The news headlines are grim.  Oil spills, sovereign defaults, choppy stock markets. tepid employment.  It's no wonder that the global capital markets seem spooked.

Yet, here's the strange thing, many of us in the technology sector have never been more bullish about what lies ahead.

It's like a tale of two cities.  Wall Street and the City of London are hand-wringing and doom-saying while Silicon Valley, Cambridge and Silicon Alley have never been rosier.  I attended my 15th Harvard Business School reunion last weekend and the contrast was striking.  On the one hand, capital markets professor Andre Perold was pointing to the jump in volatility as sign of the fear in the markets and bemoaning the fact that $60 trillion of global wealth had been wiped out since the peak.  On the other hand, my classmate Sheryl Sandberg (COO Facebook) was claiming that the Valley has never been crazier and, "Everyone I know is getting funded."

I was asked to give a presentation today at the Association for Corporate Growth (ACG), a group of 600 or so bankers and deal makers across a wide range of industries.  I think they asked me to speak because of my book, but I decided to focus instead on this question of whether the world is coming to an end, or whether there is reason for optimism in the long-run.  After wallowing in the data for the last few weeks, I've come down firmly on the side of optimism (no surprise?).  There are just too many positive secular trends that suggest the developments in wireless technology, human genome mapping, synthetic biology, energy technology and globalization won't continue to have an enormously positive impact on our planet in the decade ahead.

In fact, I would argue that the next decade will see an acceleration of innovation as compared to the previous decade, which itself has been dizzying.  I think we are entering a Golden Age of technology and innovation, despite the short-term economic clouds.  I end the presentation with a local view – that Massachusetts and the Innovation Economy is very well-positioned to take advantage of the opportunities ahead.  I would argue the same case could easily be made for New York City and Silicon Valley and perhaps other innovation centers as well.

Here is the presentation with the data to support this thesis.  Special thanks to my colleague Robin Lockwood for helping me put this together.  I'd love to hear your thoughts (view this video first, which I used to tee it up):

Golden age for technology and innovation http://static.slidesharecdn.com/swf/ssplayer2.swf?doc=goldenagefortechnologyandinnovationvfinalacg-100610085454-phpapp01&stripped_title=golden-age-for-technology-and-innovation-vfinal-acg

View more presentations from Jeffrey Bussgang.

Dan Primack calls them the "rock stars" of the start-up ecosystem.  If you are a young start-up and aren't plugging into the myriad of angel investment vehicles percolating around the country, you are either clueless or one of the few who are super-wired already into the "Do Not Pass Go, Go Directly to $5M Series A" venture capital game.

Here are home, the angel community in New England is really starting to flex its muscles.  Thanks to Scott Kirsner's arbitrary declaration (and admirable leadership), June is Innovation Month in New England and there is a ridiculous amount of activity going on.

It started off on June 1st with Angel Boot Camp, a confab that gathered over 200 angels, VCs and start-ups.

Last night was Tech Stars Boston Investor Night, which continues to gain momentum heading into its second season, as well as the big annual the MITX Awards event.  Every night this month, there is something going on.  You can see the master schedule at www.neinnovation.com.

Many of these venues didn't exist 3-4 years ago – Mobile Mondays, Web Inno, Open Coffee, etc.  New events are coming to Boston this month, including the Open Angel Forum, which is June 18th.

And new institutions are popping up all over the place.  New seed funds, incubators (e.g., Project11 – which you'll hear more about in the coming days), the Founders Institute, etc.  And when you visit the local campuses, it's amazing how prominent entrepreneurship and getting access to the angel community has become.  Every school has a business plan contest.  HBS just completed a business plan contest not just for students, but for alumni as well.

Like I said, there's a ridiculous amount of activity going on, and the angels appear to be out in front.  At Flybridge we always joke that we treat our entrepreneurs like they're rock stars.  Kudos to the angel community for emerging as the new rock stars of the start-up ecosystem!

I swore I would go offline for much of Memorial Day Weekend.  But I cheated and peeked at my email late Saturday afternoon and discovered an email from a friend saying, "I'm surprised to see you take such a public stance on the capital gains tax rates," with a link to a New York Times article on the topic.

I read the article in The New York Times on the carried interest debate and was shocked to see my name and a reference to me that read:

"As the Senate Democrats sent signs that they were open to a tax increase, investors and their lobbyists mobilized quickly, warning that the proposal could stifle investments that create jobs.  A group of 80 venture capitalists traveled to Boston to urge Senator John Kerry and Representative Barney Frank, Democrats of Massachusetts, to exclude their business from the tax change, according to Jeffrey Bussgang, a partner at the Boston venture capital firm Flybridge Capital Partners."  

