I recently attended an event at the MIT Media Lab sponsored by TheFunded.com,a social networking website geared toward CEOs and founders of start-upcompanies who want to share war stories of trying to get VC or angelseed funding. 150 CEOs and start-up founders were invited to attend. (Ishowed up because many of these companies use our product Equity Focus or their law firm uses our product Corporate Focus to track their capitalization after their first VC round or when they create an employee stock option plan.)
The first speaker was Adeo Ressi, the founding member of TheFunded.com, and also a Board member of the X Prize Foundation. The other speaker was Steve Murray, a partner at the venture capital firm Softbank Capital.
Itstruck me as ironic that the presentation was being held at the MITMedia Lab—but while the speakers were talking, I looked down to check awebsite that was being discussed on my iPhone and saw that I had "NoService." No public WiFi service at an MIT auditorium? Scandalous.
The actual presentation felt a little like being in a Dr. Dolittle book and riding the famous "Pushmi-Pullyu."A group of start-up technology entrepreneurs looking for seed fundinghad been invited to the pinnacle of technology innovation, but thefocus of most of the presentation was on "the death" of early-stagefinancing for technology companies.
Ressi explained that in the current economic environment, angelshave become risk-averse and are spending their time watching theirfalling stock portfolios and stashing their money under theirmattresses. Venture investors are raising less from their limitedpartners with little or no exit alternatives in the public or corporatemarkets and spending most of their time and money on saving the best oftheir existing portfolio investments.
The best sources of funding at the moment, according to Ressi, are the old-fashioned methods of bootstrapping, vendor financing and customer financing. Thesilver lining? It’s much cheaper these days to start a new technologyventure (assuming it's not a capital-intensive biotech or chip designfirm) with Open Source code, virtual development teams, and Web 2.0marketing techniques.
Murray explained that Softbank is still funding great early-stagecompanies, but that unless every check box is checked, the deal willnot go through. The risks they could afford to take in the past are nolonger acceptable. Most of their money is going to add-on investmentsfor the "already funded" or existing portfolio companies.
Ressi and Murray both agreed that the "the funding model is broken,"since without liquidity, there is no sustainable funding model. To hiscredit, Ressi did try to boost the attendees’ spirits by offering freebeer after the presentation, but it would have taken quite a few coldones after this sobering presentation.
I was disappointed, having hoped there would be something new ordifferent offered in this exciting venue. Then, after listening tothese two pessimistic views from these seasoned veterans, we wereinvited to tour the projects that were on display at the MIT Media Lab. That experience alone was worth the price of admission. Whilethey were all cutting-edge and pushing the limits of reality, I wasmost interested in the Cities Project where I ended up spending an hourtalking to a doctoral student, Ryan Chin.
The Cities Project spans the vehicle spectrum from car to moped to bicycle. The CityCar isa stackable, electric-powered, two-passenger vehicle designed forshared one-way transportation in densely populated urban areas. Think SmartCar meets ZipCar. The power and steering mechanisms are built in to the four wheels so there is no engine block or drive train.
This efficient technology has been extended to the RoboScooter which is a lightweight, folding electric Vespa-like scooter. Finally, there is the GreenWheelwhich offers an electric rear wheel that can be added to any existingbicycle. It will go about 25 miles on electric power and is controlledby the wireless, Bluetooth handlebar throttle.
Being in the midst of some of the most exciting innovations on theplanet, Chin was optimistic about the future and plans to have theGreenWheel in commercial production next year. He mentioned that theCEO of A123 Systems, a Watertown, MA-based companyand another MIT nano-tech spin-off that is providing the battery to theChevy Volt, would be stopping by the following day. All of thesevehicles use batteries from A123 Systems which, in the context of thispresentation, it should be noted has funding from 10 top-shelfinvestors and over 1,000 employees from 10 countries.
So, at its conclusion, this evening left me with many questions. Istechnology innovation going to screech to a grinding halt since "thefunding model is broken?" Will funding be dominated by prize money likethe X Prize, which doesn't come close to funding realinnovation? Will game-changing ingenuity continue to grow out ofleading educational institutions, as did A123, the Internet, Lycos, andFedEx, as well as government agencies, the Defense Department, andNASA?
Or, will companies that foster incrementally groundbreakingproducts, such as Google (how we all search), Facebook (how we allconnect) and Craigslist (how we find classified advertising), continueto be created in garages, home offices, and now increasingly onlineteams, bootstrapped once again by credit cards, family and friends, and severance pay?
Despite the stock market meltdown, risk-averse VCs, angels who gavetheir money to Madoff, and non-existent exit strategies, I am confidentthat innovation will press on unabated, simply because it's the naturalevolution of “Capitalism meets the Geek Squad.” Lucky for us, it justhappens.