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Live special broadcast from the University of St. Thomas in downtown Minneapolis: The MPR Civic Journalism Initiative presents a Summit on "Minnesota in the Dot.Com Age." Keynote speaker is Minnesota native Ann Winblad, co-founder of Hummer Winblad Venture Partners in California. All the major business magazines call her part of the "Cyber Elite."

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(00:00:00) Good afternoon. Welcome to a special edition of midday. I'm Gary eichten. And today we're broadcasting live from the University of st. Thomas campus in Downtown Minneapolis today, Minnesota Public Radio Civic journalism initiative is hosting a day-long summit on Minnesota's place in the new economy part of our week-long series Minnesota in age about a hundred leaders from business education labor government have gotten together here at st. Thomas today to try to come up with a list of things that Minnesota needs to do to make sure that it gets its share of the high-tech pie. There's quite a bit at stake here a vibrant economy and the jobs and philanthropy that goes with a vibrant economy. Unfortunately statistics seem to indicate that while Minnesota high tech is growing. The state is steadily losing ground to other areas of the country this in a state that once was a high-tech Mecca. Well participants here at the summit have been meeting through the morning and they have more meetings planned this afternoon, but over the noon hour here. We're going to hear from an winblad a woman with a unique perspective on Minnesota's place in the world of high-tech. She started her business on a shoestring here in Minnesota and is now one of the nation's leading Venture capitalists. She still has close ties to some remarkably successful Minnesota businesses, but like so many others she's now based in California. She's come back to Minnesota today to tell her story and to take some questions from Summit participants here at St. Thomas a little more background for those of you who aren't familiar with Anne Boleyn wind blance story. She grew up in Red Wing went to st. Kate's and st. Thomas apparently borrowed $500 from her brother and started a new software company called open systems. She later sold at $500 company for 15 million. Then she headed west for Silicon Valley and founded the Venture Capital firm Hummer winblad Venture Partners, which invests a half billion dollars in software and internet companies is wind. It has been called one of the nation's cyber Elite She was recently featured in a lengthy article in the Wall Street Journal and how to winners and losers and I read in the st. Paul Pioneer Press that she even dated Bill Gates. So maybe besides some sharp perspectives we can get some juicy public radio style gossip as well here to discuss Minnesota in age is Venture capitalists and windblade. (00:02:35) I didn't realize I was going to be on Howard Stern this afternoon. Anyway, thank you for inviting me back to Minnesota. I do come here frequently. I am a director and founding investor of net perceptions and also in privilege to be a trustee at the University of st. Thomas. I was born in Red Wing Minnesota. I actually grew up in Farmington. I spent a couple years in Rushford, Minnesota, although I've never been back there and don't exactly know where it is. That's where my father started his coaching career. My father is a well-known Minnesota athlete some of you might know him by his nickname soup winblad people wonder if people in California actually a No-No if I'm from Minnesota, but I can tell you that I'm one of the few Californians that still ask for mashed potatoes instead of french fries. I think that like many minnesotans that are starting running or helping companies grow today. I have a very similar background And I am a trained overachiever. My parents are both first-generation Americans my mother from a German background my dad from a Swedish background. My grandparents on my dad's side actually settled in vaasa, Minnesota the original Swedish settlement. My parents have no business backgrounds. My mother was a nurse. My dad was a high school coach and teacher. Although I know he did much more teaching on the playing fields and in the classroom. I'm the oldest of six children and the highest income my father ever made when I was growing up was $18,000 a year yet through all that time. I thought I was a princess my favorite story of growing up was when it was back to school days. I'm have four sisters and a brother were only eight years apart in age. So back to school was a very challenging time for my father and my and my mother to buy us all clothing especially for young girls who had to wear dresses in the 50s to school. So my dad used to go down to These clothing store in downtown Farmington and pick out 18 dresses. We never saw the selection he picked from and bring them all home in the family's red station wagon. He come in the door with this pile full of dresses and we each got to pick two. We felt like we were the richest kids in the whole state of Minnesota. I think that says a lot about how entrepreneurs work today. I think entrepreneurs have one thing in common. They believe they can do anything and they believe that they're constrained by nothing. We really have moved with economy away from technology companies require the enormous amounts of capital that former Minnesota and Minnesota companies required John roll wagon, who's in our audience today started a company that required enormous Capital to get started Control Data required enormous Capital not to get started but to run its operations today the companies that are driving the technology economy. Software and internet companies companies that secure significant funding but really only have one competitive advantage and that is the intellectual Capital. This is really the generation of entrepreneurs those under 35 year olds who grew up watching a lot of Nike commercials just do it. Well, I was growing up I had several jobs. I worked in a pool table Factory as a part-time receptionist. I had my own company sewing Barbie doll clothes. I