Yearly Archives: 2011

BPV completes successful exit from Matrix Medical Network

Ballast Point Ventures is pleased to announce a successful exit from its investment in BPV I portfolio company Matrix Medical Network, the country’s leading provider of prospective health assessments for Medicare Advantage health plans.  BPV led the Company’s first institutional equity financing in February 2007 and provided additional growth equity in December 2008 in a financing led by Spring Bay Capital.  Under the terms of the transaction, Ballast Point Ventures, Spring Bay and the other non-management investors sold their ownership stakes in the Company to private equity firm Welsh, Carson, Anderson & Stowe.  Richard Brandewie, Managing Partner with BPV, had praise for both the management team and their new partner:

The sale of our interest in Matrix Medical Network marks the end of a very successful four and a half year investment for BPV.  We are very appreciative of the outstanding job that Mike Quilty and his team did in building Matrix into a market leader.  Mike and his team have created significant value for Matrix shareholders, their health plan customers and plan members.  We are delighted that Welsh, Carson, Anderson & Stowe will be supporting Matrix going forward and will be working with the Matrix management team to continue to build the business.

Additional detail can be found here.

Finding the right angel

Good angel investors provide much more than capital.  Their networks and reputations can assist early stage companies with introductions to additional sources of financing, expertise, customers, and strategic partners.  It’s a long and difficult journey from idea to successful business, and entrepreneurs need partners who intuitively understand the right kind of support to offer over the long term during the inevitable challenges of building a business.

Angels have varied experiences, interests, strategies, reputations, and (in the case of angel groups) cultures.  Choosing the one who best fits requires as much rigor and thoughtfulness as any decision an entrepreneur makes.  In their October Knowledge Bank Scale Finance has published a “Roadmap to the Angel Investor Community” which divides angels into six categories:

  • Serial angels – perhaps the most productive type, often adds significant value to the companies in which they invest because they’ve done it before.
  • Tire kickers – the opposite of serial agents. They lack a genuine commitment to angel investing – at least at present – but they’re using the process as a means of educating themselves.
  • Trailblazer angels – experienced investors, typically partners in investment banks and venture capital firms who incubate deals too small for their firms while maintaining a link to their company for larger/later rounds.
  • Retired angels – business executives with enough personal capital to enable them to quit their jobs and “retire,” but who remain perfectly capable (and eager) to keep up in the so-called rat race.
  • Socially responsible angels – investors who are interested in doublebottom-line investing – that is, doing well by doing good.
  • Angel syndicates – groups who episodically invest together, joining their capital for more influence in more material deals.

The early-stage investors with whom we work (and many of them are also investors in BPV and work with our portfolio companies) may not always fit neatly into just one of these categories, but it is a useful way for entrepreneurs to think about a critical part of their ultimate success.  The author emphasizes this point with what he calls The Chaperone Rule: “(T)he odds of a startup company succeeding are significantly enhanced when the company has a chaperone from the get-go, an experienced guide on the trip from the embryo to the IPO.”

It’s not only the start-ups that benefit from angel involvement.  The prior success of these business-executives-turned-angels gives them both the tendency and the wherewithal to help support the next generation of high-growth companies that improve all our lives.  Forbes magazine discussed the critical role these successful business people (and their savings) play in fostering economic growth:

Saving is not the practice of the wealthy stashing money under plump mattresses. Rather, [those] savings are the funds [that allow] businesses access to the capital they need to grow. Firms use these funds to start or expand businesses and to buy machinery and other physical capital…

Because much of the savings that can drive investment and economic growth over time comes from the relatively small fraction of individuals in the top income tax bracket, permitting a tax increase on high-income earners would be a significant disincentive for savings…  This decision [to raise taxes on interest, dividends, and capital gains] will affect not only the near-term outlook for the economy but savings and investment decisions for the long-run as well. Consumer spending has its place, but it is not the answer to every economic question. By disparaging investment and in particular the taxpayers who account for most of that investment, Congress is biting the hand that feeds long-run economic growth.

