I confess to being a Shrek fan. My kids made me (well, sort of) buy the music CD to Shrek 2 and my favorite song on that CD is the Jennifer Saunders song – "Holding Out For A Hero". When they were little we would play it over and over again in the car.

I had that song ringing in my head as I joined a few other start-up mavens at a recent gathering last week organized by Scott Kirsner at the Microsoft NERD Center in Kendall Square.  One of the topics we discussed was: where have all the good mentors and angels gone from Boston?  Unlike in Silicon Valley, where successful entrepreneurs seem to jump back into the fray start-up after start-up, Boston's successful entrepreneurs seem to fade off into the sunset.

Two of the more successful companies in Boston in the 1980s were Lotus and Powersoft.  Their founders – Mitch Kapor and Mitch Kertzman, respectively — are brilliant guys with an incredible amount to offer.  Unfortunately, both moved off to California and are active investors and mentors for young start-ups out there.

I served as an executive team member of two companies in Web 1.0 era who were very successful in their day – Open Market (IPO 1996, peak market capitalization of $2.5 billion) and Upromise (acquired by Sallie Mae in 2006 for 9 figures and today has $21 billion assets under management in 529 college savings accounts and 12 million members).  My two bosses, Gary Eichhorn (Open Market CEO) and Michael Bronner (Upromise founding CEO), were incredible mentors to me, but both are now retired and mainly focused on non-profit activities and family.

Unfortunately, for the next generation of young entrepreneurs in Boston, there simply aren't that many former founders/CEOs who built large, successful companies hanging around.  I can't blame them, but in order for this community to build the next wave of billion dollar companies, we need more senior talent mentoring and investing in our youth.

There are some signs that things are changing.  For example, Bill Warner (founder of Avid) has invested a ton of energy in helping get TechStars off the ground.  And it was good to read in last week's news that Don Maclagan, Nicholas Negroponte and James Pilotta have stepped up and invest in music-intelligence start-up Echo Nest.  I would love to see more of this going forward.  We need the old heroes to stick around and teach the next generation!

"Where's the street-wise Hercules to fight the rising odds?" – Jennifer Saunders.

follow me on twitter:  www.twitter.com/bussgang

For decades, the venture capital industry was like a Yale Secret Society – very clubby, discrete and opaque.  VCs had all the power in the VC-entrepreneur equation, and entrepreneurs had to work hard to decode the mysterious VC process to obtain funding.

My how the world has changed in a few short years.

Pundits will tell you that in terms of trends, 2009 was the year of the real-time Web/Twitter, smart phones/iPhone and the mainstream emergence of digital advertising.  But 2009 was also the year VCs blogging and tweeting really became mainstream. 

Today, over 100 VCs blog regularly (including all five of the Flybridge general partners!). One blogroll puts the number at 129 VC bloggers. That's 10-15% of the active VC population of 1000.  Here's how I get that number:  the NVCA says there are 882 firms in existence in 2008, but with many firms no longer investing new money, I would estimate that approximately 400-500 firms are truly active.  With an average of 2-3 senior investors per firm, there are therefore probably 1,000 VCs that are actively seeking deals and sitting on boards.  The two gut checks on that are:  (1) 1500 new deals get done each year and 1.5 deals per senior VC is the right average and (2) On a bottoms up, geographic basis, there are maybe 500-600 in CA, 100 each in Boston and NY (maybe a bit more in Boston and a bit less in NY), 200-300 elsewhere in the US.

So 10-15% of our entire industry blogs.  And nearly all of the VC bloggers tweet as well.  Think about how extraordinary that is.  Imagine if 50 of the members of congress blogged and tweeted regularly.  Or if 50-75 of the Fortune 500 CEOs.  Or 40-60 of the 400 NBA players.

The amount of transparency and richness of information available to entrepreneurs about the VC world is unprecendented.  This is surely leading to more efficient markets in what many call the most inefficient market of all – the dance of small businesses seeking capital.

When I first started blogging five years ago (inspired by David Hornik, who started VentureBlog in 2003!), I got some funny looks from my peers.  At the time, the thought of VCs revealing our inside secrets and investment strategies was ridiculed. Further, VCs were supposed to be too busy to blog, so the best VCs wouldn't do it as it would take away from their work looking for great deals and managing their portfolio.  Tell that to VC bloggers like David Cowan, Brad Feld, Fred Wilson and other VCs who have 15 year plus great track records.

So why do VCs blog (and tweet) with such frequency?  I can't speak for all 129, but here's why I do it:

1) I love to write.  Simply put, I enjoy words, language and the challenge of expression and composition.

2) Creative expression.  As a VC, I can't exert my creativity in the same way that I did when I was an entrepreneur.  My blog is one productive yet harmless outlet to express my creativity.