realized there was a they the razor blades were worth much more than the razors. I actually picked strawberries for 10 cents a pint and I once held an art fair where I caused all the children the neighborhood to draw art for me and then I charge them admission to come and see their own (00:06:18) art (00:06:22) as was described earlier. I started a company one year out of college. I went to the College of Saint Catherine undergrad took most of my courses at that time at st. Thomas and got a master's degree. At st. Thomas. I took my first job in the Federal Reserve Bank here in Minneapolis. I guess the one down the street that's closed. Now that I'm glad I only sent in their year now hearing about the asbestos problem. But anyway, my career was not intended to be that of an entrepreneur but I got there Santa my cubicle for 40 hours a week. Everyone went home at five o'clock. No one showed up till 9:00 in the morning and I realized that this just was not for me. I quit my job. I had no money. I had no destination for myself, but I thought you know, I have an undergraduate degree in business and some computer science classes and you know those guys in the business class. They were having a hard time with those debits and credits and I had to write all their computer programs for them. So why can't I start a business my parents were shall we say appalled they were very concerned that this was sort of some part of my growing up process that I should have undergone in college well, Able to them and that I should not at this point in time quit my job where I was now getting paid more than my father one year after college and become an entrepreneur. They were even more considering when I started the business in my apartment. They were even more concerned when I borrowed my brother's entire savings account. They were more concerned when I applied for food stamps because I needed some perks to give our programmers. So I thought food would be a good person. They were giving out a lot of food stamps at that time. So I could order a lot of food for this. They thought I was really getting on the right track when I took an evening job take teaching typing at a vocational school to supplement my wages which were zero but nevertheless the story turned out right many of the entrepreneurs we meet today are not signing up for food stamps. They are not borrowing their brothers $500, but they have a similar characteristics. They have just started doing it. They believe so passionately in their idea that they're not waiting. They're Waiting for Venture Capital, they're not waiting for approval from their parents. They're not waiting for someone to bring them into a nurturing environment and to fully trained them to be an entrepreneur. They are just doing it. Why are they doing it? Well, they're looking at the numbers this year 1999 and the first half of the year, you've heard these numbers before but I think they're worth repeating and we're talking about a bit. There's been over eight billion dollars in the first six months of this year invested in software and internet companies. That means 300 million dollars a week on average workday 60 million dollars is being handed out by Venture capitalists to new and not yet public software and internet companies what this means is that Venture capitalists are looking at the entire opportunity as the glass half full not the glass half empty this year at Hummer winblad Venture Partners will receive close to 7,000 business plants when we started our venture capital. In 1990, we reviewed 562 plants and boy where we tired now. We have a new energy. We have a few more Partners as well, which does help out a lot. We are seeing almost every idea Under the Sun. Why is that if we look at the internet today only 35 percent of all households are online. It's expected that 25 million households will go online in the next 48 months. Most of these households representing our neighbors our friends and our relatives here in the greater Midwest who were in less than $50,000 a year, even these new households going and on the internet have a potential to bring eight to twelve thousand dollars a year of disposable income in Internet offerings related to groceries music toys and dog food among other items that they will buy online. So we've only begun and what will consider this new digital Economy. The opportunities are huge the venture capitalist realize this the funds are getting larger. The number of companies getting funded are growing day by day. In fact that eight point eight million dollars represents over 800 new companies receiving initial funding from venture capitalist. What this also means is that we've moved into a swing for the fences economy. There is no time to grow slow in this environment as the well-known internet analyst Mary Meeker set in this market. Number one is awesome. Number two is okay number three is tough and number four is the pits. It means there's no time for what we lovingly referred to in Venture Capital as living dead companies. That means if your company is not growing from one to a hundred people in less than six months. It's not going to grow at all and you should help it find a home and move on to the next one. It means that it did not claim a space in the new Emerging Market map with this amount of money and this amount of companies the race for space in the on the market map is accelerating even as the market map itself expands. What I'd like to do to illustrate this point is to talk about for start-up companies that we funded one in Seattle one in Austin one in San Francisco and one in Minneapolis and show you how a like all of these companies are independent of these localities. I know there's been a lot of discussion of how you manufacture an entrepreneur. How did Austin get him. How did Seattle get him? How did San Francisco get them? And how do they happen in Minnesota? You cannot manufacture entrepreneurs. There is very little science to the process of creating a notch. Are you there are one or you aren't one you're either willing to enter this new digital Revolution or you aren't you can't be trained to you have to