Posts from September 2004

The tagline of this blog is “musings of a VC in NYC”.

In my first post, I wrote:

I am a VC. Have been for 17 years. I help people start and build technology companies. I do it in NYC, which isn’t the easiest place to build technology companies, but its getting better. I love my work.

So its pretty clear that my work and where I do it are pretty entwined in my mind.

Yesterday, I was one of about 40 VCs who came to a breakfast hosted by Andy Alper, head of the NYC Economic Development Corporation, and Henry Kravis, who in addition to being one of the founding partners of KKR is also the Chairman of the Partnership for New York City and the New York City Investment Fund.

The idea behind the breakfast was to get out the word that NYC is a great place to start companies and that more money needs to be invested into the companies that get started in NY. Henry got the ball rolling with some nice remarks and then turned it over to Andy who made the case with a fine speech.

I am all for more venture capital in NYC. I’ve made a bunch of investments in this city and the firms I’ve been involved with over the years have made many more. It’s a fine place to start a company and grow a company. There are certain kinds of companies that its very hard to start and grow here, like semiconductor and hardware businesses, but I don’t generally invest in those kinds of businesses anyway. In fact, the NY tri-state area has produced better returns for me over the years than any other location in the country. I am not saying that it would do that for everyone, but it’s done that for me.

Andy and Henry’s main beef was the fact that NYC is home to a larger amount of venture capital funds (as a percentage of total venture dollars under management) than venture funded companies (as a percentage of all venture funded companies). To put it more simply, the guys in NYC with the money aren’t investing it in NYC. To further drive it home, Andy pointed out that 80% of the venture money that comes into NYC companies is from firms that operate outside of NYC.

Those are damning figures. But they are misleading for several reasons. First, there are many large private equity firms who are headquartered in NYC but have offices all over the country (and world). Firms like JP Morgan Partners, Warburg Pincus, Morgan Stanley, and even pure venture firms like Venrock, are headquartered in NYC (and thus are listed as NYC firms) but do most of their venture capital activity through offices and people spread around the country and world. It’s no surprise that the money listed as “managed in NYC” isn’t all being invested in NYC.

Second, and probably more importantly, NY has never been an easy place to do early stage investing. See my quote above. I know, I’ve been doing it for 18 years now. The venture business has mostly been about finding and investing in the commercialization of science into revolutionary new products. And that activity has been centered in Silicon Valley and Boston for the past 30 years. Even if there were some of these “core tech” companies here in NYC, the VCs tend to be where the majority of the action is, particularly the early stage VCs.

That started to change in the mid-90s. First, technology VC is moving from turning science into products (core tech investing) to turning technology into businesses (applied tech investing). That’s a trend that started 10 years ago but is now gaining steam across the technology and venture capital industries. In the emerging new world of technology, being located in Silicon Valley and Boston is less of an advantage and we are seeing more early stage venture capitalists locating themselves in places like NYC, Washington DC, Atlanta, Chicago, Denver, Seattle, and a host of other business centers that have not been on the venture capital map until recently.

The other change is that we have a pretty strong early stage venture community developing in NYC. There were 40 VCs in the room yesterday. 10 years ago, it would have been half that number or less. These firms are all small by Boston and Silicon Valley standards and don’t have the brands and track records that the older firms do. But many of them do good work and will grow and develop into firms that can stand toe to toe with the older established players.

So, my comments to Andy and Henry as I was leaving were “thanks for putting this together” because we need all the community building we can get, and “be patient, it takes time” because its not going to happen overnight.

Wow. Sometimes life throws you something and you wonder about the coincidence of it all.

After blogging my last post about my one year anniversary of blogging, I checked my email. And there was an email from my niece’s blog with her most recent post. Instead of linking to Julia’s blog, I am going to show you her post from last night.

I wasn’t going to post today, but I would just like to point out that I have been writing on this xanga for a year, exactally, today! And Today is the first day of Fall.

Good Night everyone.

So check that out. She beat me to blogging by one day.

And I thought I was on the cutting edge in this family!

I made my first post on this blog one year ago.

