High-Impact Entrepreneurship

Reflections on the state of venture capital [Video, Transcript]

Endeavor is pleased to make public the following transcript and video from a panel at the 2011 Endeavor Entrepreneur Summit in San Francisco. The event, which assembled over 450 entrepreneurs and global business leaders, featured dozens of entrepreneurship-related presentations by top CEOs and industry experts.

Overview: This panel of leading US venture capitalist explores the role of US venture investment in emerging markets and discusses both the challenges and opportunities of investing in entrepreneurs abroad.

Participants:

Moderator – Phil Wickham: President and CEO Kauffman Fellows Program – The Center for Venture Education
Matt Cohler; General Partner, Benchmark
Jeff Bussgang; General Partner, Flybridge Capital and author of Mastering the VC Game
Dave McClure; Founding Partner, 500 Startups
Stuart Francis; Vice Chairman, Barclays Capital
Dan Senor; Senior Advisor, Eliot Management and Co-author Startup Nation

Full transcript:

Phil: We’re here to talk about venture capital in emerging markets, and we’ve got an expert panel from Silicon with some insights from other parts of the world and want to jump right into their ideas and contents for your benefit.

Phil Introduces panelists:

Dan Senor is with Eliot Management. He’s a co-author of Startup Nation, well immersed in the New York and Israeli dynamic.

Stuart Fancis is the Vice Chairman of Barclay’s Capital. Stu is our authority on capital markets.

Dave McClure from 500 Startups is one of the real pioneers in the angel wave.

Jeff Bussgang, from Flybridge Capital. Jeff is a start-up manager extraordinaire, an author extraordinaire, a teacher extraordinaire—he teaches with us at the Kauffman Fellows Program—and has put together one of the hot young venture brands, carrying the flag for the Boston venture market.

Matthew Cohler, of Benchmark. Unless you’ve been living under a rock you know that Benchmark is not only one of the premier brands in terms of returns but in terms of conduct and entrepreneur eccentricity. Has been characterized as “the most networked person on earth.”

We have a pretty deep relationship with Endeavor. We know a lot of the entrepreneurs. The entrepreneurs that come out of this ecosystem are nothing short of spectacular. Not just in terms of performance but in the tough environments in which they work.

Phil: To start off with Jeff, I thought it’d be useful for the audience to hear if somebody does come to you from what is a fairly remote region, whether it’s Latin America, the Middle East etc. and they’ve got interesting technology, they’ve got penetration, they’ve built a team, they have customers. Could you walk these entrepreneurs through what it would be like to reach out to not just Flybridge, but a Flybridge? Can you process these kinds of deals and if not, what are your priorities? What are the things that might prevent you from focusing on these kinds of entrepreneurs?

Jeff: First I would say, don’t come to us quoting Scott McNealy and saying that you’re there to burn through our money until you learn how to do the startup game on your own. But seriously, the challenge that US-based venture capitalists have with working with entrepreneurs outside of the United States is that the network of relationships is not as strong as they would be in Boston, New York or Silicon Valley. First I would say find a way to develop a network of relationships that’s connected to that venture capitalist. We’re more likely to trust you if we know people and trust people who you know and trust well. This is a game of trust and relationship building.

The second thing is that when we invest in a company that’s far away from us, we therefore have to trust that entrepreneur to be more independent. We can’t necessarily build a team for them, we can’t necessarily hold their hand; we can be strategic from a distance, but we’ve really got to know that that entrepreneur can execute without out hand-holding. The second thing I would articulate for you all to really think about to prove to folks like us is that you know how to execute your business, your model in a very unique, comparative advantage way where you don’t need to be dependent on our hand-holding and our help and advise. You’ll use it, and we’ll help accelerate you, but you’re on your own and you’re doing a spectacular job already. And those are the things that we really look for, and entrepreneurs who don’t need our help, but for whom our involvement can help accelerate to a bigger vision and maybe a bigger market opportunity.

Phil: A quick follow up to that, Jeff. If someone does gain some traction with you – what are some of the steps that you have to follow to bring your partnership to a decision to invest?