learn a lot to be able to exist in it that you can't be trained for entry. You just get in and start. Let's start with Austin Austin Texas. We funded a company called It's still a private company. It provides a portal of services for small and medium-sized businesses. It also ties back to your back office system automatically posting to your general ledger systems, the procurements you've made for office supplies office furniture and financial services for your company company has a relationships with J-B Richards one of the largest wholesalers of office supplies and office furniture and is Off to the Races we found Austin and interesting investing category. I have never been to any University in the state of Texas, even though I sold my company To a company based in Dallas about 15 years ago what happened in Texas that we saw as there was a young entrepreneur called joli Mont Joe is actually the son of the CEO of you sell the company that bought mine Joe went on a rampage haired hundreds of employees in a company called Trilogy some work. Some didn't Trilogy was very successful the ones that left started other companies. We consider joli Mont the centerpiece of the Texas entrepreneurial economy. Its entrepreneurs driving other entrepreneurs. They all wanted to be joli Mont. Let's go to Seattle. We've been looking at Seattle for quite some time many Midwest Venture capitalists considering Seattle a sister city head even opened office there and close them over time. Nothing was happening in Seattle that major university. You've got Microsoft there with thousands of employees. Why isn't it an entrepreneurial environment? Why weren't there a lot of new companies there? Why didn't you hear about other IPOs? Not until Jeff Bezos has gotten his car with his wife and drove to Seattle Washington and set up and took that company public do not tripping or is feel that yes. This is an environment with other entrepreneurs can succeed. You don't just go to Seattle to work for Microsoft. You could even start your own business since that time. We funded two companies in Seattle one called Home home grocery now is operational delivering groceries right to your doorstep in four major metropolitan area. Portland and two locations in Southern California, they won't allow me to tell you whether they're coming to Minneapolis sooner or later home grocer was funded we funded to entrepreneurs who had previously owned a water company. It didn't make it big in the market map. But they knew how to deliver water to your door today home grocer has hundreds of employees. We had to import a CEO Mary Alice Taylor who is a senior executive at Federal Express work directly for Jim Barksdale and also had been a senior executive citicorp as a company began to scale. So that company is Off to the Races our second investment there. The CEO is a is just turned 30. There was a question asked earlier how many people in the audience are under the age of 35 I wanted to lie, but I did tell the truth and I do have to tell you that I attend a lot of 30th birthday parties. A lot of our entrepreneurs are just moving into their threes and really starting these companies as they hit their stride in their twos is a young CEO named Jim Heckman Rivals is the first Sports Network on the internet and now has over 700 Affiliates in its Sports Network in the month of September AC Nielsen described at the stickiest site on the internet for all men most customers spend spent a hundred and twenty minutes on the site and there were 60 million impressions on the side. We funded this company in May of 1999. There were 11 people squeezed into about 800 square feet today. The company has close to 200 employees and as I indicated broke through in the month of September its first month is of launch was 60 million impression as well as the stickiest site on the internet. Let's go to San Francisco San Francisco. We funded a company in March called All of a sudden we had companies coming in saying the fifty billion dollar pet food and Pet Supply area up for grabs. A large-format retailers removed too slow. They weren't cut becoming multi-channel retailers. Let's go on it looked at a lot of companies. We had a group from a large consulting firm who had spent a year analyzing this area have written us a very good book report, but we didn't think they were the just do it crowd. We had another group that came in sort of whining about how hard it was work work with suppliers. They were not the glass half full crowd. Then we had a young entrepreneur still in his 20s come in and say well I just started this site. It's called And in fact, I own and fair at starcom and you know people are coming to my site and and this should take off we incubated. company in our offices for four days today has raised besides our initial ten million dollars in Amazon split that deal with us. Jeff Bezos heard that we had funded this company brought in Julie Wainwright a spectacular internet CEO and said can I have half the deal we said sure fine has raised since that time an additional hundred million dollars has opened a distribution center of over 300,000 square feet in Newark, California is shipping over 2,500 orders a day and has close to 300 employees. That is a hundred and eighty days from the time we funded it. So we are really in a new velocity economy. This is not time to sit around and think about things this is time to just do it to get it done. There are huge opportunities for the market leaders reflecting back again to the fact that we have only 35 percent of all households online in the us alone. There are increasing returns and network effects for those who get on the market map early and Their businesses work. If this requires Great execution extraordinary loyal customers key Partnerships and great entrepreneurs. Let's look at our Minnesota company now perceptions. I admit Steve Schneider years ago when he was a Young Turk at Microsoft. He had left Microsoft come to Minnesota to attend the University of Minnesota to get his Ph.D. I knew he was a permanent broken type a person and I should keep my eyes on him that he would start a company sooner or