The night before, I met Mena Trout, founder of Six Apart, maker of Movable Type and TyepPad, at a party at Nick Denton’s place. Mena and her partner Ben were on a launch tour for TypePad in NY that week.

Mena suggested I try TypePad and I did. The rest is history as they say.

At the end of the first post, I wrote:

I read blogs a lot. And i think they are great. So i am starting a blog. I have no idea if i’ll write a lot in my blog or rarely. I hope its a lot, because i have a lot to say. But we’ll see about that.

I did write a lot. 593 posts in the first year to be exact. That’s 50 per month, which is the magic number according to Jason Calcanis. I am not making any money on this, but it’s been great fun and it’s been good for my business too.

As for my personal life, its a mixed bag. On the plus side, my wfe, Joanne, aka The Gotham Gal, has taken to blogging as well. My girls are trying it out (no link to their blogs at this point) and they might get into it too. My brother Ted, aka Jackson, is into blogging now bigtime and his friend Pat, aka Tony Alva, is all over it. My other brother Rod reads all of our blogs and his daughter Julia (no link to her either) has been blogging for as long as I have. My parents and uncles read all of this stuff. So our family is really way more connected in this past year than we’ve been since we all lived together.

The negative is the time it takes to post 50 times a month. It’s not a negative impact on my business because I don’t blog at work. The place that takes the hit is my time at home. I blog early in the morning (its 6:40am right now) or after dinner. Josh said to me the other night, “why do you use your computer so much?” That’s a hint if there ever was one.

We’ve got this New Yorker cartoon hanging on our kitchen bulletin board, “Step away from the laptop and hold up your end of the conversation”. That’s my new years blogging resolution. We’ll see if I can live up to it and blog another 600 posts in the coming year.

Everywhere I look I see commodization. Hardware, software, services, telephony, data, content. Prices are collapsing. Everyone has the same stuff. There’s no differentiation.

But don’t despair. Smart entreprenuers can turn commodities into scarcities with the right bag of tricks.

Steve Goldstein, CEO of Alacra, blogged about a panel he’s about to do on content aggregation, a commoditizing market if I’ve ever seen one. But Steve has this insight to contribute:

Content that seems competitive may be complementary and putting together two databases that more effectively meet a customer’s needs can make 1+1=3. An example is EIU + EcoWin creating World Data.

Matt has a great post up at Only Once on Admitting Mistakes.

He says:

the ability to admit mistakes [is] a critical component of emotional intelligence, the cornerstone of solid leadership.

I could not agree more. I’ve made my share of mistakes. And when I was younger, I had a hard time admitting them. Now, I can deal with the fact that I am far from perfect. Admitting them, dissecting them, and moving past them, is a critical business skill. It is essential in terms of managing up. The people who are relying on you to make good decisions need to know that you can recognize the bad ones and learn from them. Otherwise, they’ll lose confidence in you no matter how good your batting record is.

Matt goes on to talk about how this plays out in the politcal world. He implies that Bush cannot admit to the screwup he made in Iraq without losing the election. Maybe that’s true, but Clinton was toast until he finally admitted to the people that he had lied about the Lewinsky affair and felt terribly about it. After that, it was all over for the impeachment effort.

I’d feel a lot better about Bush if he’d admit he was human and screwed up every once in a while.

I am really enjoying this Issues 2004 thing that Jeff got started. I may not agree with most of the comments on my blog (in fact I don’t), but I enjoy reading them and trying to understand the way others think about these issues.

I know its a diversion from most of what I’ve been blogging about for the past year, but we are in an election year and its a big one. So please be patient with this and I’ll be back to my regular beat shortly. After all, this whole blogging thing for me is a big experiment and I see Issues 2004 as a great experiment within an experiment.

So, that said, after reading the comments section, I realized that I had left out one of the points I wanted to make in my healthcare post. It was about Medical Malpractice.

As badly as I feel for the people who have lost a loved one due to medical malpractice or the people who have been maimed for life, I think the benefits to these people are significantly outweighed by the negative impact on the quality of care and the significant increase in the cost of care that results from medical malpractice.