Jeff: At Flybridge, we’re a unanimous partnership, and we all get exposed to each investment opportunity. A lead partner will do the bulk of the due diligence, get to know the entrepreneur, and be the prospective board member. But at some point the full partnership needs to be involved – needs to be briefed – and either through Skype video, or ideally an in-person meeting, need to have an opportunity to meet the entrepreneur and hear the story directly and really interact and engage with the entrepreneur and hear how they handle themselves when the tough questions are put in front of them. That’s a very important part of the process that many entrepreneurs have to go through. It’s not just getting a champion from the venture capital firm behind you, but getting the entire partnership behind you and having the champion to help you navigate that partnership – and doing it proactively is very important.

[Phil takes a poll of the audience asking how many of the entrepreneurs have ever seen a terms sheet between a limited partner who invests in venture capital and the GP who actually accepts that investment.]

Phil: Interesting, more than I thought. Matt, I ask you to comment on the same questions, and the reason I ask that question is because I find that in emerging markets, the understanding of how venture capital works kind of lacks. We know how hard it is to create alignment just in the US where there’s sophistication. Could you talk to the questions we ask and the alignment of entrepreneurs?

Matt: Jeff did an incredible job of summarizing everything that you all need to think about on those fronts, so I won’t add that much. To add a little bit of color to it, he hinted at something that’s really important to understand, which is, every single one of these venture capital partnerships—first, of all, they’re all partnerships, which is very different from a large-scale operating company—and second of all, every single one of them is different. Every one is structured differently, everyone has a different operating process, everyone has a different culture. There are two things that are really important for you to understand, that Jeff already hinted at it. The first thing you need to do is you absolutely need to have your champion. Inside of that partnership you need to understand who is the decision maker within that partnership, who is championing me, and who is championing this investment. Secondly, you need to understand how that person relates to the rest of the partnership and how the decision-making process works. Jeff mentioned that his firm has a unanimous decision-making process. My firm, Benchmark, is a majority decision-making process, where the majority of partners need to approve a deal in order for the deal to get done. But it’s still very important for every one of the partners to meet and interact with the entrepreneur and go through some of the same processes. So I really encourage you to take the time to understand the people and the structure of all the partnerships that you’re talking to.

Jeff: And by the way, that’s not advertised on our websites. Again, this is the kind of thing – the informal network of relationships – talking to entrepreneurs who have worked with us, talking to folks who have sat on boards with us – pitched us, getting those informal partnership elements is really critical.

Matt: It’s a great and reasonable question to ask the entrepreneurs you’re working with: how do you work with you people? How do you make decisions happen? Because you’re going to get a different answer from different places.

Phil: Dave, a question for you. Take a minute and talk about what do you call yourself and how you fit into this ecosystem. Are venture capitalists important to you? What’s happening with the phenomenon with super angels that seem to be popping up? Is that saleable to you and why?

Dave: Super angel / micro-VC – let’s tackle that one first. It’s a bit of a misnomer because typically it’s describing someone who is not an angel but who is investing professionally someone else’s money, but investing it typically in smaller checks than normal VCs and usually in larger numbers. And if that’s the definition, we’re probably the extreme case of that in that we’re typically investing $50,000-10,000. We’ve done about 150 investments in the past year, which is far beyond the scale of most sane people!

To the second part of the question, do we work with any VCs? As much as I’m often quoted in the press for criticizing the venture capital profession and other folks, of course not the people in this panel! (Well actually I do think most VCs are bastards and live on management fees – so that’s fully transparent!) Yes, I do thing there’s a management system of smaller and larger investors and definitely there are areas they work together. And most definitely we don’t generally take board seats, whether or not we feel board seats are important. We do work with downstream VC. Where I think it’s probably important for a lot of people in the office to understand what the goals of the different structures of investors are—whether those are angels, small funds, large funds, incubators, whatever, and what the exit expectations and trajectory of them are. That’s probably where the alignment with the entrepreneur matters the most. So if you are taking money from a large VC, you should be thinking and expecting that your challenge is to get to 9-figure exits or possibly 10-figure exits are better. There are a lot more of the small exit opportunities available these days, so generally I think it’s appropriate to take capital initially before the idea is fully formed or before the business model is apparent from smaller ideas – and then as it becomes more apparent that there’s a big idea if that’s the case – then engage with larger investors.

Phil: The last questions I’d love to hear you talk about, given that this is an audience full of Latin American, Middle Eastern and Southeast Asian entrepreneurs, is: to the best of your knowledge do you see the Dave McClures and these kinds of folks starting to evolve in these regions? Because you are starting to see some very high quality professional small venture firms popping up in these regions. Do you think it’s possible?

