Tag: government
This article originally appeared online at Inc.com in an article titled Government Shouldn’t Be In The Accelerator Business. I talk more about this and lots of other topics in my recent book Startup Communities: Building an Entrepreneurial Ecosystem in Your City.
As a co-founder of TechStars, I’m a huge believer in the mentor-driven accelerator model. But I don’t think government should be funding these accelerators, nor do I think they need to.
A good accelerator can be run in any city in the world for $500,000. Entrepreneurs with a compelling track record and approach should be able to easily raise, or even provide this capital. As evidence of this, there are already hundreds of accelerators in the U.S., without government funding, being run as entrepreneurial ventures for profit by entrepreneurs.
When we started TechStars in 2006, the idea of an accelerator was brand new. We funded the first TechStars program in Boulder in 2007 with $230,000. There were four investors – me, TechStars CEO David Cohen, David Brown, and Jared Polis. All four of us had been successful entrepreneurs and we decided to try TechStars as an experiment to help create more early stage start-ups in Boulder. We figured out the downside case was that we’d spend $230,000 and end up attracting 20 or so new, smart entrepreneurs to Boulder.
That first program went great and has already returned over two times our invested capital with several of the companies still having future value. We ran the second program in 2008, expanded to Boston in 2009, and adopted a funding strategy for each local program which we continue to use to this day. TechStars surpassed our wildest expectations and now runs over 10 programs a year for over 100 start-ups around the United States. We’ve begun expanding internationally with our first program running this summer in London. And there are many other accelerators around the world using the TechStars mentor-driven model that are members of the Global Accelerator Network.
All of this is privately funded. We’ve never taken a dollar of government funding, nor do we plan to.
While the amount of money required to run a program has increased from the original $230,000, it’s still well under $1,000,000 per program cycle. As a result, the amount of capital we need to raise to run a TechStars program is modest, and since we run it to make a financial return, it is actually an investment, rather than an expense. And, by being focused first on the financial return as well as playing a long-term game (we expect to be running TechStars accelerators for a long time), we are very thoughtful about how we allocate capital.
If entrepreneurs can’t figure out how to fund it, why should the government do it? That just seems like a situation where capital is going to be allocated poorly and the incentives won’t be tightly aligned.
I heard the word “connector” several times yesterday at the Colorado Innovation Network summit. I gave the final speech of the day after being in Chicago in the morning to give the keynote speech at the Excelerate Labs Demo Day which was an awesome group where I discovered one company I’m very interested in potentially investing in.
In both cities (Chicago and Denver) I gave a talk about Startup Communities using the Boulder Thesis as a framework. The Chicago talk was short and tight (about 15 minutes) to warm up the event. The Denver talk ended up going almost an hour and having a lot of Q&A. Both were simulating (at least to me – hopefully to the crowd) and the entrepreneurial energy in both rooms was significant.
While I missed most of the COIN summit because I was traveling back from Chicago, I caught a few of the last talks before mine. I also talked to a bunch of people and kept hearing the word “connector” come up – it must have been one of the words of the day. This was used to define a role for many of the constituents in the COIN summit which included entrepreneurs, government, university, and big company folks.
My good friend Phil Weiser, Dean of the CU Law School, introduced me to the word “convener” several years ago. CU Law, and specifically the Silicon Flatirons program that Phil created a decade ago, plays a huge convening role for the Boulder startup community. As a result, it sits in the center of a lot of activity. It’s not a connector – it’s a convener.
Government and universities, in my view around startup communities, are feeders, not leaders. Feeders are important, but they are different – and play a different role than leaders. For a startup community to be vibrant and sustainable the leaders have to be entrepreneurs. This is the first tenet of the Boulder Thesis.
A convener has much more leverage than a connector. A connector implies a lot of work and a lot of control. There’s also a hierarchical dynamic – connectors are choosing who to connect; as a result they become gatekeepers which is not the right role for a feeder. I believe most gatekeepers inhibit the growth and development of a startup community so any role that looks gatekeeper-ish is often an inhibitor to progress.
