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Monthly Archives: August 2010
The economic future just happened. This study from the Kauffman Foundation finds that well over half of the companies on the 2009 Fortune 500 list, and just under half of the 2008 Inc. list, began during a recession or bear market.
The patents for the Television, Jukebox, and Nylon were granted during The Great Depression. Although we can’t confirm any patent information on the chocolate chip cookie, it too was invented at the same time (1930 to be precise).
Joseph Schmupeter argued that this was an essential strength of the American economy: economic destruction breeds creative success. From The Library of Economics and Liberty:
Schumpeter was among the first to lay out a clear concept of entrepreneurship. He distinguished inventions from the entrepreneur’s innovations. Schumpeter pointed out that entrepreneurs innovate not just by figuring out how to use inventions, but also by introducing new means of production, new products, and new forms of organization. These innovations, he argued, take just as much skill and daring as does the process of invention.
Innovation by the entrepreneur, argued Schumpeter, leads to gales of “creative destruction” as innovations cause old inventories, ideas, technologies, skills, and equipment to become obsolete. The question is not “how capitalism administers existing structures, … [but] how it creates and destroys them.” This creative destruction, he believed, causes continuous progress and improves the standards of living for everyone.
To cite additional evidence in support of our position might have us justifiably accused of “selling past the close,” but this one we like because we found it off the beaten path, in The Weekly Standard.
In Lone Economic Star, Eli Lehrer reports that “in a nation looking for good economic news, Texas stands out as a bright spot.” Although the success “defies easy explanation,” Lehrer maintains that it’s a mix of good land/city planning, investing in research and the arts, and avoiding two mistakes that have an all-too-familiar ring to them: excessive government spending and poorly conceived private lending.
In May alone, Texas, America’s second most populous state, added over 75,000 jobs—more than California (the biggest), New York (third biggest), and Florida (fourth biggest) combined. Texas has shown consistent gains in 10 of the 11 categories of private employment that the Bureau of Labor Statistics measures. The state is far more than cowboys and oil: It has several of the nation’s leading medical research centers (Baylor and UT hospitals among them), one of the biggest computer makers (Dell), and a financial industry that never took a turn for the worse. And, even though unemployment remains a tick over 8 percent (about a point and a half lower than the national average), the rapid growth is bringing this down quickly. During the last week in June, the job-hunt website Monster.com offered more new job openings in Texas than in California even though the Golden State has over 10 million more people.
We focus our efforts at Ballast Point Ventures on growth equity or “expansion capital” financing, meaning we tend to invest once a company has generated at least a few million dollars in revenue and has proven the viability of the business model. Of course, from a 20,000 foot perspective of the private equity spectrum, these still qualify as “early stage” companies, and on occasion we will invest in a very early stage company if we have partnered with the entrepreneur previously.
But we don’t make “seed investments” which are at very earliest stage of the venture capital spectrum. While seed investing isn’t a part of our investment strategy, we know that such investments are a key piece of the venture capital ecosystem and need to be encouraged. Most of these investments are done by “angel investors”, and as we have discussed previously, there are a number of important initiatives that would help encourage seed investing. However, while seed investing by institutional investors is rare, there are a small handful of firms that make such investments in the Southeast as part of their broader investment strategy.
One such firm that we respect and admire – we have known the principals there for a number of years dating back to their previous firms – is Valhalla Partners in Northern Virginia. We recently received a newsletter from Valhalla with an interesting essay by Co-Founding Partner Hooks Johnston on seed investing. We think it offers some valuable insight and wisdom on how to think about seed investing that should prove useful to angel investors and other firms throughout the Southeast that are considering investments at the earliest point in a company’s life cycle.
Partners’ Viewpoint: Hooks Johnston on Seed Investing
Valhalla Partners has now done a number of seed investments, and I would like to pass on some of the things we’ve learned about investing at this stage.
The two central facts of seed investments are 1) the opportunity to participate in a high-growth investment at the earliest possible stage and 2) a daunting set of risks. Investing wisely in seed-stage opportunities means understanding both sides of the equation.
The Daily Business Review credits Scripps Florida for its impact on biotech innovation. (Subscription required)
Scripps Florida – the first and sole satellite of the Scripps Research Institute, is one of only three national translational research high-throughput screening centers approved by the NIH and received the first NIH drug development grant.
Its presence has helped South Florida attract other impressive research organizations: the Max Planck Institute (Jupiter), Torrey Pines Institute for Molecular Studies and the Vaccine and Gene Therapy Instititute (Port St. Lucie), Sandford-Burnham Medical Research Institute (Orlando), and The University of Miami’s Life Science Park.
While biotech research is becoming more and more the province of research centers, the resulting technology spin-offs do tend to cluster around those research centers. Mark Mirkin of Carlton Fields writes:
“For better or worse, biotech innovation has largely been abandoned as a primary pursuit by pharmaceutical companies, becoming the pursuit of universities and research institutes, leaving pharma to focus on applied research. (Although) it is difficult to calculate with precision a rate of return on an investment in basic research because of the lenghty time period between discovery and application, it is hard not to notice that hundreds of biotech companies have arisen in the San Diego area, home of Scripps, and hundreds of others have arisen in Germany’s Bavaria region, home of Max Planck.”
This October 5, Florida entrepreneurs will showcase their high-growth emerging companies at the 2010 Early Stage Venture Capital Conference, hosted by the Florida Venture Forum at the Omni Orlando Resort at ChampionsGate.
Venture capitalists, angel investors, private equity investors and service providers from Florida and around the nation will gather to support and encourage early stage investing in Florida – a vital component of our flourishing venture ecosystem and economy.