Taking Stock

I left my operating position in SweetSpot Diabetes Care a few months ago making this a natural time for reflection. I’m struck by how the arc of SweetSpot mirrors that of the Portland tech scene. We sold the company to Dexcom, Inc. (NASDAQ: DXCM) just over a year ago.  Dexcom has continued to invest in Portland, signing a long term lease and tripling the SweetSpot staff.

This is a great outcome for SweetSpot; its employees, investors and shareholders. We were one of several tech companies to sell in 2012, a sign that the Portland tech ecosystem has reached another level of maturity. We now need to move to the next level – a plethora of growth companies, big exits, IPOs, easier access to capital and, most importantly, local venture capital.

I moved to Portland in late 2005, but it wasn’t until 2008 that I stopped joining the flock flying south for weekdays. In 2008, it was clear Portland had the potential for a great Tech startup environment. Most notably we had an enviable influx of over educated young people. Driven by the quality of life, Portland had a burgeoning creative class, increasing ethnic diversity and growth in multiple industry segments. Most of all, Portland was, and still is, the most affordable West Coast metro. But it hadn’t seen significant Tech success since Techtronics spun out the Silicon Forest companies.

Many of us were frustrated with how hard it was to get a Tech company started, let alone built to scale. Everyone seemed to have a side project and limitless enthusiasm. Un-conferences and Legion-of-Tech events filled the calendar, but real startups were rare and funding was non-existant. SweetSpot was Adam Greene’s side project in 2009. When I joined Adam, we converted to a C Corp. But, beyond friends and family, we had to go to the Bay Area for Seed funding. We pushed hard to change things in Portland.

We pressured then Mayor Sam Adams to make money available for startups, an effort that lead to the Portland Seed Fund. Wieden and Kennedy took advantage of the excess tech talent by starting The Portland Incubator Experiment (PIE).  This provided a catalyst for startups, accelerators, incubators, and angel funding.

We now have a dozen active accelerators and incubators. These, plus independent entrepreneurs, are minting scores of viable startups every year. SweetSpot was part of over $400m in tech exits in 2012, up from less than $100m only two years earlier. We sold SweetSpot because Dexcom was a perfect match for us. Partly though, we sold because of the difficulty in raising venture capital.

There has been over $200m in venture capital invested in a half dozen Portland growth companies that are achieving significant scale. Silicon Valley is the source of virtually all this money. These investors (including Foundry, First Round, True, Sequoia, Kleiner Perkins, among others) are confident they can make significant money in Portland.

Now we’re poised to take the ecosystem to the next level. Some of these growth companies will see big exits and perhaps an IPO. It’s getting easier to get venture money, but 503 still doesn’t even show up in the nations top 25 venture capital area codes. Portland is the poster child for the Series A crunch with more than a 100 startups chasing virtually nonexistant early stage VC. Portland Tech companies will create massive amounts of wealth in the next 10 years. It’s an opportunity which needs better access to capital and that should include local money.

 

The Smart Phone is the Truly Personal Computer

The inherent identity of a mobile phone is the most important aspect the emerging mobile centric world. Unlike the desktop world, the phone is truly one user-one device. It’s always been tied to a person’s phone number…the way you get in touch with them. The PC, whether a laptop or a desktop, has never been personal like a smart phone; it’s just single user.

For smartphone apps, this is a subtle but vital difference. PCs are often only used by one person, but that’s not the central use paradigm. Browser based applications always require a login. Apps on your smart phone only require a set up. From then on the apps know it’s you. Windows and Macs do have log-ins and key-rings and other conveniences for filling-in passwords, but this subtle shift in UX is important. For app developers, mobile allows much more intimate engagement.

I most appreciate the importance of this one-person, one-phone paradigm when using our shared kitchen iPad. Pads and Tablets have yet to work this through. The apps assume only one person is using it, easier on the apps, harder on the iPad users.

We are only just beginning to appreciate the power in mobile. It’s an extension, an enhancement, an augmentation of the person. This is already changing communication. It is only just beginning to change how we find things, find out about things, interact with things, and buy things. It’s what makes the cloud meaningfully interactive. It’s what will make the Internet of things useful.

Bill Girly’s recent post, Transitioning to a Mobile Centric World, does a great job of articulating the importance and power of mobile identity and engagement.

When I was in High School, I heard Alan Kay make the absurd and provocative statement, “a computer wont truly be personal until we are wearing it.” We are now living in Alan’s world.

The Mother of Invention

Our future is Urban. Urban centers are growing and rural areas are shrinking. It‘s an amazing opportunity to reinvent how we live when we add 2.5 billion people to cities in the next 25 years.

It’s mind boggling how fast China is urbanizing – 21 million people per year are moving to cities. That’s the population of the 9 largest US cities. Imagine creating the equivalent housing, infrastructure and services that exist in New York, Los Angeles, Chicago, Houston, Philadelphia, Phoenix, San Antonio, San Diego and Dallas every year for the next ten years.

If necessity is the mother of invention, China is faced with the mother-of-all invention. I doubt their future cities will be developed on historic western models. I suspect we’ll see very interesting invention coming out China in the next few years.

Don’t Be Fooled, VC Trends are UP not Down

Too much of the VC discussion focuses on low 10-year average returns – basically zero – and the deinvestment in Venture Capital as an asset class with the number of firms declining precipitously.

We’re at the beginning of an explosion of wealth creation from startups bringing mobile, social, cloud computing, connected things and big data to every aspect of our lives. The impact of these technologies and resultant shifts in business, commercial practices and consumer behavior is greater than that from desktop computing and the Internet. And like all swift technology adoption startups, not incumbents, will drive the change and reap the rewards.

To measure this impact, exit values are what matters. The upward trend of wealth creation is clear even before you adjust for strong countervailing factors: the over commitment of capital caused by the late 90’s exuberance; the concentration of IT spend for Y2K; and the retreat of capital from the Tech IPO market. When adjusted you see a liquidity ratio returning to 4+ and exit values trending to $80B with no top in sight.

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Mark Siegel at Menlo Ventures has it right, “this bodes well for returns going up”.