Open AI Raises Record Capital

Venture capital is an industry fed by ambition and optimism. There is no better example than Open AI’s recent investment round which raised a record $6.6 billion, while also reportedly turning down billions in potential oversubscriptions.

To provide some context, $150 billion is approximately what the entire U.S. venture capital industry had under management in 1999 to fuel the internet bubble. Just ten years ago, the states of New York, Texas and Florida raised about $6.5 billion—combined.

Malcolm Harris, Palo Alto: A History of California, Capitalism, and the World (Little, Brown and Company, 2023)

Malcolm Harris lured me into this book, a history of the area now encompassing Silicon Valley, with his very first sentences: “Palo Alto is nice. The weather is temperate; the people educated, rich, healthy, innovative.” Check—this matches my initial impressions, formed when I arrived in 1979 to attend law school on the campus of the university Leland Stanford formed in 1891 in memory of his son, a victim of typhoid at the age of 15.

One detail immediately stood out for me. It was difficult for me, a middle-class son of the Midwest, to come to terms with the fact that the undergraduate parking lot was filled with cars newer and more expensive than those I encountered on a daily basis in the suburban Twin Cities neighborhood of my youth. Nonetheless, I came to see Palo Alto as a wonderful place to spend three years, even if throughout that period I had a nagging feeling that there was something not quite “real,” for lack of a better term, about the place. It turns out this is a feeling I share with Harris, who grew up there. “There were signs,” he writes, “that, if Palo Alto was normal, it was too normal, weirdly normal.” Again, right on target.

Kevin Starr, California: A History (New York: Modern Library, 2005).

Forty years ago, I had just graduated from a law school that is part of a private research university in what is now known as Silicon Valley. At the time, this was a somewhat sleepy area, tucked among the wealthy southern suburbs of San Francisco but devoid of much industry—except for Hewlett-Packard, located just southeast of campus on Page Mill Road, which made hand-held calculators for engineering students.

I now wonder at the personages among whom I lived at the time, and occasionally ponder what might have happened if I had invested my law school tuition with some of the startups occurring all around me. Frequently, after this painful exercise, I consider what it was about the area that was so conducive to entrepreneurial activity in the early 1980s. Here’s where Kevin Starr, in his California: A History, has much to contribute.

WIPO Global Awards reward small and medium-sized enterprises making a global impact

In 2022, the World Intellectual Property Organization (WIPO) launched a new initiative to recognize the innovative efforts of small and medium-sized enterprises (SMEs) from around the world. WIPO’s new Global Awards are designed to identify new inventions and creative commercial solutions that impact economic, social, and cultural progress, and in turn, encourage innovation and the commercialization of IP assets.

WIPO is a self-funding agency of the United Nations (comprising 193 member states) that provides a global forum for IP services, policy, information, and cooperation. WIPO’s mission is to ensure a world where innovation and creativity from anywhere in the world is supported by IP rights for the good of everyone. An aim of the Global Awards is to recognize and support enterprises and individuals striving to make a positive impact through innovation both at home and beyond borders.

Alastair Mactaggart Joins My Privacy Hall Of Fame

“I just think the data use by these companies is out of control”

--Alastair Mactaggart, California Real Estate Developer

Who is Alastair Mactaggart? He has done more than any other person to expand the privacy rights of individuals in the United States. In 2016, Mactaggart, who earned a fortune in Bay Area real estate, was talking with a Google employee about the amount of personal information collected by companies. This casual conversation led him to fund a citizens initiative that was set to appear on the November 2018 ballot in California. It would have given California residents extensive new rights to control how their data is collected and used by businesses. Following intensive lobbying by tech groups the ballot initiative was withdrawn by Mactaggart and in its place the California legislature (in less than a week) passed the California Consumer Privacy Act (CCPA). Effective January 1, 2020 the CCPA becomes the most extensive consumer privacy legislation ever passed in the United States. It gives Californians sweeping new data privacy rights, including a first-of-its-kind private right of action that will encourage lawsuits against businesses who fail to comply with the data breach portion of the CCPA. What a difference one person (with a lot of money) can make.

TIME FOR A FEDERAL DATA PRIVACY LAW?

In Europe, privacy is considered a fundamental human right. If you are collecting, using, or sharing personal information of a European resident, you will likely have to comply with the General Data Protection Regulation (GDPR) that became effective May 25, 2018. This single comprehensive omnibus law covers all industries and sectors and applies to all member countries. Penalties for noncompliance can be severe.

