1. CREATING VALUE IN ENTREPRENURIAL VENTURE CAPITAL
DIGITAL TUNISIA AND ENVIRONMENTAL INNOVATIONS IN AMSTERDAM
Jim de Wilde
January 2012
www.jimdewilde.net
www.twitter.com/jimdewilde
At this moment, we are reinventing capitalism and global capital markets. The
theories are everywhere, the stale political debates about austerity versus stimulus,
the B-Schools grappling with what models to teach finance.
The first thing that needs to be done is to sweep away all the archaic business
models. Realeconomik is as valuable as realpolitik and that is why so many people
are turning away from academically certified economics. Any business model
works when the economy is growing at 20% a year and few work when it is at -2%.
The business model for success in 1997 Jakarta or 2012 Equatorial Guinea is crony
capitalism.
The power of this new realism(reinforced by a dose of Schumpeter) is that we are
now living in a world where value creation will be valued. That is what I mean
when I say that we are all venture capitalists now, involved in the direct creation of
wealth, linking entrepreneurs to capital through microfinance, VC4Africa and the
expansion of Silicon Valley models to Digital Nashville, Digital Tunis and Digital
Chennai. While I long have argued that Silicon Valley is not replicable as an
economic design, the metaphor is one about a capital market where entrepreneurs
create growth.
This does not mean that traditional investment banking, at least that practices by
the Carl Icahns and the Ted Forstmanns has no value. It is just that it will be
recalibrated to be proportionate to wealth creation. In the 1990-2008 period,
wealth creation and value creation became separated and value creation and job
creation have long been disconnected.
Economic growth comes from a mixture of disciplined and patient capital markets
with an ecosystem that rewards and provides incentives to innovators and
entrepreneurs. If we know that, why has it proven to be so difficult to create this
model in the mature industrial societies of the G8 countries?
The answer to that question is at one level obvious: the old always tries to delay the
onset of the new. Healthcare innovations, which will create trillions of
dollars/euros/yens of new value, are disruptive to existing organizational models
with their networks of status, convenience, organizational loyalties and life-
simplifying repetitive habits. U.S. capital markets are in a constant tension
between models which create new values (Silicon Valley) and models, which
provide enormous incentives for wealth management and wealth preservation

2. (Wall Street). The same is true of Canadian and European realities although less
starkly drawn.
Venture capital is all about the creation of new value and the search for ecosystems
which connect technologies ready for commercialization with teams of
entrepreneurial managers who can realize this value. There is a global search for
formulas which create competitive advantage in venture capital, but the task
remains relatively simple in concept and enormously challenging in execution.
There are three things which are necessary conditions for entrepreneurial economic
growth:
(1) A talent pool around a university (the mill-wheel of the ecosystemgenerating
thousands of new high talent individuals annually). This is why Stanford,
Waterloo, Helsinki University of Technology, Cambridge has proven to be
such fertile epicenters for entrepreneurial venture capital.Daniel Isenberg of
Babson writes in the ECONOMIST on the development of this kind of
ecosystem.
(2) A venture capital community that is linked to global best practices in the
development of new industries. One can back an entrepreneur to build a
bowling alley without being a “venture capitalist” in my definition. A shrewd
investor understands that a bowling alley is a mixture of real estate skills,
entertainment and retail service management expertise. In investing
$250,000 in a bowling alley, the shrewd investor assesses the dedication of
the management team, the reality of the location-based competitive
advantage and the coherence of the business plan. This is not venture
capital as any new value; product, system or service has been invented and
commercialized. A venture capital firm is defined by its global reach, its
professionalism and as such is analogous to a university engineering
department or a symphony orchestra. One can build a bridge or hum
Brahms but to succeed, one knows who the best symphony conductors and
most creative structural engineers are. It is amazing how often this point
is omitted fromdiscussions if venturecapital.
(3) There has to be a success mix in the ecosystem. In Montreal, entrepreneurs
can see how an inventor-entrepreneur with access to a world-leading
engineering school could create Bombardier out of a company that started
off putting small motors on skis. In Indianapolis, one can see how
agriculturalchemistrycan be commercialized into multibillion products at Eli
Lilly. We overuse the word ecosystem, but it is an accurate metaphor for
the preconditions for success in modern venture capital.
As we start 2012, the urgency of venture capital is obvious to anyone examining the
global economy. The philosophy of the moment (weltanschauung) is one of

3. entrepreneurially led development: a billion entrepreneurs in India and China, the
linking of venture capital to Africans in VC4 Africa and Timbuktu Chronicles, and
closer to home, the rhetorical certainty that an economic speech will discuss the
need for new entrepreneurs.
A profitable bowling alley is an accomplishment in itself. I in no way denigrate it,
but like all service activities, it requires other wealth creators for it to work. Tired
auto workers relaxing after a shift will pay money for a bowling alley or a Tim
Horton’s double, but their ability to pay for it depends on a wealth creating job or a
stake in a wealth creating sector.
The next generation of value creation in a global economy looking for its moorings
will come from organized networks of commercialization seeking acquisition of new
talent. The model by which a Google or an Eli Lilly or a Dow Chemicals renews itself
by acquiring a startup company is proving to be a viable one in the global economy.
The discussion of venture capital is confused by the U.S. experience of IPO driven
exits that were characteristic of a moment in time where public capital markets had
excess capital and could provide expansion capital and acquisition capital to
promising startups.
That reality may exist today as Groupon is capitalized not based on its current
earnings, but based on an assessment of its management team’s potential to build a
viable company at a key corner of the digital architecture. Just as EBay became a
dominant player in auction and Google in search, a similar calculation is being made
about Groupon (local trading arbitrate models) and LinkedIn (commercializing
social networks). This changes venture capital calculations as shrewd venture
capitalist contemplate building to sell to…Google or Merck or Monsanto or Eli Lilly
or now Groupon or LinkedIn. This is particularly important for Canadian
entrepreneurs as we try to design business models that will have a successful exit in
the way in which the global economy expands. There are any $250,000,000 niches
that will not be occupied by Groupon or Google.
With this in mind, the global venture capital scene enters 2012 with some incredibly
rapidly growing areas, looking for the right business models and management teams
for the next generation of growth. Let me provide five thoughts for the beginning
of this course, obviously not meant to be exclusive, but “promising leads” for
investment philosophies. If you have looked at my website you see that I am at
least consistent in the core areas:
(a) We are globalizing the digital architecture creating venture capital opportunities
from Tunisia to Vietnam.
(b) Canadian venture capital has been very creative in categories other than Silicon
Valley as alternative energy; environmental technologies, water industries and
bioremediation to materials science become major venture capital categories;

