Fred Wilson Talks Yahoo, Tumblr, NSA Spying and the Secret to Twitter’s Success.

Click here to see a video of my interview with venture capitalist and Twitter investor Fred Wilson from Flurry’s SourceDigital13 conference.

Or watch it here:

A Comeback in the IPO Market

Could we see a comeback in the IPO market this year or next year? Here’s the bull’s case in a BusinessWeek story written by Steve Hamm and I, including reporting on a recent Goldman Sachs conference calling for a coming wave of IPOs.

A Comeback in the IPO Market
Recent activity has ended a drought of venture-backed initial public offerings, and some experts foresee a rebound to about 40 a year

Entrepreneurs and venture capitalists took notice just before the Memorial Day weekend when two technology companies had their initial public offerings in a matter of 24 hours. OpenTable (OPEN), a Web site for making restaurant reservations, went public one day after SolarWinds (SWI), a networking software company. The activity ended a drought of venture-backed IPOs that began last August. “It signals that investors are looking for growth stories,” says Robert R. Ackerman, managing partner of Allegis Capital, a venture firm.

Even before the two IPOs, Goldman Sachs (GS) organized an invite-only conference on May 12 in Silicon Valley, called “The Next Wave IPO Forum,” in anticipation of an IPO rebound. Rather than organize multiple meetings around the country, Goldman Sachs invited dozens of venture capitalists and entrepreneurs to a gathering on Sand Hill Road so the bank could explain why it expects an upturn in public offerings later this year. Goldman said it sees 10 to 15 venture-backed companies that have already registered with the Securities & Exchange Commission and that could be ready to go public in fairly short order.

One example: Medidata Solutions Worldwide, a provider of electronic data management software for the health-care industry. “It feels to us like the IPO market is opening up,” says David B. Ludwig, a managing director of Goldman Sachs’ technology, media, and telecom sector in the firm’s Equity Capital Markets Group. “We expect to see an acceleration of filings in the next few months.”

NOT THE BOOM DAYS
No one is predicting a return to the boom-era days when more than 200 companies went public a year, but some financiers and bankers say the market could soon recover to the level of 40 or so venture-backed IPOs a year. To get there, market conditions must continue to improve, more high-quality companies need to file, and their stocks need to perform well after they go public. “Two IPOs don’t make a trend but it’s very hopeful,” says Fred Wilson, managing partner with the venture capital firm Union Square Ventures. “I think we will see the end of the IPO drought for venture-backed companies within the next year, possibly by the end of this year.”

Read the rest of the story here.

The Great Skills Mismatch: Wall Street Quants Thumb Their Nose at Tech Startups

There’s an emerging structural shift in the U.S. economy that has created a serious mismatch between employers and employees in today’s economy. That’s the provocative thesis of this week’s cover story in BusinessWeek, “Help Wanted.”

This is a big deal that could have major repercussions. Among them, says my colleague Peter Coy, are:

The unemployment rate is likely to remain distressingly high because many people who want jobs will lack the appropriate qualifications. Second, inflation could pick up sooner than expected if employers are forced into bidding wars to recruit the few people who are qualified for the work. Third, if unemployment stays high it will put additional political pressure on Congress and the Obama Administration to push through fixes that could make matters worse in the long run, such as insulating workers from the cost of long-term unemployment to the point where they lose their appetite for work.

I was one of several reporters and editors who helped Peter write this cover. I learned a few interesting things while reporting the story, which led me to believe that this shift was having a real impact. One thing I learned is that the thousands of laid off workers from Wall Street, many of whom have high-level math and computing skills, are so far not that interested in leaving finance and going to work for a tech startup.

Consider this one story from venture capitalist Fred Wilson. Last fall after Lehman Brothers fell, Wilson, cofounder of the New York venture capital firm Union Square Ventures, backed an experimental Web site called www.leavewallstreetjoinastartup.com. (The other venture capital firm that backed the site was First Round Capital.)

