When the Cold War ended, President Bush (senior) used to talk about the peace dividend, the downstream economic benefit of reductions in defense spending.  Echoing these words, one of my CEOs declared to me the other day that last week's activity in the cloud may have been one of the most important weeks in technology history, but we won't realize it for many years to come.

At Flybridge, we have long believed that the advent of cloud computing is the most important force in technology in decades.  The entire Lean Start-Up movement and the recent proliferation of start-ups has been enabled by cheap computing power and storage.  When I was an entrepreneur starting my company, Upromise, we had to buy big Sun servers for millions of dollars to launch our fledging website.  Today, that same compute power is available to start-ups for a mere handful of dollars per hours.

Historically, Amazon's cloud offering (Amazon Web Services, or AWS) had little competition and, as a result, some have observed that as amazing as the cloud has been for start-ups, cloud pricing has not dropped as aggressively as Moore's Law would have suggested it might.

But Google finally appears to be catching up in the ever-important cloud services area.  Last week, at its Cloud Platform Live conference,  Google slashed pricing on their cloud platforms over 50%.  

Then, a day later, at its AWS Summit, Amazon countered with its own radical price cuts from 36-65%.  Despite those price cuts, Google is still cheaper than AWS in many categories.  See the chart below, which GigaOm published, to show the comparison of the two offerings.

So why did my portfolio company CEO think this last week of price cuts was so historical?  Because cloud infrastructure is like fuel for startups.  As startup fuel prices go down, the downstream effect is powerful:  starting and scaling companies has gotten yet even cheaper.  With Google and Amazon battling it out, and IBM and Microsoft and others not far behind, this trend is only going to continue.

We have made a number of direct investments on companies circling around cloud infrastructure, startups like MongoDB, Stackdriver, Firebase and Apiary, to name a few.  But what last week's price wars demonstrate is that the entire technology ecosystem will reap indirect benefits as well.  The cloud is becoming a commodity, prices are going to zero, and technology companies around the world are celebrating.

When this 10s decade is over, we will look back and be amazed that a mere ten years prior, a few, absolutely massive financial institutions controlled the global banking industry.  Software is eating the world, as Marc Andreessen famously observed, and an industry like financial services — whose service offering is essentially all information-based — is particularly susceptible to the disruptive force of technology.  That disruptive force is particularly acute in the credit markets.

Consumer credit has long been a pretty sleepy industry.  For years, the same 5-10 or so banks have been the main issuers of credit cards and the same 4 associations have been the main brands and platforms.  But when the credit crisis hit, everything changed.  Due to market forces and government regulations, banks abandoned the lower end of the consumer market.  20% of US households are now considered underbanked, representing a massive market opportunity.  A further window of opportunity is the fact that credit cards are still charging 20% APR, yet interest rates are effectively zero.

Stepping into the vaccuum are new providers of consumer credit and broader banking services that are 100% virtual.  ZestFinance (a Flybridge portfolio company) and Wonga are among those providing consumer credit in the form of installment loans, with ZestFinance leveraging the magic of big data to do more sophisticated underwriting.  Lending Club and Prosper are showing the promise of peer-to-peer lending, issuing $2.4 billion in credit last year, a 3x increase over 2012.  Institutions are taking notice – one investor that I spoke to in a peer to peer lender shared with me that hedge funds are now flocking to the platform in search of higher rates.  ING – soon to be renamed Voya Financial – demonstrated that a bank could be constructed that serviced consumers over the Internet without traditional branches.  

At the same time, the proliferation of smart phones is allowing consumers to access money and conduct financial transactions with extraordinary convenience.  Why would those services and capabilities be only provided by traditional banks?  China's Alipay reports that they processed $150 billion in mobile transactions in 2013 – nearly 6x the $27 billion PayPal reported (not including the Venmo acquisition, which is bound to accelerate growth in 2014).  This intersection of mobile, convenience and new lending brands is going to substantially erode existing banking franchises in the years to come.  

The business lending market is no different.  In fact, innovation in business credit may be outpacing consumer credit.  Startups such as OnDeck Capital, Kabbage and Capital Access Network have each raised tens of millions of capital and are building large brands and franchises in servicing small businesses.  With their bloated bureaucracies and overhead, banks are not architected to service this market effectively – particularly as more and more small businesses are reachable over the Internet.  OnDeck recently reported a $77 million growth round and that it has acheived nearly $1 billion in loan volume.  Kabbage is rumored to be on the verge of reporting a similar monster round.  And Credit Karma, a credit management service for consumers, just announced an $85 million growth round.

