Michael Spindler reviews the venture capital portfolio

A few anecdotes

As usual, let me begin with an anecdote (or two).

In 1972, I covered the university and R&D market for DEC in Germany, and as a sales guy, I visited a lab at MIT. The guy there was into robotics. I showed some interest in his application, since I had a similar project going on at one of my university accounts. It turned out that the MIT guy had four times more computer resources for the exact same task than his counterpart in Germany. This event – for the first time – told me how computer and technology crazy the US is.

And, consider another example: the Russian vs the American base rocket technology. For a long time, the Russians launched much larger payloads with a much simpler yet more powerful rocket booster technology.

Long before the Internet became ‘popular’ we did real networking in Europe. Probably more so than in the US. Yes, the Europeans did not invent Ethernet et al, but packet switching technology was invented in Europe, and the 1977 TRANSPAC in France became the underpinning to the Minitel, the forerunner to the US Internet.

The PC LAN technology in the 1980’s was equally used in Europe and the US. Ironically, 3COM had a much larger business in Europe than in the US. The experimentation with hypertext and language was equally pronounced in Europe and the US. The difference towards today’s Internet was that the university environment in Europe further developed real networking (CERN laid the ground for the ‘www’), while the University of Illinois fiddled with Mosaic, the forerunner of commercial browsers.

From that point onwards, the US accelerated in the commercialization of Netscape’s browser and the appearance of web app development tools. The kids jumped on the bandwagon developing stuff they liked ‘for themselves’ pretty much like the original Macintosh stuff. It wasn’t all useful but hugely ‘popular’.

Lessons learned

So history has repeated itself (again): the same excessive behavior pushing technology at all cost and risks without any holistic view on what and how much makes sense and where it is headed.

The result: huge redundancies (e.g. 50 online petstores) and huge inefficiencies.

Now the shit hits the fan. The same guys (Wall Street, pundits, media) who pushed it up (and benefited nicely) now are pushing it down. Isn’t it ironic to see massive layoffs in this ‘new economy’?

The rattling of the stock market has a profound long term impact. Look at the telecom stocks! Besides the dismal performances of France Telecom, BT and AT&T, most of building of infrastructure is done with debt financing. So if Greenspan raises interest rates further, they get knocked down even further. In this downward spiral, the secondary players and suppliers get knocked down, because their growth is questioned.

I always questioned Cisco’s model to debt finance with a growing stock price. Very little dilution. I guess that game is over, and their acquisition spree is slowing (What happens to SAN Valley??) I guess the infrastructure players (optical, wireless et al) are all affected, so are the builders of the land and space. It ripples down all the way to the enablers and application layers.

Upstart Capital’s investment strategy

I guess Aymerik’s tactics for Innovacom – more by default of the policy – worked out and paid out largely due to the FT pedigree label he could bring to the party. We don’t have that luxury with Upstart Capital. So while I like to put a smaller amount leveraged over a larger number of players, I doubt whether we get invited much at that level. I agree that necessity drives away the original edict of ‘being the lead’.

In our current deals, we are in with larger amounts, and that’s water under the bridge. I suppose we can find co-investors for future rounds in SAN Valley, VocaLoca and NetActive. I am not at all certain we can do this with Zmarket. We may have jumped at this too early because we wanted a B2B deal. 20/20 hindsight! Investing in European guys is alright – I just believe that is easier with people from the west (Fotowire) than from the east (Zmarket).

P.S. I will check e-mail starting tomorrow morning (local time). You guys can reach me on my portable; it’s on all the time!!!!


Source: Michael Spindler