later. I was actually here exactly 36 months ago and Minnesota celebrating its hundred years of computing. I was worried that they thought I was a hundred years old for that event and watch across the street to a little conference seeing what's happening with new companies here. I saw Steve Schneider and a tall guy named David Gardner from the University of Minnesota. I said Steve aren't you going to start a company goes I have an idea I said, well, what is it and he goes, well, we're going to use collaborative filtering to start this company, but we're going to think about it for a while and I said we'll have you written a business plan because what we have some ideas and I said, where are they in the occipital? David's got him in his briefcase. I stood in front of David who's a foot taller than me. And I said give me the briefcase David and Tara hand me the briefcase looked like he was going to flee from the auditorium and I said to Steve I'm not getting you back that the briefcase tell you promise that you're going to make a trip to California and Pitch us. Steve came out the next week. He said I don't have a Polish business plan. I said, there is no time to polish. Shoes scuffed shoes don't matter in this market. There's a huge opportunity for personalization here. And we'd like to find a company that can own it. In this case as with the case of all the companies I've mentioned before in the case of net perceptions. We were delighted to bring in st. Paul venture capitalist as a funder of the company with us. We brought in Paul Allen's group Vulcan Ventures. We secured the capital necessary to bring this to the public markets the company slightly after its second birthday from that to person meeting went public and celebrated third birthday. Just a couple months ago. Remember 36 months ago. There was no business plan. There was no founding team. There were no executives. Our job was to use the best of world. Our PR firm is from Seattle the same as Microsoft's our Law Firm is from Silicon Valley the same as many of the bright shining startups are accounting firm shares resources here in Minnesota in with that of the national software office in San Francisco as well. We made sure that net perceptions was on the Minnesota map as well as map and the case of all of the other companies. I've mentioned we brought in other investors who support them locally and a small Venture firm called Phoenix Technologies is a CO investor with us. And in fact, one of the friends of that firm had provided that company the seed money in all of these deals except net perceptions. The original money did not come from us. It came from other entrepreneurs who handed the other entrepreneur a couple hundred thousand dollars to get their idea off the ground. This is the fuel that is driving that 8.8 billion. Dollars, it came from venture capitalist because preceding us was probably close to a half a billion of small checks written by other entrepreneurs to other entrepreneurs to just do it. This is indeed an economy driven by the intellectual Capital Itself by the entrepreneurs driving other entrepreneurs. If we look at some of the opportunities that are still coming up here in the marketplace. There are three big trends meaning there are three big pots of opportunity. I focused a bit on business-to-consumer the ability to serve the 65% of the online households and aren't online and the 35% that are the internet is expanding to include include broader groups specifically broader income groups that will mean some changes in how companies support these. It'll mean higher demands by the consumer. They'll expect higher service. Less technology in front of them and more dependability. They'll require Mass customized sites. They require that they be treated uniquely as a consumer not part of the first thirty five percent that were on the net and these unique personalized relationships will drive the web. So B to C is still wide open. It is not for the faint of heart. It is indeed a race for every There are ten other companies that sell dog food. In fact has emerged the leader in this category. Some of you probably saw buddy their mascot at the Thanksgiving Day Parade float, but six other pet food and pet supply companies got funded despite the fact that had amassed a hundred million dollars in the B2B world the new buzzword business-to-business for internet Investments. Sometimes you wonder how these Trends happen. And this particular one, we have a number of business to business Investments. The national Transportation has changed in Chicago is the closest year two companies in Minnesota business to business businesses are hard to start. They require enormous technology. You cannot isolate yourself from the integration with the corporations that you're serving whether it's a supply chain the lizard Logistics chain or the demand chain and the case of the national Transportation exchange where we provide a spot market for Trucking on the internet. We have to integrate back to all the logistics systems of our customers including that of companies such as three M here in Minneapolis. So these require patience and stamina. However, you won't have as much competition during the patients and stamina and once you get the customers they are on likely to go away because the hurdle is high to serve them to integrate to their systems to provide value-added to what they already have in their corporations, but here again, the winners have huge. Potential in both the b2c and B2B markets are cut is we won't touch a deal unless the market size is at least 10 billion and it is on claimed. We are seeing lots of investors do Investments that represent markets much smaller than this those will be challenging those we are there vertical industry companies that we considered from years ago. I've been asked to end my comments by asking how Minnesota is doing. I think Minnesota will do just fine as long is doing just fine. But as well as the net perception story, I'll give you three Minnesota vignettes that I think represent the differentials in the state of Minnesota. Now perceptions is a Minnesota company through and through