Conveners quickly develop a reputation for being inclusive and accessible. This is another tenet of the Boulder Thesis – everyone in the startup community must be inclusive to anyone who wants to engage.
I was going back and forth with a founder of a startup in Chicago this morning by email who is now eight years old (not really a startup anymore) and just rented a 60,000 foot office and is looking to help the startup community more now that it’s gotten to a meaningful size. I suggested that, among other things, they play a convener role.
Basically, all feeders to a startup community can play a convener role. It’s more powerful than simply being a connector.
This is a post by Dave Jilk, a long time friend, business partner, and CEO of Standing Cloud. While the words are his, I agree 100% with everything he is saying here. I continue to be stunned and amazed by both the behavior of our government around this and the behavior of “us” (companies and individuals) around their data given our government’s behavior. But Dave’s point is not only around the actions of government, but the broader risks that exist in the context of multi-tenant services that I don’t think we are spending enough time thinking or talking about.
While I was in Iceland a few weeks ago, there was a set of discussions driven by Brad Burnham of Union Square Ventures about trying to make Iceland and “Internet Neutrality Zone” similar to Switzerland and banking. While I have no idea if this is feasible, the need for it seems to be increasing on a regular basis.
I encourage you to read Dave’s post below carefully. While neither of us are endorsing or defending Megaupload, it’s pretty clear that the second order impact and unintended consequences around situations like the government takedown of it have wide ranging consequences for all of us. And – it’s not just the government, but mother nature and humans.
Suppose you live in an apartment building, and one day the federal government swoops in and takes control over the building, preventing you from entering or retrieving any of your belongings. They allege that the landlord was guilty of running a child prostitution ring in the building and, while you are not accused of any crime, they will not give you access to your property. They suggest that you sue the landlord to get your property back, even though the landlord no longer controls the property.
This seems like a fairly obvious violation of your rights, and it is unlikely that the government would be able to maintain this position for long. Yet this is exactly what it is doing in the Megaupload case, and in relation to the rather lesser crime of copyright infringement. Somehow – perhaps because of the pernicious influence of large media companies on the government’s activities – rights to your digital data are taking a backseat to any and all attempts to enforce the copyright laws. This is what the online community was trying to prevent with its opposition to SOPA/PIPA, and the government seems to have elected to implement a de facto SOPA by simply trampling on the Constitution.
While I could rant further about the government’s egregious behavior, let’s talk about the practical implications of this situation. The primary implication is that there is a new risk to your data and your operations when you use multi-tenant online services. Such risks have always existed: if you do not have both an offsite backup of your data and a way to use that backup then any number of black swan events could disrupt your operations in dramatic ways. Earthquakes, wars, power brownouts, asteroids, human errors, cascading network failures – yes, it reads like the local evening news, and though any one situation is unlikely, the aggregate likelihood that something can go wrong is high enough that you need to consider it and deal with it.
What this particular case illustrates is that a company that provides your online service is a single point of failure. In other words, simply offering multiple data centers, or replicating data in multiple locations, does not mitigate all the risks, because there are risks that affect entire companies. I have never believed that “availability zones” or other such intra-provider approaches completely mitigate risk, and the infamous Amazon Web Services outage of Spring 2011 demonstrated that quite clearly (i.e., cascading effects crossed their availability zones). The Megaupload situation is an example of a non-technical company-wide effect. Other non-technical company-wide effects might be illiquidity, acquisition by one of your competitors, or changes in strategy that do not include the service you use.
So again, while this is a striking and unfortunate illustration, the risk it poses is not fundamentally new. You need to have an offsite backup of your data and a way to use that backup. The situation where the failure to do this is most prevalent is in multi-tenant, shared-everything SaaS, such as Salesforce.com and NetSuite. While these are honorable companies unlikely to be involved in federal data confiscations, they are still subject to all the other risks, including company-wide risks. With these services, off-site backups are awkward at best, and more importantly, there is no software available to which you could restore the backup and run it. In essence, you would have to engage in a data conversion project to move to a new provider, and this could take weeks or more. Can you afford to be without your CRM or ERP system for weeks? By the way, I think there are steps these companies could take to mitigate this risk for you, but they will only do it if they get enough pressure from customers. Alternatively, you could build (or an entrepreneurial company could provide) conversion routines that bring your data up and running in another provider or software system fairly quickly. This would have to be tested in advance.