Um…here's the problem.  I never spoke to the reporter, David Kocieniewski, who wrote the article (although I later found a voice mail from him).  Other than the fact that my name and firm name are accurate, nothing else in that sentence is correct.

I guess this is just another example of sloppy reporting, but I expect better from the New York Times.  

Since the reporter never spoke to me, I can only assume that the reporter was referring to a blog post I did regarding a trip to Washington DC (not Boston) with 80 business leaders from Massachusetts regarding an organization I co-chair called the Progressive Business Leader Network (PBLN).  In fact, the trip had nothing to do with carried interest taxes and there were only three or four VCs as part of the business delegation from PBLN.  If he had actually read the blog post, he would have realized that it was a trip with a wide range of topics, including cap and trade, innovation investment, deficit reduction and financial reform.  We did not meet with John Kerry, although I did report that we talked to Barney Frank about financial reform and that he did articulate his own position that venture capital would be exempted from the carried interest tax.

If I had actually been interviewed for the story, I would have given a more nuanced position.

Because of the Bush tax cuts, two wars, and the recent economic crisis, we are facing the worst long-term structural deficit in US history.  If we want to avoid the path of Greece or Spain, we need to act quickly with a blend of (unfortunately) higher taxes and lower spending. The only question is what taxes should go up and what spending should be cut.  

In debating what taxes should be increased, we should take a strategic approach.  Personally, I'm willing to and expect to pay higher taxes.  But having those higher taxes be levied against venture capital investments in small businesses strikes me as self-defeating when it is the single largest job growth area.  I'd personally rather see us put in place a carbon tax and/or a gas tax.  Perhaps we should reduce the mortgage exemption in order to shift incentives away from home ownership (how'd that work out?) towards investment and job creation.

Anyway, that's what I would have said if I had actually been interviewed by the New York Times.  Next time, I hope they either actually get my point of view, or leave me out of it and let me enjoy my Memorial Day weekend.

No, this post isn't about achieving four wins in the NBA Playoffs.  It's about a historical anomaly in start-up compensation that I'm struggling with.  Although I know this risks being an unpopular post with entrepreneurs, I confess that I no longer get why we have four year vesting schedules for stock option grants at start-ups.  Let me explain.

Vesting is known as the time period during which you unconditionally own the stock options that are issued to you by your company.  Until you vest the stock options, you forfeit them if you were to leave the company.  Typically, that time period is four years.  There is typically a one year "cliff", which means that you don't vest for a year and then "catch up" by vesting 25% of the stock options on the one year anniversary.  Subsequent vesting happens monthly or quarterly, depending on the stock option plan your company has put in place.

I was explaining to a friend the typical vesting at venture capital firms is 8-10 years.  That is, if you leave a fund before 8-10 years from the start of the fund, you risk forfeiting some of your unvested profit interest in the fund, or carry.  I explained to my friend that this vesting schedule made sense given venture capital funds take 8-10 years from managing initial investments through to exits.

Then I realized that vesting at start-ups should also logically match the time it takes from inception to exit.  In looking at the data, it appears that the average time to exit in start-ups during the 1990s was 4-5 years, so the traditional 4 year vesting period made sense.  But since then, the average time to exit has creeped up meaningfully from 4-5 years to 6-8 years.  So why shouldn't vesting schedules reflect this reality?  Why shouldn't the vesting schedule for stock options be 6 years?  Boards are finding that they have to reissue options every 3-4 years because once an employee is fully vested, they naturally come back to the table with their hand outstretched asking for more incentive options to stick around.

In fact, why can't vesting schedules be flexible and simply a part of the overall compensation negotiation?  A CEO would benefit from having the tools at their disposal to adjust vesting dates alongside share amounts and other compensation levers.  In the very early days, you might have six year vesting on stock options.  After a few years, that date might be reduced to four or five, depending on the situation.  Some form of accelerated vesting upon change of control (i.e., a sale) is often a part of the package for senior executives, so if a quick exit were navigated, there wouldn't be a meaningful penalty.

So maybe you can explain it to me, but I just don't get why our industry clings to a historical magic figure of four years.

Barney Frank was crystal clear in his briefing with a group of CEOs that I participated in this afternoon:  he is going to make sure that the final Financial Reform bill that gets worked out with the Senate won't mess with the angel or VC communities.