most of our employees are from Minnesota. We have offices in New York for sales. We have offices in San Francisco and we Leverage The Best whenever we need to do it, we if we can't find it in Minnesota. We don't settle for second best. We find it in universe. We have one goal. We want to place on the Emerging Market map and we want first place. My second Minnesota vignette is the Fingerhut story. Will Lansing sits on the board of net perceptions with me. We invited him on it's great to be working with him and finger had just recently invested. Of our new companies in San Francisco called see how the site that gets things done. I grew up in Minnesota as I indicated before and we used to get those Fingerhut catalogs. Well, my dad was bringing the dresses from from Anthony's clothing store in Farmington. We would stare at those pictures of those shiny yellow rings hoping someday. We'd all have beautiful $69 engagement rings. Fingerhut has transformed itself to be the Envy of all companies in world. They are the pick pack and ship centerpiece. St. Cloud Minnesota another Crown Jewel of our economy here. As far as I can tell is pick pack and will Lansing hold an esteemed place on the internet Market map and companies are begging to have the opportunity to do business with No one when asked five years ago would Fingerhut be part of economy would have answered. Yes on our polling buttons here today. I think the Fingerhut story is the most interesting of all stories because it means that every company has an opportunity to change and participate in Arena my third vignette which is the antithesis of finger hat. Is another Minnesota company whom I will not name. About two months ago. I received a beautiful catalog in the mail from a company that has a small retail operation and now an expanded catalog operation. It's so great office furniture and some home furniture. In fact, I recognized the name of the company and said, oh gosh this company must be growing really fast. Perhaps I'll go on their Internet site. I went on site and it had a beautiful picture and said call 18882 order our catalog. In fact, I travel to visit our company but not in New York City a wedding services company and they had some new furniture and I said well how much did this cost which is a director's question. They said not very much. We ordered it out of this beautiful catalog. We had and a big 16-wheeler drove right up to our door hauled it up the small elevator installed it and it's beautiful and much less from any office supply. So I thought gee maybe this company which has an emerging brand looks like it can be a great multi-channel retailer and looks like it could have a place in World small home office and Home Furnishings beautifully merchandise in the catalog beautiful merchandise and therefore retail locations. I called up and asked if I could speak to someone who is in charge of the internet. First of all, they said that they had never heard of venture capital. I said, okay. Well, that's a good start. So I gave the call to my assistant and said well maybe you can sort of get your way into somebody so I can find out who's in charge of the catalog since there's no one in charge of the internet. So I finally got the person on the phone and was ready to tell this person the great story about how our startup companies were, you know calling up in the catalog 16 wheelers were driving up how much they like the product I got about Midway and the woman said to me why am I talking to you? We're not an internet company. The answer is everyone is an internet company and that did tell me there's some work to do in Minnesota the fact that this very large family owned business prestigious business and the state of California in the state of Minnesota would say that they are not an internet business is a wrong answer and I think that is where the entrepreneurial effort needs more work every single retailer. Large format department store catalog is now a multi-channel retailer including the internet and I think we'll see the results when we cre tailings statistics in in about mid January from how the e-tailers did it means that the entrepreneurial surge is not yet starting in our core businesses the great names of Minnesota that have been known as our entrepreneurs of yesterday, the people that create entrepreneurs within their own buildings, but it should mean that entrepreneurs should be itching to get out of those buildings and start new DOT coms and be part of b2c or B2B or even Category 3, which I have not named yet, which is infrastructure where net perceptions belongs the picks and shovels that drive all these internet sites. It also means that anyone who wants to be in this Marketplace has to be in a hurry because they will get mowed over not just from In California, the companies in Illinois companies in Ohio companies in New York City and companies in Seattle in the last year. I've had six meetings with Proctor and Gamble Executives who sent out their Executives to meet with Venture capitalists to see what's going on. I was fortunate enough to pick off to those Executives and hire them in our startups. So my mission was accomplished. I've never had anyone from Grand Metropolitan or the great giant of our industry here Pillsbury, call me or asked to stop by our offices. I've never heard from anyone from Dayton Hudson all I've heard a lot from people from Walmart Sears. Kmart and others that speaks volumes about where we are in our economy, but it also means you watch printers get in the fast cars because there's a lot of deer in the digital headlights here in the state of Minnesota, and they're ripe for mowing down. Thanks. (00:32:42) Venture capitalists and winblad if you're just joining us. We're broadcasting live today from Minnesota Public Radio Civic journalism initiatives day-long Summit on Minnesota in age. But a hundred Community leaders are here at the University of st. Thomas in Downtown Minneapolis to assess where Minnesota stands in the high-tech economy and what our future might hold by the end of the day. They hope to come up with a list of ideas that could help ensure that Minnesota gets