Archive for October, 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.

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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 double-bottom-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.

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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
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The 5 skills of disruptive innovators

The 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 et.al. 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 et.al. 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.

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