3) Educational.  There's an old adage that if you truly want to learn something, teach it to someone else. Forcing myself to explain the VC business to entrepreneurs through my blog has pushed my own thinking and required me to study issues more deeply than I might otherwise have done.

4) Transparent.  The VC business can be an intimidating business to many.  I am an iconoclast at heart.  As a former entrepreneur, I particularly enjoy breaking down barriers and making the VC business more accessible and transparent for others.

Will more than half our industry blog and tweet five years from now?  Stay tuned.

A lot has been written in the last week about the scandal at Canopy Financial, a venture-backed, high-flying start-up that attracted $75 million in capital at increasingly higher prices from top-tier firms, only to come crashing down in a dust of rubble and fraud.  The VC community suffered a very similar scandal at Seattle-based Entellium last year, but few reporters seem to remember that one, perhaps because it wasn't located in the heart of Silicon Valley as Canopy was.

Many of the VCs I’ve spoken to are frankly not surprised that these kinds of fraudulent schemes could have occurred.  In truth, our industry is built on a trust model.  We do our best to conduct due diligence on the team, market, strategy, technology, but at the end of the day many of these investment decisions get made in short periods of time (30-60 days) with incomplete information, particularly when a deal is competitive.  Bandwidth-limited general partners and frenetic CEOs are under pressure to move fast and get things done, leading to rushed, sloppy work to secure the deals.

Perhaps the Canopy Financial case study will finally force VCs into an approach akin to Ronald Reagan’s “Trust, But Verify” policy when it came to dealing with the Soviets during the Cold War.  Prudence wins out over blind trust.

Here are a few specific examples of things VC boards should do, and management teams should openly encourage:

1)    Audit Committee.  Many VC-backed companies don’t do audits until a certain point of maturity to avoid costs and distractions, but certainly a company reporting more than $10 million in revenue should have formal audits.  Further, the audit committee should meet with auditors on an annual basis without management in the room.  This helps ensure that the necessary controls and independence are in place to catch any funny business.  I don’t know what happened at Canopy, and reports that the SEC has accused them of falsification of audit statements sounds extraordinary, but in any event the KPMG senior auditors should have been meeting directly with the audit committee board members, without management present, to sniff out any improprieties.

2)    Role of the CFO.  More than any other management team member, the CFO or VP of Finance must feel accountable to the board directly.  Many CEOs are sensitive to their management team interacting directly with their board.  Board members often view this behavior with suspicion as a sign of an insecure CEO who has something to hide.  This shielding of communication must not be allowed, particularly in the finance function.  CFOs should be interviewed by board members and hired with an acknowledgement that they have an explicit duty of loyalty to the shareholders that requires them to be in direct communication with the board members.  Board members, particularly audit committee members, should go out of their way to interact directly with the CFO so that there is a comfort in communication.  I don’t know the situation at Canopy, but an environment must be established to encourage whistle-blowing.

3)    Board only session.  Too few boards meet, confer and operate as a working unit without the CEO.  Meeting in board-only sessions without the management team allows for a more robust discussion on some of the most important issues a board needs to deal with – including CEO performance, compensation, and general alignment of feedback on strategy and operations.  Additionally, if board members have the freedom to confer without the CEO in the room, it can lead to sharing observations about suspicious behavior that may allow joint problem-solving rather than information silos that may lead board members to conclude everything is fine and their particular observation or concern is an outlier.

These three measures are a few I’ve tried to implement throughout our portfolio.  I’m sure others out there can come up with more.  The subtle point is that CEOs need to get out in front of this rather than have their board impose these things on them in a forced fashion.  Like on many critical issues, CEOs need to be ahead of their boards and leading them towards good governance, not dragging along behind them.

I've been blogging for five years about the start-up, innovation economy and I almost never write about politics.  But this week is different.  This week, the Massachusetts Legislature is about to vote on a bill to (finally) reform education in Massachusetts – to lift the cap on charter schools, empower commissioners to reform the worst-performing schools and create "Readiness Schools" that get around the usual bureaucracy and drive towards academic excellence.

The importance of passing this legislation cannot be over-stated.  I've been somewhat involved with education reform through my activities at Facing History and Ourselves and my role on the Governor's Readiness Finance Commission and I am passionate about its importance to our state's future.  Local business leaders are all over this issue.  Recently, a large coalition formed (including the Progressive Business Leaders Network) and organized by The Boston Foundation called the Race to the Top coalition has been hammering on this issue and building momentum.  A strong education reform bill is now in front of the Legislature for a vote this week.  The teacher's union is against the reform – no surprise – as it will reduce their power.  And those of us who are passionate about the Innovation Economy in Massachusetts are too busy to hang around the State House and lobby.