With early stage activity at its lowest level since 1977 it’s imperative to support any and all politically feasible means to make the early stage piece of the entrepreneurial ecosystem more attractive:  tax relief to reduce the cost of capital and/or fund research, streamlined patent and FDA approval processes, and regulatory reform to relieve the deep uncertainty in the current business environment.

RIP Steve Jobs

The are many excellent pieces/obits about Steve Jobs today.  You’ve probably seen several, but we wanted to make sure our network did not miss this one below:  video of the 1984 launch of Macintosh.  It could be called “nerds gone wild.”

It’s easy to forget the revolution, and how far & fast we’ve traveled since A>chkdsk (click on image to the left if you need a reminder).

RIP Mr. Jobs, and thank you.



UPDATE (10/8/11):  12 things I learned from Steve Jobs

Not everyone will believe—that’s OK. But the starting point of changing the world is changing a few minds. This is the greatest lesson of all that I learned from Steve. May he rest in peace knowing how much he changed the world.

  1. Experts are clueless
  2. Customers cannot tell you what they need
  3. Jump to the next curve
  4. The biggest challenges beget the best work
  5. Design counts
  6. You can’t go wrong with big graphics and big fonts
  7. Changing your mind is a sign of intelligence
  8. “Value” is different from”Price”
  9. A players hire A+ players
  10. Real CEOs demo
  11. Real CEOs ship
  12. Marketing boils down to providing unique value

The 5 skills of disruptive innovators

the-innovators-dna1The Harvard Business Review offers a preview of the The Innovators DNA, a collaboration by Jeffrey H. Dyer, Hal B. Gregersen, and Clayton M. Christensen to explore what makes a certain type of entrepreneur tick.

When someone opens a dry cleaner or a mortgage business, or even a set of Volkswagen dealerships or McDonald’s franchises, researchers put them all in the same category of entrepreneur as the founders of eBay (Pierre Omidyar) and Amazon (Jeff Bezos).  This creates a categorization problem when trying to find out whether innovative entrepreneurs differ from typical executives.  The fact is that most entrepreneurs launch ventures based on strategies that are not unique and certainly not disruptive.

This distinction leads the authors to conclude that most entrepreneurs do not differ significantly from typical business executives, and that only 10-15% qualify as truly breakthrough entrepreneurs.

But how do they do it? Our research led us to identify five “discovery skills” that distinguish the most creative executives: associating, questioning, observing, experimenting, and networking.  We found that innovative entrepreneurs (who are also CEOs) spend 50% more time on these discovery activities than do CEOs with no track record for innovation.  Together, these skills make up what we call the innovator’s DNA.  And the good news is, if you’re not born with it, you can cultivate it.

We found that innovators “Think Different,” to use a well-known Apple slogan.  Their minds excel at linking together ideas that aren’t obviously related to produce original ideas (we call this cognitive skill “associational thinking” or “associating”).  But to think different, innovators had to “act different.”  All were questioners, frequently asking questions that punctured the status quo.  Some observed the world with intensity beyond the ordinary.  Others networked with the most diverse people on the face of the earth. Still others placed experimentation at the center of their innovative activity.  When engaged in consistently, these actions—questioning, observing, networking, and experimenting—triggered associational thinking to deliver new businesses, products, services, and/or processes.  Most of us think creativity is an entirely cognitive skill; it all happens in the brain. A critical insight from our research is that one’s ability to generate innovative ideas is not merely a function of the mind, but also a function of behaviors.  This is good news for us all because it means that if we change our behaviors, we can improve our creative impact.

This counter-intuitive conclusion presents some challenges to other recent research on the topic.

Professor Sarasvathy of Darden School of Business saw a difference inside the mind of great entrepreneurs which she categorized as effectual reasoning vs. causal reasoning.  Entrepreneurs “whip up something” from available ingredients (like an Iron Chef) whereas business executives diligently seek the best way to accomplish a set goal.  Dyer would likely see this as somewhat congruent with their own research: their mortgager, car dealer, or franchisee must still “whip up something” even if they’re not engaged in disruptive innovation.

