On Bridges, Part 3: What Can Europe Give to Silicon Valley?

Bridge_drawingThis is the final post of 3 contemplating how Silicon Valley and European tech scenes could get closer to each other. The series are an expansion of a short speech I gave at Slush conference in November 2013 – video of which should be online soon. I believe this topic calls for more discussion and thinking along than 15 one-directional minutes on conference stage allowed. To get up to speed, read Part 1 and Part 2 here.

After looking at the widening gap between European and Silicon Valley tech scenes and establishing that the usual first priority, raising money from the other side might not be the most feasible way to fix this – the questions becomes: how can we build more non-financial ties between our scenes?

As US is not paying close attention I believe that the key to the solution is on the European side. And to succeed in driving this change in relationships, Europe needs a mindset shift.

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On Bridges, Part 2: Why Should Europe Care for Silicon Valley

Bridge_drawingThis post is 2nd of 3 discussing ways Silicon Valley and European tech scene could get closer to each other. The series are an expansion of a short speech I gave at Slush conference in November 2013 – video of which should be online soon. I believe this topic calls for more discussion and thinking along than 15 one-directional minutes on conference stage. As an intro, see Part 1 here.

Europe’s tech scene is buzzing. Those of us who have been on both sides can attest that the people innovating there, business models attempted and technologies applied in Europe are very much aligned with what’s happening in Silicon Valley, despite of the separation. So it would make sense to link up more, right?

As a healthy sanity check before jumping to that conclusion, let us ask: why would we need stronger ties? Looking from Europe, that is.

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On Bridges, Part 1: Realizing how Europe and Silicon Valley are drifting apart

Bridge_drawingThis post is 1st of 3 in the series aimed at discussing ways Silicon Valley and European tech scenes could contribute to and gain more from each other. The series are an expansion of a short speech I gave at Slush conference in November 2013 (video of which should be online soon) but I believe this topic is calls for more discussion and thinking along than 15 one-directional minutes on conference stage.

If you were to sit in the audience of any European tech summit these days you get soaked in action around you. Would it be TechCrunch Disrupt Europe, LeWeb, or the raising 5000-attendee rocket of the region, Slush in the November darkness of Helsinki – there is no arguing that the European startup scene is in its most bustling, vibrant shape ever.

Yet, a lot of this exciting renaissance seems still to be constrained to the Old World continent.
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VC Funds Go Where Immigrants Come From

Thinking about the linkages between US and European tech investment and startup scenes ahead of the Slush conference in 10 days, I found an interesting paper: Deal or No Deal: The Growth of International Venture Capital Investment (PDF here) by Pandya and Leblang of University of Virginia.

Recommended reading in full for anyone who cares about intercontinental talent and capital flows, but I just wanted to share this fascinating graph:

immigrantinvest

You can often hear how foreign investments and emigration are discussed as linearly opposite ends of a see-saw: if you get more of cash invested into your country from abroad your skilled talent can stay home and build companies there as opposed to seeking interesting challenges abroad. What the authors show here is rather a two-way street, another re-inforcing cycle where the movement of talented people will eventually build into increased cross-border investment of capital:

We find that US VC firms invest more frequently in countries that have large populations of skilled migrants residing in the US. In stark contrast to existing FDI research, we find that recipient countries political institutions have limited  influence over the volume of venture capital deals.


First Decade of #SkypeMafia

skypemafia - full plot - thumbnail

On August 29th Skype is celebrating its birthday. As it did as a small European-rooted startup, so it does as a product in the portfolio of Microsoft. This time it is a round one, too: first 10 years. Sending the best wishes to all the friends who have built and are building Skype over these years, I figured it would be a good time to give in to an idea that has been in the back of my mind for a while: what would it look like if someone somehow visualized the impact of the company Niklas, Janus & a bunch of Estonian engineers started in 2003 to the broader startup ecosystem?