Dave: I think the challenge with doing our strategy is that we actually depend on a lot of other angel investors and seed funds downstream because we’re doing a lot of investments. We expect probably a majority of them to fail, but that the ones that succeed, their next round of capital is probably coming from larger investors. So in other markets, particularly in developing markets right now, there’s not a lack of VC in those markets – there are large investors; I think Benchmark and several others are already active in Brazil and other economies. But there is a lack of angel investor market and the seed market. And in some cases I think it’s really because of a lack of exits or perceived exits that are driving some of that. I think that’s really the challenge: trying to do scalable investments at small check size and in emerging markets, understanding what the emerging markets and seed fund looks like, how you can ensure that there’s downstream capital available where required.

Phil: Dan, given your immersion in two very interesting, fairly young venture markets, Israel and New York, I’d like to hear you talk about what lessons some of these ecosystems may take away from what’s worked there. One of the problems we see is an overly zealous fascination with replicating Silicon Valley, which is quite difficult to do because it’s so long in the tooth – it’s so complex. Are there things you’ve seen happening? New York has just absolutely exploded out of nowhere, Israel very strategic over the last 15-20 years, very successful – some thoughts there that people can take away?

Dan: I think Israel is interesting since there are a lot of people here today from emerging markets, is how does Israel and entrepreneurs in its region survive during this chaotic period. There’s all this geopolitical unrest and risk in the region right now. Who on earth would touch a company? And the truth is, Israel is a case study in how to persuade investors during difficult times. If you look at the 90s – at all the technology that contributed to Israel’s technology and venture boom, or start-up boom. By the way, just to give you a sense of perspective: Europe, about 750,000 million people, produces about 800 start-ups a year. Israel has a population of about 7.5 million people and produces about 500-600 start-ups per year – literally the highest density of start-ups in the world. In the ‘90s you had this massive wave of immigrants from the former Soviet Union, who brought a lot of technological talent. You had the Oslo peace process which gave people in Israel, the region, the world, a sense of hope that there may be a new sort of Middle East of stabilization and economic integration. You had obviously the technology boom in the late 90s. All these factors disappeared in the early 2000s. You had the Oslo peace process collapse, you had the wave of immigration from the former Soviet Union basically come to a close, the technology bubble burst. And yet, Israel’s share of the global venture capital pie during that period increased—it doubled, actually—during the four or five years after all that good news disappeared.

So how did Israel do it? There are a number of factors that we talk about in our book. I won’t go through them all now, but it think that two of them that are very important for marketplaces that are trying to replicate what’s happened in Israel is: 1) when you look at the cluster, the economic cluster—Michael Porter’s cluster—I think people tend to focus on a lot of important inputs, but one of the most important is where to people go when things go south? You look at Dubai – there’s been a lot of great economic stories in Dubai in the last few years – but as far as startups are concerned, and entrepreneurs don’t mean startups, what was striking when things went south in Dubai a couple of years ago, many of those entrepreneurs just picked up and left. Many of went back to Saudi Arabia or Lebanon or wherever they were coming from. In other words, many of them were not invested in building lives in Dubai – raising their families in Dubai, being a part of a community in Dubai. And that has been critical in Israel. The sense that these entrepreneurs are living on top of each other, their children are going to the same schools, they’re building a community, they’re bumping into each other at charity events in the evenings, they’re dealing with adjacent industries all day long—at work, in their communities—and even when things go bad, they’re still building companies. In 2009 and 2010, venture capital dried up in Israel but entrepreneurs were still building companies. Today there are as many startups in Israel as there were in 1999. So the sense of persistence even during down times where people are staying and sticking it out and building communities.

And then: 2) how global an outlook does the entrepreneur have? In Israel, they’re effectively isolated in the region, and so they are—if you go meet with an Israeli start-up, and in the PowerPoint they literally are pitching you—and on slide four they’re already talking about their China strategy. They haven’t even launched and they’re talking about their China strategy. Why? Because they have no domestic market. So they are experts at going global from Day One. Now if you’re concerned about geopolitical risk, you will have much more confidence in a small company sitting in a small office that doesn’t have to depend on much else in their neighborhood or their country or their region because they’re totally outwardly focused. You’re less susceptible to the chaos in terms of the geopolitics. The same thing right now with regard to the Arab Spring. I know a lot of investors who have been working with companies in Jordan and Egypt and the ones that they’re basically sticking with, given all the uncertainty in the region, are the ones that aren’t dependent on the local market but the ones that are going global from day one. I think one of the most exciting things happening right now in Israel is some joint venture enterprises between Israeli venture capitalists and Palestinian entrepreneurs and investors. There’s one being led by a gentleman by the name of Yadin Kauffman out of Veritas, which is a venture capital fund in Israel. It’s Israeli entrepreneurs working with Palestinian entrepreneurs that are building companies that are totally globally focused, and they’re just not affected day to day by whether or not Hamas and Fatah form a unity government or not. It’s like an alternative universe.