Mark de Rond, Adrian Moorhouse, and Matt Rogan, blogging at HBR, extol serendipity’s role in innovation and distinguish it from mere luck entrepreneurs see meaningful connections where others do not and are skilled at recombining casual observations into something meaningful.  The authors of IDNA draw a similar conclusion from their own research – the aforementioned “associating” – and describe it as the backbone structure of their IDNA’s double helix:

Innovative entrepreneurs have something called creative intelligence, which enables discovery yet differs from other types of intelligence (as suggested by Howard Gardner’s theory of multiple intelligences).  It is more than the cognitive skill of being right-brained. Innovators engage both sides of the brain as they leverage the five discovery skills to create new ideas.  In thinking about how these skills work together, we’ve found it useful to apply the metaphor of DNA. Associating is like the backbone structure of DNA’s double helix; four patterns of action (questioning, observing, experimenting, and networking) wind around this backbone, helping to cultivate new insights.  And just as each person’s physical DNA is unique, each individual we studied had a unique innovator’s DNA for generating breakthrough business ideas.

Dyer do point out that while the 5 skills can be developed (or lost) they do not ensure financial success, mirroring something we ourselves have writtenthe road to failed business models is paved with “innovation.”  It’s a long and difficult journey from idea to successful business, and entrepreneurs need partners who intuitively understand the right kind of support to offer over the long term during which failure can be counted on to make at least a cameo appearance.

Matt Rice promoted to Principal

Ballast Point Ventures is pleased to announce the recent promotion of Matt Rice to the position of Principal with the firm.

After graduating with a bachelor’s degree in Commerce from the University of Virginia, Matt began his career in the Health Care Investment Banking Group of Raymond James Financial where he focused primarily on the specialty pharmaceutical, drug distribution and contract research organization sectors.  He later joined Ballast Point Ventures as a Senior Associate and then received his MBA from Harvard Business School.  Matt also worked in the Strategic Alliances group at the Novartis Institutes for BioMedical Research prior to rejoining BPV as a Vice President in 2008.  He has focused his investment efforts primarily in the health care arena, and he currently serves as a Director of specialty pharmaceutical company Innocutis and is also active with several of BPV’s other health care portfolio companies.  

 “We are delighted to announce Matt’s promotion.  Matt has been an outstanding contributor at BPV in his five years with the firm, and he has played a key role in both sourcing attractive investment opportunities and working with our entrepreneur partners,” said Drew Graham, Managing Partner.  “Both the relationships he has developed in the Southeast and Texas and his deep knowledge of the health care sector have strengthened our team.

American entrepreneurs still enjoy certain home-field advantages

15 great home field advantages

Although we have written about the difficult start-up environment and the critical impact it’s had on the nation’s poor job growth, it’s good to be reminded from time to time that as bad as this environment feels at the moment there is still no better place to start and build a business.  Here’s  John O’Farrell of Andreessen Horowitz, writing at their a16z Library:

I grew up in Ireland.  With a population of only 4.5 million, it’s a tiny market—so Irish entrepreneurs have to think outside their borders from the beginning.  Relative to his Irish counterparts, the American entrepreneur is born with a silver spoon in his mouth.  He has the luxury of a massive home market—300 million affluent consumers, 30 million businesses, one language, one currency, one culture, one legal system—from sea to shining sea.  Initially, that’s a huge advantage that allows him to build a company of significant size without even needing a passport.  Google rocketed from zero to almost $350M in revenue in four years—80% of it from the United States market. 

O’Farrell penned that in the context of recommending ways in which entrepreneurs can prepare to expand internationally, but much of his advice applies to any high-growth company:  prioritizing markets, protecting intellectual property, choosing a well-thought-out operating model, and acquiring talent with the right “DNA” from the outset.  Replace the word “international” below with a different adjective (finance, healthcare, consumer retail) relevant to one’s industry or function and it becomes good advice for any CEO/entrepreneur.  Here’s O’Farrell: 

  • Mix in some international DNA on your management team—consider making international experience an explicit hiring criterion for at least, say, 30% of your positions.  In addition to international perspective, your team will benefit from diversity of thinking.
  • Make internationalization and localization experience mandatory for senior product management and engineering hires.
  • Recruit board members with international experience and perspective.  At my last company, Silver Spring Networks, we killed two birds with one stone, adding the CFO of Nokia to our board for both his international and financial expertise.

