IBMSmartCamp

What’s happening in NYC?

Last week we held our first Smartcamp focused on Smart Cities in New York City.  It was less than 12 months since we were last in NYC (a SmartCamp record for returning to a location).  During the week we also announced that we would hold our SmartCamp Global Finals there in Feb 2013.  Both are signals that NYC is now a very active venture ecosystem.  Almost 500 start-ups in New York received venture financing from 2007 to 2011, according to an excellent recent report from the Center for an Urban Future. Mike Butcher wrote about it last week.  Today the New York Times covered the story.

In addition to the growth of the local investment scene NYC is starting to act for a global hub attracting companies from far afield. Of the 4 start-ups selected for our event only 1 was from the metro area.  We also met great companies from Austin, Israel, Turkey, San Francisco and beyond at Disrupt.

The 4 finalists all demonstrated how broad the theme of Smart Cities is:

Enlighted is a Silicon Valley venture-funded start-up dedicated to eliminating energy waste in commercial buildings.

UVAX has developed a Broadband Power Line Communication System which makes street lights more efficient

eVOTZ has a secure mobile voting platform transforming mobile devices into trustworthy election voting machines for the 21st Century

StreetLight Data turns potential customers into actual customers using transportation behavioral data and analytics.

All companies were very strong however StreetLight Data were selected by the judges having best demonstrated the entrepreneurial passion needed to build a big business.  Their solution helps retailers and planners find the best locations by knowing where target potential customers go already.  This blends together Smarter Commerce with Smart Cities and we look forward to working with Laura and the team.

Friday was meant to be catch-up day however I couldn’t resist the invitation to see 10 Turkish start-ups pitch at an event organized by Murat Aktihanoglu from ERANYC who kindly acted as SmartCamp mentor.  It was exciting to see all these companies with real products and real customers start the expansion plans in NYC.

I finished the trip with a visit to Blueprint who have 12,000 sq feet of space in downtown Manhattan and aiming to disrupt the digital healthcare market.  More about that later.

Something is happening in NYC.

Happy Birthday Global Corporate Venturing!  Last week Jim, Tim and the team celebrated with their 2nd year in business with their 2nd annual symposium. The event has expanded from a ½ day session in 2011 to a 2 day program which was sold out both days. The quality of the speakers and the audience was really excellent – Congratulations!

This is good lead into a short post about corporate VC vs. traditional VC.  There is currently a lot of interest in corporate venturing.    GCV are fulfilling an important role collecting and sharing data regarding the approach and performance of corporate venturing.  Many big companies are discovering that open innovation can be an effective tool for understanding disruptive technologies and business models.  Earlier in the week I wrote about some of the changes happening in the VC world.  It is worth exploring how these play out for corporate VCs.

First of all corporate VC is relatively immature compared with traditional venture capital.  There are few firms who have been active for more than a decade.  Most came to the party in 2000 only to get into the market just before the crash.  John Moulton highlighted Accenture’s dramatic entry and exit from the market in a very entertaining presentation.  There are exceptions of course but by and large corporates are newcomers to the industry.  In general this is a good thing.  There are less legacy issues to be managed as it has allowed many corporates to watch and learn without committing significant financial and political capital.

Second point of interest is scale.  GCV reports that corporates account for 27% of all venture backed exits.   Stephen Ziff reported that CVC account for $22b which would put it on a par with traditional VC in US.  That is very interesting.  It would appear that this number will increase are corporates get more involved and traditional VC downsizes.  As corporates learn how to work effectively with start-ups and demonstrate additional value in terms of market reach, credibility, etc – they will attract more start-ups and generate more capital.

Along with scale, the variety and complexity of CVC is very interesting.  Fund of funds, minority stakes, majority stakes, spin outs, open innovation, the list goes on.  More importantly many of the people I met have started to figure out what is the balance between hard financial returns and softer strategic benefits.  Like the old adage, 50% of our marketing spend is wasted we just don’t know which half. Same with corporate venturing, however it appears that execs are getting more comfortable with a level of ambiguity that is associated with this activity.  Or at least understanding how quickly the world is changing and how to important it is to understand disruptive change.

We were delighted to be awarded personality of the year award for our work with IBM Global Entrepreneur. It was an honor to collect this on behalf of the corporation and the whole team.  The program has grown over the last 2 years from an internal start-up to a global program with hundreds of mentors helping thousands of entrepreneurs.  This take a committed global team to make a reality.  We are very happy that GCV has recognised this work.