Phil: Stu, I’d like to hear you talk a little bit at a high level on capital markets. And the first question I’d like to ask you are is: are you an optimist or pessimist? Only because right now the opinions and the feedback on capital markets seem to be all over the place. We’ve got some good news. I just came out of a meeting with one of the great luminaries of venture, who thinks the capital markets are more broken than ever for startups, and who’s to say what’s right. What’s your thinking on it and what are the things we need to do to get back to a very healthy system?

Stuart: I think we are relatively optimistic about the capital markets overall. And I’d say this: the monetization market for early stage companies is not the best it’s ever been, but it’s certainly in the top third of anytime we’ve ever seen IPOs. Having done IPOs for just about 40 years, if you look back over time, there’s a saying that a good company can go public any time. But in fact, if you really look at the facts, a good company can go public at a reasonable valuation about one third of the time, and that’s it. If you think back to all the world events that have affected things—the crash of ’87, Desert Storm of 1990, the crash of 2000—there are a host of periods where the markets are really closed. But we’re in a market right now where institutions want to buy growth, and there are two trends that subsume a host of other technological advances that the market really is buying into: cloud mobility and social media. And if you look at underlying trends in each of those sectors, large companies are being built in many different countries around the world, and global investors are looking at each one of these trends and saying: “I need to be a part of some of the new companies coming along.” So you see existing companies trading at PE ratios lower than the S&P 500 and the top 15 technology companies trading at an average PE of about 13 and the S&P 500 trades at 15. We’ve never seen that in 40 years. Yet, all the high-growth companies that are coming public are coming out at 7, 8, 9 times revenue, 40 times earnings, because the opportunities are so big – we’re in a big technology change. The second point I make is that the juxtaposition of a good IPO market with a very strong corporate buyer market really allows the entrepreneur to play the two against them to make the right decision for the company. The top 15 technology companies around the world have $250 billion in excess cash; it’s all earning one-tenth or two-tenths of a percent. I’ve never been in a situation where in front of a board on any deal, this deal is accreted if we use cash because they don’t make any return on the cash right now. So you have a strong desire by corporate to expand their growth. They have $250 billion in excess cash – much of it is offshore, and I think there’s a very interesting aspect related to the entrepreneurial companies here and the people thinking about it is: most US companies want to use their offshore cash offshore because they can’t bring it back. So you put the two together – great corporate buying market, good IPO market – and some real fundamental trends that are unfolding right now. And the institutions look at it and say, in technology, the young always eat the old, and that’s happening more rapidly right now, and I’m going to be part of the predator rather than the lunchmeat.

Audience Question & Answer session

Question: How much of your investments are outside of the US? The room is full of people who are not from the United States. What are the chances of actually investing in a company in Chile, for instance? What percentage of your big funds are invested outside the United States?

Matt: I don’t know the exact number, but I know it’s very very low. What would be required for us is exactly what Jeff spoke to earlier, which is, relationships are really important and then when we look at the opportunity – if it’s an opportunity that’s not in a local market – it either has to be a company that’s serving that local market – and in that case that market has to be pretty sizeable – or it needs to be a company that’s serving a global market – and if that’s the case there needs to be a damn good reason why it makes sense for that company to be in that country rather than to be serving the global market from somewhere else, because if you’re serving the global market you’re competing with everybody else so there’s going to be 20 companies right here in Silicon Valley that are competing with you. So why does it make sense for you to be in Chile or wherever it is.