I feel that we need to eliminate medical malpractice from our tort laws. It should not be possible to sue for bad medical practice. I believe in its place, we should have two new systems. The first is the ability to purchase medical malpractice insurance. If you are going into a serious medical procedure, you should have the option to purchase an insurance policy that pays out if you are killed or disabled. That may exist now for all I know. The second is a public rating system on doctors that includes risk weighted outcomes data. This rating system should establish billing rates for doctors. The better the doctor, the more they are paid. The worse they are, the less they are paid.

I know most people will think this is nuts. And I also realize that many of the right wingers who’ve been nailing me for my liberal views will think I’ve finally come around. But they are wrong about that. I am just interested in anything that will make good medical care available to everyone. And I think eliminating medical malpractice is an important part of that.

I made the following comment in my post on Homeland Security:

The Bush Administration used 9/11 to put through a huge reduction in both our freedom and civil liberties. It’s way overdone and dangerous.

Hector and Tony Alva want to know exactly what I mean by that.

Here are some examples of what I don’t like in the so called “Patriot” Act:

The government no longer has to show evidence that the subjects of search orders are an “agent of a foreign power,” a requirement that previously protected Americans against abuse of this authority.

The FBI does not even have to show a reasonable suspicion that the records are related to criminal activity, much less the requirement for “probable cause” that is listed in the Fourth Amendment to the Constitution. All the government needs to do is make the broad assertion that the request is related to an ongoing terrorism or foreign intelligence investigation.

Judicial oversight of these new powers is essentially non-existent. The government must only certify to a judge – with no need for evidence or proof – that such a search meets the statute’s broad criteria, and the judge does not even have the authority to reject the application.

Surveillance orders can be based in part on a person’s First Amendment activities, such as the books they read, the Web sites they visit, or a letter to the editor they have written.

A person or organization forced to turn over records is prohibited from disclosing the search to anyone. As a result of this gag order, the subjects of surveillance never even find out that their personal records have been examined by the government. That undercuts an important check and balance on this power: the ability of individuals to challenge illegitimate searches.

And here are some more things I don’t like:

The “Patriot” Act puts the CIA back in business of spying on Americans. The Patriot Act gives the Director of Central Intelligence the power to identify domestic intelligence requirements. That opens the door to the same abuses that took place in the 1970s and before, when the CIA engaged in widespread spying on protest groups and other Americans.

The “Patriot” Act creates a new crime of “domestic terrorism.” The Patriot Act transforms protesters into terrorists if they engage in conduct that “involves acts dangerous to human life” to “influence the policy of a government by intimidation or coercion.” How long will it be before an ambitious or politically motivated prosecutor uses the statute to charge members of controversial activist groups like Operation Rescue or Greenpeace with terrorism? Under the Patriot Act, providing lodging or assistance to such “terrorists” exposes a person to surveillance or prosecution. Furthermore, the law gives the attorney general and the secretary of state the power to detain or deport any non-citizen who belongs to or donates money to one of these broadly defined “domestic terrorist” groups.

The “Patriot” Act allows for the indefinite detention of non-citizens. The Patriot Act gives the attorney general unprecedented new power to determine the fate of immigrants. The attorney general can order detention based on a certification that he or she has “reasonable grounds to believe” a non-citizen endangers national security. Worse, if the foreigner does not have a country that will accept them, they can be detained indefinitely without trial.

I hope that helps.

With this post, I think I am caught up with Jeff’s Issues 2004 posts.

This one’s in response to his first post of the series, on healthcare.

We had dinner last night with some good friends who are American but have lived in Toronto for almost 20 years and have raised a family there. We asked them about the Candian system. They told us that its not that bad. The quality of care is fine, but you have to wait for treatment. They ration healthcare in Canada to keep the costs down. They told us that compared to the US, if you are poor or lower middle class, their system is much better. If you are middle class, or upper middle class, our system is better for you. For the rich, it sort of doesn’t matter. It’s true that you can’t “buy” healthcare in Canada, but if you “know a doctor” and its more likely that the rich people will know the right doctor, you can go to the front of the line. Worst case, if you are rich, you can go to the US. Buffalo, Detroit, and Seattle all have wealthy Canadian patients.

