Diversity, Innovation, Venture Capital & Emerging Markets


Uploaded by GoogleTechTalks on 23.09.2009

Transcript:
>>Gonzalo: Hi everyone. I'm Gonzalo Begazo. I work in finance and I'm extremely proud
to introduce you this afternoon to Mr. Alberto Yepez, he's a fellow Peruvian.
And Alberto is also, he is the Chairman of HITEC. HITEC is the Hispanic IT Executive
Council and this is a group of executives from leading 500 Fortune Companies that work
in multiple things and all of these guys are basically IT engineers, CIO, type of guys.
And he's the leader of this organization and at the same time he is a venture partner of
Trident Capital.
Alberto also has a lot of experience in entrepreneurship. He got a couple of successful companies that
Alberto sold and also he work in several senior positions at Oracle, as a Senior VP of Security
and also several positions at Apple.
So I'm extremely proud to introduce you, Alberto. Thank you very much for coming and for sharing
your insights on venture capital in the emerging markets, entrepreneurship and innovation.
>>Yepez: Great.
>>Gonzalo: Thank you very much, Alberto.
>>Yepez: Well, thank you.
[applause]
Thank you.
Well good afternoon everyone.
The topic at hand is pretty broad and I don't know how to put the best context and obviously
try to make it relevant to the work that you do.
I'll give you a little bit of a personal experience of how I got here so that, I'm sure you're
all thinking about you're in a great company, playing a very interesting role in what could
happen in the future.
I'll try also to bring the context of how important is diversity which is the theme
and the sponsorship of this, of this event and this talk.
And also what do we mean by innovation? Where does innovation come from? Is innovation only
coming from research?
I'll also talk about, a little bit about the venture world and why it's so important, why
everybody's trying to replicate Silicon Valley around the world; because it's a pretty unique
thing.
Even within the U.S. many, many places like Boston and Austin have been trying to replicate
it and they've done it with mixed success in other places.
And I'll talk about, little bit about efforts that are going on in foreign governments;
in emerging markets where they're trying to do the same.
And then we'll- where have been emerging markets theme?
So by way of introduction, and I think this will become relevant in the talk just to share
a little bit of my own personal experience.
So I was, I was born and raised in Peru. I was an engineer by training, electronic engineering.
And then luck had it and they gave me the scholarship to come to the United States.
They didn't get the chance to pick out the school is was a Jesuit school, so there are
multiple Jesuit universities and there was one in San Francisco, University of San Francisco.
I was completing my electronic engineering degree in Peru and I ended up doing electronic
physics at USF.
But computers were around so I ended up doing computer science and computer engineering.
Within three years I got a triple major, went off for my Master's Degree and Apple came
recruiting on campus.
And when Apple came in they made me, made me an offer. I never finished my Master's.
A lot of, a lot of you say, "Well should I be do, be doing my Master's or not, how important
it is? Should I get an MBA?"
A little bit of context of personal experience this is not a recommendation, but I always
said, "I should try to do that," but I never finish, I never did my Master's thesis, never
got a Master's Degree because the opportunity to work at Apple in 1986 was an amazing opportunity.
It was right after the MacIntosh was introduced, the Lisa was a flop, it was a great machine,
but then the opportunity to be in the center of innovation was tremendous.
So I spent 10 years at Apple and it was every 18 months I had a different role.
And again part of the discussions and the reason you are here, you're interested in
trying to figure out how to do innovation, how much you can take responsibility for your
own career.
Let me, let me tell you something from the outset. You're responsible for your own career.
Sometimes we always blame it on the manager. "Oh the manager doesn't recognize me to do
this or that or the other."
Obviously there's interest; a company has to do, get something done, but you also have
your own career aspirations. So you always need to look for, "How do I diversify my own
experience?" But also, "How do I take the next step?" And sometimes we don't know.
I remember when I came out of college I didn't know what I, what I was gonna do. I ended
up in a networking group at Apple where we had to go develop the network infrastructure
around the world. It was a great project because we needed to integrate voice, data, video
conference, and consolidate a lot of the engineering networks that we had; a lot of the manufacturing
networks that we had.
And it took me places far from Japan to Singapore to Paris, all the places to be able to interconnect.
It was a great time to be learning a lot of different things.