A few weeks ago, Brand Finance released their annual survey of the 20 most valuable banking brands in the US.  Atop the list were the usual suspects:  Wells Fargo, Bank of America, Citi and Chase.  The market capitalization of these four banks is currently around $800 billion.  Will these same brand franchises be unassailable by 2020, or will a new cohort of brands emerge from this soup of startups and innovators?  I know what venture capitalists and entrepreneurs are betting on.

Every year for the last four years, Fred Wilson has been kind enough to come up from NYC and join my Harvard Business School class.  It is always entertaining, enlightening and fun.  As always, I asked the 80 students in the class to live tweet during the class in order to capture the interesting nuggets and take-aways (and exercise their social media muscles).  Below is a Storify of the tweet stream.

If you want to see how this year differed from previous years, go to:

• Fred Wilson at HBS: 2013
• Fred Wilson at HBS: 2012
• Fred Wilson at HBS: 2011

//storify.com/bussgang/fred-wilson-comes-to-hbs/embed

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"Opportunity is who we are. 

And the defining project of our generation is to restore that promise."

– President Obama, 2014 State of the Union

In a past blog post last summer, I fretted that the latest wave of innovation – as amazing as it is – was not showing up in US worker productivity.  At the time of my writing, the US Bureau of Labor Statistics had provided some pretty depressing data, with very modest productivity gains in 2011, 2012 and Q1 2013.

Fortunately, in the last year, the productivity numbers have shown a major uptick.  It appears that our society and our businesses are getting more adept at absorbing all the new technology of the Internet Revolution.  Unfortunately, the beneficiaries of the greater productivity – presumably driven by the boom in cloud computing, precision manufacturing, wireless broadband and other major infrastructure improvements – are America's elite.

A recent analysis by one of my favorite economic pundits, John Mauldin (who tends to be pretty conservative in his political views), provides some good data that drives this conclusion home.  The chart below shows that full-time, full-year wages for male workers (presumably the female statistics would be clouded by a narrowing of the gender wage gap over this period) have grown strongly for the more educated workers over the last few decades and dropped dramatically for the less educated workers.

Further, if you take a close look at the jobs that are likely to be further impacted by our massive, secular shift towards automation, they are the very jobs that middle and lower educated workers hold.  The chart below characterizes how disruptive technology will be to certain job categories.

Politicians are spending a lot of time talking about the inequality problem in America.  If you consider how much automation and software disruption that is ahead of us, it is clear that the problem is about to get much, much worse.

What role will the technology industry play in dealing with the societal implications?  I hope a large and positive one.  The industry can not allow itself to be represented by the Tom Perkins of the world.  Leaders in the technology industry need to step up and own the inequality problem.  

That's not to say technology leaders should be slowing down our march towards disruption.  As economist Joseph Schumpter pointed out, creative destruction is a powerful, positive force.  But tech leaders need to work hard to improve the underpinnings of our education system (see Khan Academy), broken immigration system (see FWD.us) and other aspects of our society such that creative destruction does not equate to opportunity destruction.  I love it when I read about tech leaders getting more engaged in policy and civic activities.  Let's see more of it.

I love dressing informally, maybe too much.  My wife frequently reprimands me for dressing down.  I recently met with a US Senator in slacks and a collar shirt (which I thought was being respectfully dressy!) and he wryly cracked that I looked awfully comfortable.  I sometime teach my HBS class in jeans (please don't tell the dean).

But lately, I have been wondering if entrepreneurs have taken informality too far.  I don't mean dress code.  I don't care how they dress.  I mean their thinking and approach.

You probably see it all the time – hipster entrepreneurs with the cool affect walking into meetings carrying nothing but their smart phone.  When asked to present their story, they ramble informally without a cogent direction.  When a substantive discussion ensues, and good ideas and follow-up items are generated, they take no notes.  And when the meeting wraps up, there are no action items that are reviewed, no closure regarding next steps.

My observation is that some entrepreneurs are confusing informal dress with informal thinking.  I like dressing informally because I find it reduces barriers and allows for more direct, open dialog.  I have noticed that people are more comfortable getting right to the point and being candid in their conversations when there are no hierarchies or barriers communicated through dress code.  Studies reinforce this view.