It sounds a lot like our public school system. The poor mostly benefit because they couldn’t get an affordable education elsewhere. The middle class might suffer because if they could pay for education, they might be better off. And the rich mostly do pay for education, so it doesn’t matter.

So, with that all said, let me tell you what I’d like to see in a healthcare system for the US:

1) Everyone must be insured. If you live in the US, if you vote, or go to a public school, or drive a car, or get social security, or are employed, or anything that requires that you deal with our government, you must have health insurance.

2) Kids must be insured. All children who reside in the US regardless of who their parents are must be able to get healthcare, and not in a hospital emergency room, but in a clinic or a doctors office.

3) Employers must stop footing the bill for healthcare. This is crazy that our employers are at the front line of the healthcare food chain. They aren’t equipped to make those choices and they shouldn’t be burdened with them.

4) Insurance must be collected in the same way as social security. It should be a payroll tax deduction. If you work and are paid, then you pay for your insurance.

5) For those who are unemployed or unable to work, healthcare must be an entitelment. The indigent end up in our hospital emergency rooms anyway, so we ought to do it right upfront.

6) We must have a preventive, wellness oriented healthcare system. We should vaccinate everyone. We should require annual physicals. We should eductate the children on how to eat properly. Etc, etc.

I don’t get too excited about who runs this system. It’s going to be run by a combination of government and industry. The whole idea of a government “take over” of our healthcare system was in my opinion more of a scare campaign by the healthcare industry than reality.

I believe that doctors, and hospitals, and the other companies that have the expertise to make the required investments in our healthcare system should be incented to do that. The goverment should be in the business of collecting the payments and moving the money around. They already do that for social security and other taxes. They are good at that.

One more point and then I am done. I went to Bush’s healthcare page and was turned off by the emphasis on Healthcare Savings Accounts. This is all part of his “ownership society” nonsense. It works great for those of us who are in a position to save, but won’t work for the majority of this country that lives paycheck to paycheck.

Then I went to Kerry’s healthcare page and was embarassed. He has no plan for healthcare that he’s willing to share with the american public right now. I’ll gladly give him mine if he wants one.

Jeff laid out his views on homeland security in his third post on Issues 2004.

I don’t disagree with much of what Jeff has to say on this subject. It’s strange that we essentially agree about homeland security but disagree so fundamentally about Iraq which was pitched as something we needed to do to make us safer at home.

I would like Bush/Cheney to take back the tacit accusation that a vote for Kerry is a vote for Al Qaeda and the rest of the terrorists because its nonsense. No president, no matter how stupid (and I don’t believe Kerry is stupid), or how liberal (and I don’t think Kerry is nearly as liberal as the Bush machine has made him out to be), would do anything to make us less secure. We have enormous investments in intelligence, security, and monitoring and they will only get increased under whomever runs this country for the next four years. Until Bush/Cheney acknowledges that fact, its really hard to have an intelligent debate about this issue. It’s like my kids when they start bickering, you can’t get back to a reasoned discussion.

Unlike Jeff, however, I do have an issue with the “Patriot” Act. We are a country that relishes our freedoms and civil liberties. The Bush Administration used 9/11 to put through a huge reduction in both our freedom and civil liberties. It’s way overdone and dangerous. You’d think we’d all learn the lessons from doing things like imprisoning the innocent Japanse Americans in World War II. But we don’t. We just keep making the same mistakes again and again.

I would focus more of our efforts on intelligence and I mean spies. People who will infiltrate the terrorists and neuter them. That’s how we beat the Mafia. And that’s how we’ll beat the terrorists. It won’t happen overnight, but done right with the proper investment of resources, training, and patience, it will happen.

Porter Gross, the nominee for the new CIA Director and a former spy, has said as much in his assessment of what’s needed to improve our intelligence systems.

Finally, I think we need to maintain multiple intelligence agencies. The Pentagon should have its intelligence. The State Department should have its intelligence. The Justice Department should have its intelligence. We shouldn’t merge it all into one single intelligence organization. We should, however, have some central coordinating role. I think that’s what the job of the National Security Advisor should be. The President needs to have a strong and well respected person in that job who can enforce coordination and communication among these different organizations.