But Yahoo is not the only company whose board of directors have kept making big mistakes over the past years : among the winners are RIM (Blackberry) and Hewlett Packard, slowly disintegrating into a banal company.

Discover in the great infographic below the 5 worst managed american companies of the last 2 years, and how poor management decision steered them toward trouble !

    To understand this problematic more deeply, we interviewed Kenneth Kaitin, director of the Center for the Study of Drug Development at Tufts University (Boston), an institute that has been analyzing for the past 40 years scientific, economic and legal issues that affect pharmaceutical and biopharmaceutical development.

The government’s initiatives

    Translational research was created in the early 2000’s by initiatives from the federal government. The pharmaceutical academic research was mainly funded by the National Institute of Health, that supported basic research projects. Researchers would look at the fundamental disease mechanisms, but not much money was put into transferring those innovations into efficient drugs. In 2004, the NIH offered, through the “NIH Roadmap for Medical Research”, very large grants to universities that would create research institutes focused on applied research, taking those basic innovations and finding a way to transform them into useable treatments. At the same time, the Food and Drug Administration focused its attention on this growing gap between the academic expertise and innovation capacity and the very little number of new drugs that found their way to the market. The FDA created the “Critical Path Initiative”, that helped create collaborations between public and private research institutes, and produced guides for industries on how to have more efficient drug development, in clinical studies for example.

The industry’s perspective

    While government institutions were starting to foster public/private collaboration, the pharmaceutical industry was seeing its business model go into crisis. The Research and Development strategy – investing colossal, growing amounts of money – was showing a rather small output in terms of marketable innovative drugs. The industry players also had very little access to the academic expertise and to the innovation taking place in the universities. And since a lot of profitable drug patents were set to expire soon, the industry looked to make drastic savings in its expenses. A new model of outsourced research came in place : industries started funding academic research groups, not only for one specific, time-limited project, but for all areas of research or even entire labs. Many pharmaceutical companies, such as Pfizer or Eli Lilly have created collaborative research institutes, where researchers from universities and the industry work together on large innovation thematics.

The new attitude of academia

   The federal government’s investments in research had increased in 2010, due to the Obama 2009 Stimulus plan. But now, with the expected 2012 budget to shrink investments in research, the academic research teams need to look elsewhere for additional fundings. With the industry looking for new partnerships with universities and the NIH offering large grants for translational research centers, a lot of universities have jumped on the opportunity to open such institutes. There are now 60 research centers that were funded by the NIH 2006’s awards, of which the Harvard Catalyst, Tufts’ Clinical and Translational Research Center or the soon-to-be-opened Center for Novel Therapeutics of University of California San Diego are just a few examples. If new projects of translational research are being more and more fostered by universities, the academic world still show some reluctance to these close partnerships. Questions have been raised concerning the overseeing of fundamental research, which is still the main source of innovation, but which has been less funded since trends of higher investments in applied research have appeared. The universities are also concerned about conflicts of interest for researchers working with the industry, and regulations are being locally put in place to make sure that, for example, researchers will be able to publish their results, either positive or negative. Another risk of those important collaborations with the industry is that whole areas of pharmaceutical research might be put aside because of their low industrial output.

    These new translational research centers are less than ten years old. It will take some more time to see this new model’s effects in terms of innovative drugs and treatments and economical results. An important factor of these centers’ viability is their ability to make both industries and universities save on investment, which their first reason for collaboration, and to make public and private researchers with different goals work together.

To read this article in French and find sources and additional information, see : part 1 and part 2.

Out of their study and thanks to the great visualization site visual.ly, an amazing infographic will help clarify key components in the success of a startup, and why failures often come from one of them missing.

The most common reason for failure ? Premature scaling. For the rest, take a look below and don’t forget to read this excellent Techcrunch’s article 

The last study of the World Bank, named “Doing Business 2012“, explores economic, regulatory and structural characteristics of more 183 countries, in order to determine which one facilitate most the pursuing of business activities. Based on a series of more than 20 criteria, the study is thorough enough to be trusted.

And the report reveals that the US are doing pretty well, as hey retain an honorable 4th sport, only beaten by Singapour, Hong Kong and New Zealand. For a country that is often presented as loosing edge on competitiveness, that’s a first response to its critics !