The United States does not have a single comprehensive privacy law. Instead, the United States has a patchwork of federal and state laws and has taken a sectoral approach to regulating data privacy. We have laws specific to industries and type of information such as health care, financial services, telemarketing, student records, and the online collection, use, and disclosure of information from children. States enact their own laws including data breach notification laws that now exist in all 50 states. A business that experiences a data breach must comply with the state law where each individual resides.

Great for lawyers, but terrible for businesses trying to figure out compliance obligations imposed by differing state and federal standards and laws regarding data privacy and breach notification.

Recent SEC Activity Puts the Cryptocurrency Industry on Notice

For those who have not been following the U.S. Securities and Exchange Commission’s (SEC) oversight of the cryptocurrency industry/exchanges, the SEC recently settled its first-ever enforcement action against an unregistered cryptocurrency exchange.

Earlier this year, the SEC accused the cryptocurrency exchange EtherDelta and its management team of violating federal securities laws by illegally allowing users to trade tokens (a form of cryptocurrency) that the SEC considers securities under federal law, making it an unregistered securities exchange. Without admitting or denying any of the SEC’s allegations, EtherDelta agreed to pay a $75,000 fine and $313,000 in disgorgement and interest. 

This enforcement action comes on the heels of the SEC’s issuance of The DAO Report—a comprehensive investigation by the SEC of The DAO, a now defunct unincorporated organization established with the objective of operating as a for-profit entity that would create and hold assets through the sale of tokens. Among other findings and a lengthy discussion of the fascinating downfall of The DAO, The DAO Report, as well as the SEC’s March 2018 guidance on cryptocurrency, indicated that nonexempt cryptocurrency exchanges must be registered with the SEC and that online platforms that allow the trading of digital cryptocurrency assets could, in fact, be trading securities. 

Apple Hits $1 Trillion

To say last Thursday was a good day for Apple Inc. may be the understatement of the century. On August 2, 2018, Apple became the first U.S. company to surpass $1 trillion in market value. Think about that for a minute. In 1997, Apple had just cut a third of its workforce and was about 90 days from going broke. Twenty-one years later, that same company is worth $1,000,000,000,000. 

Apple’s meteoric rise has been driven, in large part, by the sustained success of its blockbuster product, the iPhone. In the first quarter of 2018, iPhone sales accounted for approximately 70 percent of Apple’s total revenue. In total, Apple has sold more than 1.4 billion iPhones worldwide (three of which were sold to the author of this blog). I think it is safe to say that the iPhone has completely changed the way we live (an analysis on the societal impact of smartphones is beyond the scope of this post). 

The $1 trillion milestone reflects Apple’s explosive growth and its role in the tech industry’s rise to the forefront of the global economy. Unsurprisingly, the five most valuable U.S. companies (Apple, Amazon.com Inc., Alphabet Inc., Microsoft Corp. and Facebook Inc.) are all technology companies. Apple and Google combined now provide the software for 99 percent of all smartphones. Facebook and Google take 59 percent of online advertising revenue in the U.S. Okay, enough statistics. We get it. The tech industry is king and Apple wears the crown (for now). 

DIGITAL PRIVACY RIGHTS VS. NATIONAL SECURITY

Apple and the FBI are at a standoff over a case involving the right to access data stored on a phone used by one of the San Bernardino terrorists. The FBI wants Apple to create a new software tool, known as a backdoor, that would undermine the phone’s security features and help unlock its contents. A federal judge in California has ordered Apple to create a backdoor. Apple has appealed the order arguing that such a backdoor would be “too dangerous to build.” 

The FBI has framed their current demand of Apple as a rather basic one: While privacy is a fundamental value to be cherished, it may have to be sacrificed in the name of national security. Apple must do what it can to help law enforcement combat terrorism. 

The parade of NDAs

Non-disclosure agreements have been a regular part of my practice because so many of my clients have technology at the core of their businesses. Lately, however, it seems like I’ve been dealing almost daily with clients who are haggling over NDAs. Maybe it’s a sign that the entrepreneurs I work with are in an active state of deal making and wanting to engage in other strategic conversations – or maybe it’s just a sign of increased paranoia!