In the case of the investment that we made recently in a Brazilian company. That was very much an investment that was driven one, by excitement that I had about Brazil specifically – it’s the world’s fifth largest country by population and is one of the world’s largest economies. It has a lot of large secular, thematic and trends that are in its favor, particularly over the next four or so years. I was spending a little bit of time looking at what opportunities Brazil might bring, and fortunately, again to Jeff’s point, there was an entrepreneur there who was a colleague of mine from Facebook, and so this was somebody with whom I had a lot of mutual experience, relationships, and a lot of trust. He was starting up a new company and I was lucky to be in the right place at the right time. The company’s growing incredibly quickly – it’s grown to 700 people in a little over a year and they’re doing great. But that was a very special situation, and I was very very lucky to be in that decision. But could that happen again? Absolutely. If there’s another entrepreneur with whom I have a real relationship or my partner does either in a market where we’re excited about that market or a market where we can look at that company and say, “Yeah, I really get why this company is in Argentina or why this company is in Turkey or Jordan,” then sure, it could happen again. Startups by definition are exceptions to rules – if they succeed – so everything we’re doing is about exceptions, not about rules. So anything is possible. That’s what keeps it exciting.

Phil: Do you have a sense – it’s a sample size of one obviously with this investment in Brazil – but how much harder, how many more trips, how much more time is involved in closing – if you can put a benchmark – to close a Brazilian deal than a Mountain View deal?

Matt: It’s a lot harder. It’s a lot harder. And the reason why it’s a lot harder is, first of all, hopefully the investors are self-aware enough to know a little about what they don’t know. It’s questionable whether that actually happens or not. There’s a natural discomfort in saying I’m not an expert on Brazil, I don’t know what’s going on in this country, I don’t understand the dynamic here and the people here and the relationships here. So that creates a big challenge. And then secondly, believe it or not, most of the time, venture capital investors actually want to help entrepreneurs. We may be deluding ourselves most of the time, but we actually do want to help. So if I’m sitting here in Silicon Valley in San Francisco and I have an investment that’s thousands of miles away in a country that I don’t actually know much about, how can I actually be helpful to that company, to that entrepreneur. And I think again that goes back to the specifics of the situation. In this case, to Jeff’s point again, trust was there, relationships were there, so we can have very open conversations with one another about things that are very fundamental to any growing start-up where I can bring some of my experience and my partner’s experience to bear. But in a lot of situations you just can’t find the intersections of those things. So it is definitely a lot harder to get a Silicon Valley or a US-centric venture capital firm to make an investment in a foreign market. The bar goes up a lot.

Jeff: I wanted to amplify something Matt said and then add to his last point. The amplification I would say is we don’t like investing in local regional players. So if your start-up is a Jordanian local regional play, it’s not going to be as exciting and interesting for us. And I’m speaking for Flybridge or a large fund that might not have a strategic emphasis in that region. The other thing I would say is that there’s a little bit of an olive first out of the bottle problem that you’ve gotta get through. Now that Matt’s made an investment in Brazil, he’s got one olive out of the bottle – he’s got a set of relationships now that it’s more likely he’ll make following investments. We did an investment in a Venezuelan company headquartered in Miami but the operations are all in Venezuela called Open English, which is doing online English language learning in Latin America. And now that we’ve made that investment – by the way, the way we got there was similar through relationships – the COO and co-founder was a BCG guy, I used to work at BCG, the CEO had a friend who went to Stanford Business School, my partner who led the investment went to Stanford Business School, and the Chairman’s an Endeavor supporter. So we had a lot of connections that made us feel very comfortable. But now that we’ve made that investment, we’re leaning into other investments in the region. So once you’ve got that first beachhead, the big venture capital firms are going to be interested if things go well with that initial investment to make other investments in the area. If you’re the first one, it’s gonna be a higher bar, but if you’re the second or third, you can establish relationships with the first one or other key relationships with advisors that that firm has on the ground, you got a better shot.

Stuart: I come at it from the other side of the perspective or the other side of the market. We’ve seen a very significant increase in international interest in IPOs either from the US by other investors or into other international markets. I would say, 35% of the technology IPOs in the next couple years will be from non-US companies and 35-45% of the investor interest that we see generated is coming from non-US investors. So while the US market is still by far the deepest, most experience market in analyzing companies, technology trends, and where people want to invest, we’ve seen a very significant increase in interest and that should drive entrepreneurial interest in other countries and it certainly will drive venture capital investments in other countries. The market has seen a significant expansion of Asian IPOs, we see a huge expansion of private wealth in South America that’s looking for high growth situations. So I think that the harbinger of if the money’s there, the entrepreneurs will come and the companies will come, is very correct and accurate and you’re going to see a significant amount of growth despite the fact that I think for everyone in this room, globalization is the greatest opportunity we’ve ever seen, but it’s also the biggest hassle you’ve ever had to deal with in your corporate life because you have to do phone calls at 2 in the morning, you have to fly to Frankfurt on a two-hour notice and that’s just the way it is now.