When we actually dig deeper into the report and break down the various criteria, US show some important weaknesses when it comes to factors that influence entrepreneurship :

• The regulations and tax systems are too complicated (US ranks 77/183 on this one) It makes it especially complex for a foreign entrepreneur to get uses to it, especially regarding the various companies status.
• The discrepancies among the quality of infrastructures throughout the country puts a brake on its ability to develop new businesses evenly.
• It is not easy to conduct international exchanges, whether export or import. Multiple red tape problem can occur, delaying the development of companies abroad. A new law envisioning to cut down these procedures din’t make the cut at the US congress in 2011.

Beyond what the report shows, a couple of other problems hinder the US attractiveness for entrepreneurs:

• An unfriendly immigration policy. 50% of VC-backed companies have been founded by immigrants in the US, highlighting the importance of a high level foreign workforce in the country. Still, the US are unable to adopt a significant reform on immigration policy that would integrate this need. In the past 2 years, 3 bills proposals have been rejected by the congress. At the same time, countries such as Canada are going on the opposite direction, and attract a lot of foreign entrepreneurs.
• The lack of a clear innovation policy, compared to countries such as Brasil, India or China. The latter have made clear choices on strategic industries that they want to focus on, and funded and promoted them accordingly. The absence of such policy in the US is a clear disadvantage when it come to attract talents and investments in the country. The federal and state governments are aware of these holes and try to implement small programs or tax reforms to foster the economic development of the country. Unfortunately theses initiatives have a rather limited impact due to restrictions regarding funding.

But let’s stop on the negative edge ! The United States still have unrivaled assets when it comes to entrepreneurship, such as :

• A unique level of private funding for startups. With more than $43 Billions invested in 2011 by Venture Capitalists and Business Angels in new companies, the best new projects have access to the biggest pool of dedicated capital in the world. And the ability to transform startups into multinational firms has been mastered in the country for decades.
• The most dynamics ecosystems on the planet. It’s no secret that the SV, NYC or Boston gather an amazing pool of research, universities, great companies, startups, investors and high level workforce in concentrated areas. These ecosystems are magnets for new companies and have a unique ability to boost the development of the most promising ideas into great companies.
• The presence of supporting structures for entrepreneurs, such as incubators, accelerators, mentoring programs, that are blooming all over the place, and have an impact on startups. As an example, the Masschallenge competition, in Boston, support 125 companies per year since 2010, and these companies have raised over $250M in funding and created more than 500 jobs. What’s that for an impact ?

All of this pros and cons debate allows us to show that judging of the overall attractiveness of a country is really a matter of balancing the right criteria. The US have the most attractive ecosystems in the world, but struggle when it comes to creating a legal and tax frame easily decipherable for foreigners, and also when it comes to branding its unique asset as a country. The US still rank well in the reports, but have not progressed withing the last year. That probably won’t be enough in the next years, buts let’s maintain hope !

Read a french version of this article

The dark side of Venture Capital

On the dark side of the VC topic, the last report of the Kaufman foundation on the “Limited Partners – General Partners*” model has been dropped like a bomb on the VC and entrepreneurship communities. The report alleges that the VC model is completely broken, as most of VC funds are unable to deliver sub-par return on the Limited Partners initial investments. And the foundation, in a very counter-intuitive approach, puts the blame on the Limited Partners themselves, because they are unable to allocate their money into performing funds, have a poor follow-up system to track the performance of their investments, and have interests that are misaligned with those of the VCs themselves ! It’s the first time that the LPs are pointed so openly as the dysfunctional part of the venture capital system.

Until now, VCs had been the one that took the blame, sometimes accused of trying to rip the most money off of some companies instead of actually taking decisions that would foster their long term growth (did I just say Groupon ?). This has been debated a lot, and no data came to support fully one assumption or another.

Whereas in that case the kaufman foundation can rely on fist-handed data: its own results as an LP investor in VC funds ($250M in 20 years). And the result are pretty shocking :

• almost 80% of the funds failed to deliver returns that beat a public market by more than 3 percent annually
• 62 % failed to deliver return that exceed public markets, after fees and carry were paid
• almost 25% of the allocated funds still haven’t been returned to the LPs after more than 10 years, some after 15 years
• only 4 of 30 funds with more than $400M under management provided returns above public market, challenging the power if big funds

These are some of the remarkable conclusions of the report, and they expose the VC system under a completely new spotlight. It especially higlights the poor management of LPs when it comes to allocating asset to Venture Capital funds, thus harming the potential return on investment they can expect.

