3rd Friday, MTBC Session on Early Stage Funding
Topic: 3) Ventures
This past Friday I attended the Metroplex Technology Business Council's (MTBC) 3rd Friday Technical Luncheon Series in Richardson, Texas.

The lunch session began with a hot-off-the-press video from NTT DoCoMo, which depicted a vision of the future in 2010. I have to say that the form factors depicted by the Japanese stir a pleasant feeling. As one of the people eating lunch with me mentioned, the video has an Disney Epcot kind of feel to it. (Source: http://www.nttdocomo.com/vision2010/media300.html)

The main presentation of the day covered "Early Stage Funding and the Future of Wireless Communications". Guest speaker was Roman Kikta, industry veteran and managing partner of Genesis Campus, a seed- and first-round financing venture capital and incubator fund. Genesis Campus is closing a new $100M fund in January (Genesis' second fund). I was struck by the fact that the example liquidity event highlighted by Roman for Genesis Campus (Fund I) was Spatial Wireless (Alcatel to acquire for approx. $250M USD) and that the CEO was also the founder. I mentioned to Roman that having the founder as CEO up to the point of a large liquidity event was very atypical and asked whether he expected to see similar patterns in his other portfolio companies.

Roman had a very good response. He mentioned that while each situation must be treated on a case-by-case basis that founders get swapped out too early in many cases. Founders provide the vision for a venture, and the vision can get killed off too early if a new CEO is brought in.

Maybe a good topic of research for the academics reading along. That'll be $0.05 please.


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

If Your Employees Play Foosball This Well It May Be A Bad Sign
Topic: 4) A Random Walk
This link gets credit from Paul Brown, a friend, my former boss, and founder and CEO of FiveSight Technologies. Now I've known a number of early- and growth-phase companies that have adopted foosball (table soccer) tables. On the one hand, foosball does help to build company culture and get team sprit up. Foosball also can also get the blood rushing before important business meetings where competitive drive and hunger play a big part.

That said, if your employees play foosball at this level and better than they can articulate learnings about the sales process or where the company is at maturity-wise ... well you'd better watch operations more closely! ;)

Source: http://www.here.dk.nyud.net:8090/listarchive/jokes/Garlando.wmv (filming location not known)



Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Research by Ljunqvist and Wilhelm: Prospect Theory and IPOs
Topic: 4) A Random Walk
There is an interesting finance, organizational behavior, and initial public offering (IPO) puzzle addressed at the following blog.

The puzzle stems from the following. Why is it that many IPOs are dramatically underpriced? How can it be that in a matter of 30-90 days that companies (e.g., Google) can be trading close to 100% more than than their original IPO price? Did the company actually undertake some activities in 30-90 days that could double its enterprise value by billions of dollars? Hard to imagine in the absence of big news or other dramatic market changes.

Now aside from investment banking mechanics of making a market for taking a company public, it seems as though company shareholders would be somewhat upset by leaving so much on the table. If an IPO could have raised $2X billion for a company instead of $X billion, wouldn't you be upset as a CEO of that company?

Apparently not according to academic research. According to the blog article referenced above, "In trying to explain IPO underpricing, Loughran and Ritter (2002, RFS) suggested that CEOs may not be concerned about leaving money on the table in IPOs because the losses are netted against the rises in stock price in the secondary market." The article goes on to say, "Ljunqvist and Wilhelm now test this and find that it seems to hold ... They find that when the CEO wealth increases significantly in the IPO process (and hence presumably the CEO is a 'happy customer'), the firm is more likely to stick with the same underwriter, even if there was significant underpricing in the IPO ... In more technical language, the idea that the CEO is less concerned about what is left on the table because (s)he is making money anyways is essentially prospect theory."

I'm not arguing with the research. Perhaps I'm old fashioned, but whatever happened to fiduciary responsibility?


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Not Quite Friday Cat Blogging ... Its the Hairy VC Deal!
Topic: 4) A Random Walk
Thought I would resurrect a venture capital cartoon from the bubble days. Credits to http://www.thevc.com/.

Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

New Private Equity and Venture Capital Research
Topic: 3) Ventures
There is some new research by the University of Chicago GSB's Neubauer Family Professor of Entrepreneurship and Finance Steven N. Kaplan. Although so far I've only had the chance to skim the presentation and cross-ref some of the paper details, some interesting aspects to note are:

- the fact that some new data not accessible before through Venture Economics is utilized
- the sad story on returns (slide 12) since 1999 ... all average returns across all quartiles of performers is negative ...
- the Public Market Equivalent (PME) measure (slide 19) used to gauge partnership returns against the S&P 500 is kind of a novel measure which I've not seen before (the measurement is useful in terms of making the measurement of returns more invariant to sequencing)
- one finding (promising story) is that some GPs *do* persist superior returns over time ... factors and explanations probably include the access to proprietary deal flow and evidence of better negotiated deal terms against early-stage company owners, founders, etc. (gee whiz, the story is getting sad again since I have mostly represented operating companies in the past ...)

Here's the presentation and paper (the latter for the benefit of the academics!).
(presentation)
(paper)

Although Business Week magazine and others have always ranked Professor Kaplan as one of the premier professors in Entrepreneurial Finance using traditional means, from my perspective Professor Kaplan has always done a great job at making academic research and papers accessible by the general business community. I'm sure as I dig further I will find more of the same caliber work.


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Some Favorite CEO and VC Blog Posts
Topic: 3) Ventures
A lot of folks have been asking me about CEO and venture capital blogging as of late. Thought that I would point out a few of my favorite posts. Note that there are not that many VC bloggers out there (last number I saw was around 12). That said, there is growing interest by VCs in blogging investments. August Capital recently put in Series B money to Six Apart (see webblog Mena Trott, co-founder and President of Six Apart). Additionally, Sequoia Capital's LinkedIn investment (which some might argue is not quite a blog) recently drew Series B monies from Greylock (LinkedIn release).

But I digress. Here are some recent VC and CEO blog posts that I like quite a bit (some of these blogs I read semi-regularly):

- on Running an Efficient Board Meeting see http://www.beyondvc.com/2004/09/running_an_effi.html by Ed Sim, Managing Director of Dawntreader Ventures

- on the Sales Learning Curve (SLC) see http://ross.typepad.com/blog/2004/10/the_sales_learn.html by Ross Mayfield, CEO of Socialtext

- thoughts on the Feature, Product, or Company thing that VCs need to tease apart as they analyze prospective investments, see http://due-diligence.typepad.com/blog/2004/01/vc_feature_prod.html by Tim Oren, partner at the VC firm Pacifica Fund

- "It's the Feed Stupid" (this is a bit of a technical subject but an important one related to blogging), see http://avc.blogs.com/a_vc/2004/05/its_the_feed_st.html by Fred Wilson, managing partner at the VC firm Flatiron Partners


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Primordial Soup and Getting the Stars, Planets, and Moons to Align
Topic: 4) A Random Walk
Well this is going to be a cryptic post for many, but it is intended to be a non-confidential brain dump of business things that I have touched in the networking flow within the past week (some things touched on deeper than others):
- technology transfer
- electrically small antennas (RFID)
- breakthrough, high-stakes presentations
- offshore software development for growth companies
- signal compression technologies
- hanging wireless antennas off of electricity poles and exploring job opportunities
- management consulting opportunities
- chemical cleanup of chemical warfare agents and potential terrorism agents
- oil additive that improves heat transfer of air conditioning units
- radio broadcasting for truckers
- MLM schemes
- business plan development
- psychology and use of organizational behavior theory in insurance marketing and program pilot and rollout
- process operations for backoffice to eCommerce companies
- new venture capital research on returns, etc.
- venture capital and CEO blogs
- judging for MBA case competitions
- the 16th floor
- STARTech Foundation (gazillionth time - I need to investigate this time!)
- buying celebrity talent
- wiki and RSS-based software companies
- buying and selling homes in the Park Cities
- publishing articles and books
- the difference between doing lunch and networking
- oh yeah ... and the election!