Looking forward to next year already.

VC is broken – a good headline but not very helpful.  Last week the Kauffman Foundation issued a report titled ‘VC the enemy is us’ which re-sparked the debate on what is wrong with the tradition VC model. The report included some useful advice however it felt a little like moving deckchairs on the titanic.

Overall there are some fundamental issues which need to be addressed.  Fred Wilson has written about the oversupply of capital.  The industry needs to shrink in size however it is difficult for incumbents to vote for these types of changes.  As importantly the industry needs to innovate.  Dave McClure has written that we can do better.  He is right.

There are many things in this world that are ‘broken’ but for which we lack a workable alternative.  Consider for a moment, the Pharmaceutical industry where the costs to bring a new drug to market costs north of $1b, takes on almost 10 years and helps less than 40% of the target patients. However what is the alternative?  There are many other examples (e.g. Euro crisis, etc) where the situation is suboptimal but we have yet to find a better way.  Same for the VC industry – change is needed however it is still unclear what the new model will look like.

Last week I attended Venture Day at IE business school nMadrid.  They had a very interesting line-up including Jeff Clavier, Ali Partovi, James Tan, Jerry Kennelly, and Gary Steward to name just the first page of speakers.

Madrid reminded me of Dublin2 years ago.  Despite the sunshine outside there were very dark clouds hanging over the room. Unemployment is close to 25% and much higher among the young.  Small businesses and start-ups are seen as an important part of economic development however finding credit (and customers) is very difficult. The local ecosystem of investors, entrepreneurs, educators and public servants are trying to create a new model to support start-ups but it is not yet clear what the model will look like.  Including new developments like Startup Spain

A couple of things struck me.  Firstly, accelerators, super angels, micro VC firms are likely to be part of the solution.  For example Jeff Clavier talked about closing their latest round and doing over 100 investments including 20 exits. The ability to deploy very small amounts of capital over short periods of time as game stakes is interesting.  There are a number of experiments happening in the areas of crowdfunding.  AngelList is hinting at new ways to connect with smart capital. However there are a number of challenges in terms of scale when you think that it is time (or attention) not money that is that main restriction.

Secondly, a lot of discussions of the discussion over dinner focused on copy cats or business model arbitrage as it is called in China.  What role do start-up factories like Rocket Internet have in the ecosystem?  How do investors protect and leverage these opportunities?

Thirdly, disruptive change is rarely started by the incumbents.  There are simply too many vested interests and so it begs the question of the role that the valley will have in creating VC 2.0?

Overall it is clear that the VC industry is still very immature and still evolving.  I’m currently reading Boomerang – The Meltdown Tour by Michael Lewis.  The book tells the story of the financial meltdown as it impacted Iceland,Ireland,Greece and US.  It is an amazing read and the one thing that stand out is how long the old structures remain even when everyone knows the game is up.  I think the same applies to the venture capital industry.

Tomorrow I will attend the Global Corporate Venturing Symposium in London and it will be interesting to see how thinking has developed in the last 12 months.

Corporate venture groups are playing an ever important role and learning from their previous mistakes.  It is clear that something new is happening but it is not clear what it is exactly.

Next week we are hosting our first SmartCamp focused on Healthcare.  Over the last couple of years we have seen an increase in start-up and investor activity in connected health.  Yesterday I stumbled across the following on Forbes which helps validate our approach:

• According to Dow Jones VentureSource, venture capitalists invested $659 million in 91 deals in 2011, up 25.5% from $525 million in 71 deals the prior year
• In the first quarter of 2012, health IT companies raised $102 million, a 75% increase over the same period last year.

On the Forbes Midas List of 100 VCs it is interesting to see who is getting involved in the sector

• Peter Thiel (#8) of Founders Fund is a newcomer to health IT.  Best known as a PayPal founder and early Facebook investor, Thiel led last April a $23 million Series B round in electronic health record company Practice Fusion, and reinvested again in September. Founders Fund is also an investor in ZocDoc, a fast-growing booking site for doctor appointments.
• Joining Founders Fund in ZocDoc were SV Angel’s Ron Conway (#15) and Digital Sky Technologies’ Yuri Milner (#29) who invested $50 million. Conway also has a stake in Practice Fusion
• Michael Moritz (#13) and Douglas Leone (#18) both of Sequoia Capital, sold portfolio company HealthCentral, an online health site to Remedy Health Media this past November for an undisclosed price. Other investments include AirStrip Technologies which securely sends critical patient information from hospital monitoring systems and electronic health records to a clinician’s mobile device, and practice management software ZirMed. This past September, Sequoia invested in Healthcare Quality Catalyst, which provides health care data warehousing software.
• Bryan Roberts (#38) of Venrock is the dean of health IT investors on the list, going back with athenahealth, a publicly-traded web-based practice management and electronic health record vendor, and RelayHealth, now part of McKesson. Last month, Venrock sold portfolio company CodeRyte, which provides medical coding information, to 3M.