Another approach – the one Standing Cloud enables – is to use software that is automatically deployed and managed in the infrastructure cloud, but is separate for each customer; and further, it is backed up on another cloud provider or other location. In this scenario, there is no single point of failure or company failure. If the provider of the software has a problem, it doesn’t matter because you are running it yourself. If the cloud provider has a problem, Standing Cloud has your backups and can re-deploy the application in another location. If Standing Cloud has a problem, you can have the cloud provider reset the password for your virtual server and access it that way.
As long as governments violate rights, mother nature wreaks havoc, and humans make errors, you need to deal with these issues. Make sure you have an offsite backup of your data and a way to use that backup.
Yesterday I was with yet another non-US entrepreneur who is struggling to get the right visa to stay in the US and build his company here. This entrepreneur happens to be from England and his business partner (and best friend since they were kids) is also English, but managed to get into the US because he fell in love with and married and America a while ago. The business partner lives in Denver so they started the company in Denver a year or so ago.
They are a small company right now with a pretty interesting product and vision. One founder lives in the UK, the other lives in Denver. The UK founder travels to the US when he can get a travel visa, but he’s been careful not to get offsides since he’s been in the visa application process for a while. They’ve spent a bunch of money on legal fees, continue to chew up money on travel from the UK to the US, and have to deal with the uncertainty (both timing and functional) around the visa process.
Along with some others, I’ve been trying to get something called The Startup Visa Act passed in Congress and turned into law. The biggest thing to come out of it for me personally has been a deep understanding of how the process of an idea to bill to law works.
After two years of advocating for this, there is extremely broad support throughout Congress for this concept and it has been written into many of the job creation / startup type bills that are out there. But – nothing has been passed. The White House made some policy changes over the summer which have been somewhat helpful, but are still making their way through the USCIS bureaucracy, which means many of these policy changes are not yet being implemented, or people in the field at USCIS have no idea how to implement them.
In hindsight, I realized I’d made a giant mistake. Rather than call it the “Startup Visa Movement”, we should have called it the “Stealing Jobs From Foreign Countries Act.” I haven’t yet come up with the right acronym for it (SJFFCA doesn’t quite work, but I’m sure some of you out there could acronymize this.) Instead of positioning this as a “Startup Thing” or a “Visa Thing”, we should have just taken the same cynical approach to titling the activity that many in Washington do. I mean, c’mon, how could any red blooded America object to stealing jobs from foreign countries?
Every week I am in contact with at least one foreign entrepreneur who is struggling to stay in the US and build their company here. Over the past year, it’s probably been several hundred which represent thousands of jobs and who knows how much innovative, amazing stuff. Hopefully the new USCIS Entrepreneur in Residence program will help figure out how to make the Startup Visa a reality. Or maybe Congress will finally take some action and get a bill passed. Either way, I know that as every day passes, we are missing a huge opportunity in this country by making it hard for non-US citizens to stay here and build their high growth entrepreneurial companies.
This afternoon in Boulder I’ll be on a panel as part of the White House Startup America Roundtable. If you weren’t invited to the event, there is a web site called Reducing Barriers to Innovation that you can participate in.
Over the past few years, I’ve spent some time thinking about how the government can help entrepreneurship. It started with my role as the co-chairman of the Colorado Governors Innovation Council which was my first involvement in any formal way with any government initiative. More recently, I’ve focused my energy on the Startup Visa movement and the Startup America Partnership.
