I had the privilege of spending the day today back at Harvard Business School at a venture capital conference organized by the burgeoning entrepreneurship department. Professor Bill Sahlman (who has easily trained more VCs than any other professor) organized a spectacular affair with 60-70 VCs from around the world, although with a heavy Boston weighting. In addition to the riff raff such as myself, there were numerous luminaries there, including Arthur Rock (who wrote the business plan for Intel), Peter Brooke (Advent founder), Henry McCance (longtime head of Greylock), Jim Breyer (Accel), Rick Burnes (founder of Charles River Ventures) and others. And the speakers outshone the audience!
A few interesting perspectives shared today:
- Larry Summers, Harvard’s President, emphasized the transformational impact that technological innovations in life sciences will have on our economy and lives, and the important role of the VC industry in taking projects out of the lab and enabling widespread distribution. Summers has embarked on a massively ambitious Allston construction project which, when completed, will serve as a haven for inter-disciplinary scientific discovery. Boston today, like Florence in medievel times, has the opportunity to be the most advanced community for the discovery and incubation of scientific breakthroughs and Harvard seems determined to truly lead that effort.
- Bob Langer, George Whitesides and Doug Melton added to this perspective with case studies of their own labs at MIT and Harvard and the incredible "innovation productivity" that they have achieved. Some common patterns they highlighted: pursuing high risk, big ideas; encouraging external and internal collaboration; stressing interdisciplinary approaches to problem-solving; and strong relationships with VCs and industry to reduce friction and improve throughput in the "from lab to market" process. They cautioned, though, that typical VC time horizons (4-6 years) may be too short for early stage research commercialization time horizons (6-10 years).
- Clay Christiansen talked about the power of disruptive approaches (both low-end disruption and new market disruption) and the benefit to VCs of finding and investing behind disruptive opportunities rather than incremental ones. A good lesson for those in the industry that jump on the "me too" funding bandwagon.
- Michael Porter highlighted the important role of strategy for the VC funds and their portfolio companies – the need to be unique at something, not "the best", and to make hard strategic trade-offs when building the value chain that delivers the unique product/service. Good boards and CEOs, he noted wisely, need to be willing to say "no" frequently and with conviction.
- Jay Light, Andre Perold, Mohamed El-Erian and Jeremy Grantham discussed asset allocation and the capital markets. They observed that pundits who believe a New Era is upon us are always wrong (as Jeremy quipped after analyzing 27 asset price different bubbles over the last 100 years: "If it were a football match, it would be Reversal to the Mean: 27, New Era: 0". They were quite bearish on US equities (predicting only 3-5% real return across a broad range of asset classes) and, like many others, lamented the dearth of untapped investment opportunities and the "stable disequilibrium" that the scary US current account deficit represents. Makes you want to sit on cash!
- Felda Hardymon and Josh Lerner talked about the internationalization of private equity, warning against "tourist VCs" in China and India as well as reminding everyone that historical fund performance is best for small, focused firms with lots of experience — not newcomers parachuting in with large funds and overly general strategies.
Overall, a very thought-provoking event. Bill Sahlman wraps it up tomorrow, where he will undoubtedly tell us the VC business is a crappy one (newsflash) and that we should all be pursuing new jobs as timber executives at hedge funds.