Dan: I just have a quick question for Stuart. Those companies that you’re seeing overseas that are accessing our capital markets, who’s funding those companies, where are their sources of funding on the front end of the their lifecycle? Is it all local money?

Stuart: It’d very much both. You certainly have an embedded group of financiers in Asia that have been funding a host of startups. You see a number of US-based venture firms that have implemented international operations (I was just with somebody this morning – they’ve done seven non-US tech IPOs as a partnership in the last year and they’ve done seven in the US).

Dan: Are you seeing sovereign wealth funds playing on a deal by deal basis?

Stuart: A little bit. Not that much yet. The sovereign wealth funds seem to be more comfortable participating in larger financings for change and control transactions. The issue they have is to move the needle in their overall returns, which tends to require a bigger investment in a more established company. But we have seen funding come from both sources.

Phil: Dave, you have an interesting initiative called Geeks on a Plane. You seem to be a buyer in the international markets and seem to be interested in a global platform. Where are you going with this?

Dave: The majority of our investments are still Silicon Valley. It’s probably 60-30 Silicon Valley to the rest of the US and rest of world. We have done 18 investments, depending on whether you’re talking about in terms of geography and corporation, outside the US. About 5 in Asia, 7 in Europe and then two each in Australia, Latin America and Canada. Intentionally we set up the structure of our fund to enable us to do international investing. We currently operate in 8 geographies and probably will expand that a little bit more. My wife’s Japanese, my kids speak Mandarin, Japanese, and English and are trying to learn Spanish. My friends are all over the world. My partner is Korean background married to a Chinese. One of the other hires is Indian American. And we’re working with another guy who’s a Brazilian native. I think it’s imperative if you’re going to be doing international investing that you have a team and a focus and familiarity that comes from those areas. But while I do think there’s a ton of innovation still happening in the US, the future is most likely Asia and Latin America – possibly Eastern Europe as well. I do think there’s a lot going on in not just South Asia but East Asia and Southeast Asia and particularly South America. I think if you’re thinking about what our global language is 10 to 15 years out, it’s probably Mandarin, English, Spanish and Arabic – and there are a few other geographies that I think are interesting also. Preparing for that eventuality as an investor and someone’s who’s involved with companies starts culturally. And so we started doing Geeks on a Plane when I was still working for Founders Fund two years ago. My wife is Japanese so it was easy to make some trips to Tokyo with friends and family there and some other folks in Tokyo that we already knew. Those trips kind of blew me away with what was really happening. You sit in Silicon Valley and think you’re at the center of the universe until you go to Beijing – and then you realize, we’re not the center of the universe anymore! There may still be a lot of capital going on here, and I haven’t gone to India yet, but we will be going later this year – a majority of the world’s population are sitting in Asia, about three billion people. It’s kind of foolish when you see growth in language, growth in GDP, growth in internet market and those other top territories if you’re a venture investor and are only investing in Silicon Valley you’re extremely shortsighted. There are very tactical issues in understanding language and culture, which are important, but if you make the right partnerships, you can potentially be successful. What’s perhaps different for us because we have this relatively radical different strategy of investing lots of small bets, it’s easier for us to take a lot of risk on the first bet. So for us, doing international investments is less impactful than when you’re making a five percent of overall fund allocation strategy for a typical investor. So for us we’ve been pretty aggressive in doing that initial strategy that Jeff was talking about setting a flag in one small investment to learn. But I think we’re probably going to be expanding that strategy to Brazil, possibly in Buenos Aires and Spanish-speaking South America. Already working with Innovation Works in Beijing and Seed Capital in London.

Question: My question is for Stuart. I’m not sure if you’re aware, but the largest micro-gaming platform comes out of South Africa. I was just wondering with Barclay’s acquisition of Absa Bank, South Africa’s largest bank, for 2.9 billion pounds in 2005, what the strategy is or your own feelings on money transferred between people in emerging markets as opposed to a mature markets? How will that look over the next term?