But I can't stand sloppy, informal thinking.  Crisp, logical discussions, well-organized meetings, good note-taking and dogged follow-up are all ingredients of successul, well-run companies.  When a startup entrepreneur conveys the opposite in their approach and style – whether in a pitch meeting or in a board meeting – I question whether (to coin a phrase I learned at my first starup) they can operate their way out of a paper bag.

I sat on a panel this morning at an executive retreat for a Fortune 100 company focused on innovation and the impact of next generation technologies on their business.  The company's president wore jeans for the first time in a business meeting and was getting some good-natured teasing from his staff.  I loved it because it showed he was willing to knock down some walls.  But you can bet the meeting started on time, ended on time and had a very clear agenda.

I was excited to see Care.com's successful IPO yesterday for multiple reasons.  

First, it augurs well for 2014 as another strong IPO year in genearl and for technology companies in particular.  A University of Florida professor has a nice analysis of the 2013 IPO market and shows that there were 146 IPOs in 2013 (51 VC-backed, although NVCA claims 82 VC-backed), up from 94 in 2012 (48 VC-backed) which had been in turn up from 81 in 2011 (44 VC-backed).  Another excellent IPO analysis from Fortune showed that the real winners of 2013 were the class of 2012 IPOs, which have traded up 64% by year end 2013.

Second, it is another nice win for Boston.  Despite a flurry of biotech and enterprise tech IPOs and big M&A events in the last few years, there have not been many consumer wins in Boston and Care.com is a nice one for the region (see my post:  "Boston Unicorns").

But what really makes me happy about the Care.com is the people behind the company.  The five founders (Sheila and Ron Marcelo, Dave Krupinski, Donna Levin, Zenobia Moochala and Diane Musi) worked with me at Upromise and I think the world of each of them.  They started the company with a mission-driven vision and have stayed together as a tight-knit founding team from the onset.

One of the things that makes a startup region successful is when a successful exit happens and an alumni network forms that creates additional successful startups (i.e., the "PayPal mafia" effect).  This happened in my first company, Open Market (IPO'96), which spawned a dozen CEOs/founders in the area (e.g., Gail Goodman/Constant Contact, Jon Guerster/Digital Lumens, Eswar Priyadarshan/Quattro Wireless and m-Qube, Ted Morgan/Skyhook Wireless).  BostInno did a nice piece on the "Open Market Mafia" and has a whole series they call "Tech Mafia Mondays").  I am so happy to see it happening with the Upromise alumni network as well, which includes CEOs/founders like:

• David Andre, Cartera Commerce
• George Bell, Jumptap
• Chris Boyce, Virgin Pulse
• Michael Bronner, Unreal Candy
• Michael Libenson and David Rochon, Savingstar
• Sean Lindsay, Viximo/TapJoy

These kinds of alumni networks form powerful ties that make up the fabric of a robust startup ecosystem.

So congrats to the Care.com team!  I'm sure we will be discussing their alumni network 5-10 years from now!

A year ago, I felt 2013 would be the Year of Grit – a year characterized by toughing things out in uncertain times.  Well, we certainly did that, and 2013 has ended up looking a heck of a lot better than it began.

2014 is shaping up to be the Year of Results.  We begin 2014 with a lot of optimism in the air.  In a recent survey conducted by the NVCA, portfolio company CEOs and VCs are feeling as good about the future as they ever have, with a stunning 86% of CEOs who plan to raise capital saying it will be the same or easier to do so as compared to last year.  Half of CEOs and VCs are optimistic about next year's exit environment.

A rising stock market makes everyone feel good.  The NASDAQ is up 30% this year and achieved its highest level since September 2000.  The S&P has closed at a record high 44 times in 2013 and the Dow Jones has achieved 50 record highs this year – both indexes are up more than 20%.

When the stock market is down, we VCs like to say that our little tech companies are not affected and simply keep their heads down and build valuable companies.  But when the stock market is up, sentiment swings quickly.  We rush to take companies public or sell them to take advantage of "the exit window".  It is natural, therefore, that a robust stock market has led to a robust IPO market.  More and more companies are eyeing 2014 and research conducted by analyst firm 451 suggests it will be a record year for tech IPOs and also suggests M&A will see a strong increase in 2014 as compared to an already solid 2013.