Limited Partners must change their assumptions about VC firms

So what could be done to change this system ? The Kaufman foundation came up whith clever ideas, some of them having already been proposed by influent members of the VC community. It  urges the LPs to change their approach to Venture Capital, by :

• being more picky when it comes to choosing funds they want to invest in, making the performance of the fund as the primary objective
• reduce their investment in Venture Capital to a limited number of funds, and allocate less money to each of them
• invest themselves directly in a small protfolio of new companies, to avoid the pain of high fees and carry payments
• move some of the money they invest in VC firms to public market, as most of VC funds fail to provide better return than public stock, even with a significantly higher risk

Of course, these measures are targeted only at Limited Partners, and only to improve their return on investment. On the other side, if this is really what must happen for the VC industry to start to be really profitable, these assumptions could be bad news both for the entrepreneurs and the VC firm…

A negative impact on VC firms and entrepreneurs ?

All of this is not really good news for the VC firms, who are already having trouble raising money (only $18B in 2012, the worse number since the 2008 crisis). Even if that would go against their financial interest, a raising number of VCs are advocating for a more concentrated industry, with less cash available but allocated more wisely. Without speculating on a “bubble-or-not-bubble” situation, there is little doubt about the fact that some industries receive a lot of VC money to the detriment of other. This is especially true for web and mobile, cherished by investors for the huge ROI they can provide, but way more fragile as the sustainable value these service offer is hardly measurable and gives way to a lot of speculation. Groupon is a great exemple of this situation, as the company saw its valuation skyrocket very fast, until investors realized thet its business model was deeply flawed.

If LPs start shifting some of their investment to other kind of asset such as public market, hence narrowing down the amount of money available for VC funs, this would have a huge impact on the companies looking for money, that would have to face a much fiercer competition in order to raise funds. On the good side it would eliminate pretty quickly the companies that bring no clear value to the market and would decrease speculative behavior such as the ones we observe in “bubble times”.

But that could also be a catastrophy in some areas that could clearly be seen as under-allocated, like the biotech and clean-tech industries, that are very capital intensive and require long term support to be successful. A shrink of capital would be a very hard it for them.

Will the LPs become aware of the situation and change their behaviour ? It is likely, even though it may not be immediate. When that time comes, entrepreneurs better be ready ofr battle, because they will be the ones to feel the heat ! until then, if you have great companies ideas, run to VC while you can !

 * Limited Partners allocate funds to Venture Capital companies, which is represented by the General Partners, who then allocate and manage the funds. Limited Partners are mostly pension funds or endowments.

Unfortunately for those who don’t speak a second language, most of these great articles are in French ! It can also be a good reason to jump in and learn a new language while improving your knowledge about entrepreneurship !

On the menu this week (in French), a definite 4 stars 3-courses meal :

Appetizer
Why the Silicon Valley is unique ? Interview of Prof. Miller at Stanford University
Author : Camille Rosay, San Francisco

Main Course
The US Government want to play the Venture Capital game : a risky move ?
Author : David Boucard Planel, Boston

Dessert
The entrepreneurial life in Silicon Valley
Author : Sebastien Rouif, San Francisco

We hope you enjoy the reading and most importantly, don’t hesitate to share this article to your entourage !

• the SEC hasn’t provided clear regulations about crowdfunding yet, and may take up to 270 days to do so
• they will only be able to spread the word about their startup’s funding goal on accredited websites

Some experts are even already trashing the new law, saying that the bill passed by the government is a big mistake both for entrepreneurs and people who intend to fund the projects via crowdfunding. The main point of experts is that startup funding is made for professional investors, and that the risks will be underestimated by regular people. More arguments are developed by Daniel Isenberg in his HBR post.

And as if that wasn’t enough, there’s more and more questioning about whether we are in a startup bubble or not. Niche markets are not anymore easy to reach, competitiveness growS significantly in every industry, as the cost of cerating a startup is getting lower every year, especially in IT-related domains. In addition, inspiring stories such as Facebook, Groupon or Zipcar tend to attract more and more aspiring entrepreneurs in the arena, as entrepreneurship is more and more defined as a great career path, as opposed to classic career moves. An excellent article of Venture Beat elaborates on the TOPIC here.