The interesting thing about this trend in my inbox is that it runs counter to a broader trend. A decade ago (or more, at the risk of showing my age), NDAs between entrepreneurs and potential investors weren’t that unusual. Today, in Silicon Valley and elsewhere, many (if not most) sophisticated investors refuse to sign them. 

While it is unusual for an investor to steal an entrepreneur’s idea (although allegations of theft are sometimes made) and the anti-NDA trend may not be ideal for individuals trying to protect their trade secrets, it is a reality they face. Investors claim they don’t want to expose themselves to potential risks because they may see “related” deals; they also claim that the lawyers (why does everyone always blame the lawyers?) get in the way and stall the dealmaking.

So what’s an entrepreneur to do? Well, you can’t just clam up and not talk about what you’re up to. You need to figure out how to talk about your business, the opportunity, and your technology. It’s about finding a way to talk about what’s interesting about the business and the opportunity without revealing the “secret sauce” that you’ve got.

Finally, remember that potential partners and investors are likely more interested in you and your team than they are in your idea. I’m not claiming as some do that your ideas have no value, but I do think that most investors are concerned more about the team and the “execution risk” than they are about the idea.

A decent idea with a great team is always a better investment than the best idea ever with an average team.

Some Quick Observations from a Trip to Silicon Valley (Part II)

A little more than a year ago, Dan Tenenbaum posted about impressions garnered during a whirlwind trip to Silicon Valley. It just so happens that a week ago I returned from my own quick trip to the Valley, during which I met with a number of people working in the venture lending space.

This niche involves lending to companies that are beyond the start-up phase and gaining traction in the marketplace. These companies may not yet have attracted the attention of commercial banks or other institutional lenders, or they may need a substantial mezzanine investment to seal the deal with a senior lender, but either way they generally prefer not to give up a substantial equity position (as would be required in a typical venture capital deal). Like venture capital equity deals, the focus in these debt deals is on a successful exit for the capital provider at the end of a predetermined investment period.

So, how’s business in the Valley?

Last year, business was booming when Dan visited. It still is. Two people with whom I met described the capital markets there as positively “frothy.” This I take to mean that deal flow is surging, with more capital providers seeking good deals than there are good companies seeking financing.

All in all, it was a great trip. A bit of a trip down Memory Lane as well. It’s been more than 30 years now since I left Stanford and Silicon Valley behind, eventually to hang up a shingle here in the Midwest. On more than one occasion I’ve paused to reflect that the guy on whom I accidentally spilled beer at the Oasis on El Camino in Menlo Park back in 1982 may have been Steve Jobs. Where would I be now if I’d invested my law school tuition money with him? Sigh. 

“Silicon Prairie”: The Increasing Entrepreneurial Draw of the Midwest

A few months ago, my mother forwarded me a link to an article in our very own Minneapolis Star Tribune entitled “Tech New Frontier: Silicon Prairie.” (Yes, my mom may be overly engaged in what I do for a living, but I do owe her for inspiring this entreVIEW post.) The article described the emerging high-tech startup community in the Midwest, emphasizing the home-grown roots of entrepreneurs in the area and the increasing attention – and money – paid to these businesses over the past few years. 

The moniker “Silicon Prairie” intrigued me, so I decided to dig a little more deeply into the origin of the phrase. It turns out that our nation embraces a few different prairies of silicon nature – an area in Texas north of Dallas, an area in Wyoming, an area surrounding Chicago, and our very own “Midwest,” which loosely encompasses Iowa, Nebraska, Kansas, North Dakota, Minnesota, Missouri, and South Dakota – the states bordering I-29. Each area boasts somewhat of a different start-up focus, with Texas named chiefly for the concentration of information technology companies in the area, Illinois centering on research companies, and Wyoming being mentioned for its Web 2.0 startups. 

But as the Star Tribune article emphasized, the Midwest has historically been known “more for its barns than its bandwidth,” and many of the burgeoning businesses in this space relate to agriculture, biotechnology, and manufacturing. Though the region currently reflects only about 6% of the country’s angel investment transactions, it is one of only two geographic areas that exhibited an increase from 2011 to 2012 based on a report prepared in connection with the Angel Resource Institute, Silicon Valley Bank and CB Insights. Because the history of the area reflects a “like on the farm” work ethic, those paying attention believe the region only has more room to grow. 

