Published on The Edge, @Netvalue2.0 on 6th March 2011
Sputniks and Beatniks
In his recent State of the Union Address, USA President Barrack Obama called for a "Sputnik revival" as a response to foreign innovation and on-going American economic slump. His intention was to recreate a scientific, economic and creative renaissance spurred by the Soviet Union launch of Sputnik 1 satellite in 1957. The satellite must have really spooked the US government as it menacingly passed over USA seven times a day.
A few months later, USA president Eisenhower quickly enacted three "Sputnik responses". One was the creation of a 200 person agency called DARPA, which gave us things such as hypermedia (used by Adobe Flash) and the mouse. Apple’s Machintosh graphical user interface technology was developed by a Californian DARPA project leader. The second response was NASA with 8,000 employees, which spurred semiconductors, fibre optics and satellite communication technology. The other was the seemingly insipid Small Business Investment Act. This Act hurled the venture capital industry further into modernity by providing soft loans to VCs willing to invest in high technology.
It took these three Acts over thirty years for the Americans to overcome their cold war enemies. During this period, an additional effect was the acceleration of broadcast communication and giving highly educated youngsters access to alternative entertainment, music, ideas and concepts. The era of hippies and beatniks started. This era created the practice of creativity and internal revolution, a standard practice used by successful corporations today.
Venture firms create the spark
Steve Jobs is probably the world’s most successful hippie ever. Recently, Jobs, Mark Zuckenberg along with other technology chiefs, venture capitalists dined with President Obama. These firms represent the pinnacle of what America has done, and what more can be achieved. Venture backed companies enables America to retain their world dominance and high-value job creation. Companies such as Google, Intel, Cisco and Apple contribute around 10% of American jobs. They played a major role to overcome Russian and Japanese jauggernauts. Obama is now looking for them to do the same with a surging China and India.
The beauty of the American technology industry, is its well known “innovation ecosystem”. It works much like lighting a match in a Californian barbecue. VCs invests in a portfolio of companies with the expectation that many investments will not be profitable, but one or more will catch fire. Iconic companies such as facebook, twitter, skype and Zynga were created during this process over a short span of time. There is little doubt this will continue to happen.
However, the VC industry itself has not been doing well lately. In fact, the VC industry just completed a long, lost decade. Venture investment during 2000s yielded the lowest returns in its history. In 2000 alone, almost 50% of USD 100 billion invested by VCs, was placed into internet companies. Less than twelve months later, it disappeared. Today, the situation has improved, but not by too much. VC investments yielded lower returns than Dow Jones, NASDAQ. It even yielded lower returns than boring government bonds. Much of the technology created during the Sputnik years has played itself out.
This is a far cry from the returns delivered by American Research and Development Corporation when it invested $70,000 in Digital Equipment Corporation (DEC) the same year the Russian’s launched Sputnik I. A year after its IPO, DEC was valued at a staggering $350 million dollars and went on to become a major global corporation. This epochal event created a surge in venture backed investments in university born technology, culminating in one of the most remarkable phenomenon in human history - the digital age.
Though there are fears that over-hyped era of the late 1990s may return this year, the VC industry has looked a lot better in the past few months. The last quarter of 2010 yielded the highest number of IPOs since 2000. “In 2010 we moved from ‘abysmal to viable’ in the venture-backed IPO market,” said Mark Heesen, president of the NVCA.
As a result of relentless pursuit for technological prowess, China now has superpower technology, ranging from stealth fighters to the world’s most powerful supercomputer, the Tianhe-1A. They have renown scientists working in Tsinghua, Peking and other “C9” universities. India too, has developed scientific capability. Indian universities such as Madras, Mumbai and Calcutta predate most top Japanese institutions and regularly produce world-class talent and a healthy number of Nobel laureates.
This is the reason pioneering venture firms such as Draper International and Kliener Perkins have setup in these markets. They are doing in China and India today what they did in the 1960s and 1970s in California. Whilst venture firms are highly effective in creating the spark needed to innovate, they will not be able to do so without the fuel: world-class universities. In fact nations like Finland, Korea, Taiwan and Japan developed their technology sectors without much help from venture capitalists. One thing that they had was an army of great scientists, technologists and engineers.