I came to Washington DC today with the Progressive Business Leaders Network (PBLN) group that I co-chair.  It was our group's annual trek to DC where 80 CEOs and business leaders from Massachusetts had the opportunity to dialog with the leadership from the congressional and executive branch.  We met with Congressman Markey to talk about cap and trade (Senator Kerry is releasing his bill tomorrow and one of his staffers briefed us on its content), Senator Warner to discuss innovation investments and deficit reduction, and Congressmen Frank and Capuano to talk about financial reform.

On Financial Reform, Barney Frank was very direct when I pressed him on the myriad restrictions that are being discussed in the Senate bill around angel investing and the discussions about taxing carried interest.  Here's what he said:

• "We will exempt venture capital from the carried interest tax."
• "We will not tighten the regulations on angel investing."
• "We will fight back on any attempts to regulate or register venture capital funds."
• "When this is passed, we will look to loosed RegA to facilitate IPOs."

He confidently stated that the Senate would pass a bill by Memorial Day and that the reconciliation process would be done such that the President would sign a bill by the 4th of July. 

Encouraging support from a powerful source – let's hope he follows through!

If you want to lend your support on this issue, keep track of the NVCA's activities and write your own representative.  Mark Heesen, NVCA executive director, wrote an email to thousands of VCs today stating: "This morning we delivered the letter to every U.S. Senator with more than 1700 signatures from 41 states plus the District of Columbia. You can view the letter here and our corresponding press release here."

President Obama's staffers told us:  "We understand that start-ups and entrepreneurs are the key to leading the US out of the recession."  Again, let's hope both sides of the aisle get the message.

The book wars are really now in full swing and the publishing industry will be changed forever.

Google announced yesterday that they were going to become a book retailer.  Crazy, right?  What's a search engine company that derives its revenue from advertising doing aspiring to become a book retailer?  But the world's largest source of information "gets it".  Content is king and if they are the source for great content, they will attract more advertising dollars.

Amazon's Kindle was the first disruptive force, but Amazon effectively had the market to themselves and had the market power to dictate terms to publishers and set terms with retailers.  Then, Apple's iPad was released, and suddenly the power shifted away from Amazon to the publishers.  With 1 million iPads in the market after only a few short weeks of sales, it is clear that the iPad is going to be a highly utilized book reading device.  Suddenly, the publishers had a bit more leverage, even though 3 million Kindles have been sold and not all iPads are being used as reading devices…yet. 

The negotiations between the various parties have started getting nasty.  I'm a victim of that, as are other authors.  My book, Mastering the VC Game, is published by Penguin and not available on the Kindle.  That's right, a technology venture capitalist writing a book about entrepreneurship can't produce a book available on the Kindle.  Idiotic, right?  But Amazon and Penguin are locked into contract negotiations and so an April 1st deadline has come and gone and all books released after April 1 are now blocked from Kindle access.

Now, Google is getting into the act.  Their announcement yesterday at a panel entitled "The Book on Google: Is the Future of Publishing in the Cloud?", indicated that Google was still deciding whether it will allow the publishers to set book prices or whether Google gets to set price.  That's a big part of the issue with Amazon as well – who gets to set price?  Does Amazon get to set $9.99 as the retail price or does the publisher set price, just like any manufacturer would with a typical retailer?

Books in the cloud.  Music in the cloud.  Video in the cloud.  Multiple devices accessing diverse content irrespective of location.  The future we've all envisioned is finally here.  The winner in all this?  The consumer.  Now could you just settle up on that Kindle edition thing, already?

My book, Mastering the VC Game, is officially available today (and 40 pages of excerpts are available for free if you want to preview it), yet I'm kind of grumpy.

I've gotten nice reviews (see AVC, Boston.com and YoungEntrepreneur for a few examples) and TechCrunch, BusinessWeek and Upromise have done really nice excerpts.

But I confess I'm a bit of a perfectionist (when I'd come home with a 95% on a test, my parents would ask me what happened on those 5% points – I wonder if that has anything to do with it?) and so I find myself mulling about the mistakes I made with it.  Tangible, print products are tough because, unlike a blog post or a piece of software code, you can't just change it on the fly.