There’s even a publication called Silicon Prairie News dedicated to recognizing and supporting the area’s “entrepreneurs, creatives, and investors through an emerging model for grassroots entrepreneurial ecosystem development.” I’m not sure how I missed this one, but will be adding it to my regular reading list, as well as paying heightened attention to how this Silicon Prairie we live in continues to make headlines. 

Post by Karen Wenzel, Guest Blogger

A New Tool for the Elevator Pitch

I’ve written before about the importance of a good elevator pitch in attracting interest in your business.  Looks like the folks at Harvard Business School have created a new interactive tool to try and help entrepreneurs create their two-minute pitch.

I’m sure it isn’t perfect (and it certainly won’t bring the experience of a guy like Nathan Gold to the process), but it might be an interesting way to get started on developing a good pitch.

You can read more about it here.

Let’s Call it “Days of Our Entrepreneurial Lives”

Now that the election is over and watching television is actually bearable again, you might want to check out Bravo’s “Start-Ups: Silicon Valley.”  One fun fact about this show: the executive producer is Randi Zuckerberg, sister of some other guy you may have heard of who has built a mildly successful tech company over the past few years.  I must admit, it is pretty nice to be able to watch Bravo and call it “research.”

I watched the first episode of the show, which premiered on Monday, November 5, and so far it looks to me to be about 75% personal drama (dating (mis)adventures, friendships gone bad, etc.) and 25% entrepreneurship (fundraising, investor pitches, coding).  While the people featured on the show are universally young, good-looking, and tech-focused, the issues they face in their business are not unique to that subset of entrepreneurs.  We are only one episode in and already the show has touched on themes we have previously explored in this blog or have discussed with many of our clients, in many industries, and many locations, including:

• Entrepreneurs are often the CEO, CFO, maid, and plumber all rolled into one in the early stages of a business.  Entrepreneurs who are passionate about their businesses are usually willing to get their hands dirty to get the job done and are not above doing menial tasks that will save the company precious cash.

• Connections are invaluable, irreplaceable, and can lead to some key ingredients to a company’s long-term success – money, customers and talent.  It’s also a good reminder for all of us that businesses are fundamentally run by people who sometimes hold grudges, and that we should remember to treat anyone we meet like s/he might be the CEO of our next customer. It’s just good business.

• Not everything about Silicon Valley or entrepreneurship in general is glamorous or exciting. As one of the personalities on the show commented, watching people write software code for hours on end in a bare apartment with a mattress on the floor probably would not be very entertaining. Nonetheless, for a start-up trying to get off the ground, those behind-the-scenes hours certainly consume more time and effort than a television show like this would ever display.

• Make sure you spray tan before attending a toga party. (Okay, we might not have discussed that one before.)

Let’s keep our eyes open in case our own Frank Vargas makes a cameo while he’s in the neighborhood.  You never know!

A Post by Alyssa Hirschfeld, Guest Blogger

Some Quick Observations from a Trip to Silicon Valley

I just returned late last night from a whirlwind three-day trip to Silicon Valley.  Thanks to my friend, Frank Vargas (a colleague and fellow entreVIEW author who, as regular readers know, currently lives in Mountain View), I was able to meet several angels, VCs, and entrepreneurs in places like Palo Alto, Mountain View, Menlo Park, and San Francisco.

While sitting in my window seat on the flight home (next to a guy fittingly reading the Steve Jobs biography on his iMac), I had time to reflect on my trip and make the following observations: 

• Apparently, nobody told the folks in SV that we’re in a recessionary economy with a lousy housing market and that the rest of the state of California is teetering on the edge of bankruptcy.

• Maybe it’s the Stanford vibe or the sunny high in the 60’s every day in the Bay area, but there’s so much energy and activity that it’s palpable.  Hanging out at University Cafe mid-morning on a Wednesday, there were about a dozen entrepreneurs meeting to either pitch or strategize their latest ventures.

• Housing (and rental) prices are rising rapidly—I understand that single home sellers often end up getting 120% (or more) of their listing price because of bidding wars.  I guess that’s what happens when you’ve so many “new” millionaires (at least on paper) because of recent IPO activity.

• While underwhelming performance of Facebook stock in the public market may have made some investors cool a bit to social media deals, the interest in tech, infrastructure, healthcare, and other industries remains strong.

Bottom line, I’m sure glad that we’ve got feet on the street out there and, like another friend, colleague, and fellow entreVIEW author, Kermit Nash (who has been out there a few times already this year), I look forward to going back to soak up some of that energy (and sunshine) and make connections likely to be valuable to people I know.