Seeing meaningful combinations where others do not

The subject of entrepreneurial psychology – “inside the mind of great entrepreneurs” – is the source of much research (and blogging).  Last February we wrote of research from the Darden School of Business which likened great entrepreneurs to Iron Chefs: “at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest.”  Professor Sarasvathy had several keen insights on the difference between this mindset, which she termed effectual reasoning, and the causal reasoning of successful corporate executives.

Corporate managers believe that to the extent they can predict the future, they can control it. Entrepreneurs believe that to the extent they can control the future, they don’t need to predict it.  Entrepreneurs thrive on contingency. The best ones improvise their way to an outcome that in retrospect feels ordained

Thriving on contingency, outcomes that feel ordained… some could argue this conflates luck and skill.  Napoleon famously (and apocryphally) was said to prefer lucky generals over clever ones.  (He was reliably quoted on the subject thusly: “A bold general may be lucky but no general can be lucky unless he is bold.”)

Recent research, this time from Harvard Business School, emphasizes the importance of serendipity as opposed to simple luck.  In  Make Serendipity Work For You  authors Mark de Rond, Adrian Moorhouse, and Matt Rogan recount an old tale about three princes from Serendip and their skills of observation and problem-solving:

The princes did far more than make chance observations. The tale is instructive because the princes relied on their ability to recombine a series of casual observations into something meaningful. And it is just this combinatorial skill — the ability to combine events or observations in meaningful ways — that differentiates serendipity from luck. Serendipity is to see meaningful combinations where others do not.

The authors speculate that some organizations are “luckier” than others because they tolerate “an optimal degree of wastefulness” based on the assumption that serendipity “relies on loafing and savoring the moment, of wandering and loitering and directionless activity of all sorts.”  They argue serendipity is a close relative of creativity and can be encouraged by a few organizational factors.  Serendipity:

  • benefits from scarcity (forcing people to be creative) and from a degree of sloppiness, tenacity, and dissent
  • depends partially on socialization (who you share offices and interests with)
  • gets a boost from tinkering, especially when co-workers tinker with resources for things they care about personally

These thoughts echo The Lost Land of Serendip by Andrew Ferguson (12 years ago) in Forbes:

Serendipity is the province of the happy accident. A poet, consulting a dictionary, stumbles upon an unfamiliar word that sends his poem toward a conclusion he would never have expected. Or a team of scientists–this actually happened recently–seeks to synthesize a new tanning chemical and discovers instead a powerful substitute for Viagra…

But serendipity depends on inefficiency. Entire institutions, now being reconfigured in the age of convergence, were arranged to make serendipity possible. Remember library stacks? Books on a similar subject would be grouped together, so a student looking for Lincoln’s birth date in a biography might stumble instead on a book of his speeches, which might ignite an interest in the battle of Gettysburg, which could inspire a curiosity about 19th-century armaments, which were first developed during the Crimean War, which raises the question of the Ottoman Empire and…

Terribly inefficient! Thoroughly distracting!

Lest anyone think we’ve given too much aid&comfort to sloth, inefficiency, and other bad habits, we’ll close with Gary Player’s thoughts on the subject:  “The harder I work, the luckier I get.”

More detail on the Startup Act (proposed by Kauffman)

Edward R. Muller, CEO of GenOn Energy, and Larry Zimpleman, president and CEO of the Principal Financial Group, co-authored a piece in the Wall Street Journal entitled An Entrepreneurial Fix for the U.S. Economy.  In it they provide a little more detail about the previously mentioned “Startup Act” proposed by the Kauffman Foundation.  With early-stage activity at its lowest lever since 1977, any or all of these ideas could only help.

The Kauffman Foundation recently proposed a way to do that with a set of ideas aptly called the Startup Act. Those ideas, which would cost the government virtually nothing, include:

• Letting in immigrant entrepreneurs who hire American workers.

• Reducing the cost of capital through capital gains tax relief for early stage investments.

• Reducing barriers to IPOs by allowing shareholders to opt out of Sarbanes-Oxley.

• Charging higher fees for patent applicants who want quick decisions to remove the backlog of applications at the Patent Office.

