Notes for 3/29/00 by Isaac Nichols
590ip - Arch Venture Partners speaker: Patrick Ennis

Venture Capital

General information about patrick:
- Went to Yale, wanted to teach.
- was studying physics - Nuclear.
- This was bad timing because of the cold war ending.
- went to Bell labs
- Became a product manager, after wearing a suit and a hair cut. ;)
- Then, finally got his real MBA.
- couldn't change anything in a group of 120 thousand.
End Personal

Manages about 375 million.

Finance about 12 to 15 new companies a year.  Each of these companies
usually has about 1-5 employees.
Being referred to Arch Venture by someone is the best way to get financed.

Three key words: Team, Market, and Technology

Invests in Internet, Telcom, software, ecommerce, semiconductor, and life

The current hotbeds for new companies are: Seattle, Austin, Boston... not
just Silicon Valley

Investment Specialization's:
Life sciences, physical sciences, information sciences
interesting stuff is at the boundaries of these three areas.

Technology Sources
University Research, National laboratories, Corporate, open market

Very intimate relationship.
How do you scale?
If it doesn't, this is something you have to admit.
3-7 people is the ideal meeting size.
Hire venture partners - to give you personal value.
Too many people chasing too many deals?
Yup, and the downsize will be painful.
Venture capital will fall, it can't be hot forever.

S&P500 has gained 13% average annual return, with a standard deviation of
Venture Capital has 45% average annual return, with a standard deviation
of 115%
You usually "harvest" companies about 3-7 years...  But this is being sped
up by acquisitions and quick IPO's.

Brand building on the internet:
Consumer Advertising - At&t has a good correlation between ad
spending and call rate.
The television didn't build brands, it reinforced the brand  So,
all these internet companies hoping to build a brand with an advertising
blitz on TV, really don't have any history to back up this move.
Amazon and Yahoo existed and people knew of them before
advertising on TV because people knew of them by word of mouth.  So, he is
skeptical of companies putting so much weight on commercials, which are
often poorly done?

Impressions are huge now that there is so much noise  A better
approach is viral marketing.  Somehow take advantage of that.

Radio is bigger than ever in seattle now because of the traffic, and
people listen to the radio while in the car. 

Anything that goes up non linearly is not sustainable.

When thinking up a new business remember the past.  Like real time
messages they are much older than ICQ or AIM.  What's changed are the user
interfaces, cost effictive, and appeal to masses.  What was happening

Consumer Behavior:
Some debate about buying over the internet.   This is the same
debate as buying over cataloges and 1-800 numbers.  What's new is old.

You can move costs - stores are same as the distribution centers that
Amazon is making.

The value of an enterprise is equal to the revenue you generate.

Venture Capital shouldn't react to short term trends!

Quote:  "We lose money on every one, but we make it up in volue."  - Alex.

remember the story about the guy from Kenya who would never move back
because of something as trivial as toilet paper?  Funny story, but it puts
some things in perspective, and what's important in life.

Business plan plug: Building a competitve edge, HUB 108 6:30 - 8:00 Food!

Portable internet terminals - internet penetrated the market in 5 years
that's incredible.

Data storeage is going up faster than processor speed (moores law).

Market capitalizations - Value is based on something market
capitalizations are screwing companies over.  Most people are valued on a
multiple of EARNINGS, not a multiple of REVENUE  3 times earings or 1
times revenue but internet companies have no earnings, so their valuations
are based on their revenue which is much easier to 'fudge'.

Traditional framework
- Content / services
- Applications
- Platform
- Infrastructure

Internet framework
- Transactions
- Content and Community
- Software and Services
- Infrastructure

Look into Application Service Providers (ASP's)

The Dark Ages
- Be early, but not necessarily first
- Own a layer (AKA standard)
- Simple distribution model
- Profit then IPO
- Understand concentration of winnings and virtuous cycles

The Virtuous Cycle
- Momentum, positive feedback loop
- Started in platform world,
- Developers  applications  Customers  back to Developers
- Real vs. manufactured
- Partners
- Counter example?  Apple

So, create a cycle and run with it!
Like viral marketing viral stickiness?

The New Rules
- Standard = market share
- Market won't allow ownership of standards
- If we build it, they will come, and figure out (business model)
- Free everything, make it up on volume (not always good)
- Partner, partner, partner.
- Complexity, chaos, and flexibility
- Deep end IPO's, follow-on offerings

More New Rules
- Eyeballs - now skeptical
- Being first matters - gold rush
- Lower bar for winning opportunity
- International
- Age of the Brand
- Access to capital as the competitive advantage

Go for market share
- Huge premium for being on top of the web

Business plan is internal management tool!
- 40 + pages
- Executive summery is 4 pages
- 15 power point slides, etc.
- Mote carlo simulations on excel.

Some companies that have received venture capital from Arch Ventures:
- Xtera communications
- Appliant
- Intelligent - optical communications
- Apropos - call centers.  Management solution - multimedia contact

10 points to Venture Capital's
10) Be prepared and realistic
9) Know the VC's business
8) get an introduction / referral if you can, not a broker
7) Team, market and technology
6) You are probably not as unique as you think
5) VC's are people too.
4) Don't over shop the deal
3) Don't underestimate the time factor
2) Be consistent - no Lies (integrity is very important)
1) Manage the process as well as you want to manage the company.

Oh, and win points by being a good person.  :)