Pitch Advice Worth Its Weight In Gold

In our Twitterated universe (where people no longer write anything in chunks larger than 140 characters), the business plan has evolved to match. Five years ago, an entrepreneur looking for an angel investor would send an executive summary hoping to pique the angel’s interest enough to garner a request for a full business plan. In the current climate, it seems nobody writes full business plans anymore and investors are more apt to request a “pitch deck” from a hopeful entrepreneur.

With this squarely in mind, we invited renowned Silicon Valley “Demo Coach” Nathan Gold to town last week to work with our clients. Nathan has worked on thousands of pitches and his “students” have won many awards and competitions—and secured capital—on the strength of their pitches. Nathan was introduced to us by Frank Vargas, our colleague with the “view from Mountain View.” Frank met Nathan as he’s been networking his way through Silicon Valley.

The event, which featured presentations and one-on-one coaching sessions, culminated with a pitch competition among participants (think "Dancing With The Stars," without all the glittery dresses). There were card tricks, mental exercises, and plenty of humor—as you might imagine, a guy whose business and reputation is about creating great presentations needs to be a pretty great presenter himself.

Participants learned about the importance of stories, analogies, metaphors, examples, and similes. They also learned how critical it is to grab the attention of the audience in the first 30 seconds, as well as how to use emotion to keep them engaged. They also learned about presentation resources—if you haven’t checked out Prezi (the panning and zooming cloud-based software) you’re probably at least a couple of months out of date. Of course, a couple of months in our tech-centric world can be an eternity.

Interestingly, it sounds like the trend on the West Coast is for even less written content. Nathan explained that many entrepreneurs now send a 60-90 second video instead of an executive summary (still usually followed by the “pitch deck”). I wonder how long it will be before angels impose a 140 character limit of their own on communications…

Minneapolis-St. Paul Ranked 26 on List of Best Cities for Tech Jobs

A recent article published in New Geography ranked the 51 largest metropolitan regions in the U.S. on their current concentration of and potential growth for “tech-related” jobs. Using a complex methodology that incorporated data on technology industries such as software, data processing, and Internet publishing, as well as more traditional “STEM”-related occupations, the author (with assistance from a researcher with Praxis Strategy Group) placed the Minneapolis-St. Paul area precisely in the middle of his list.

The list produced some interesting outcomes. While one would assume the Silicon Valley area would top the list, it actually ranked seventh. The reasons for this result were varied. First, the article assessed growth not only during booms but during recessions. For example, while in 2000 there would have been no question as to the superiority of Silicon Valley for tech jobs, at the end of 2011 the region had 170,000 fewer tech jobs than it did in 2000.

The author’s methodology also accounted for steadiness and diversity of the growth, noting that places like the Valley can be dominated by trends, which are not always conducive to strong employment statistics. Two of their top five ranked locations, the Washington D.C. area and the Baltimore area, have broader and more stabilized tech communities that include computer systems design and private sector R&D. Other areas with more diversification in tech jobs, such as in biotechnology and publishing, were ranked fairly high despite having less growth in traditional STEM areas.

More general characteristics also impacted a community’s ranking. Lower taxes, less regulation, valuable natural resources, low housing prices, and a highly-educated workforce contribute to the growth of tech-related employment in many areas. These characteristics are another reason Silicon Valley may not rank as highly as it otherwise might; high taxes and housing costs in the area can deter start-ups, at least until they reach a certain level of success.

Topping the list was the Seattle-Tacoma region, which has experienced not only constant growth over the past decade but steady growth even in poor economic climates. Lower costs of living than other West Coast regions also contributed to Seattle’s ranking. Surprising areas losing ground (and ranking lower than Minneapolis-St. Paul) included Chicago, L.A., and even New York. Areas within two points of Minneapolis included Denver, Pittsburgh, Charlotte, Indianapolis, Providence, Miami, Buffalo, NY, and Richmond, VA.

We certainly hope Minneapolis continues to move up this list!

A Post by Karen Wenzel, Guest Blogger

Writing the Check is the Easy Part

 

Last week I had the privilege of attending the Minnesota premiere (sponsored by among others, Gray Plant Mooty) of the documentary film, “Something Ventured: Risk, Reward, and the Original Venture Capitalists.” It was a great night of movie-watching and meeting with those interested in the role of entrepreneurship and venture capital.

