There is nothing like a few days in Silicon Valley to make you feel totally inferior with respect to hustle, value creation and entrepreneurial spirit. I always love spending time in Silicon Valley, and I believe it expands my knowledge and networks in a way that is important for my clients as well for my own career.
Being in Silicon Valley also helps me get context for my clients, my career and how we compare to what is going on in the epicenter of the entrepreneurial universe. I was reflecting on this last night, especially in light of hearing comments over the past few days like “Boston so missed the last wave of innovation”, “is there anything interesting going on in Boston”, and “I don’t think Boston is ever coming back”, many of these comments from people who are thought leaders in Silicon Valley and beyond. For the most part, I disagree with these statements, but I also just can’t dismiss them. We need to address our perception problem, especially in centers of influence like Silicon Valley.
So, I started plotting out a SWOT analysis for Boston, something I do periodically for myself and for my own business. I thought I would share that with you as I would love to get your feedback. And I would also love to work with you to help build on Boston’s strengths, to neutralize our weaknesses, to capitalize on our opportunities and to fend off our threats. Also, this is probably a good time to remind you that the views expressed in this blog are mine and not necessarily those of my employer Silicon Valley Bank!
1) MIT: The Massachusetts Institute of Technology is a national treasure, and it is ours. The Globe did a great job of highlighting many of the ways that MIT is so important last year during the University’s 150th Anniversary. The annual revenue associated with technology and companies spun out of MIT rivals that of the GDP of many sovereign nations. Incredible.
2) Annual influx of University students: Thankfully for us, MIT is not the only game in town. There are over 50 colleges and over 200,000 students in the Boston area. Not all of these students are a fit for the innovation economy and not all are from outside Boston, but there is no denying that many of the world’s best students come here to study and spend some formative years in our city. Most innovation economies would kill for what we have here in Boston with respect to student populations.
3) Legacy: No resting on our laurels, but let’s also not forget who we are. Boston has a legacy of building incredible companies and incredible value. At SVB Boston, we have named our conference rooms after Boston innovators, and it is with much pride that we hold our meetings in the Digital, Biogen, Lotus and Doriot rooms, just to name a few. It is a good reminder of what is possible in Boston.
1) Overly formulaic: Innovation is not typically something that fits a certain mold or a certain process. By definition, it is new and different. Certainly, there are best practices to be applied to help make the process of innovation and value creation more efficient, but the process itself needs to be in permanent beta. In Boston, we have a reputation for being slow to make decisions, especially around a) what is innovative and b) how to finance it once we decide it is innovative. The due diligence models that applied ten years ago are still relevant, especially prior to large investments, but the initial risk of undertaking most new projects has dropped as less capital and time is required to get to proof points about technology and product market fit. It makes sense to allocate some time and dollars to marginal risk taking in an effort to cast a wider net around what innovation might be possible.
2) Struggling VC community: This is certainly not unique to Boston, but it is an acute problem here because we have been a hub for the management and deployment of venture capital funds for so long. Many of our VCs are struggling to raise new funds, partially related to the issues described above. This is reflecting poorly on Boston as capital is such an important and visible part of the overall ecosystem. That said, several newer funds and a few older, established funds continue to do well from a fund-raising standpoint, and if you examine their strategies, in most cases you will see that they have changed their formulas in that they are partnering with entrepreneurs in a different way than those who are struggling to raise – seeding companies, supporting entrepreneurs with time, space & advice, leveraging Boston’s infrastructure & resources to support foreign entrepreneurs or foreign markets, etc. They have innovated on their own models and put themselves in permanent beta. I believe these efforts will translate into superior IRR and long relationships with entrepreneurs and LPs alike.