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

A Brief Intro to the Process Flow Mapping of Operations
Topic: 2) The Consulting Trade
Starting to get some things off the back burner that I started but haven't had the chance to complete until now. Here's another short business note entitled, "A Brief Intro to the Process Flow Mapping of Operations". (pdf version) (html version)

Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Some Business Facts Appropriate for Halloween
Topic: 4) A Random Walk
Thought I would post some business facts related to Halloween (as inspired by a comment from my mother about spending). The facts:


- as reported at www.shoppingblog.com , Halloween spending is estimated to reach $3.12 billion, and the National Retail Federation (NRF) Consumer Intentions and Actions Survey results indicate that the average consumer plans to spend $43.57 on Halloween merchandise this year (approximately 34% of this is on candy and 35% of this is on costumes)
- the population in the United States is estimated to be 293 million (July 2004) as reported in the World Factbook of the CIA
- the revenues of Wrigley exceeded $3.0 billion in 2003, and more than 90% of its revenues are from chewing gum sales worldwide
- *neither* of my kids got a single stick of Wrigley chewing gum for Halloween
- health care spending is on the order of $1.7 trillion (so off-the-cuff I'm guessing that dental care spending is in the range of tens of billions of dollars)


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

The 2004 Election Debacle ... A Premonition Or Happening Before Our Eyes?
Topic: 4) A Random Walk
Today I was part of a conversation with some of the faculty at the Cox School of Business at Southern Methodist University (SMU), and we lightly touched on the subject of the election. Now I have a technology and operational process bent to me, so perhaps my concerns about this election are just a combination of reading CNN news about e-voting security (here), hearing rumors that people are voting multiple times simply by identifying themselves as another person at other voting locations (since people don't have to provide photo ID in some cases), getting secondhand information about mechanical ballot completion being misleading in terms of some districts allowing people to vote with one punch (but where the detailed ballot doesn't follow that instruction perfectly), and seeing that the polls are so close between Bush and Kerry (does statistical significance play a role in vote counting?). To top my heightened sense of anxiety about the election, I couldn't even take advantage of voting early in the University Park area of Dallas ... the lines were like one to two hours long at 10:20AM today.


This stuff is all starting to sound very troublesome. Can we just let the folks at JibJab settle this (here)?


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Thaler and Fama ... We're All Organizational Behaviorists Now ... Sort Of ...
Topic: 4) A Random Walk
The perfect news for my "A Random Walk" blog category ... Richard Thaler (my wife's doctoral advisor back at the University of Chicago) and Eugene Fama duke it out for the readership of the Wall Street Journal. Since I can't automatically link to the article, I thought I would link to an article by Stephen M. Bainbridge (an academic in the blogosphere) posted just an hour ago.

http://www.techcentralstation.com/102004D.html

Rather than comment on this article, I think Stephen Bainbridge has done a nice job here.


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

The Size of the Corporate Blogosphere
Topic: 4) A Random Walk
David Sifry, Founder and CEO of Technorati, a company watching and cataloging 4.3 millionish weblogs, published some interesting statistics on the size of the corporate blogosphere.

http://www.sifry.com/alerts/archives/000390.html

Although the details on how the figure was obtained were not published at the time of my entry here, David pointed out that some 5,000 people are blogging in official to semi-official capacities for their companies. This number is consistent with other numbers I have seen around the Internet on business blogging. Clearly an emerging area, but one with very interesting possibilities when one considers the power of the network, the informal nature of the blogging channels, market timing, and the search for customer intimacy and high-tech touch.

What I think David forgot to mention is that there are actually 5,001 corporate blogs. The S4 Management Group Perspectives link could neither be catalogued nor counted by Technorati because I couldn't apply my two engineering degrees to figure out where to paste the Javascript and HTML code suggested by Technorati into the weblog format code ... these kinds of technical issues (not specific to Technorati) are the kinds of things that will make bridging blogging technology to the business community challenging.



Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

DallasBlue Power Networking Lunch Gets Rave Review
Topic: 4) A Random Walk
Hats off to Marc Freedman, Founder and CEO of RazorPop, for organizing a great DallasBlue (http://www.dallasblue.com) luncheon talk and networking event this past Thursday at the Blue Mesa Grill in Addison, TX. Ran smoothly, on schedule, and with good attendance. Excellent job, Marc!

Lunch talk was by Michael Greeson, President & Principal Analyst at the Diffusion Group. Lots of stats, strategy, and branding talk made Michael's talk unique - it was the first comprehensive dialogue I had participated in that covered the converging space of broadband, networking, PCs, home entertainment, and consumer electronics. If I had to sum up three perspectives that will make convergence interesting, they would be 1) increasing power of the service provider (I got my home network from SBC/Ameritech), 2) saturation of the traditional PC market with excess horsepower (when will I ever need a new PC again? And did anyone notice the recent announcement by Intel on capping the clock speed of the Pentium for the near-term?), and 3) importance of brand name in terms of winning in the living room (I love my iPod and Sony stuff). I think we are seeing signs that partnering and M&A plays will become more and more prevalent in this space.

As for the networking environment at DallasBlue, well if you are a networker, DallasBlue is great because Marc has allocated good time for people to socialize. And this is important because networking takes time. Networking is more than doing lunch. It's more than getting business cards. It's not about selling to people. And networking is definitely not about getting business from your friends. Networking is first about developing rapport and helping people. The rest may follow given time and dedication.


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Friday Cat Blogging ... Skinning a Cat and the Role of Leadership
Topic: 1) General Management
Well someone told me that there is a cat blogging thing occurring on Friday's somewhere on the net. Basically someone takes casual pictures of a cat and posts them in a blog for others to comment. Even though I like cats, I don't quite get it yet. I will have to learn more! In any case, here's my version of Friday Night Cat Blogging ...

It becomes very easy in heated management discussions to get overly intellectual and to try to argue the best way to approach something. While I believe one should avoid taking paths that fly in the face of good management theory, sometimes it is not possible to know the best path. As long as the discussion remains goal-oriented, I think there are many ways of reaching the same goal. Hence, the pragmatic phrase "there are many ways to skin a cat" (where there are many ways to do the task but where some ways are probably harder than others).

In these cases, I think leadership plays a crucial role. Since the path to the goal is not clear, commitment and resolve are needed to get to the goal. Leaders will help the company re-adapt, improvise, and conquer when there are obstacles.

And here is a picture in memorium of one of my cats ...

Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Dr. Suzanne Shu's Website at SMU's Cox School of Business is Online
Topic: 4) A Random Walk
My significant other just got her faculty website online as she prepares to teach core marketing to business school students at Southern Methodist University (SMU). Go Suzanne!

http://faculty.cox.smu.edu/~sshu/index.htm


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Poll on Business Blogging
Topic: 4) A Random Walk
I posted an earlier entry about business blogging. Thought it would be interesting to let people take a quick poll here. Thanks for voting!
Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

Can We Keep Up With Technology Countermeasures?
Topic: 4) A Random Walk
I read the following interesting news on SPAM and spyware ...


"In what could prove to be one the great second acts in Internet history, erstwhile king of spam Sanford Wallace takes center stage this week as exhibit A in a federal crackdown on invasive online advertising software."


