Back to work!
I can’t believe the last couple of months have gone by so fast! Of all the summer internship offers that I was extended, I ultimately decided to come to Dallas, TX and work for Celanese Corporation—a Fortune 500 multinational chemical company—as a part of the Celanese Leadership Program. The internship is meant to give us an inside look into the full-time rotational program which consists of three year-long rotations within finance and commercial functions of the company.
So far I have very much enjoyed my time with the company. For the last month I have been working in Investor Relations. It has been a great opportunity to learn a lot about the company from an enterprise perspective and to see how each of our portfolio business fits together into the overall strategy of the company. I have been privileged to get involved with projects that run the gamut of experiences, from analyzing our place in the minds of investors compared to our competitors (and the overall market), to the formulation of a communications strategy as the enterprise shifts to a more differentiated position in the market, to the preparation of presentation materials outlining our plans for continued growth in China (where Celanese has a large presence) and the rest of Asia.
For me these projects have been exciting because I’ve been able to creatively apply the tools I developed during the first year of business school to real issues within the company. I have meta lot of great people in different functions across the company. One of my favorite things about the internship is our “passport” program where we are given the opportunity to sit down with many of the company’s top executives and spend time learning from their experience inside and outside the company as they reflect on their careers. So far I have found this to be a great opportunity to learn about the company from different angles, and the executives have been very candid about what they feel are strengths and challenges for the company moving forward. At the end of the day, my purpose is to gather as much information about the company as I can in order to make an educated decision about whether I want to come back full-time after I graduate from Darden. So far, so good!
No bailouts here
This past Wed & Thurs the entire first-year class descended on the auto industry. Each learning team group was assigned to take charge of an auto manufacturer’s financial, operational, and marketing strategies for the next seven years. We were tasked with evaluating the current position of each company in respect to overall economic conditions, the different market segments for automobiles, and its competitors. All of the major auto manufacturers participated in letting us run their companies—from the large market leaders with vast dealer coverage and successful models, to the innovative niche players, to the luxury manufacturers. I guess the government thought that they had nothing to lose?
Well, luckily for us (and possibly the auto manufacturers) the “government” I speak of was actually the StratSim World HQ (conveniently located in classroom 130 on the Darden campus) and not the United States federal government. The auto manufacturers, of course, are not the GM’s, Ford’s, BMW’s, etc. that you might be familiar with, but the ever so famous—in the world of StratSim at least—Amazing Cars, BMW (Best Motor Works), Driven Motors, and others. While many of us would jump at the chance to try and turn-around some of the troubled automakers (especially my classmates in the Darden Turnaround & Restructuring Club) I doubt that really any of us could say at this point that we would feel completely comfortable with all of the responsibility that would come along with such an opportunity… maybe after we finish second-year though.
This simulation was very entertaining and educational. It was fun to work together with my learning team as we strategized how to finance our desired growth, which prototypes to bring to market, which markets to target, how determine and reach our desired customer base, and how to best return value to our shareholders. Overall, it was a great simulation and we learned about many different aspects of managing corporate strategy. Our company Best Motor Works (BMW) was the leader of the economy car segment and had players in the family and truck segments. While we inherited a poor financial situation, we were able to successfully recapitalize the business and push forward with planned expansion. In the end we were able to generate $6.5B in net cumulative income and dramatically increase the market capitalization of our company by upgrading and repositioning our models so that they reflected the needs of their respective market segments.
Two weeks ago at a dinner in San Francisco put on by Finance4Founders, Venture Hacks blogger (and serial entrepreneur) Naval Ravikant spoke to entrepreneurs about how they should approach fundings (via VentureBeat).
He gives some great insights into the funding process that all current and prospective entrepreneurs should read, whether they need funding now or not—besides, how often do entrepreneurs not need money? ;-)
My favorites are numbers 3 & 6. Number three is very true; the more you swallow your pride and go out looking for help, the more opportunities for growth (and funding) you will run into. Being stealthy is important, but don’t be so worried about people stealing your big idea that you close yourself off from the people that can truly help you succeed. I also agree with number six—though the title is a little misleading—sometimes entrepreneurs get so wrapped up in trying to explain the minutae of what they are doing and how each concepts leads into the next, that potential investors end up bored and confused. Show that you’ve done your homework and clearly articulate the vision you have for your company; don’t leave any huge gaps in logic, but let your potential investors fill in the small gaps they are interested in during Q&A.
As a follow-up to my last post Silicon Valley still matters, I have posted below a portion of an article by Valley entrepreneur and finacier Georges van Hoegaerden. I believe it to be a spot on assessment of the past decade of venture invesment, and I share his views on how venture will need to “behave” in order to rebound. As I alluded to in my previous post, venture will need to get back to its roots and invest in truly innovative business opportunities where the technologies and market approaches represent a fresh approach with genuine promise. Venture investments have always been risky, but the potential payout has traditionally been worth that risk—not so with VC investments generally over the past decade.
The systematic risk of venture capital
As a result of a lack of meaningful segmentation and guard rails by many me-too VC funds, LPs have actually invested deep rather than wide in information technology (as the included chart points out). For the last nine years that has created a massive number of false positives and false negatives and a continued downward spiral that attracts only entrepreneurs that comply with this risk-deflated investment mold, rather than attract entrepreneurs with truly disruptive ideas (that hold their value in any economy). So, for the last 9 years LPs have invested deep in a risk-averse technology sector while they expected their 10-15% venture share of total allocations to be applied to the inverse.
Many LPs are ready to cut all but their top quartile VC funds from their portfolio by flushing them through (i.e. letting them run their course without re-upping new commitments). That means over the next 5 years we are going to see many VC firms disappear, some replaced with new VC firms with more relevant entrepreneurial pedigree and investment models that are as unique as the strategies of the entrepreneurs.
New regulations by the government and tougher practices by LPs will make our industry more transparent and aim to create a platform in which the old aristocratic VC model will be replaced by a model that supports a meritocracy at every level of the investment pyramid. That is a fantastic development for entrepreneurs and VCs who are attracted by - and deserve - the merit.
Big stakes, big returns, fewer players, better innovation
LPs expect bigger returns (before larger commitments) from their allocation in venture and the only way to get it is to deploy risk. VC is designed to be the intermediary between the LP and the entrepreneur to mitigate that risk for LPs. Yet because of the aforementioned commoditization of VC investment strategies the VC model has failed to produce.
With LPs retrenching (to perhaps another asset class), the VC firm that wants to survive better articulate a clearly differentiated investment strategy with new GPs that can recognize and attract more disruptive (and sustainable) innovation, knows how to commit and helps make its portfolio companies work.
A new day
To create better returns for LPs, VCs need to rethink how to pick better companies with more disruptive (and sustainable) innovation and invest in upside rather than downside. The smart entrepreneurs are out there (we talk to them), waiting patiently for the right investment climate to light up their flame. Remember, great innovation can afford to be patient.
Many web applications that we know and love today are successful because they executed well.
• They rapidly iterated their product and design
• They knew the right verticals to attack first and what the best guerilla marketing strategy was
• They ultimately acquired customers cheaper, retained them longer and milked more dollars out of them
They didn’t win because their technology was necessarily superior, but because they out-executed the competition.”
Scott Shapiro, Momentum Venture Management
Comment by Jack: I agree with what Scott says here, execution is just as important (if not more important) than your technological edge. This is relevant in almost any industry; one company may have the better product, but they can still lose due to flawed execution (think Betamax).