When I was reviewing the agenda for the Reducing Barriers to Innovation program, the goal of the program was pretty clear:
“The Startup America: Reducing Barriers event is a regional platform that allows federal agencies to hear directly, from entrepreneurs and local leaders like you, how we can achieve our goal of reducing the barriers faced by America’s entrepreneurs. Senior Obama administration officials need input on what changes are needed to build a more supportive environment for entrepreneurship. “
On my run yesterday, I mulled over the big activities that I thought the federal government could do to “build a more supportive environment for entrepreneurship.” I came up with five things that I think are relatively easy to measure over the long run. Following are short thoughts on each of these areas with one specific idea (in italics) that I think would materially impact entrepreneurship in America in a positive way.
Tax Policy: Incent people to invest in startups. While there are several well understood tax policies that could be implemented, the simplest is to provide long term tax breaks for individuals to invest in new startup companies. As with anything tax related, there are endless politics involved and many of the things that actual get rolled out are so obscure that they either never get implemented or are to difficult for investors to understand. Make it simple – eliminate capital gains if an individual (who is an accredited investor) invests equity (i.e. risk of 100% loss of investment) in a private company with less than 100 employees.
Immigration Policy: Make it easy for foreigner entrepreneurs to come to the US, or for foreign students to stay in the US, and start companies. This is the essence of what we’ve been trying to solve with the Startup Visa movement. The new Startup Visa Act of 2011 has plenty of improvements over the 2010 Act (which was introduced but never went anywhere) but still is stuck in Congress. If the White House wants to make a difference here, it should prioritize the Startup Visa separately from “broad immigration reform” and help get it passed since the Startup Visa is much less about immigration and much more about entrepreneurship, innovation, and jobs.
Regulatory Policy: Cut as much paperwork and bureaucracy out of the system. While this one is talked about regularly by the people in government that I know, the regulatory environment just seems to get more and more complicated. The solution so far has seemed to be “hire more people to process more paper faster.” This clearly hasn’t worked – how about taking the opposite approach and cut 20% of all jobs within various government agencies responsible for regulatory activity? I don’t care if you pay the fired people for two years – give them healthy severances and incentives to go work in the private sector. Necessity will drive efficiency.
Investment: Focus investment in university research. Then open source the results. The federal government has been a historically successful investor in innovation and the creation of new technologies, often through funding university research. If you want a good example of this, read Bright Boys. Unfortunately, this has gotten really messed up recently due to our byzantine patent system and the evolving dynamics of university technology licensing organizations. The government should allocate even more money to university research programs, but the results of this research should not be able to be patented and should be free for anyone to license. This would drastically change the technology licensing game by simplifying it and shifting economic incentives aggressively to companies that actually commercialize (or productize) this research, rather than simply claim ownership to the “intellectual property.”
Customer: The federal government is an enormous consumer of products and services. While it claims to want to do business with entrepreneurial companies and so far pays its bills in a predictable manner, it’s a miserable customer to deal with. The procurement process is painful, many entrepreneurial companies have to work through government contractor gatekeepers (who take up to a 30% tax for doing nothing other than being the contracting party), and often the execution and implementation process is a disaster. Unfortunately, I don’t really have a suggestion for how to improve this since there are so many rules and regulations around this – I guess the answer is “see regulatory policy” above.
I’m continuing to think through this and refine my thoughts on it, so as always I’m open to any and all feedback, including “Feld – you are such a knucklehead – that’s a stupid idea and will never work, but try this.” Fire away.
I don’t care what your political orientation is, if you want an awesome two hour lesson in leadership watch the movie Thirteen Days. It’s the story of the 1963 Cuban Missile Crisis based on the book by May and Zelikow titled The Kennedy Tapes: Inside the White House during the Cuban Missile Crisis.
Amy and I watched it last night. I was exhausted from two weeks on the east coast and was having trouble speaking (Amy refers to it as “getting the dregs of Brad.”) I think I was even out of dregs so I just laid on the coach and watched the movie. I half watched it a few months ago while catching up on email and I saw it when it first came out so I knew the story. But when I watched it a few months ago I didn’t give it my undivided attention. This time I did because I didn’t have the energy to do anything else.