• Giving licensing freedom to academic entrepreneurs at universities to accelerate the commercialization of their ideas.

• Having the government provide data to permit rankings of startup friendliness of states and localities.

• Regular sunsets for regulations and a consistent policy of putting new ones in place only if their benefits exceed their costs.

There is no time to waste. The president must meet as soon as possible with congressional leaders to develop a menu of policy initiatives to reignite the startup job machine. Despite the deep divisions on taxes and spending, there is overwhelming support in this country for letting entrepreneurs work their magic without excessive government interference.

Other nations look to the United States as a model for new company formation. Our Treasury debt may not be as valued as it once was, but we can’t let our entrepreneurship brand be tarnished.

We realize America’s larger businesses have their own agendas and ideas for moving our country forward. But all of us know where the energy that drives our economy comes from—new companies with new ideas that build confidence and optimism. We will all profit when our elected leaders understand and act on this fundamental fact too.

The authors make a valid point about the politics of the situation.  Although we are on record as supporting growth-oriented tax policies – with a preference for broad-based measures since they tend to be a more efficient solution than targeted credits – it’s important to support any and all politically feasible means to make early stage investing more attractive.

Vintage Future IV

Here is the latest installment in our Vintage Future series in which we take a tongue-in-cheek look at predictions from the past to remind ourselves that today’s trend can be tomorrow’s punchline.

This time, crazy patents from LIFE:  eyewear for chickens, animatronic rickshaws, moneyballs, dog power, and more.  Think: someone went through the effort and expense to protect this IP.

What has been will be again,” reads the Book of Ecclesiastes. “What has been done will be done again; there is nothing new under the sun.” Nothing new under the sun. Powerful words. But with all due respect to the ancients, they clearly never spent any time pondering the peculiar, mysterious world of patents, and marveling at the wonders revealed therein.

Success is better, actually

We’ve opined on the nature of success  and the role failure oftentimes plays along the way:  failure is a part of business, a great teacher, it’s important to fail the right way… (see here, here, herehere, here, and here)

Well, OK.  But on the other hand… via Feld Thoughts, an excerpt from a graduation speech delivered at the University of South Carolina College of Engineering and Computing:

What you learn from failure is limited at best – you learn what didn’t work. It tells nothing of what will. In contrast, what you learn from success is how to succeed. This is infinitely more valuable

In fact, you now know one thing for certain. You know that with talent and determination and hard work, you can accomplish what few others can. You succeeded. In the future, taking on truly hard things – things that seem impossible – you will not be in uncharted waters. On the contrary, you will build more success.

That’s key. Success breeds success. It is not a question of whether you will achieve more success. The question is what it will look like.

Hard to argue with the notion that winning beats losing, but undefeated seasons are rare, undefeated careers (or lives) rarer still; so it’s good to know how to roll with the punches and come back stronger.   While we’re on the topic, here are two recent items, each distilling the subject down to just three words:

Philips Electronics CEO Greg Sebasky offers an excellent summary of what he sees as three keys to success:  Courage, Rigor, and Humility

The Harvard Business Review draws from the sports world to choose three different keys to predicting future success:  Commitment, Ability, and Resilience.   From Looking Past Performance in Your Star Talent:

Professional sports require dedication and performance under pressure. In this environment, personal traits and preferences that manifest themselves as strengths can become counter-productive. Self-belief can become unhelpful ego, which impacts the ability to learn from setbacks. A win-at-all-costs mentality can turn into a desire to bend the rules a little too far…

Business, like sports, is a rollercoaster. Success is high profile, failure higher still. Given this, any outlook which fails to recognize the potential threat of derailment and to prize the resilience necessary for coping with setbacks is an incomplete picture. We characterize future potential in terms of three dimensions — commitment, ability, and resilience. Those individuals in sport or business with the highest potential are replete in all three…

Just like Pacific University: Remember current performance is often a misleading barometer of future potential.

Just like Manchester United and Arsenal Soccer Clubs: Insist on understanding the people behind the data.

Just like the New York Giants: Encourage your talent to understand and actively manage their own personal sources of potential derailment.

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