at least its share of the high-tech pie time now for some questions and comments for an winblad. So let's get started. If you could give us your name and your organization, I would appreciate it. Go ahead sir. Yes. My name is Harlan Jacobs. I'm with Genesis business centers question for an if a friend colleague neighbor relative of yours came to you and said, you know, I have some expertise in biotech or biomedical devices and I understand it might be difficult to raise Capital given your position in the industry and knowing what you know, Advice would you give them what assessment of the difficulty Factor would you share with them in terms of them trying to get capital for start-up medical device or biotech company now given Mania. Thank you. (00:33:51) Well, I think that it has been a challenge for companies to get funding in the other areas that are not in centerpiece more specifically. It has been more challenging for healthcare companies than it has been for biotechnology our biomedical. I do think that still today there are companies and venture capitalist whose core expertise is in that area. They have had great success in raising new funds as well. So there is not a shortage of capital there, but it does mean that you cannot call a lot of venture capitalists like companies can today every year Pratt's guide to venture capital is funded in that guide. It lists every single venture capitalist and where their focus has Has been some jumping fences by biomedical and biotech investors who wanted to investors. So the universe of investors to choose from is smaller, but those with expertise are sticking with where they should focus biotechnology is an area that I am envious of as a venture investor because I think that both biotechnology by and bio Computing will be important investing areas in the next 10 years. I think you have to be careful not to get swayed to jump into areas to try to make yourself when you aren't there are lots of opportunities for companies that are companies, but they really need to tie directly up with the Venture Capital firms and the specific venture capitalist focused in those areas. (00:35:31) My name is RT Rybak. I'm a Minneapolis internet strategist. One of the things we've been talking about today is the whole issue of how do we have more Capital here in Minnesota to fund some of our startup? So my question is how do we grow more and wind blabs and more important? How do we keep you here? So my clients can run into you in the sky way instead of try to fly out to California and get an appointment with you. (00:35:52) Well, the question is, how do we get more capital in Minnesota? Minnesota is has some very prestigious Venture capitalists. No West st. Paul Venture Capital among them and also in the surrounding areas Chicago and others there are many many good venture capitalist. I think that you should not try to get more venture capitalist in the state of Minnesota. I do think that companies need to get on airplanes and meet the right venture capitalist. It's really challenging for us venture capitalist to pick the right deal. Our job is to be coaches to these companies. We get a technical fall if we jump onto the playing field and start shooting hoops. Them but it does mean that we have to pick the companies that we can coach the best a good example here is I think only Phil Jackson can coach Dennis Rodman and what does mean for entrepreneurs is that their coaching staff might not be in Minnesota and if they're a California company, it might not be in California. We have a close relationship working relationship because we've done some deals with st. Paul Venture Capital st. Paul insurance was one of the First Investors in our Fund in 1990 and we have seen then do deals that originated here and deals that originated in California and ended up participating in companies here that originated in California, like net perceptions and vice versa. I do think that one of the things you should encourage Minnesota entrepreneurs to do is to get on the plane unless we're going to all of a sudden have a population boom here, which were not anticipating. They need to meet more people. They need to go to the industry events like the red herring events or the Venture one events or even come out and come to around zero dinner. They'll be inspired to do some of these things here, but they ought to start buying some plane tickets when I was a Minnesota entrepreneur. I took a lot of trips to California. It can easily be done in one day. And in fact when you fly north west you'll be one of the few people ask not asking what is Meatloaf. So I do think that that it is the wrong question. I think as an internet strategist the thing that you could do to help these companies is help them sift through which Venture capitalists they should see should they go see one in Ohio are one in San Francisco or one in Seattle and help them sort of digest which coaching staff would be best for them. And which would be most open to their idea. I think you have to look at the universe of capital as being everywhere. And it will make more companies successful (00:38:31) here. Hi, John, roll wagon, formerly of cray research and now an independent investor Philly ated with St. Paul Venture Capital It's a Wonderful presentation and I think we're having meatloaf for lunch actually, but I was struck by something in your remarks that surprised me a little bit because you told several stories about companies you've invested in and invested successfully and they weren't all in Silicon Valley. In fact, they were all over the country and I'm wondering if that is a new phenomenon. We tend to think out here that that Mecca is Silicon Valley that everything has to be there. It sounds to me like it doesn't it sounds to me like there are opportunities and activities all over the country. And is there a way for us to take advantage of that you're prepared to buy plane tickets and come out here and go other places and what's our opportunity then (00:39:23) well, I think that One thing has changed with the internet as a common platform for all of us in that. The geography issues are gone. It does