The idea was to try to lure some of the talented software engineers who had been laid off on Wall Street to technical jobs at the two dozen New York-area companies that his venture capital firm was financing. Wilson was fishing for quants.

But it wasn’t the game-changer the VCs were hoping for. Wilson only filled a handful of jobs. “It wasn’t the panacea I thought it would be,” says Wilson.

It turns out that the learning curve was too steep for many financial engineers who were not well versed in the ins and outs of online advertising and analytics. Plus, many Wall Street refugees are not prepared to accept a massive reduction in their salary.

“For a lot of people who used to work on Wall Street they have a large personal burn rate,” says Wilson. “For them to take a job that pays a lot less they have to make a meaningful change in their lifestyle. And that is an issue.”

What does this mean for tech companies? I think it means that it will most likely be hard to poach seasoned talent from the financial world for the next few years. Most of the Wall Street folks I know who have been laid off are still looking for jobs with financial firms, though they are more likely of the smaller, boutique variety. Some of them are finding jobs. Not all of them will, though. Wall Street just won’t be big enough to absorb all the people who have been laid off or fired. That restructuring process is probably going to take a few years to play out.

Meanwhile, if I was a tech company, I would focus on trying to poach talent from other tech companies, or I would look for recent graduates or younger employees with tech skills that can be retrained much more easily.

This is the hope of President Obama. In a lengthy interview in the New York Times magazine with David Leonhardt, President Obama says that one healthy consequence of the financial crisis will be that college grads with math skills won’t automatically want to become derivatives traders. “We want some of them to go into engineering, and we want some of them to be going into computer design,” said Obama.

The President also is aware of the skills shift. In the interview, he said one of the biggest constraints holding back his plans for building electricity smart grid is a lack of “trained electricians to lay down those lines. . . Somehow we have not done a good job of matching up the training with the need out there. And that’s one of things where government can help, help to guide and steer our education process in a way that meets future needs and not just the needs of the past.”

So I would expect to see more talk and action from the Obama Admin. on this skills mismatch and retraining issue. He clearly sees it as a economic problem and priority.

Le Web: Fred Wilson on French Startups

Fred Wilson has been writing some really interesting posts about the state of the French startup scene.

Fred met with 16 startups and he concluded that there’s quite a bit of tech mojo in France:

“What that list tells me is that Parisian entrepreneurs are as up to speed on where the current opportunities as much as anyone in silicon valley, NYC, or anywhere else in the world. I’ve talked a lot about this lately, but globalization means that the word travels fast. Don’t think that the most interesting mobile games or iPhone apps will be built in Silicon Valley or even the US. Some will. Many won’t be.”

Since Georges Doriot was a French immigrant, I am particularly interested in learning about this topic. I think Doriot would be thrilled to read that his home country was starting to revive its entrepreneurial juices. Check out his post here.

These are some of the startups he highlighted:

ulik.com – social service for entertainment focused on ratings
wixi.com – invite only service for sharing music and video
twitrss – a mobile RSS reader in early alpha that uses twitter for sms alerts
yoowalk – a virtual world built entirely in flash available via a web browser
mypronostic.com – prediction marketplace

Are VC Returns Unfairly Judged? Why Fred Wilson is a Great Host & Thoughts on Doriot Quote du Jour

For the last six days, Fred Wilson has been posting a Doriot Quote of the Day. It’s a new addiction of mine to see what quote Fred comes up with each day. He’s picked some of my favorites and surprised me some other times.

Like today, Fred quoted me! Here’s the snippet from Fred’s blog A VC:

“Thanks to Digital Equipment’s blockbuster IPO, ARD met Doriot’s goal of generating superior performance by producing a 17 percent rate of return during its twenty-one year history, a significantly better return than the 13 percent average of the Dow Jones index during the same period.”