Something Ventured tells the story of the creation of an industry that went on to become the single greatest engine of innovation and economic growth in the 20th century. It is told by the visionary risk-takers who dared to make it happen--leading venture capitalists Tom Perkins, Don Valentine, Arthur Rock, Dick Kramlich, and others.  The film also includes some of America's finest entrepreneurs sharing how they worked with these venture capitalists to grow world-class companies like Intel, Apple, Cisco, Atari, Genentech, Tandem, and others.

While the film mostly features talking heads, their stories add color to the incredible statistics that demonstrate the profitability and success of these early investments. Here are some of my favorite anecdotes from the film:

·    Steve Jobs and Steve Wozniak were considered smelly, ill-mannered geeks who dressed funny and could not get a bank to even listen to them.

·    Nolan Bushnell, who created Atari, held board meetings in his hot tub. Bushnell introduced Steve Jobs (then 18 years old and working as a technician at Atari) to Don Valentine.

·    Bushnell was offered a one-third stake in Apple for $50,000. He turned it down. Bushnell’s comment? “That was a big f------ mistake!”

·    Arthur Rock displays a one-page business plan filled with typos and few specifics requesting $2.5 million for the creation of Intel. Rock says, “Not a polished document, but kinda cute.”

·    Mike Markkula ($142,000), Arthur Rock ($57,000), and Don Valentine ($150,000) provided the seed money for Apple. Collectively, their investments in Apple are now worth over $300 billion.

·    Markkula recalls the early days with Jobs and Wozniak. “While the two of them did not make a good impression, Woz had designed a really wonderful computer. I came to the conclusion we could build a Fortune 500 company in less than four years.” Markkula adds: “Steve Jobs had never seen the inside of a board room. I remember one meeting when he took off his shoes and put his bare feet on the table. I said, ‘You’re excused until you act like a board member.’ He put his shoes back on and was fine.”

·    Half of the original founders of start-ups were replaced within 18 months after receiving start-up funding. Cisco System co-founder Sandy Lerner was the sole woman who appeared in the film. She tearily describes how Don Valentine abruptly fired her from the company she started.

·    Don Valentine tours the Atari factory and finds the people working there smoking something that’s not his brand. Valentine believes in the Atari concept of moving the coin operated game console featuring Pong into homes. The film includes a clip of a nostalgic commercial showing a family sitting in their living room playing Pong, which demonstrates how quickly this world has changed.

Venture Capital and Angel Investing

The Book: Venture Capital and Angel Investing, edited by Andrew M. Lane and Nicole P. Mifflin (Nova Science Publishers, Inc., 2011).

Why You Should Care: A relatively short and highly readable study of the structure of venture capital and the characteristics and behavior of angel investors.

My colleague Frank Vargas recently wrote about his experiences working with entrepreneurs in Silicon Valley during the early boom years. Some years before that, while Frank was a mere undergraduate at Harvard as yet untested by the rigors of Boalt Hall, I was already at Stanford Law School, smack dab in the middle of the Valley.

From time to time, my jogging route would take me down Page Mill Road in Palo Alto past Hewlett-Packard. All I knew about the company was that it made calculators, the kind that I had happily abandoned in my freshman year of college after fulfilling my calculus requirement (never to look back). I was blissfully unaware of any revolution taking place at the time. With interest rates in the high teens in the early 1980s, I have heard that some of my more entrepreneurial classmates would borrow for tuition at low subsidized rates, and invest in T-bills, earning themselves a nice spread from which to purchase the odd pitcher of beer at Zott’s (now known as the Alpine Inn in Portola Valley).

It only goes to show you that timing is key (something I’ve alluded to before). By the time things really were churning in Palo Alto, Sunnyvale, Mountain View, and San Jose (around the time that Frank was just starting to work in the Valley), I was sitting some 5,000 or so miles away in the decidedly not high tech United Kingdom. Sad to say, but things were not very rosy there in the early 1980s, what with the Iron Lady presiding over privatization of industry during the depths of recession. But, hey, my dollars sure went a long way, with the dollar and pound approaching parity shortly before I arrived on the shores of that scepter'd isle.

I returned to a United States in the early stages of a high tech revolution. Apple was just beginning to market the McIntosh, and Silicon Valley was now the place to be, not just for innovators, but for venture capitalists. It was around that time that I first became familiar with the concept of “angel investors”—those who provided the money to keep a dream alive until it made the radar monitored by venture capitalists.