It seems to us that we are more in a classic extension & contraction phase of the number of startups popping in the United States. Small Businesses are the basis of economic growth and job creation, so an increase in the number is a good sign. What matters, though, is the ideas. Entrepreneurs have to focus on projects that bring social and human value to their customers and to the world, in addition to economic prosperity. If this is their goal, then there will never be enough startups in the world !

Nevertheless, some of the ingredients are pretty well known. Among the most importants:

• Successful companies, that set examples for aspiring entrepreneurs, foster scientific research and support entrepreneurship
• High level research, thanks to the presence of institutes such as Stanford, Berkeley, and other well-performing research centers
• A dense pool of specialized investors, VCs and angels, perfectly integrated into the local ecosystems, and ready to fund the best projects
• An incredibly talented network of professionals, constantly interacting, exchanging ideas and accelerating the development of new projects. The magnet effect of the region generates a permanent renewal of the workforce, therefore maintaining a great dynamic
• A unique culture of entrepreneurship, and a startup creation rate 3 to 4 times higher than any other region in the world

Although most of these features could theoretically be duplicated in other region, generating an identical sense of entrepreneurial culture seems impossible. Still, some other ecosystems are performing very well, in the U.S (Boston, New York, Research Triangle Park, etc.) as well as in the world (London, Toronto, Paris, Tel Aviv, Berlin, etc), and needless to say, with very different characteristics than the Valley.

A study conducted with 20 000 startups all over the world, by the company Startup Genome, revealed some wide differences between these ecosystems and the SV :

• While SV entrepreneurs tend to focus on new markets of very wide size (several billions), european entrepreneurs, especially in London, favor markets that are more mature, and can be conquered pretty fast, to sell the company in a short amount of time
• SV entrepreneurs focus twice more on online games or social networks than their NYC counterparts, who are ahed on design and fashion
• SV entrepreneurs tend to have a scientific background, whereas in Europe, founders with business as a primary degree dominate

These facts, beyond blunt analysis, reveal that successful ecosystems rely mainly on their own cultural forces, and pass it on the startups. This is the fundamental teaching of the study, that suggests that duplicating the Californian model is a big mistake.

Of course, no one will argue that Facebook’s impact, especially after its IPO, is gigantic. It will create a new generation of Business Angels who will invest a lot in new companies. But could Facebook have had a similar faith anywhere else ? Marck Zuckerberg already confessed that no, especially last time when he came back to Boston, where he invented Facebook.

By choosing to focus on its cutting-edge R&D facilities and a high quality workforce specialized in design and product dévelopment, the Research Triangle Park, in North Carolina, is still the home of IBM, Lexus or Lenovo. A lot of rising startups, such as AirBnB, come to the region to hire developpers, who are as talented than in the valley, cheaper to hire and more available. That’s how the region tries to keep a competitive edge and prevent a talent-drain toward california.

This example can be a source of inspiration for the creation and development of dynamic entrepreneurial ecosystems. The Silicon Valley’s model, as effective as it is today, may not always be the one to admire. The domination of the web these last years engaged some experts to think that the Valley is creating too much economic value but not enough social and human value through most of its startups. Yet, in a decade or less, these two values may be the most important success factors for new companies, and those that will integrate them most will become dominant players.

Will that be in Silicon Valley or somewhere else ? Polls are open !

The original article, in French, can be found here

Dear readers,

Prof. A. Stevens’ point of view is cristal clear about the Technology Transfer (TT) activities in U.S. universities: they are losing momentum because they are not incentivized. At the university level, they will be remaining very costly and unprofitable. Prof. Stevens however strongly believes the U.S. universities have a critical role in generating innovation through university spin-offs or spin-outs. He puts forward the need for more mentoring programs and more commercialization of translational research.

Prof. Ashley Stevens, as jury member of the new French scheme to centralize TT at the regional level (the so-called “SATTs” or TT accelerating corporations), favors the idea to mutualize TT resources through appropriate governmental incentives.

You can read the 3 full article in French : Part 1: http://www.bulletins-electroniques.com/actualites/069/69453.htm

Part 2 : http://www.bulletins-electroniques.com/actualites/069/69519.htm

Part 3: http://www.bulletins-electroniques.com/actualites/069/69585.htm