Looking forward to a great event in Miami and hopefully more investors will see this as an interesting space.

Last night we announced the 5 companies who were selected for SmartCamp Kickstart Miami:

CaraHealth
Cohealo
Consult-a-Doctor
Emergency Medical Technology
eNano Technologies

Congratulations and best of luck in Miami!  Here is why we think this is an exciting space

On Tuesday IBM and Sproxil announced a collaboration aimed at  helping the pharmaceutical industry combat the world’s $75 billion a year drug counterfeiting business while protecting consumers.   IBM is supporting Sproxil with a solution that includes ILOG Elixir software and the IBM SmartCloud.

Sproxil were the winners of the first SmartCamp after the pilot way back in early 2010.  At the time we were still learning how to really engage in a meaningful way with very early stage companies. I sat with the judges on the day and at the time it really wasn’t clear how we could really work together.  Their offering was a mobile sms based solution not our traditional focus plus they were tackling a very challenging  African market.  However it was clear that this was a massive problem and an amazing team.  We figured that we would work something out over time.  The announcement on Tuesday was confirmation that this was the right decision.  Now here is Ashifi Gogo (founder and CEO)

Yesterday I blogged about Hack the City.  Today I stumbled across a great example of the types of projects we are interested in.

This is a collaboration between IBM, ERSI and CitySourced.  Citysourced were a finalist at our first SmartCamp in Silicon Valley and they are helping the nation’s second largest school district become one of the greenest and most sustainable by making energy conservation and cost savings as easy as sending a text message.

The Los Angeles Unified School District (LAUSD) is empowering its students, teachers and staff to identify maintenance issues such as leaky faucets and broken air conditioning units by sending text messages and photos through their mobile phones. A mobile reporting solution developed by CitySourced sends the photos and texts for analysis by IBM software that automatically shows staff where the problem is located using geographic information software from Esri.

LAUSD is the largest public school system in California and the second largest school district in the United States with 700,000 students. With more than 14,000 buildings spread out over 710 square miles, the district receives more than 300,000 maintenance service requests a year.

Within the first eight months of implementing the program LAUSD responded to more than 750 maintenance requests and have since surpassed 1,650 reports to date. LAUSD and CitySourced are scheduled to implement an outreach program to socialize the application at school sites in the second quarter of 2012. With the combination of word of mouth and the outreach program, LAUSD anticipates the number of reports to significantly rise in 2012.

Prior to the crowdsourcing app, LAUSD relied on faculty, staff, students and parents to report maintenance issues with the campus plant manager, requiring the manager to decipher and pinpoint the failing unit before submitting the call to the Maintenance & Operations Service Call Desk and routing to the appropriate personnel to solve the problem. With the advent of the mobile application, reports are submitted directly to the Maintenance & Operations Service Call Desk.

“Working with IBM, CitySourced is empowering faculty, students and citizens of the Los Angeles school districts to improve their communities by keeping them cleaner, safer and more efficient,” said Jason Kiesel, Founder and chief executive officer, CitySourced.

A recent Nielson research report showed smartphone usage is surging, especially in the United States where 38 percent of the population owns a smartphone and has the ability to send text or picture messages. By taking advantage of the growing connectivity of the population and partnering with companies like CitySourced and Esri, IBM is utilizing data collected by people to create smarter, more efficient cities and infrastructure.

“People now have the ability to act as living sensors for things they witness in their day-to-day lives,” said Dave Bartlett, vice president, Industry Solutions, IBM. “Through these partnerships, we are arming people with the ability to report problems that impact the efficiency of an ecosystem such as cities, buildings and campuses. And, through IBM analytics, we enable organizations to act on information that will make them more efficient and successful.”

The CitySourced app reports maintenance issues directly to IBM Maximo® Asset Management software.