Jul. 17–START-UPS TO PLAY IMPORTANT ROLE IN VALLEY RECOVERY: Silicon Valley is one of the most dynamic business centers of the world because of its ability to reinvent itself, but the state budgetcrisis presents some difficult choices for us as we try to keep it that way.
The area’s start-ups can raise capital on average only 11.6 months after they start looking, or five months faster than the national average. That gives them an important first-mover advantage in this cutthroat modern economy. While the region is in a natural down cycle, new start-ups will create thousands of jobs that will once again fuel the area’s growth.
That’s the conclusion of a new report released Wednesday by the Public Policy Institute, a private San Francisco-based non-partisan research group. The 105-page report, written by economist Junfu Zhang, argues that firms founded after 1990 generated almost all of the region’s job growth between 1990 and 2001 — a sign that start-ups also will be the backbone for the region’s recovery.
But what keeps eager entrepreneurs and venture capitalists here, the report adds, are things such as government support of the area’s research universities, transportation policies that allow workers to commute, and a federal policy that permits companies to hire qualified immigrants — all of which are threatened by California’s budget stand-off and Washington’s homeland security policy.
Hopefully, the report will spur more debate that will help us make the right decisions in these tough times.
ECO-VENTURE: Speaking of doing the right thing, kudos to Steve Luczo, chief executive of Scotts Valley’s Seagate Technology. He’s funding the quest by quirky Aussie Shaun Murphy to travel across the United States using eco-mobiles powered only by alternative fuels.
Luczo won’t say how much he gave Murphy, but the project is ambitious: Murphy departed Wednesday from the Golden Gate Bridge, driving his three-wheeled, one-seater electric vehicle, fueled by geothermal energy, through Northern California. In each of 30 states over a period of eight months, Murphy will use fuels taken from the region he’s traveling. The list will make you feel good about California: He’ll use cow manure in Wisconsin, wind in New York and Massachusetts, and landfill gas in Pennsylvania, to name a few. Check www.ecotrekker.com.
YALE NEGOTIATIONS: At a time when the public is demanding more financial disclosure from public university endowments, namely in the area of venture capital investing, private universities have remained relatively smug. But fierce wage negotiations between unions and management at Yale University might change that.
A union report titled “Insider Investments among Yale’s Top Leadership,” to be released today, is noteworthy because it implies conflicts-of-interest on the part of Yale’s fund managers. Yale is one of the venture industry’s most widely respected investors. Unions say Yale has refused to use any of its spectacular profits to boost employee retirement plans, which is why union representative Antony Dugdale has started asking questions.
Prominent Silicon Valley venture capitalists are involved. The most ink is spent on Len Baker, a well-known partner at Palo Alto’s Sutter Hill Ventures, who joined the Yale investment committee in 1990.
In 1991, Yale made a commitment to invest in Sutter Hill and is now its biggest investor. Baker also invested in two other funds, Chengwei Ventures and Golden Gate Capital, before Yale also decided to invest in those funds. Baker personally helped arrange meetings between Yale and Chengwei after he had already invested, the report said.
Baker deferred to Yale for comment. Thomas Conroy, Yale’s deputy director of public affairs, confirmed Baker’s involvement. However, he said Baker’s role was disclosed to the other members of the investment committee at the time and dismissed the report as contract-time politics. “This is how they negotiate,” he said.
Dugdale says he wants Yale to disclose such insider transactions, which it hasn’t done. The full report is at www.yaleinsider.org.
CISCO’S PEDDLING: Cisco Systems, one of the valley’s chief advocates for the right to issue stock options without reporting them as a corporate expense, has launched a new political offensive. In an e-mail circulated Wednesday, two of Cisco’s executives request support from Silicon Valley’s big-pocket venture capitalists for Democratic candidates Dick Gephardt and Joe Lieberman, “friends” who have “stood with us in supporting us on this issue.”
Dan Scheinman, Cisco’s senior vice president of corporate development, and Mark Chandler, director of the company’s legal services, write in the e-mail that Microsoft’s decision to no longer issue stock options and announcements by candidates John Edwards and John Kerry that they support option expensing have attracted attention in Washington. Of course, Cisco has a financial incentive to oppose expensing: It gets big dollars in tax savings by writing off option expenses.
— Termsheet is a biweekly column published on Thursday about venture capitalists and the companies they fund.
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