4. (c) Social media is real and the social media generated content category is an area
where Canada has “no competitive disadvantage”.
With that, here are five (among many) trends for 2012:
(1) Food production will drive global capital markets for the next decade in the way
energy did in the 1980s and 1990s. Innovation in all areas of food (profitable use
of arable land, preservative technologies, packaging innovations, cultivation of new
food sources) will revolutionize capital market thinking as Chinese, Indian and Arab
investors determine a different set of priorities for their investment portfolios and
G8 investors become more conscious of the environmental risks of the current food
production model. There are several new investment models reflecting this new
trend. New Seed Advisors is an excellent and high profile example of these new
trends.
(2) Education is redesigned. The Khan Academy is one example of many, but well
known and critically acclaimed . Some venture funds position themselves to be
poised for this disruption but as content, education,gaming and entertainment
create a complex new Venn diagram, the likelihood is that this will be even more
disruptive than we have previously imagined. For the beginning of this see some of
the work being done at MIT’s Media Lab: http://web.mit.edu/press/2011/mit-
launches-new-center-for-mobile-learning.htmland the Center for 21st Universities at
Georgia Tech http://www.cc.gatech.edu/research/21stcenturyuniversities.
(3) The commercialization of technologies requires a whole new business model.
For years, a Europeanventure capitalist and I have been advocating a
50TECHNOLOGIES.COM concept for focusing on developing a commercialization
process in areas, which are not as hot as data storage or industrial biotechnology.
For practicalpurposes, we need to invent new investment models, specialized
venture firms with a capacity to work with global scientific researchers to bring to
market new ideas in everything from acoustical engineering to marine ecology.
We are creating new technologies with commercial applications and yet the process
of commercializing new technologies remains haphazard. We either rely on
corporations to do this (Bausch becomes the instrument for commercializing
ophthalmology) or we expect venture capita firms that are concentrating on mobile
applications of alternative energy to broaden into other areas. The MIT Technology
review remains the source to be followed and Boston area VCs have taken the lead
in a number of these areas, which are off the radar, e.g. biofuels where an earlier
MIT Technology Review Innovator of the year became, a venture partner. This
year’s TR 10 can be found at http://www.technologyreview.com/tr10/. Another
perspective on new technologies comes from the Electronic News.
http://www.eetimes.com/electronics-news/4231126/EE-Times--20-hot-
technologies-for-2012.
(4) Social media generated content will change a number of markets, including how
we spend our entertainment dollars. This trend has already started to take place

5. but we still aren’t sure about the business models. See for example the excellent
analysis by Ross Garland in the Wall Street Journal:
http://blogs.wsj.com/venturecapital/2011/02/18/social-media-genomics-driving-
data-tsunami/.
(5) We will need new technologies to sort through and present the data, which will be
collected as crowdsourcing, and remote sensing makes more data available than we
have ever imagined. The world of data crunching will develop different business
models, transforming healthcare among other sectors. The aggregation of data will
change. I am a believer that crowdsourcing will be disruptive in many ways: anti-
corruption efforts that aggregate recorded patterns of corruption, epidemiological
data that leads to best practices health care. Data analytics is going to put
unimagined demands on the existing system leading to information design
companies, which simplify the presentation of large pools of data and the
investment in companies like Kaggle. For a sense of the scale of the venture capital
activities in this space:
http://gigaom.com/cleantech/5-companies-using-big-data-to-help-the-planet/,
http://www.nytimes.com/2011/12/01/business/dna-sequencing-caught-in-
deluge-of-data.html?pagewanted=al
We are living through a technological revolution and a global economic realignment
simultaneously. It is exhilarating, terrifying, motivating and an opportunity to do
enormous good while creating commercial value. Crowdsourcing means that
corruption can be eliminated if large data tracks patterns of abuse in rural Nigeria.
Google maps means that illegal foresting cannot be hidden and if some does manage
to hit the market genetic barcodes can track illegally harvested products. Of
course, this wonderful world cannot happen without a political system that ensures
that Orwellian abuse does not become the post-technological norm.
The point for venture capitalists is that new areas of value creation are increasing,
not decreasing. The point is also that sources of capital are increasing, just coming
from new places. The business models of the past will be replaced by new business
model. Social media will replace some institutional investors and people will (how
radical is this?) be rewarded by what they build as opposed to how much money
they can raise from existingnetworks.
When there is this much change, the skills of best practices venture capitalists
become more in demand than ever, which is why we do what we do,