apology, add a comment below the post and I will add your name or organization. I also know some people/organizations are planning to launch soon and I will add them as soon as they are operational.
Also, many organizations provide support in Rio from a base in, e.g., Sao Paulo. I will try to list them in another post.
Posted: February 8th, 2012 | Author: Ted Rogers | Filed under: Brazilian Venture Capital, US Venture Capital | 5 Comments »
Myth #1 – Venture Investing is a Good Way to Make Money
As the chart below illustrates (courtesy of Flybridge Partners), unless you are in the top 10% of investors, venture capital is a very bad investment, both in gross returns and especially on a risk/reward basis.
For the top 5-10% of venture investors, VC is a spectacular way to make money… but only for the top 5-10%.
Myth #2– Venture Capitalists are Rich
A few VCs are rich but, again, only the ones in the top 5-10%. Almost all VC make relatively low salaries, especially compared to their peers in investment banking, hedge funds, consulting and other areas in which they might have made a career.
Unfortunately, because their investments will not pay off, that low salary is all most VCs will ever make. Carried interest from funding the next Google just isn’t going to happen.
In the far right column of the slide below, you see that the number of VC firms peaked in 2001 at 1883. By 2009, that number was 1188; in other words, 37% had gone out of business. By now (2012), the failure rate has probably reached close to 50%. How many industries do you know in the last nine years where nearly 50% of the firms have gone out of business? Not many.
If your primary goal is to make a lot of money, you are better off in investment banking or hedge funds, etc. Only do venture capital if you truly enjoy it.
Myth #3 – You Must Connect to Silicon Valley in Order to Succeed
a. Here is a list of several of the most valuable/successful companies in the last several years and where they were founded:
Facebook: Boston
GroupOn: Chicago
Living Social: DC
Demand Media: LA
Tumblr / FourSquare / Twitter: NY
b. The most successful venture fund in the last decade (2000-2010)? GRP Partners. Ever heard of them? Probably not. Know where they are based? Los Angeles.
Myth #4 – These Days it Costs Less to Build a Large Company
Wrong. It costs less to build a SMALL company. It still requires a huge amount of capital, as much as it ever did or more, to build a large company, even in the “capital-efficient” Internet space. The list below shows some recent winners and the amount of private (non-IPO) investment they raised:
Facebook: $2.34 billion
Groupon: $1.14 billion
Twitter: $1.16 billion
Zynga: $800 million
Dropbox: $257 million
AirBnB: $120 million
Myth #5 – Ideas Matter
Ideas are commodities. Even seemingly “original” ideas almost always derive from ideas already in the market and, if the idea is good, probably three or four people already have the same idea somewhere else.
Most great companies are not based on original ideas but rather improve on existing ones. Facebook launched two years after MySpace. Before Google, there was Alta Vista, Lycos, Yahoo and half a dozen other search engines. I could go on but you get the point. As Paul Maeder of Highland Capital Partners points out, even Einstein said he had just one original idea in his entire life.
So what matters? Execution of ideas. Who executes? People. Backing the right person is what matters, much more than backing the right idea. As Maeder says, the most important investment calculation is evaluating the entrepreneur and whether “the Force is strong in him”.