"In the first action of its kind, the agency last week filed a civil lawsuit against Wallace, charging the admitted former junk e-mailer with fraudulently installing advertising and other software on consumers' computers through his network of Web sites. "


"'Very much like with spam and the spam legislation last year, spyware can be fought through a combination of efforts: enforcement, legislation, technology and consumer education,' said Dave Baker, an attorney for Internet service provider EarthLink, which has been an active participant in anti-spyware efforts."
source



I applaud Baker's efforts, but I wonder about the age we live in today where:
- computer viruses block anti-virus programs from reaching data updates for new viruses,
- teenagers are smart enough to hack into security measures developed by PhDs, mathematicians, and cryptographers in less than 15 minutes,
- SPAM email has overtaken the Internet (albeit CAN-SPAM legislation hasn't been around that long),
- telemarketers and telefaxers still contact my residence after repeated unsubscribe and subscriptions to do not call lists,
- venture capitalists and companies like Google are investing in blogging technologies for various reasons, some of which include because email is so cluttered by garbage,
- people are migrating off of the PC platform to the Macintosh to get away from the computer virus nightmare,
- and the beat goes on ...


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

26,324,627 Downloads of New Technology
Topic: 4) A Random Walk
One of my past colleagues at the management consulting firm PRTM pointed out to me a cool technology by Skype. It is a P2P telephony company enabling free, superior-quality calling worldwide. I'm generally not an early-adopter when it comes to actually using technologies (although I know some of the S4 Management Group blog readers are), but what really caught my attention was the roots back to KaZaA and the quote by the Chairman of the Federal Communications Commission.


"I knew it was over when I downloaded Skype," Michael Powell, chairman, Federal Communications Commission, explained. "When the inventors of KaZaA are distributing for free a little program that you can use to talk to anybody else, and the quality is fantastic, and it's free - it's over. The world will change now inevitably."
Fortune Magazine, February 16, 2004
About Skype


Don't know what the conversion rate to users is on the 26-some million downloads. Last I remembered stats on the instant messaging space ... well, it wouldn't surprise me if Skype had a total user base on the order of the pure-play, instant messaging platforms even lacking first-mover positioning and even given some of the tricks of getting the end-user, customer premise equipment in place.


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

On the General Manager
Topic: 1) General Management
I was leafing through my copy of "Process Consultation (Volume II)" by Dr. Edgar Schein, Sloan Fellows Professor of Management in the Sloan School of Management at the Massachusetts Institute of Technology (Edgar Schein website) ... I find it useful to review core foundation works from time to time.


In any case, in that book Dr. Schein summarizes the role and relative position of general managers very well. He writes, "As for general managers, whose responsibilities cut across the various business functions and who manage complete organizational units, in many functions the subordinates are often each more expert than their boss. It is in such situations, where the boss's job is to integrate, coordinate, and blend the expertise of others for coherent decisions, that the skills of helping become most relevant. Such decision processes often occur in groups or involve the interaction of a number of people whose contribution must be orchestrated."


Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com

What Makes A Good Manager
Topic: 1) General Management
Mark Cuban, self-made billionaire and owner of the Dallas Mavericks, made this comment to me about good management (very deft response from Mark I might add - smart guy) ...

/*** begin email thread ***/

He asks questions the right way

On Thu, 30 Sep 2004 12:01, MAV Feedback wrote:
>
> IP: 129.119.85.141
> Name: Steve Shu
> Email: sshu@s4management.com
> URL: http://www.s4management.com/
> Site: http://www.blogmaverick.com/
>
> Mark,
>
> Recently relocated to Dallas about 7 weekes ago, and I just learned
> about your site. Saw Terdema give a recent talk at an SMU Cox School
> of Business function
> (index.blog?entry_id=455445).
>
> Terdema said that you communicate very little via email with him. He
> said you mostly give answers like "yes", "no", or "do it" to him. Yet
> your blog is packed full of stuff. What's going on? (He spoke highly
> of you as a manager though - for the record.)
>
> ;)
>
> Best Regards,
> Steve Shu
> Managing Director
> S4 Management Group
> Mobile: (773)320-5527
> Email: sshu@s4management.com
> Web: http://www.s4management.com
> Business Blog: https://sshu-s4.tripod.com/blog
Check out The Benefactor on ABC Monday nites !

Thx

m

/*** end email thread ***/



Steve Shu
Managing Director
S4 Management Group
Email: sshu@s4management.com
Web: http://www.s4management.com