This is not a Doriot quote either. In fact, it’s not a quote at all. Spencer Ante wrote this. The reason I posted this is that I think the expectations for venture capital have been skewed by several periods of strong returns (the late 90s in particular). Over the long haul, I think VC should produce high teens/low 20s returns after fees and carry. The 17 percent number that ARD delivered seems about right. You have to remember that 17 percent over twenty-one years is 23x the initial capital invested.

So far, the post has generated 13 comments.

One reader Mats Myrberg asked:
17% over 21 years is really an incredible record. If you take out the DEC IPO what does the record look like? Also is there historical data on VC funds (and managers) and their return rate to give this more context? This would be interesting data.

Good question, Mats. As Fred says, VC is a business based on the long ball. If you strip out DEC, ARD’s 25-year rate of return was 7.4%, according to a report by Patrick Liles that I sourced in the book. It’s 25-year rate of return was 14.7%.

Here are the rest of the return figures for ARD. As you can see, ARD reached its peak return as an independent firm in 1969 when it hit 17.9%. I bet if you held onto your portion of DEC shares, that return would have gone even higher, above 20%, because DEC continued its spectacular run for another 10 years.

1966 9.5%
1967 16.7% (this is the figure that Fred referenced in his original post, one year after the DEC IPO super-charged ARD’s portfolio)
1968 15.5%
1969 17.9%
1970 14.9%
1971 14.7%

One final thought: As the NYT review pointed out, Doriot’s “genius was to coax investors to wait through years of uncertainty.” Consider this: ARD did not generate a positive return on its original $3.5 million investment fund UNTIL ITS EIGHTH YEAR!!! And even then the return was a paltry 1.5%. It was not until 1959 that ARD started to generate returns in excess of 5%. And it never reached a double-digit return until 1967. So you gotta hit that home run to outperform the market.

Doriot Quote Of The Day

This just in from Fred Wilson’s Blog A VC.

“At early board meetings, I would try to give an accurate accounting of the profit and loss. He would look through me and ask what I really thought about when I was shaving.”

High Voltage Engineering CEO Denis Robinson, about General Georges Doriot

Says Fred: I really loved this one. Its rarely about the numbers at the early stage. Its about the challenges and opportunities. Speaking of “loving this one” I’ve noticed few if any comments on these Doriot quotes. Am I the only one enjoying them?

So far, 32 people have left comments after Fred’s question–and most folks said they liked the quotes, which makes me feel good. A few people have even gone out and bought the book as a result of reading the Doriot quotes.

What do you think about when you are shaving?

Brilliant! Fred Wilson Launches Doriot Quote of the Day

Yesterday, Fred Wilson, co-founder of New York venture capital firm Union Square Ventures, began a new feature on his blog called Doriot quote of the day.

Why didn’t I think of this idea!?!?

It’s brilliant because Doriot had a Nietzschian knack for penning catchy and wise aphorisms. Fred also adds my book would “interest most VCs and probably many entrepreneurs too.”

Says Fred:

Doriot Quote Of The Day
I’ve been reading Creative Capital, Spencer Ante’s biography of General Georges Doriot, the father of the modern venture capital business. It’s a book that would interest most VCs and probably many entrepreneurs too. The highlight of the book are Doriot’s colorful quotes. I posted one to my tumblog earlier and I just decided that I am going to post a Doriot quote everyday on this blog until I run out of them. Here’s the first:

A team made up of the younger generation, with courage and inventiveness, together with older men of wisdom and experience, should bring success.

— General Georges Doriot, in the American Research and Development 1949 Annual Report. ARD was the first institutional venture capital firm.

Fred Wilson Blogs About Creative Capital

Fred Wilson, the co-founder of the New York venture capital firm Union Square Ventures (and an all-around nice and really smart guy), was kind enough to blog about my book this morning on his popular blog, A VC.

Fred, I know you have not received your book yet. But when you do I would be honored to sign it any time you want!