So here's what you can do.  Read this editorial in the Boston Globe by Scott Lehigh that summarizes the bill.  If you agree with it, take action.  Take two minutes to click on the link below and write your state rep or senator and send them the message that you are IN FAVOR of education reform and that they shouldn't give in to pressure from the teachers' unions.  We desperately need to move forward on this issue and seize the moment.

http://ffs.capwiz.com/DHTML/CAjsform.js

And if you have a blog or tweet, spread the word!  I'll tweet this from www.twitter.com/bussgang and you can retweet away.  If you want, you can even use this Twitter list of the 17 state legislators who are on Twitter to send them the message. http://bit.ly/2VtWU7.

Take action – get engaged.  Now is the time where the pro-reform voice needs to be heard.

(follow me on Twitter at www.twitter.com/bussgang)

A few weeks ago, Fred Wilson posted a presentation he delivered on What Makes the NYC Start-Up Scene Special.

I was inspired to deliver a similar presentation today to a group of Harvard Business School students who are interested in entrepreneurship in Boston. There’s been alot of chatter in the community about a start-up renaissance in Boston.  Don Dodge of Microsoft had a great post listing out all the amazing start-up resources in the Boston community that’s worth reviewing as well.

Yahoo’s ex-president (and fellow HBS EIR) Susan Decker was there to serve as a good foil for my Boston vs. Silicon Valley quips. 

What Makes the Boston Start-Up Scene Special?
http://static.slidesharecdn.com/swf/ssplayer2.swf?doc=cfakepathbostonstartupscenepicturepresentation-11-09-091103193606-phpapp02&stripped_title=what-makes-the-boston-startup-scene-special-2416701

View more presentations from bussgang.

And here’s the video:

http://b.scorecardresearch.com/beacon.js?c1=7&c2=7400849&c3=1&c4=&c5=&c6=http://b.scorecardresearch.com/beacon.js?c1=7&c2=7400849&c3=1&c4=&c5=&c6=

http://vimeo.com/moogaloop.swf?clip_id=7537191&server=vimeo.com&fullscreen=1&show_title=1&show_byline=1&show_portrait=1&color=00ADEF

Here's the video from the talk I gave at HBS on what makes the Boston start-up scene special.

http://vimeo.com/moogaloop.swf?clip_id=7537191&server=vimeo.com&fullscreen=1&show_title=1&show_byline=1&show_portrait=1&color=00ADEF

I find the preponderance of males in VC an annoying and stubborn phenomenon.  When I first entered the start-up game as an entrepreneur in the mid 1990s, I didn't think much of the "VC gender gap" as there were plenty of women executives around.  In fact, between one third and one half of the executive teams at my two start-ups (Open Market and Upromise) were women.

As the father of a capable, ambitious daughter, perhaps I'm over-sensitive to the issue, but since becoming a VC seven years ago, I find it amazing that only 5-10% of the VC industry is made up of women.  Only 25% of all VC partnerships have a single women partner and only 7-8% have more than one women partner.  Anecdotally, even fewer women are "management company GPs" as opposed to "employee GPs" – in other words, true owners of VC funds as opposed to deal partners.  What other major industry remains 90-95% male-dominated?  What's the deal?

An outstanding Kauffman Institute study, “Gateways of Venture Growth”, analyzes this issue and comes up with some thoughtful but unsurprising conclusions.  They point out that the industry remains very clubby, and the lack of female role models creates a self-perpetuating cycle. Professor Myra Hart of Harvard Business School writes, “Women trying to launch or further careers as VCs have fewer first-degree connections with those (men) in positions to hire or promote them.”

Another issue that holds women VCs back is the fact that the academic backgrounds of VCs tend to be in technical areas, such as computer science, engineering and biotechnology where, again, females are in the minority.

In talking to my women VC friends, they reinforced these two major issues, but held out some cause for optimism going forward.  Irena Goldenberg of Highland Capital in Europe (an formerly an associate with us at Flybridge Capital before she went to HBS and then Geneva), believes there are more female VCs in life sciences as the medical field has a higher ratio of women to men then, say, engineering.  Our senior associate, Robin Lockwood, told me she thinks VC profiles simply lags entrepreneur's profiles.  As more women entrepreneurs emerge, more women will become VCs.

Here's a thought-provoking observation that an anonymous woman pointed out to me (and please do not accuse me of channeling Larry Summers on this – I'm just passing along what I heard):  she believes the VC industry is male-dominated because men are more wired to take risks than women.  Gambling, she points out, is more popular amongst men than women.  Thus, risk-taking with capital is more likely to be comfortable for men than women.

Some women have been able to break out as strong investors and industry leaders.  In my informal survey, a few experienced women VCs stood out as strong role models:  Venetia Kontogouris at Trident Capital, Annie Lamont at Oak, Patricia Nakache at Trinity and Nancy Schoendorf from Mohr Davidow.

I guess when you have a clubby, tightly-woven, self-perpetuating network, it's hard for women to break in.  It's a stubborn phenomenon, but I hope we can figure out how to correct it.  Otherwise, our industry is tragically losing out on 50% of the world's best talent!