3) Perspectives on success: We have a strange perspective on success. For some reason, we want to be #2, although I’m not sure why – too many years of watching the Red Sox miss the pennant maybe? And when we do win, we are really fixated on the outcome in a binary way which allows us to still say that we were not really that successful. Case in point: Endeca gets acquired for over a billion dollars but somehow it is a problem in our collective minds that it will no longer be an independent company, even though angels, VCs and management made tons of money which will in turn fund several new companies, any of which may be even more successful in terms of value creation. I know it sounds cliché, but we need to celebrate our successes in all their many shades of grey. Other markets do this much better than we do, and it is informing the perspectives that the outside world has of us. I’m sure it sounds like I am preaching to the local media, but this also applies to entrepreneurs themselves, as well as those of us who support them. We all need to do more telling the great stories that we are part of.
1) Enterprise expertise: While we have made some good strides with respect to consumer internet, we know that it is not our strength. That’s OK. The good news is that enterprise applications and infrastructure are coming back. That plays to our strengths in solving hard problems and allows us leverage our many leaders and managers with expertise in selling into the enterprise. And the consumer expertise that we have picked up recently will come in handy as well as enterprise IT is quickly being “consumerized” by a younger, more tech savvy workforce.
2) Winning the talent war: To put this in military terms, we have the high ground in the war for talent and we need to take advantage of that. The best and the brightest from all over the world are educated here. Our universities are incented to place them in the best jobs available, regardless of whether they are in Boston or not, but we have an opportunity to market the city and the economy and the companies that make it up in a way that tilts the odds in our favor. To do this effectively, we need to engage students while they are still students, not just when they start looking for jobs (or for investment in the case of young entrepreneurs). I am so excited about what Katie Rae, Aaron O’Hearn and others are doing with Boston Startup School because I think this is exactly the type of innovative model that will help Boston win the talent war. Having Microsoft, Google, Amazon, Red Hat and others employing large numbers of people in Kendall Square and beyond helps, too – let’s support them!
3) Angel investors: We recently helped put on a dinner for 60+ angel investors and potential angel investors, and I was really encouraged by what I saw there. Essentially, it was a room full of successful entrepreneurs, some who made their money 20+ years ago and many who have made it in the past year or so. The best angels are typically entrepreneurs themselves. They think differently, they are more likely to break molds, and they are typically quicker to act than institutional investors. If Boston can figure out the lever to cause these potential angels to become active angels, the impact will be significant in terms of company formation and value creation. Few other markets have the near-term potential to have their capital landscape as significantly altered by angel investment as we have here in Boston. Jon Pierce has been a real leader for Boston in this regard, and I applaud his efforts and urge you to help support what he is doing with his angel bootcamps.
1) Brian drain: So, this is what happens if we do not capitalize on the opportunity to win the talent war. Boston is a highly educated place. I do not see that changing. However, we do run the risk of losing the newest wave of highly educated people each year as they are attracted to a newer, shinier object. However, smart people like to be challenged, and I do believe that if we showcase the hard problems that we are solving in the innovation economy, and if we engage people inside our universities to help us solve them, then we will give ourselves a sustainable advantage that other markets do not have.
2) Migration of the VC industry: The number of venture capital fund managers and the amount of assets under management is going to shrink in Boston and around the world. I have come to grips with that. My concern is that there would be a proportional shift in number of managers and amount of assets under management relative to other markets – i.e. that Boston would decline faster than others in terms of managers and AUM or even that others would gain managers and AUM as Boston declines. Capital is only one element of an innovation economy, but it is a very important element. If this proportional shift occurred, it would follow that a similar proportional shift would occur in terms of company formation and value creation.
3) Self-fulfilling prophecies: Are we our own worst enemy? Possibly. Am I guilty of that even in my own post here? Maybe, but I’ve tried to be objective and balanced. Entrepreneurship is as much about courage and optimism as it is about innovation and leverage and opportunity. We certainly cannot “hope” our way into a better position relative to company formation and value creation, but we probably can “despair” our way into a place where we have no chance.
Thanks for reading. I would love to hear your thoughts, and I would love to partner with you to address all of the points discussed above!