On Thursday and Friday I was in DC and had four significant experiences. The first was a tour of the CIA which, while limited to very specific physical areas (including the CIA gift shop), included a 75 minute roundtable with the CIA’s CTO and his team about the future. Later Thursday night I had a very quiet tour of the West Wing. Friday morning I was on a panel on The Need for Net Neutrality with Brad Burnham (Union Square Ventures) and Santo Politi (Spark Capital) followed by a dynamite meeting at the White House with Phil Weiser and members of the National Economic Council team, Aneesh Chopra (CTO of the US), and Vivek Kundra (CIO of the US). For two days I was immersed in government leadership.
Yesterday I woke up very late in the morning to Brad Burnham’s post titled Web Services as Governments. It’s a must read post where he makes several very specific analogies for which web services act like which kinds of government. He specifically breaks down which government he thinks Apple, Facebook, Twitter, and Craigslist look like. While you may not agree with his mappings, the general construct is incredibly powerful when you think about creating a company that operates on top of a web service (or platform company.)
And then – after sleeping most of the day – I watched Thirteen Days. As I was immersed in it, I kept thinking about examples from Brad’s post as well as my experience dealing with web services that are powerful governments. When I think about those examples, Thirteen Days is a movie that every CEO and every member of the management team in these companies (or any company for that matter) should watch.
As a bonus, in both my CIA meeting and the Net Neutrality panel I got to toss out my line that “in 40 years we will not be able to distinguish between biological machines and non-biological humans. Basically the machines will take over and our goal should be that they are nice to us.” After waking up this morning feeling much more rested, it was extra fun to see a huge NY Times titled Merely Human? That’s So Yesterday about the Singularity.
I just got the following breaking news alert from The New York Times.
“U.S. Economy Adds 290,000 Jobs in April; Jobless Rate Rises to 9.9%”
Let’s parse this. The first clause says “U.S. Economy Adds 290,000 Jobs in April.” This means to me that a bunch of people found new jobs in April. A bunch. Yay! Good economy.
The second clause says “Jobless Rate Rises to 9.9%.” This means to me that the number of people in the U.S. that don’t have jobs went up in April.” A quick search showed that the March “jobless rate” (actually the unemployment rate) was 9.7%. That’s a big relative jump, especially given that it was 9.7% for the first three months of 2010 according to the Bureau of Labor Statistics Economic News Release titled Employment Situation Summary that came out a few minutes ago. Boo! Bad economy.
How could this be? The simple explanation is mid-way through the WSJ article titled U.S. Added 290,000 Jobs in April which appeared about six minutes after the NYT article:
“The two numbers are calculated by the Bureau of Labor Statistics in different ways. The payroll figure is taken from a survey of employers, while the jobless rate is calculated using a household survey.”
I just read through the BLS report and looked at a few of the tables. Yes, there’s a ton of data here. However, it breaks all kinds of rules about how to present data to reach a conclusion. Our friends at the BLS need to hire Edward Tufte to get some help with their data presentation skills.
There are now two stories based on two completely calculations munged together into one sound bite. The explanation will likely turn into “more people are looking for jobs now.” But why is the denominator shifting around? Weren’t those people already jobless (unemployed), even though they weren’t looking for jobs? Oh – wait, if we include the people not looking for jobs in the historical unemployment calculation, the unemployment rate goes up, maybe by a lot. Eek – wouldn’t that be more scary.
It’s a simple game the government is playing with the numbers. Occasionally I’ll run into a company that does this – usually around revenue vs. gross margin dynamics, or bookings vs. revenue, or GAAP accounting vs. actual cash flows (where what really matters is cash flows.) Picking the better number vs. dealing with reality is disingenuous at best; presenting them in conflicting ways that obscure the message is bullshit.
Oh – and 20 minutes later the newest NYT Breaking News Alert is now “Four-Month Rise Strengthens U.S. Job Outlook.”