Says Fred:

“Who is the father of modern venture capital? Surely someone from Silicon Valley in the late 60s and early 70s, right? Wrong.

The father of modern venture capital is General Georges Doriot who helped to form and run American Research and Development, the first modern venture capital firm in Boston right after World War II. Doriot also taught at Harvard Business School and was a mentor and teacher to the first generation of Boston VCs who operated in the 60s and 70s.

With all the focus on the bay area and its history as the center of innovation in information technology, Doriot’s contributions are often overlooked. But now we have a new book and a blog, courtesy of Spencer Ante of Business Week.

Ante’s Creative Capital is about Doriot and the start of the venture capital business here in America post world war II. I haven’t read it yet, but I just ordered it on Amazon. Here’s a short excerpt from the Harvard Business School blog. I suspect the readers of this blog are the perfect audience for this book so you should all go check it out.”

Another Tech Bubble? History Says No

A few months ago, Fred Wilson blogged about fears of a coming downturn in technology. Then last month the hilarious tech bubble video began circulating throughout the Web. That tech stocks have plummeted early this year suggests we are heading for some stormy weather in techland. What’s going on?

Like a lot of folks, I’ve been wondering the same thing myself. But if you look at history, we’re probably not headed for a sustained downturn in technology. One of the things that struck while me researching my book was that there’s been a strong and clear technology cycle at work over the last 40 years or so. Typically, a disruptive technology is invented and commercialized, helping to drive a 6-8 year cycle of sustained growth.

The first high-tech boom happened in the 1960s, with the craze over “new issues” and “electronics”. The market went on a six-year run before it stalled. Then the commercialization of the integrated circuit and the dawn of the computer revolution sparked another boom from late 1966 to 1972. The blockbuster IPO of Digital Equipment Corporation in August 1966 was a seminal event. DEC came out at $22. By March of 1967 DEC shares topped $50, over the summer, they hit $80, and in September they crossed $100.

In 1973, the bottom fell out of the venture capital market and the economy at large. The twin economic evils of inflation and recession joined hands to create a new type of monetary demon dubbed “stagflation.” Then OPEC’s oil embargo in October of 1973 sent the booming economy over a cliff. Between 1973 and 1975, the Dow Jones index was nearly sliced in half.

All the while, entrepreneurs and technologists were working on a whole new range of innovations that would spark another boom starting around 1979 and lasting until the 1987 crash. In the late 1970s and early 1980s, venture capital helped finance the creation of four new industries that boosted the economy: microprocessors, video games, personal computers, and biotechnology.

Then we had a recession in the early 1990s, which didn’t end until 1994/1995–the same time that the Internet and Web browser were unleashed on the world. We know that story pretty well.

So where does that leave us now? Well, if you assume that today’s boom started in 2003/2004, we’re probably in the middle to late stages of the current cycle. Of course, history isn’t always a useful guide. But it feels right to me. The rebirth of the Web has driven the current boom. But there are still several groundbreaking technologies that haven’t reached escape velocity yet–I’m thinking of wireless computing, and green technology in particular. If those two areas fulfill their promise, it could help extend the current cycle for a few more years.

Now, don’t get me wrong. Even though I think there is no widespread tech bubble like there was back in 2000, I think there are mini-bubbles. The most obvious one is in social networking. Valueing Facebook at $15 billion–with a 500+ price-to-earnings ratio–is insane! That p/e surpasses even some of the ratios we saw with telecom companies in 2000. (I think JDSU boasted a 400+ p/e at one point.) So while we will probably see a pullback in certain areas, with some inevitable consolidation, I think the trendline for tech will be upwards for a few more years. Unless of course some new black swan (i.e. another major terrorist attack or financial crisis) appears out of nowhere and throws everyone for a loop.

What do you think?

HOW TO BUY CREATIVE CAPITAL: To pre-order Creative Capital, click here to go to Amazon.com.