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Week 30: Exits, Second Markets, M&A & Thunderlizards

Stanford GSB Sloan Study Notes, Week 10 (30), Winter quarter

Originally planning out March I was quite sure that next week will be a complex one, after all, it is still labelled in calendar as the “exam week”. In reality, the Winter Quarter pretty much culminated today, with the last Finance class where the entire Sloan class was together in the same lecture. We do have one more core in Spring, but it will be in sections, so between all electives and split schedules, it will be mostly social when we meet from here on.

This week was mostly about delivering papers and presentations. With one team we built a business plan and pitched a crowdsourced service for proofreading and language learning feedback to dyslexics, foreign students and white-collar immigrant workers. With another team, we designed an elaborate proposal for taking a real public company private, shifting their product portfolio for higher exit multiples, levering up the non-existant debt, restructuring operations (yup, the founder’s private jet and golf tournaments need to go) and getting out at 10X of our money in 5 years. With third group, we pre-analysed and went through 6 real startup pitches along with a real VC mentor and decided to maybe just to give money to one of them.

Despite of the chaos of trying to schedule ~20 people into these different groups at conflicting times, I really enjoyed actually doing stuff (as opposed to just discussing in class) with my MBA peers. The ease and breakneck speed at which almost anyone in this school can deliver complex quant models and high quality analysis still amazes me. And then you can pull pretty much anyone on stage with a 5 minute heads up to present the outcome with coherent, engaging story line.

I have jus two final exams this quarter, three hours of Entrepreneurial Finance (cap tables, term sheets and anti-dilution math) done last night and Core Finance (WACC, optimal portfolios, options and bonds) to be done next week. Then onto the East Coast study trip and the saddening final 10 weeks here.

Study notes covered in this issue:

  • Alternative equity markets filling the IPO gap
  • More Exit talk, especially Mergers & Acquisitions
  • Real pitches from real startups
  • Hunting for the Thunderlizards
  • Guests: Barry Silbert of SecondMarket, Peter Currie, Louis Elson from Palamon, Mike Maples of Floodgate

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Weeks 28-29: Bootstrapping, Europe(?!), Options & Private Equity Operators

Stanford GSB Sloan Study Notes, Weeks 8-9 (28-29), Winter quarter

So there: it takes about 28 weeks in Stanford to finally have someone mention Europe in any other context than a semi-joke about Greek macro environment in the short term. And these two weeks suddenly opened the floodgates: there was the first European company case this far, we spent some time on the (quite miserable) comparative venture financing stats between the continents and – most importantly – the rotationally geography-themed Sloan TGIF parties finally turned to the European night (affectionately dubbed as the “Estonia & the Rest of Europe” evening). Relieved with a sigh with my Swedish, Dutch, German, Swiss, French, Italian etc classmates: we have not entirely disappeared from the world map as seen from the West Coast yet, and will keep working on that threat.

Partially supported by the annual Stanford Entrepreneurship Week, the last weeks were super-exciting for the flow of external speakers – there is a separate post summarising those you should not miss. And we did do the Final View presentations of the LOWKeynotes program, including your’s truly’s 9 minutes on how hard it has been to adjust to somewhat surprisingly lacking digital living infrastructure here, coming from Estonia – videos for which will be online in 1-2 weeks. Stay tuned.

Covered in this issue:

  • Bootstrapping, venture debt and swimming against the tide in Europe
  • Exit planning and IPOs in venture deals
  • Thinking like a limited partner, structuring PE deals, operational turnarounds and the visible future of Private Equity
  • Derivatives and options – both financial and real
  • Academic research on VC compensation and incentives
  • Guests from: The Foundry, Avik Ventures, AngelList, Astia, Makena Capital, TPG, TSG Consumer Partners, Sierra Ventures, YouTube, Trulia, OpenLane, Fayez Sarofim, Accel, Meritech Venture Partners…

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Week 27: Tech IPOs, Seed Investing, Bankruptcies & International Trade

Stanford GSB Sloan Study Notes, Week 7 (27), Winter quarter

After the public holiday last Monday (which I realized could not have been more eclectic between sick kid babysitting, running, building a unit economics model for a startup business plan assignment and babysteps in hacking social graph analysis in Mathematica) there was no breathing room throughout the rest of the week.