Here are the top three things I've been stewing on:

• I regret that I didn't spend more time discussing the recent phenomenon of super-angels, as covered nicely in a recent VentureWire article.  Guys like Chris Sacca, Roger Ehrenberg, Dame McClure and Ron Conway as well as small seed funds like Chris Dixon's Founder's Collective and Mike Maples' Floodgate are worthy of more treatment than I gave them although I do cover First Round and profile their co-founder Howard Morgan.  There are pros and cons for entrepreneurs who take money from these groups and I'd like to expand on these in future blog posts.
• I'm sorry to have left out any great cleantech entrepreneurs.  With yesterday's announcement of Cape Wind going forward, it's another reminder that the energy sector is brimming with entrepreneurial opportunities and I should have included a few stories about some of the emerging starts there, like EnerNOC, A123 and Silver Spring.
• I'm annoyed that my publisher, Penguin, and Amazon.com are locked in a battle over royalties, resulting in my book not being available on the Kindle.  As a result, all new authors are getting punished.  The book is available on iPad, Sony e-Reader and the Nook, but I've been getting tons of complaints from folks that they want to download it on their Kindle and can't.  What kind of a technology VC writes a book that isn't available on a Kindle?  Yeesh.

Those are my top three.  I have a few other smaller ones, but I guess that's why they print second editions.  Let me know if you spot any more.

you can follow me on Twitter at www.twitter.com/bussgang

When I embarked on writing a book about venture capital and entrepreneurship, I struggled with one question:  how do I produce a 250 page document that is professionally edited, packaged and distributed, yet communicate the information consistent with the spirit of the blogosphere – open and free.

Desipte the best efforts of many, the publishing industry remains a financially-driven business.  Agents, publishers, editors, retailers and others in the value chain all make a living doing what they do.  They don't have the luxury of another job that supports them while they write on the side, like many VCs and entrepreneurs.

So, I decided to take the best compromised approach I could figure out.  First, I convinced the publisher (Penguin's business imprint, Portfolio) to allow me to distribute a meaningful chunk of the book for free.  The first 40 or so pages of the book can be found at www.jeffbussgang.com and can be downloaded, read and distributed for free.  Go for it.

Second, I decided to donate a meaningful portion of whatever meagre earnings I receive from the book (after digging into the business, I was kind of shocked how little money is left for the author after agents, editors, publishers and retailers all get their cut of your $20-25 hardcover!) to Endeavor, a terrific non-profit that promotes global entrepreneurship.  Endeavor was founded by Linda Rottenberg, an amazing entrepreneur in her own right, who has built a global network that promotes and supports entrepreneurship.

Third, Penguin has been kind enough to agree to allow me to give many hundreds of copies of the books away to universities, incubators, and other forums where it might be useful to entrepreneurs.  I keep thinking about any way possible to reduce the friction between an entrepreneur and a successful business and incubators and business plans and shared office space are all terrific vehicles.

So that's my gameplan.  Not perfect, but the best I could figure out given the constraints.  Let me know what you think – or if there are other angles I should be thinking of.  The book is widely available next week, so I still have time.  🙂

You can follow me on Twitter at:  www.twitter.com/bussgang

Forgot the news about the increase in retail earnings that suggest the American consumer is back.  Forget the fact that the Dow Jones closed on Friday right at 11,000 – the highest it has been in 18 months.  Want to know the really good news?  The US technology industry has never been in better shape, and has arguably entered what may become one of the greatest sector growth eras in business history.

Lost in the news of the tepid (now maybe solid) recovery over the last year is that the top US technology firms have become absolute world beaters and are surging through the recovery.  The US now has seven leading technology companies with over 100 billion in market capitalization that have never been in a better position in their respective industries – Apple, Cisco, Google, HP, IBM, Microsoft and Oracle.

Want proof?  On October 9th, 2008 – the last time the Dow was at 11,000 – the aggregate market capitalization of these seven companies was 770 billion.  At the closing bell on April 9th, 2009 - with the Dow back to 11,000 – the aggregate market capitalization of these seven companies was 1,238 billion.  In these 18 months, while the Dow fought its way back to par, these seven companies saw an increase in their market capitalization of over 60 percent!

Anecdotally, each of these seven companies is arguably in a stronger position than they have ever been and poised to take advantage of the very bright future presented by the dual forces of innovation and globalization.  Apple?  iPad, iPhone, iTouch, iAd, 'nuff said.  Cisco?  Think of the bandwidth IP video is going to require over the next 5 years.  Google?  The youngest company in this cohort, they continue to suck billions of advertising dollars away from media and traditional advertising companies into their online money-making machine.  HP?  The company has remade itself under Mark Hurd's steady leadership to once again become a trusted enterprise solutions company for IT and a surging leader in the PC industry.  IBM?  With its globalization push, the company is taking advantage of every major industry around the world treating technology and enterprise systems as a competitive weapon.  Microsoft?  Its Windows hegemony remains a strong cash cow, despite threats from Apple and Google.  (Interestingly, at 266 billion, Microsoft has the largest market capitalization of this group, but its valuation growth of 34.2% over the 18 month period was the smallest.  At 170.4%, Apple's was the largest.)  Oracle?  They continue to get rewarded handsomely as they continue to stitch together the software that runs business aroud the globe.