Stuart: Let me start out with the broader perspective of South Africa and Africa in general in terms of what we think and I think most major financial institutions think is a very attractive market. We’re spending a lot of time in South Africa. Bob Diamond, our CEO, happened to be there about two weeks ago for 10 days. I think we’re very consistent with a host of other financial institutions that view it as an opportunity that has yet to be developed. Global financial firms should be able to move in and have it accelerate the expansion of financial trade. There are so many new ways that money is being transferred around the world now. You look at a company called GreenDot, which is pre-paid credit cards, you look at pre-paid mobile phones, you look at a whole host of ways to transfer money like Zoom that allows you to transfer it from your computer at home very easily. In our judgment, the days of one or two cards in your wallet, which is a credit card and a debit card and that’s it, are sort of over. You’re going to have four or five different ways to transfer money, and it’s going to be uniquely effective in countries and regions which don’t yet have fully developed financial service model, which we would put Africa in that category. So cellphone – NFC communications – is really one of the most exciting developments around cellphone technology for using your phone as a credit card. I think every major mobile company is thinking about that. We’ve done all of Qualcomm’s work over the years and I can tell you NFC is high share of mind there – Motorola it’s high share of mind. In our judgment, new continents that really have financial systems that have opportunities to really develop new ways to transfer funds between people are big opportunities and it’s not going to be one size fits all.

Phil: Thought leaders—mostly people in the venture capital or investment world—tend to look at where we they are and Silicon Valley and just recently maybe a little bit at China. What do you do for your companies that are oversees – the Brazilian companies – how globally do they look and how much opportunity do you think there is for Latin America or the Middle East? How should they be thinking about all this energy this is springing up all over the world?

Dave: I think one way you might want to be looking at it is in terms of regulatory environment, currency, language, and back-end platform. That’s the one thing that most people don’t think about. Some of the issues for start-ups in Latin and South America are also actually also quite similar to the US and Europe. Typically because the backend platforms are mostly the same – Google, Facebook, Twitter, YouTube, Apple and Android. However, they’re quite different in China and Japan. Regulatory environments are starting to get into mega groups. Languages I think over time are starting to be in three or four major groups and they’re still obviously important in regional centers.

Final thoughts from everyone on capital needs:

Stuart: Raise capital when you can, not when you need it. If you have a great idea, having enough capital is critical to getting there.

Jeff: I would say, echoing something Scott McNealy said earlier: if you’re going to choose an investor, choose very carefully. Check their references thoroughly and do as much due diligence on them as they’re doing on you. It’s a mutual relationship.

Matt: I’m not sure I have much to add to that!

Dave: Some of the things that we’re trying to look at right now that we think are international in scope are using ipad devices for educational purposes for kids ages 0-7. I think there’s a huge new opportunity to create great new business, which typically isn’t addressed by entrepreneurs. There are a lot of single, male entrepreneurs – they don’t develop for families and kids very often. But that’s an incredibly large market, at least last time I checked – 50 percent of the market has children. People will pay for education for their kids. A lot of that is now being driven outside traditional school environments. I think education and applying that around the world is a really interesting category to go after.

Dan: The part of the world that I’m focused on, which is Israel and the Arab world, as I said at the beginning: 1) convey that you’re not going anywhere – no matter what’s going on – that you’re their to build your company and your community. The two are intertwined. You’re plugged into both and you make yourself indispensible to both. And 2) at the same time that you’re domestically focused in terms of being part of the local community, be focused on reducing as much geopolitical risk in the eyes of investors by projecting that you are globally focused and not disproportionally focused on the local market or the markets of the region.

Phil: Here’s my final summary of what you heard today, which I think is useful. For those of you who were at the Summit in Miami two years ago, if you were looking for capital in Silicon Valley or Boston even two years ago, the dynamic has drastically changed. It’s still very hard, as Matt said, but it’s actually kind of realistic. Even two years ago I think it would have been very difficult; that’s how fast things are moving. It’s trending up but it’s still very hard. I would encourage you to remember that venture investors are creatures of behavioral habit and relationship habit. They’re going to watch everything you do and they’re far more interested in whom you know and how you behave than your slides on strategy or finance. They tend to figure that stuff out pretty quickly. So don’t underestimate the importance of consistency and how you deal with people and build that trust – trust drives everything. The drum I beat a lot is to just remember: an investor is a partner. Dave has a business model, he has a family to feed – so does Jeff, so does Matt. Understand their business. I won’t tell you what questions to ask, but I will advise you if you get a meeting with an investor to call someone you trust in the investment world and tell them and say: what questions should I be asking and why, what do I need to understand about this? The better you align yourself with those investors, the better your chance of having success and building your company.

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