mean that some geographies are not as desirable for us because we can't assemble the mass of intellectual Capital. We need to get the company off the ground quickly, but for us when we start looking at large markets a good example in the sports area. We had seen all sorts of sports companies my partner and co-founding partner John Hummer played in the NBA for six years after I graduated from Princeton. So every Sports deal came to us and then when John was turning them down they had heard that I was a cheerleader at Farmington High so they thought that maybe at least knew how the football game of football was plagued. So in this case, we had turned them all down specifically local ones and then we heard about a deal in Seattle, which was a unique business model a network versus a site for sports. We were intrigued by that and when we met the entrepreneur we knew Had a real leader that other intellectual Capital would hurt around and the company happened to be in Seattle that part was irrelevant. Now if we went to a different geography where there was a great Marketplace and the team that was starting the company was inadequate then geography would make a huge difference for us. If we felt that we didn't have a CEO to start the company with and we'd have to be hiring from a distance if we felt that coaching meant a lot more time in the locker room than normal then we wouldn't do the deal. So it is this combination of the market opportunity and also the starting intellectual Capital that will allow us to get into planes. Sometimes we've made mistakes in the market wasn't large enough for the intellectual Capital not good enough or we pick the wrong pic, but that was not because of geography. I think most Venture capitalists in Silicon Valley. A split on this issue Kleiner Perkins clearly says we're not flying anywhere yet. They co-led the home grocer deal with us and Seattle and they do get on planes. I fly on a commercial plane John doar flies in his own jet but nevertheless the rule that's being stated publicly is we're not going to race all around the country. So I don't want to send the signal that we got plane standing by to jump to the greatest deal. I think all of these companies knit together lots of geographies if we look at the example of some of our companies who are working with Fingerhut. Is there pick pack and ship operator. Some people are recent company. How was funded by General Electric funded by Fingerhut and funded by Scripps those represents three different states in this in this country three different sets of groups of people that are their strategic Partners to surround a company that is based in downtown, San Francisco. So I think it's important. Also, we sometimes move companies to California, which is doable here. If you're the coaching team and they want your Capital if you want them to move, they'll move this is a great place to move people. It is very very challenging for us right now to move anyone to Northern California, the average house costs over $350,000 and it wouldn't have room for any children in it. Let alone parking. So it's really challenging for us to move companies to where we are. You have the benefit you can actually suggest some companies move here with their starting intellectual capital. (00:43:15) Hi Anne, my name is Rob Davis. I'm from gear will probably be coming out to see you in the next couple of months. Actually, (00:43:22) it's warm out there great, (00:43:25) but I was wondering you mentioned earlier the swing for the fences economy and citing specifically a company that went from one to three hundred employees in a hundred eighty days how typical is that for companies that you fund what is fast? What is slow? (00:43:41) Well, there was a massive change in the strategy to build companies that happened on slightly after 1994 when the amount of capital accelerated when we started our Venture firm in 1990 the amount of capital invested in software companies and there were no internet companies was less than what is invested in a week today meaning it was about 300 million dollars or less for the whole year. So companies had the chance to do what we'll call cross risk reduction paths. This is Venture Capital speak. You give the company a little bit of money and Gee, why don't you work on the product for a while when you got something that's good will you know will sort of test it on a few customers if if the dogs like the dog food then we'll hire some more employees. Once we get everybody settled into their chairs and everybody's singing Kumbaya the company then we'll hire more sales people and we'll really win in this process. Also the typical company that was going public in 1994 had was between 48 to 60 2 months old also had three to four quarters of profitability. So not only did we have the time to do this sort of step-by-step reduce the risk, you know, get the Kinks out of the team before we get to the playoffs. We also had a lot of time before the company was even really eligible to be a public company. All of this time has been compressed the typical internet company going public today is less than three years old from Ross start up. Some of them are less than two years old from a raw startup. It means that by the time we go public we may not be profitable. But we really have to demonstrate that our business model Works what the economics of that are how we would monetize this business and how we would cross the line from cash flow negative to cash flow profit cash flow positive to profitable also means we have to have our team fully assembled and working CEO has to be working with a CFO there has to be somebody back at the ranch the VP of sales the VP of marketing the VP of product the VP of Commerce the VP of syndication, they've all got to be there. The company has to be firing on all cylinders to be eligible for an IPO company. Also if you don't get up first in your category, That also may be a challenge if you get out third in your category, it's usually a big challenge. So the public offering becomes part of the growth stage of the company versus sort of the culmination of everything all polished up