Follow me on twitter:  www.twitter.com/bussgang

President Obama’s compelling healthcare speech last night made the case for acting now. In a follow-up email that he sent to millions, he urged action to finally address this pressing issue, positing that we are “closer now than we have been in 60 years.”
Here’s my question – where can I find an analysis of the impact of the plan on entrepreneurship? Why has this major engine of job growth been silent or ignored in the debate – or have I just missed it?
Anything that creates friction in entrepreneurship is a bad thing for our innovation economy. I have seen aspiring entrepreneurs hold back in pursuing their start-up dreams because of fear of losing health coverage. Lowering the barriers to allow the flow of great talent to seek great opportunity needs to be a fundamental tenant of the new plan and I’m concerned that our leadership isn’t focused enough on this lens.
Has anyone seen any good data or dialog on this topic? Led by former venture capitalist Karen Mills, shouldn’t the SBA be a strong, relevant voice here?

When I was at Harvard Business School (HBS) in the early 1990s, entrepreneurship was an afterthought.  When I joined the venture-backed Internet start-up Open Market in the spring of 1995, I was one of only a handful of graduates that joined a start-up out of business school (at a fraction of the salary of my classmates, I might add!)

Today, the entrepreneurship department is the largest department at HBS.  Students aren't just joining start-ups, they're creating start-ups.  The annual business plan contest is a huge draw and it is estimated that as many as 40-50 start-ups are created each year by students coming out of the school.  Today, 50% of all HBS alumni describe themselves as entrepreneurs 10-15 years after graduation.

I always love my visits back on campus, interacting with the students, judging business plan contests and hearing about the latest faculty research.  That's why, when one of my former professors invited me to join HBS as an "Entrepreneur in Residence" at HBS, I eagerly agreed.  It's a very part-time gig and will not take away from my day job in any way, but instead will give me a chance to learn from all the brilliant faculty and students running around campus.

I will be working, in particular, with Noam Wasserman, who runs a great course and blog about "Founder's Dilemma".  Noam's research in choices founders make and his very popular course will be a great learning environment for me as well.

So if folks have any answers to the question, "What would I advise HBS students who want to become entrperneurs", let it 'er rip!

Even though I graduated from college (gasp) 18 years ago, I still think about the school season as my annual planning cycle rather than the calendar year.  Having three school age kids reinforces this life rhythm.

And so as I was thinking through my personal goals for this coming year, and discussing individual goals with each of my kids (a recently adopted ritual I highly recommend for any parent), this article from The Economist caught my eye.  The article's subtitle, tells it all:  "Depression may be linked to how willing someone is to give up his [or her] goals."  The article describes research published in the Journal of Personality and Social Psychology by Carsten Wrosch and Gregory Miller, where teenage girls who had strong "goal adjustment capacities" – the ability to disengage from unattainable goals and reset their attention onto new goals – avoid feeling down and depressed.  In contrast, girls who get stuck on their goals and can't reset are more susceptible to depression.  The implication is that if you aren't facile at adjusting your goals, and they're overly ambitious goals, it can lead to depression.

Applying this research to entrepreneurs is an interesting thought experiment.  As investors, we VCs are always attracted to entrepreneurs who set big, hairy audacious goals (BHAGs).  Who wants to invest in an entrepreneur whose pitch is, "I'm going to make a nice living in a small niche," as opposed to, "I aspire to achieve world domination"?  Yet are those entrepreneurs more susceptible to depression and defeatism when they're unable to achieve those outrageous BHAGs?

To reconcile these two views I am reminded of an excellent book I recently read by renowned Stanford psychologist Carol Dweck, called Mindset.  Dweck's research shows that successful people in business, sports and life have "growth mindsets" rather than "fixed mindsets".  The "growth mindset" is one in which a person believes that one's world view is less about ability and more about lifelong learning.  "Growth mindset" individuals feel they can always learn from experiences (failures and successes) and develop resilience because they're focused on personal growth rather than achievement tied to rigid objectives.  When a "growth mindset" individual faces adversity, they focus on the learnings and the self-improvement opportunities that come from adversity.

I have seen in my own work that the best entrepreneurs do set BHAGs, sometimes outrageous and unattainable ones (create a $100 million company in 5 years from scratch?  Is that really possible?), and push themselves to achieve excellence.  But the ones that really distinguish themselves are the ones who embrace the "growth mindset".  They embrace life long learning, no matter how great their achievements, and allow themselves to occasionally hit the reset button and adjust their goals without breaking stride when reality intrudes (such as, say, the greatest financial crisis since the Great Depression) are the ones that can blend the best of both worlds.

What kind of mindset have you seen work best?

Follow me on twitter:  www.twitter.com/bussgang