Now it is time to deliver on all that promise.  Aileen Lee's now-famous unicorn analysis listed 39 companies founded in the last 10 years who had achieved $1 billion plus valuations.  12 are private companies (Palantir, Dropbox, Pinterest, Uber, Square, Airbnb, Hulu, Evernote, Lending Club, Box, Gilt, Fab.com).  At least another dozen with very lofty private valuations wait in the wings (including Spotify, MongDB, Snapchat, Etsy, Actifio, Automattic, OPOWER, Hubspot, Flipboard, Hootsuite, Appnexus and many others).  Not all of these companies will go public or sell out in 2014, but a good number need to in order to deliver on the promise that has been built up in this post-bubble, post-recession era.

And if you are worried about bubbles right now, don't.  I wrote a blog post two and a half years ago in response to cries of a bubble that it felt a lot more like 1996 than 1999 right now.  In other words, when analyzing unemployment rates and other macroeconomic fundamentals as well as positive structural elements of the tech economy, the rebound was just beginning and had a good 4-5 year run in front of it.  Sitting here at the end of 2013, I still feel that to be the case.  The fundamentals of a rebounding US economy in combination with the disruptive forces of the cloud, mobile, big data and software eating everything remain strong.  The start up economy will overheat at some point, it always does, but that point is not now.

So, buckle up for 2014 – a year where many of those lofty promises of better times over these last few years begin to convert into tangible results.

Last week, I used Aileen Lee's excellent TechCrunch article on Unicorns as a jumping off point to analyze the role of the MBA in creating these unusually valuable companies.  This week, I want to take a local lens and analyze these special companies that have been created in Boston.  As was the case last week, I was ably assisted by HBS 2nd year MBA student Juan Leung Li.

In order to have a reasonable population of companies to assess, we tweaked Aileen's definition.  We looked at the companies in New England (call them "Boston and surrounding") that had exited in the last 10 years (2003-2013) with greater than $500 million in market valuation.  Some of these companies had been around for a few years, but we felt this slice would allow us to assess companies that had recently created extraordinary value in a relatively short period of time.  In the case of M&A situations, we value the company at the time of the M&A.  In the case of public companies, we valued the companies at the market close of 11/15/13.

We found 50 such companies (updated from 43 originally).  That is, 50 companies in the Boston and surrounding area that had achieved > $500 million in value during the last ten years.  19 of these had achieved > $1 billion in value (Aileen's cut off, although she had constrained the founding date to the last ten years rather than the exit date, which obviously yields a broader population).  A chart showing these 20 companies can be seen here:

A few interesting observations about the full set of 50 companies:

• Lack of Massive Winners. The perception that Boston has not recently generated massive wins appears to be only somewhat accurate, depending on which sector you focus on.  Of the 19 companies that were > $1 billion in value, seven were greater than $2 billion (TripAdvisor, athenahealth, IPG Photonics, Alnylam Pharma, Starent, Boston Biomedical, Acme Packet).  That said, only three of these companies are software technology companies – TripAdvisor ($12.5B), athenahealth ($5.0B) and Starent ($2.8B) – and they were founded in 2000, 1997 and 2000, respectively.  In other words, there have been no multi-billion dollar valued tech companies founded in Boston in the last 13 years.  There are three companies that have achieved >$1 billion in value in the tech sector founded in the last 10 years: Demandware ($1.9B/2004), Kayak ($1.8B/2004) and Fleetmatics ($1.4B/2004), although the latter was founded in Dublin.

• Essential Role of Immigrants.  Here was a statistic that blew me away:  over half of these companies (51%) had an immigrant founder.  In my research related to my Senate testimony on immigration reform, I noted that 40% of Fortune 500 companies had an immigrant founder.  Apparently, successful Boston-based startups have an even greater concentration of immigrant influence.

• Strong Diversity.  The breadth of the Unicorns is impressive, reinforcing the view that Boston's startup ecosystem is one of the most diverse in the world.  Of the 50 companies that achieved > $500M in value, 23 were life sciences (plus materials science), 22 enterprise technology and 5 consumer technology.  To see the companies in their various segments laid out, see the chart below:

Much of this data refutes the belief that all the major startup winners have been created in Silicon Valley.  In fact, the vibrant life science sector is now arguably more heavily concentrated in Boston than in any other cluster at any other time in history.  That said, Boston has definitely come up short in the race to build massively valuable tech companies.  And if you want to build a consumer Internet company, there are few role models. 