Venture capitalists are fairly easy to identify, but hooking up with an angel investor has always seemed to be a fortuitous—if not providential—experience. The question for entrepreneurs was, and remains, who are these people, and how do we get in front of them?

Venture Capital and Angel Investing is a slim volume that provides some help on the first question, and perhaps indirectly on the second as well. The section dealing with angel investors provides all sorts of interesting nuggets of information, all drawn from studies conducted between 2001 and 2006 (and thus likely out of date for today’s economy—but  maybe the best information we have at this time).

For example, it surprised me to learn that “most angel investors are unaccredited investors, but accredited investors provide the majority of dollars invested.” Frankly, I would have thought almost all angel investors would be accredited. Between 2001 and 2003, up to 629,000 people provided an estimated $23 billion per year. (Remember, that’s not venture capital—that’s money from angels.) It is a very high risk game, and those looking for a quick return should not play. “Between 0.17 and 0.2 percent of the companies financed by angels go public, and between 0.8 and 1.3 percent are acquired.”

My assessment? This is a very good read for those interested in “more accurate estimates than were previously available of the market and demand for angel capital, the companies that receive angel capital, and angel deals.”

Silicon Valley: Hollywood for Entrepreneurs

I was a second year law student at the University of California at Berkeley Law School when I first heard about Palo Alto, California. The school had announced that a guy named Larry Sonsini was going to teach securities law the second semester. The famous securities law professor who taught it previously was semi-retired and had decided to retire early, so the school had asked Mr. Sonsini to teach spring semester. 

Larry did a great job of teaching us securities law but he also convinced a couple of us to spend the summer with his (then) small 25 person law firm in Palo Alto. He described it as a growing area for small companies where we would get the chance to both provide legal advice and mentor entrepreneurs. So that summer of 1984, eight of us descended on Palo Alto Square and received an incredibly realistic view of what recently had been labeled Silicon Valley. 

I ended up joining the firm full time upon graduation and immediately was thrown to the lions. My first week, I was the “second chair” lawyer on a number of public offerings, mergers, and venture capital financings. I also did day-to-day work for several small private and public companies. I ended up meeting and working with a number of now famous people like Steve Jobs, TJ Rogers, Vinod Khosla, and Larry Ellison, but I also spent a great deal of time advising entrepreneurs on strategy and becoming their trusted adviser.

Fast forward to today and Silicon Valley is like Hollywood for entrepreneurs. It has its superstars like the late Steve Jobs, Larry Ellison, Mark Zuckerberg, etc., but also its fallen stars. It has its melodrama and career challenging stories, like Jerry Yang fighting to save Yahoo or the continuing saga at HP. It has its money moguls like John Doer, Vinod Khosla, and Promod Haque. But the most interesting thing is that there are thousands of wannabes who have come to Silicon Valley to become a star. They work in companies just biding their time until they launch the “next big thing.” They are not just engineers but marketing and financial people. People work extremely hard and the cafes, restaurants, and coffee shops are full of people talking deals and proposals. There are also thousands of lawyers now in Silicon Valley all trying to get clients, but very few offering advice like we did in the early days. One venture capitalist told me “there are a lot of lawyers but few real entrepreneurial lawyers.”

As a lawyer in Silicon Valley, I realized then and I realize now that I really enjoy and I can really play an integral role in the aspirations of these individuals (maybe not like a director or producer, but as a trusted agent or adviser, certainly more than just a “best boy” or “key grip”). When I’m asked about the allure of Silicon Valley and what makes so many companies out here succeed, I mention the number and quality of people in the entrepreneurial community, the access to so much capital, and the willingness of people to risk everything to fulfill a dream. I also add it is those in the background away from the glory sitting up at nights with the entrepreneur or CEO trying to figure out how to make payroll this month, convince someone to invest money, or fend off the competitive threats.

The other day I was sitting at Starbucks in Mountain View (nobody can actually afford to live in Palo Alto anymore) and I met a young man who had come from Nigeria to the United States to follow his dream. More than that, he told me he dreamed of becoming the next “Mark Zuckerberg or Bill Gates.” He asked if I would help him reach his dream. I just smiled and said “sure…”

A Post by Frank Vargas, Guest Blogger