Eric Schmidt taught his legendary IPO class, we took a bunch of convertible note based seed financing setups apart and put them back together, the original mad-scientist-turned-CEO Art Levinson shared his thoughts on scaling innovation, we discussed how different can be the approaches to seemingly similar private equity investments, I finally made it over for a long-overdue visit to Stanford Technology Ventures Program and there was a fun reunion with ever-joyful Meg Whitman whom I hadn’t seen since the good old pre-politics and pre-HP days of her more regularly hanging out with us at Skype, in Tallinn and elsewhere.

When I was walking towards the study rooms on late Friday afternoon to get at least a bit of the two different finance group projects due Monday on the way, ahead of the expectedly busy Estonian Independence Day weekend, I got rerouted in a room where Craig Barrett, long-time Intel chairman & CEO was having a candid small class discussion about navigating global business structures despite of government interventions. Only in Stanford. Good news: what he figures competitive nations are supposed to do is pretty much aligned with where the 95-year-old birthday state of Estonia is heading.

And after all this, the most unexpected meeting of the week? Perry, the original Shrek donkey. (He is on YouTube too)

Covered in this issue:

  • How and why Google ended up running an unusual IPO process
  • Changing landscape of seed & angel investing + rare data on performance
  • Scaling innovation from startups to large public companies
  • Inner workings and different flavours of Private Equity partnerships
  • How defaulting and going bankrupt is different between US and various EU markets
  • Practical guide to managing through international trade barriers
  • Guests: Meg Whitman (eBay/HP), Art Levinson (Genentech/Google/Apple), Craig Barrett (Intel), Google Ventures, Snapchat, Private equity partners from General Atlantic, TA Associates, Francisco Partners

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Week 26: Debt, Seed Money, Private Equity and Firing Founders

Stanford GSB Sloan Study Notes, Week 6 (26), Winter quarter

Tahoe Vista

 

The picture reflects the exact view I have from where I’m sitting posting this. When you live in Northern Europe, “good snowy ski weather” usually means you have to give in on other things (such as clear skies and light). Not in Tahoe – and that’s why a mission of Sloans have landed here again for a long Presidents’ Day weekend.

But no play without hard work, right. There were quite a bit of extra-curricular activities on campus (I made it to several BBLs even!), some long-planned and inspiring 1:1 coffees with MBA colleagues, a few guests I would bucket in “personal heroes” category. And a fun roleplay of 8am termsheet negotiations, with lawyers at each table and all.

Covered in this issue:

  • Differences in financing with debt vs equity – and some irrationalities caused by taxation
  • Seed financing – how to survive until Series A
  • Intricacies of convertible note structuring
  • European startups: plasma drilling in Slovakia and why you should move to Berlin
  • When and why founder CEOs get fired
  • Introduction to Private Equity
  • BBLs on Crowdfunding and Big Data
  • More guests from: Geothermal Anywhere, Soundcloud, Intellicap, Twitter, Benchmark Capital, Hellman & Friedman, PubVest, LinkedIn

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Week 25: Midterms, Cost of Capital and Founders in Rounds

Stanford GSB Sloan Study Notes, Week 5 (25), Winter quarter

This midterm week was quite light for classwork – as my elective set happened to have no actual midterm exams.

There was some time to think about an own group project (a business plan for a language teaching/feedback service that plugs into your daily communications flow in foreign language), help out a group of MS&E students writing a project on Skype and another group researching management approaches for their Paths to Power class, reminiscence of the good old days with Howard (the first investor in Skype), drop by the very maltheesque-looking Rdio offices, have calls with two new startups with impressively useful mobile apps in development, visit a stealth mode space startup about to launch some beautiful tech off this planet and then celebrate the Chinese New Year and Gustav’s birthday. And finally play a full round of golf at the Stanford Course.

Wow, actually sounds like a busy week now. The good busy.

Relative short study notes covered in this issue:

  • Optimal portfolios and cost of capital
  • More VC term nuances, especially around founder control
  • Guests: founders on SunRun & Intuit, VCs from Accel & Foundation Capital. And Christy Turlington.

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