Behind these seven behemoths, there are numerous other leading US technology companies that are emerging as potential long-term winners.  Amazon's market capitalization is 62 billion – over 150% higher than it was 18 months ago.  They clearly have a shot at entering the 100 billion club and also appear to be in an extraordinarily strong position for the future, with secular growth expected in their core strength areas of e-commerce and cloud computing.  Never mind the private companies, like Facebook, that continue to grow rapidly and may someday enter into this elite 100 billion club.

So forget about the good news about the America consumer, the return of the Dow, and even that baseball is back.  The best news of all – it's glory days for US technology.

I don't watch alot of TV, so I'm usually a late adopter when it comes to great television shows.  Mad Men is no exception.  Although the show is entering its fourth season, I'm just getting around to watching Season 1 and I am falling in love with the show.  It reminds me of the Sopranos – flawed characters that you at times root for, at times despise, interlocked in an entertaining drama that centers on the fundamental search for happiness and respect.

So while I'm in the midst of enjoying Mad Men, it was with great amusement that I hosted a dinner with a dozen or so CEOs of advertising agencies and advertising technology start-ups the other night.  Last year, I blogged about how Madison Avenue was going tech ("Revenge of the Nerds", I called it).  At the time, I thought there was hope that the big ad agencies would evolve to become techno-savvy nerds and help lead the innovation charge.  This year, it's a foregone conclusion in my mind that Madison Ave's Mad Men are doomed.

With the rampant digitization of advertising and the explosive growth of performance-based marketing, the nerds are taking over advertising.  Advertising innovation is coming from technology-driven giants – like Google, Microsoft and now even Apple – as well as start-up companies that are nibbling away at the value-chain, including many of our own portfolio companies (e.g., DataXu, BzzAgent and digital Arbor).

Although many of these technology-driven companies are partnering with the major advertising agencies today, the agency CEOs at my dinner with very bearish on what the future held for the agencies and whether they would survive the New World Order.  In their view, there are four reasons for this:

• Wall Street Pressure.  In talking to advertising agency executives, you can't help but be struck by how much their EPS targets affect their behavior – and hamstrings their ability to invest.  So long as they are slaves to Wall Street, the major advertising holding companies will be unable to undergo the necessary, wholesale transformation required to thrive in the digital age.  It reminded me of James Carville's famous quip that in another life, he hoped to be reincarnated as a bond trader so that he could wield some real power.  Agency CEOs seem to wish they were Wall St analysts or venture-backed CEOs rather than trapped as holding company leaders.
• CFO/Procurement.  Each of the agency CEOs at our dinner bemoaned the fact that "above the line" advertising budgets were now in the hands of the procurement officer and that the power pecking order has become CEO, CFO, CMO.  One of the CEOs at the dinner, Wayne Townsend of Click Squared, noted wryly that below-the-line marketing budgets has always been in the hands of the procurement officer.  Welcome to the club!  The problem for the agencies is that this trend means great creative (the Big Idea) and great relationships (three martini lunch) aren't important to the procurement officer, only hard ROI.
• Lack of Pay for Performance.  One agency CEO pointed out that if you look at the revenue per employee at the major agency holding companies, it's a fraction of what it is for premiere management consulting shops, like BCG and McKinsey.  In the absence of a pay for performance paradigm (akin to performance-based marketers like Google, who get paid per click or per acquisition), the agencies are forced to operate like a glorified body shop, whether their campaigns move the needle on the business or not.  This caps the upside and results in odd incentives, such as worrying more about getting fired than about delivering great work.
• Talent.  The best technology and business development talent is not flocking to advertising agencies.  They are flocking to advertising technology start-ups and Google, Microsoft and Apple.  Over time, the best talent wins in any industry.  By this reckoning, the advertising agencies are doomed.

The advertising agencies are thus in a structural box, a classic case of Innovator's Dilemma.  Meanwhile, venture capitalists and entrepreneurs smell blood.  Young companies are going directly to CMOs to mine their marketing budgets.  And marketers are more aggressive about experimenting with new media, socu has Twitter and Facebook, with the help of niche consultants and technology providers.

The only saving grace for the industry may be that their remains great power in the Big Idea.  Great creative can still move the needle and provides the direction for all that whiz bang, targeted, performance-based execution.  The success of creative boutiques like McGarry and Bowen suggests that niche is still a lucrative one.

As for me, I'll keep enjoying "Mad Men" and continue to invest in nerdy, little technology companies to make them obsolete, historical relics.