South East Asia: Talent First Please
Sadly, almost none of the universities in South East Asia are ranked equal to our Asian neighbours. The exception are the top Singaporean institutions. In addition to outclassing its neighbours, Singapore’s NUS also outranked universities from Australia and France. Singapore has attracted some venture capitalists but fail to land big names so far. However, it will probably on be a matter of time before they do. So the game continues.
It is important to have critical factors such as access to large markets, business and technical networks, townships, telecommunications, venture capitalists and risk capital. There are plenty of proposals to improve how investments are made and managed. However, these are all useless without a cluster of top-shelf, world-class universities.
The good news is there exists a window for other nations in SEA to become a generator of breakthrough technologies and intellectual property. Whilst we continue to wait for universities to reach Singapore or top Chinese university "C9" levels, some players have taken bold action. Two years ago, UK Newcastle medical school, one of the top three in the United Kingdom, announced it will move into a greenfield location in Iskandar Johor. Lets hope for more action really soon. It seems like a terrible waste to keep ploughing money into an ecosystem without investing in the correct foundation. It would be like planting seeds in a barren desert. Obama himself is now asking for major education reform in order to avert economic and social disaster. Perhaps its something Americans and Malaysians have in common.
Sidebar: Born almost sixty years before Jobs was the father of modern venture capital, Georges Doriot . Like Steve Jobs, Doriot was a son of a foreign national. He was also involved in simultaneous major initiatives, including founding INSEAD in 1957. He was also a college dropout. But unlike Jobs, he became a professor of Harvard Business School and a World War II brigadier general. He received the Distinguished Service Medal, the highest U.S. military medal given to a noncombatant, as well as being decorated a Commander of the British Empire and awarded the French Legion of Honor.
Doriot during his later years, in Harvard Business School
After the war, he setup ARDC and invested $70,000 the same year as Sputnik’s launch. DEC was the "Apple" of the 1960s and 1970s, showcasing unprecedented interactivity, efficiency and elegance that others struggled to emulate. Doriot maintained a good friendship with Ken Oslen, the founder of DEC, until Doriot’s death in 1987. Ken Olson passed away recently, in February 6, 2011.
Sputniks and Beatniks
In his recent State of the Union Address, USA President Barrack Obama called for a "Sputnik revival" as a response to foreign innovation and on-going American economic slump. His intention was to recreate a scientific, economic and creative renaissance spurred by the Soviet Union launch of Sputnik 1 satellite in 1957. The satellite must have really spooked the US government as it menacingly passed over USA seven times a day.
A few months later, USA president Eisenhower quickly enacted three "Sputnik responses". One was the creation of a 200 person agency called DARPA, which gave us things such as hypermedia (used by Adobe Flash) and the mouse. Apple’s Machintosh graphical user interface technology was developed by a Californian DARPA project leader. The second response was NASA with 8,000 employees, which spurred semiconductors, fibre optics and satellite communication technology. The other was the seemingly insipid Small Business Investment Act. This Act hurled the venture capital industry further into modernity by providing soft loans to VCs willing to invest in high technology.
It took these three Acts over thirty years for the Americans to overcome their cold war enemies. During this period, an additional effect was the acceleration of broadcast communication and giving highly educated youngsters access to alternative entertainment, music, ideas and concepts. The era of hippies and beatniks started. This era created the practice of creativity and internal revolution, a standard practice used by successful corporations today.
Venture firms create the spark
Steve Jobs is probably the world’s most successful hippie ever. Recently, Jobs, Mark Zuckenberg along with other technology chiefs, venture capitalists dined with President Obama. These firms represent the pinnacle of what America has done, and what more can be achieved. Venture backed companies enables America to retain their world dominance and high-value job creation. Companies such as Google, Intel, Cisco and Apple contribute around 10% of American jobs. They played a major role to overcome Russian and Japanese jauggernauts. Obama is now looking for them to do the same with a surging China and India.
The beauty of the American technology industry, is its well known “innovation ecosystem”. It works much like lighting a match in a Californian barbecue. VCs invests in a portfolio of companies with the expectation that many investments will not be profitable, but one or more will catch fire. Iconic companies such as facebook, twitter, skype and Zynga were created during this process over a short span of time. There is little doubt this will continue to happen.
However, the VC industry itself has not been doing well lately. In fact, the VC industry just completed a long, lost decade. Venture investment during 2000s yielded the lowest returns in its history. In 2000 alone, almost 50% of USD 100 billion invested by VCs, was placed into internet companies. Less than twelve months later, it disappeared. Today, the situation has improved, but not by too much. VC investments yielded lower returns than Dow Jones, NASDAQ. It even yielded lower returns than boring government bonds. Much of the technology created during the Sputnik years has played itself out.
This is a far cry from the returns delivered by American Research and Development Corporation when it invested $70,000 in Digital Equipment Corporation (DEC) the same year the Russian’s launched Sputnik I. A year after its IPO, DEC was valued at a staggering $350 million dollars and went on to become a major global corporation. This epochal event created a surge in venture backed investments in university born technology, culminating in one of the most remarkable phenomenon in human history - the digital age.
Though there are fears that over-hyped era of the late 1990s may return this year, the VC industry has looked a lot better in the past few months. The last quarter of 2010 yielded the highest number of IPOs since 2000. “In 2010 we moved from ‘abysmal to viable’ in the venture-backed IPO market,” said Mark Heesen, president of the NVCA.
Universities Creates the Fuel
Interestingly, this condition was helped by the very same foreign competitors that Obama wishes to overcome. Over half of the IPOs are by Chinese companies. Also, for the first time in a while, California attracted less than 40% of VC deals in a quarter. As I opined two years ago, a new generation of innovation is needed to serve the unique needs of a rapidly innovating and increasingly wealthier emerging economy. Micro transactions, agile applications such as social networks is transforming the consumer product and entertainment industry. They also have a large pool of scientific talent, a similar mix enjoyed by Americans during the cold war.As a result of relentless pursuit for technological prowess, China now has superpower technology, ranging from stealth fighters to the world’s most powerful supercomputer, the Tianhe-1A. They have renown scientists working in Tsinghua, Peking and other “C9” universities. India too, has developed scientific capability. Indian universities such as Madras, Mumbai and Calcutta predate most top Japanese institutions and regularly produce world-class talent and a healthy number of Nobel laureates.
This is the reason pioneering venture firms such as Draper International and Kliener Perkins have setup in these markets. They are doing in China and India today what they did in the 1960s and 1970s in California. Whilst venture firms are highly effective in creating the spark needed to innovate, they will not be able to do so without the fuel: world-class universities. In fact nations like Finland, Korea, Taiwan and Japan developed their technology sectors without much help from venture capitalists. One thing that they had was an army of great scientists, technologists and engineers.
South East Asia: Talent First Please
Sadly, almost none of the universities in South East Asia are ranked equal to our Asian neighbours. The exception are the top Singaporean institutions. In addition to outclassing its neighbours, Singapore’s NUS also outranked universities from Australia and France. Singapore has attracted some venture capitalists but fail to land big names so far. However, it will probably on be a matter of time before they do. So the game continues.
It is important to have critical factors such as access to large markets, business and technical networks, townships, telecommunications, venture capitalists and risk capital. There are plenty of proposals to improve how investments are made and managed. However, these are all useless without a cluster of top-shelf, world-class universities.
The good news is there exists a window for other nations in SEA to become a generator of breakthrough technologies and intellectual property. Whilst we continue to wait for universities to reach Singapore or top Chinese university "C9" levels, some players have taken bold action. Two years ago, UK Newcastle medical school, one of the top three in the United Kingdom, announced it will move into a greenfield location in Iskandar Johor. Lets hope for more action really soon. It seems like a terrible waste to keep ploughing money into an ecosystem without investing in the correct foundation. It would be like planting seeds in a barren desert. Obama himself is now asking for major education reform in order to avert economic and social disaster. Perhaps its something Americans and Malaysians have in common.
Sidebar: Born almost sixty years before Jobs was the father of modern venture capital, Georges Doriot . Like Steve Jobs, Doriot was a son of a foreign national. He was also involved in simultaneous major initiatives, including founding INSEAD in 1957. He was also a college dropout. But unlike Jobs, he became a professor of Harvard Business School and a World War II brigadier general. He received the Distinguished Service Medal, the highest U.S. military medal given to a noncombatant, as well as being decorated a Commander of the British Empire and awarded the French Legion of Honor.
After the war, he setup ARDC and invested $70,000 the same year as Sputnik’s launch. DEC was the "Apple" of the 1960s and 1970s, showcasing unprecedented interactivity, efficiency and elegance that others struggled to emulate. Doriot maintained a good friendship with Ken Oslen, the founder of DEC, until Doriot’s death in 1987. Ken Olson passed away recently, in February 6, 2011.