over a four to six year period so yes, the reason they had 300 employees that we had to build a distribution center from scratch. The reason the fifty billion dollar pet industry was wide open. It's totally disaggregated. The supplier for pet collars is different than the supplier for pet beds the different the the gerbil food guys different than the dog food guy in many cases. So we had to assemble the whole supply chain where it was missing to be able to ship all the card orders to all these customers on a daily basis. We had to assemble a whole team and build the site out and we will we have expansion plans Beyond there were not done and we had to get the whole team up and Out to be able to manage 300 people. So yes, the old linear risk reduction approach to building companies in world is gone for now. I was fortunate as an entrepreneur that I could make a whole bunch of mistakes. And you know, I had time to recover from them. Now if I am a CEO of a company I have to make sure that I know exactly where I am missing in my skill set or my capabilities are my proclivities and hire people to support me executive teams are running these companies not just the CEOs and they have to be a whole team with a whole set of skills. That means a typical entrepreneurial team does range in age from 20 to 50 s you've got some Wise Guys in there. We call him the Wiseguys with some you know fast drivers. And that's what makes these companies succeed. (00:48:01) Not a lot of time left but let's get at least one more question on go ahead radius van wyk center for the development of technological leadership University of Minnesota. I was very struck by your notion that we will have to move Now this means that at some stage we are going to have some notion of a cosmic pattern of technological development. And this was a very popular way of thinking in the thirties and the 60s. It hasn't been very popular recently would like to hear your opinion. Now, the things are moving so fast is there room for a cosmic patent of technological development in the management thinking that you are proclaiming. They are some beautiful patterns out there. Some companies are doing it. But in this fast-moving Pace, I'm not hearing too much of this. (00:48:49) I'm not sure I understand the question completely. I think it is about the value of patents in this area. Sorry (00:48:57) patterns not in the sense of patents shapes. Fat fat fat better than sorry. I've got a northern Minnesota an (00:49:05) accident. It's right finer than the are there patterns that suggest some Cosmic shift here. I think there is really one big pattern here. And that is that an entrepreneur was considered the minority person before as I told you my story of growing up becoming an entrepreneur was not the chosen path or the path that most people took now an entrepreneur is a standard job. It is almost a pedestrian job to be an entrepreneur coming in a room and somebody says, I'm an entrepreneur people yawn and that has been very recent and I think that what has happened Beyond Northern California and even extending into Europe. I've been privileged enough to attend the world economic forum for the last few years and watch what's happened in Europe incubators are growing mad there of just hurting in people and saying okay, here are the Cards here. It is to be an entrepreneur and mostly in this case. It is Angel money and other entrepreneurs funding these entrepreneurs. So I think really that the management change here is are a couple things one is how does one assemble a team to run a company that is a pattern of change versus. How does one hire the right CEO and they run it like a benevolent dictatorship with great strategy and everyone said to their feet and learns what to do second flat organizations. This is the biggest challenge that we have when we move people from large corporations into our companies. They've been used to sort of a book report mentality where they've had to petition to get their project funded right a big proposal, you know, support it with PowerPoint presentations and hope somewhere up the ladder it gets approved in the case of these newer companies are very flat organizations. In fact, even the compensation approaches. Drive right to the company goals and no goals are hidden. There's no power that the CFO has that the product manager of doesn't have there is certain responsibilities that the CFO has that the product manager doesn't so I think because of the population growth of these entrepreneurial companies, we will see new patterns of managerial Styles and Company creation arise namely Team Management versus CEO management. And also how do you operate over time with large companies in a flat organization? (00:51:50) Well, unfortunately, we are out of time and when glad thank you so much for joining us today. Great presentation. Now just because we're out of time here on the radio does not mean that this conference is over. In fact, our participants will continue meeting through the afternoon with the goal of coming up with a list of ideas to help Minnesota prosper in age. We'll have a report on the conference results as part of our midday program tomorrow. Matter of fact, we'll be talking with three key Business Leaders tomorrow at 11:00 then over the noon hour tomorrow will rebroadcast all the special reports that we've been featuring this week. Great chance to hear the reporting that you may have missed or at least here at all in one one Fell Swoop all of that coming up tomorrow on our midday program Sarah Mayer produced today's broadcast with help from care a fig and chew our Engineers today where Mark had to Mark Mike DeMark rather and Denis Hansen Len wit is the executive director of Minnesota Public Radio Civic journalism initiative sponsor of today's Summit. Thanks to Ken darling for his assistance. Thanks to all of you here at the summit and thanks to all of you listening on the radio from the University of st. Thomas. I'm Gary eichten. Okay, we're going to move into our afternoon breakout sessions. I'm sure lentil have a couple words of Direction.

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