However, I am quite optimistic about the future. As evidenced by this review of the Boston startup ecosystem, the quality and robustness of the environment has improved greatly in the last few years.  As for big winners, the pipeline looks pretty good.  Globoforce and Care.com have filed to go public and companies like Acquia, Actifio, DataXu, Dyn, Hubspot and Wayfair and are all reputed to be on a similar path in the next year or two.

If you want to see the entire spreadsheet with the underlying data, you can click here.

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I like being a contrarian.  As a kid, if a certain TV show was popular amongst my buddies, I’d purposefully ignore that show and search for other shows that were less well known (e.g., Hogan's Heroes was a personal favorite that never hit mainstream).  When someone declares something is conventional wisdom, I look to poke holes and challenge the underlying assumptions.

Recently, the conventional wisdom in Startup Land has been that young, technical founders are the prototype for creating valuable companies.  The formula, this theory goes, is to find a hacker in a hoodie and bring out the wheelbarrow of cash to back them.  Think Mark Zuckerberg/Facebook, Drew Houston/Dropbox, David Karp/Tumblr and – the most recent poster boy darlings of Startup Land – the SnapChat founders. 

I have always thought that stereotype was skewed. Don’t get me wrong – I love young founders.  At Flybridge, we have invested in many of them (e.g., Eliot Buchanan and Dan Choi at Plastiq) and we plan to continue investing in many others.  But in my twenty years living in Startup Land, I have found that there is no single model or archetype for success.  Success comes in many flavors and combinations.  And, in my last five years on the HBS faculty, I have become more convinced of the value of the MBA entrepreneur. 

Thus, I was thrilled to read Aileen Lee’s terrific analysis of unicorns (companies that have been created in the last 10 years worth more than $1 billion) and have it shatter this piece of conventional wisdom.  Aileen systematically analyzed the common characteristics behind this cohort of 39 companies and found that “inexperienced, twentysomething founders were an outlier. Companies with well-educated, thirtysomething co-founders who have history together have built the most successes.”

Aileen’s analysis didn’t provide any data on the role of MBAs in the unicorns.  So, in partnership with HBS second year Juan Leung Li, we did some of our own digging.  Here's what we learned:

• 33% of the Unicorns had at least one founding member who had an MBA. Examples include Kayak (Steve Hafner/Kellogg), Workday (Aneel Bhusri/Stanford and Dave Duffield/Cornell), Yelp (Jeremy Stoppelman/HBS) and Zynga (Mark Pincus/HBS).
• 82% of Aileen's Unicorns had at least one founding member or current executive team member with an MBA. Examples of unicorns where MBAs were hired to help build the company include Evernote (COO Ken Gullicksen/Stanford), Facebook (COO Sheryl Sandberg/HBS), Twitter (COO Ali Rowghani/Stanford).
• Of those that had MBAs, the leading schools represented were: HBS (21%), Stanford's GSB (17%) and Wharton (10%).

This week, John Byrne of Poets & Quants published a complimentary analysis, ranking the top 100 MBA Start-Ups.  In this analysis, he found some terrific companies that have been MBA founded in the last 5 years, such as Okta, Rent the Runway, Warby Parker and Wildfire.  Among this MBA founder list, HBS (34%), Stanford (32%) and MIT (11%) came out on top.

Why all the momentum with MBAs and start ups? Simply put, the major schools have radically changed their curriculum. These schools and others have become super-focused on training their MBAs to be effective executives across a range of company sizes, from start-ups to large enterprises.  For example, HBS now teaches two courses to help train students to be effective start-up executives:  Launching Technology Ventures (which I teach) and Product Management 101.  MIT is considering offering their own version of these classes in the spring or next year and Stanford has a plethora of strong course offerings for future start-up executives.

So the next time someone tells you that you need a hoodie to be a great start up entrepreneur, don't be afraid to flash your MBA diploma with pride.

To see the detailed spreadsheet that Juan Leung Li did, click here.

The art of Product Management continues to evolve. I've enjoyed spending time with many VPs of product in the last year since I co-authored an HBS note on the role of the Product Manager to develop more insights, materials and case studies on that revolution.

Earlier this week I taught a seminar on product management to MIT Sloan students as part of their "Sloan Innovation Period (SIP)" curriculum.  Although it's not exactly the EdX experience, in the spirit of open courseware, I thought others interested in the topic might enjoy the materials I used for the class, which are here: