Thursday, November 24, 2011

Entrepreneurship Education - Put More Pros in the Classroom

If the U.S. economy is to get back on track, schools need to do a better job of teaching innovation and entrepreneurship. That means putting pros in the classroom

By Paul Bauer and Shadi Farhangrazi

How should the U.S. educate future entrepreneurs and create exceptional educational programs? Answering this question will give us far more than improved educational tools. It could help make us again the preeminent world economy—and as a byproduct, solve our unemployment problems.

Roger Schank, a retired university professor and pioneer in the field of artificial intelligence, wrote an allegory for what he called a “story-centered curriculum,” featuring a delightful, if somewhat irreverent, tale of a town plagued by a dragon. In it, the prestigious local university quickly puts together a graduate curriculum on dragon slaying, producing 20 graduates in the first class. Various distractions derail many of the graduates, but one team eventually encounters the dragon.

“Unfortunately,” Schank wrote, “they had never really tried to fight a dragon before, and the dragon was much faster and its flame much hotter than any of them had anticipated. The dragon chased one of the members of the team off of a cliff and then proceeded to melt first the weapons and then the body of a second team member. The last two team members had no idea how to engage in a battle between just the two of them and the dragon, so they negotiated a truce. They are now doing public relations for the dragon. What went wrong in the dragon-slaying curriculum that the faculty worked so hard to build? For one thing, there was no actual dragon slaying in it. Teaching actual dragon slaying can be very difficult because among other things, it requires access to an actual dragon.”

Reinventing an Economy of Innovation

The dragon story is an apt analogy for the state of entrepreneurship in higher education today. Our dragon today is the reinvention of an economy of innovation, which then produces high-quality employment. Innovators—people who redirect resources from what they are currently doing to activities that produce higher value—are the people who create new jobs, new markets, and new industries. While colleges and universities have taken various approaches to teaching innovation and entrepreneurship, we propose the following programs, classes, and workshops, which we believe would greatly affect the training of all business students, not just those who are thinking about starting their own companies.

Turning Geeks Into Suits. Many times throughout the process of creating technology companies, people within a company have difficulty communicating the information to the business world or managing the company as a profitable venture. Successfully transferring and commercializing technology requires an understanding of business practices. What we’ve found is that one of the best ways to create new curricula is to produce programs that are tailored to technical groups. This approach would combine business courses and workshops that specifically teach business practices to engineering and science students, who are working on very specialized technical degrees. These classes and workshops could be taught in formats that offer students basic concepts, as well as minors in such areas as innovation and entrepreneurship.

Learning entrepreneurship from entrepreneurs. Many entrepreneurs complain about the lack of mentors as well as difficulty finding good advisers. Business programs could provide the perfect environment for entrepreneurs-in-training to meet seasoned pros. Classes and seminars in which students spend time with entrepreneurs, who discuss their business practices and experiences, could be a great resource for innovators. Similar programs could create additional opportunities to expand on the initial introductions so that experienced entrepreneurs could continue to act as mentors for new entrepreneurs.

Business skills in small doses. In the future, companies will require a workforce that understands how to manage technology and how to innovate within companies. New technologies and emerging industries give tantalizing glimpses of what our economy could look like. More important, they point the way to what today’s education needs to be. More business programs could offer short workshops and non-degree training programs that allow students who are not interested in obtaining degrees opportunities to learn more about business practices and to develop new skills. These workshops and training programs might be the perfect outlet for technical people such as engineers and scientists to learn more about the innovation life cycle and challenges of taking their ideas to market.

Perhaps the most effective way to create training and educational programs with long-term impact is to offer specific degree programs focused on innovation and entrepreneurship. The key is that such programs should be taught by teams that include faculty members who understand the subject matter and can convey the cognitive knowledge alongside experienced entrepreneurs.

We need experienced dragon slayers who are knowledgeable about different aspects of real dragon slaying. Entrepreneurship is truly as much about doing as it is about knowing. That is the element often missing in the ivory tower approach. It’s why products of academic programs are not as effective as they might be at producing the economy of the future.

Sunday, November 20, 2011

The VC World's Best Kept Secret

Quick, name the largest venture capital firm in the world. If you didn't come up with New Enterprise Associates (NEA), you're not alone. Although it has over 100 employees in eight offices, big-name investments such as Groupon and, and a fantastic track record, NEA keeps a very low profile -- on purpose. "We don't really have a star culture here," says Patrick Chung, one of NEA's partners.

For starters, NEA is based on the wrong coast, with headquarters in Chevy Chase, Md. It has never hired a celebrity partner, as Kleiner Perkins did with Al Gore. Not one of its 25 partners has a personal blog, just four have Twitter accounts -- and only one has actually tweeted since July. It's the antithesis of today's attention-seeking VC industry, where what you know seems less important than who knows you.

"The way I've always thought about our job is that entrepreneurs are like artists, and we're behind the scenes," says Chung, who is based in Silicon Valley. "The artists are talented people with a vision who are a bit temperamental or slightly irrational. It's our job to harness that."

In its 33 years in business, NEA has done that job quite well. Besides the controversial Groupon, its investments have included 3Com, TiVo (TIVO), Alkermes (ALKS), WebMD (WBMD), Fusion-io, and Fisker. And before founding NEA, chairman Dick Kramlich was one of the first to invest in a little startup called Apple (AAPL).

Overall, NEA has 285 active portfolio companies, and its investments range from less than $1 million to more than $50 million. It has 13 funds in total, eight of which have been raised since 1994. Of those eight, research firm Preqin says, six have performed in the top quartile of venture capital firms, based on an industry metric called internal rate of return (the 2009 fund hasn't been assessed yet). Says Jonathan Roth, president of longtime NEA investor Abbott Capital: "To the outside it's an index, because they've got a single fund doing all sorts of different things. But when you look at the returns to investors, you realize that it's much, much better than that."

In every investment decision at NEA, the process is the same, led by small teams of staffers with detailed knowledge of a particular sector. If that team wants to invest, it will bring it to the full NEA partnership, which meets every Monday in a windowless conference room. After intense discussions, there are two votes. In the first, the industry expert partners vote either YE (yes enthusiastic), YS (yes with reservations), or NO (no). If a majority votes YE or YS for a new deal, or a supermajority does so for a follow-on investment, the deal then moves to a final vote by the firm's 18 highest-ranking partners.

That's what happened with NEA's 2008 decision to invest in the small Chicago startup that would become Groupon (GRPN). Championed by NEA's managing general partner Peter Barris, who has led NEA since 1999, it was called The Point, with a vague focus on collective activism; phone company customers, say, upset about a surcharge, could connect online and exert pressure.

Two previous VC firms had turned The Point down, in part because it wanted a high valuation without any real strategy for generating revenue. "There was a lot of heartburn around the table," recalls Barris. "Some people worried there would be negative ramifications from collective action. And even if we could mitigate that risk, how would we monetize it?"

Barris pushed forward: The idea of collective action was powerful, and The Point's founder had previously made money for NEA with a company called InnerWorkings (INWK), a print-technology company.

When it came time to vote, all of Barris's partners said YE. NEA cut a $4.8 million check the next day and got to work helping shape the business. "We were supporting different experiments, including a feature where people in the building could sign up to get a discount at a burger place on the first floor," Barris explains. "Once that model got traction, I became a pain in the ass, pushing [CEO] Andrew Mason to grow quickly. I told them they should be expanding to four cities a month, which they did. Until they began expanding to 10."

Groupon has stumbled since filing to go public this past June, using accounting methods some found overambitious. But it still managed to raised $700 million in its IPO last Thursday night, and close its first day of trading at a valuation of nearly $17 billion. That represents a massive return for NEA, which invested just $14.8 million for a 14.6% ownership stake and already has received $75 million via a dividend and private share sale.

The key to NEA's success is not only its decision-making process but also its commitment to maintaining very deep pockets and its ability to invest across both sector and stage. When rivals like Benchmark Capital and Sequoia Capital cut back on fund sizes in the early 2000s, NEA stayed big. It is the only firm to have raised more than $2 billion for a fund since the dotcom bust, and it's done it twice, in 2006 and 2009. For context, the average VC fund raised just $105 million in 2009.

When health care investors began de-emphasizing costly drug development deals, NEA kept scouring hospital labs. "We're entering an era where scale matters," says David Mott, an NEA partner. "There aren't many other firms left out there that can do it from beginning to end."

NEA also has maintained a single fund that invests across company stage, geography, and industry sector, oscillating its focus depending on macro trends. This is at a time when many of its peers have raised multiple smaller vehicles. Accel Partners currently is managing an early-stage fund, a growth fund, a China fund, an India fund, and a Europe fund. Suzanne King, NEA partner in charge of investor relations, thinks the flexible nature of the fund helps. "When we first raised NEA 12 [in 2006]," she says, "we thought we'd have more in ... energy companies than we ultimately had because valuations got very heated. If we'd gone out and raised a $500 million energy-only fund, we either wouldn't have been able to invest it or would have felt pressure to do deals we otherwise weren't comfortable with."

Although NEA's funds are huge, the company has also gone small, launching a seed program, NEA Seed, that can invest as little as $50,000 in hopes of getting in early with consumer Internet companies.

Can the venture capitalist keep its track record going? Groupon's performance will certainly make a difference. But there's more to NEA than one hot IPO -- even if they don't tweet about it.

Florida's Entrepreneurial Ecosystem

Entrepreneurs throughout Central Florida are bringing innovation and creativity to industries across the economic development spectrum.For decades, economic development professionals have done an outstanding job of attracting, retaining and growing jobs for their communities.

More recently, they have focused on specific industry sectors represented in their service areas. These specialized economic clusters may include manufacturing, clean technology, digital media, life sciences, and warehousing and distribution.

Economic expert and Harvard professor Michael Porter defines a cluster as a “geographic concentration of interconnected companies and institutions working in a common industry.” He goes on to say that clusters encompass an array of collaborating and competing services and providers that create a specialized infrastructure that supports the cluster’s industry.

The economic cluster model represents a synergy­, a dynamic relationship and a network between not only the companies that compose a cluster, but also the successful partnering of its stakeholders. Job creation and new entrepreneurial innovations are able to flourish in such a collaborative environment.

I have been studying some of the economic principles of cluster and industry development and the way these theories can apply to the development of an entrepreneurial cluster, or Entrepreneurial Ecosystem. Such an ecosystem could be compared to a living organism, such as the Everglades, populated by a vast number of species. In such a biological ecosystem, it's the relationships among the different species that is valuable.

A business ecosystem could be defined as a network of resources, competencies, energy, potential and commitment to realizing a shared, profitable future. In this Web age, or Knowledge Economy, the goal isn't to build alliances among firms, as it once was, but to build relationships among people. These relationships include entrepreneurs, aspiring entrepreneurs, investors, professional service providers, researchers and scientists, local development officials and others. Among entrepreneurs, there is a strong desire to gain access to expertise, shared ideas and learning from one another. These interpersonal relations constitute the distinctive nature of an Entrepreneurial Ecosystem, and they push each individual to seek a community that can provide access to knowledge and ideas, driving innovation and economic progress.

Innovation can take many forms: from commercializing science and enhancing the customer experience to identifying new solutions and pressing social issues. Innovation requires access to a greater variety of ideas, perspectives and approaches to solving problems, mixed together in a way that provides diverse conversations between people of different backgrounds to facilitate the formation of new ideas. Creativity comes through networking and collaboration with artists, musicians, scientists, professionals, economists, architects, engineers and others. Knowledge sharing and the exchange of ideas are key to cultivating a strong entrepreneurial culture.

David A. Sampson, assistant secretary for economic development at the U.S. Department of Commerce, says, “Innovation will drive the growth of American industry by fostering new ideas, technologies and processes that lead to better jobs and higher wages, and a higher standard of living. America’s capacity to innovate will serve as its most critical element in sustaining economic growth.”

Entrepreneurs throughout Central Florida are bringing innovation and creativity to industries across the economic development spectrum, and that’s why I believe that advancing the Entrepreneurial Ecosystem as a vibrant cluster for our region will produce economic vitality and global recognition.

To reinforce the need for knowledge sharing and the exchange of ideas, watch for Orlando Inc.’s Entrepreneurs Academy, designed by entrepreneurs for entrepreneurs. The focus of the academy is on “connecting entrepreneurs to success” by helping them navigate the ecosystem and connect to the rich set of resources we have right here in the Orlando economic center.