But I remember I always said, "I have this engineering degree," and in my particular
case I wasn't a very good coder. I kind of could, I could program, but I didn't see myself
programming forever.
So what I did was I got more interested in the business, trying to understanding how
I could support business and try to use technology to do that.
So for, fast forwarding at Apple I had the opportunity to move from working in IT, working
in product development, working in international distribution, and ended up running programs,
cross functional programs when we were trying to do object technology.
I remember it was Talogen; it was a lot of different companies.
But all that again was teaching me new skills, expanding my network, and I was getting to
meet a lot of different people, and really tried to understand what the possibilities
were for me.
I was very fortunate and companies like Google as well they always try to identify the people
that are trying to take responsibility for their career and I worked the execu, there
was a leadership program and they hand-picked about 15 of us and they said, "Okay we wanna
send you to school. We want you to do the MBA. We don't want you to take the two years
for MBA, we'll give you an executive MBA, pick where you wanna go."
So at the time, given that I had been in high tech for eight years now I said, "I wanna
go to;" neither coast was an option because two high tech centric. I wanted to go to a
place where it was less high tech centric but also a lot of international business.
So somehow I ended up picking up Kellogg, the Northwestern school in Chicago and that
gave me again yet another perspective. It was, it wasn't, it wasn't by design but it
would have been easy to go to Stanford or easy to go to Harvard or any of the places,
but it was a lot, somewhat I had already had picked up given being working at Apple.
So the Kellogg experience was a tremendous opportunity, but the word network, the Googlers
Hispanic Network, whether they were Hispanic or not, the network, the people that you meet
make a big difference in your career.
And I remember throughout my career I always looked for mentors; people that had a little
bit more of experience than I did and they actually made a difference for me in order
to do that. So you learn and pick up.
And that, do you have a mentor program for your whole career? No you don't. Every time
you go to a different level you tend to associate or work with, sometimes your manager could
be a mentor, but most preferably you need to do it outside the group that you work with
because that gives you a different perspective and motive to do that.
So we're coming now to innovation.
After that time I was implementing things that people would tell me. "We need to do
this, we need to do that. Support this project." Working within R & D programs, a lot of collaboration,
cross collaboration with industry; working with IBM, working with Microsoft, working
with a number of industries.
But not a lot of innovation of my own or trying to create something that could actually change
the fact that I work for somebody.
So around '95 our industries go to different turns, we're enjoying, this is a downturn,
you're not feeling it as much, but this is in the Valley there about, we're experiencing
about 12% unemployment and the reality we're probably 15 or 18; 12% of the people that
are actually claiming a paycheck because they get to do it within a period of time.
So where are these downturns?
But oftentimes in downturns people tend to think about innovation. "What can I do differently?
And even if I have a job then take risks." How do you, how do you move beyond that?
So in that time I got the opportunity to leave, to leave Apple and there were a couple of
guys that said, "Hey, we got some technology from Apple, let's go build these companies."
So we, I worked with them for about eight-nine months and great experience, learned a lot
about myself because sometimes when we're in a big company like Apple, Google, Microsoft,
whatever it is, sometimes we wonder if people wanna talk to us because we're in Google,
we're in Apple or Microsoft, but when you're outside do people even care?
So you need to, you need to build your own confidence that the reason you are here is
because you're good and it is you know what you do and eventually when you get out the
proof is in the pudding.
When you're out by yourself without that infrastructure that you already enjoy, you'll figure out
and you learn a lot of, lot of things about yourself.
I learned a lot when I left Apple that I could sell. I could get people to part with their
money because like in any start up, besides getting capital from venture capitalists you
wanna sell your idea, you wanna sell the product, and you want companies to be able to give
you money for what you do.
That's the biggest test what you're doing has value or not.
So it was a great experience but it lasted, it was, it was short lived because this is
the part of culture and I don't know in your case, but for me it's very important to work
with people I respect and that I enjoy working with.
While it was a great innovative place I didn't necessarily agree to how the company was being
run, right? You give choice to people, people can work hard, but you don't tell 'em, "You
need to come back." People with children and who wanted to work until twelve, one o'clock
in the morning; it's okay if you wanna do it, but forcing people to do that wasn't the
right thing so I said, "I will move on."
So the best way I could do was went back to my former boss at Apple who kinda warned me.
He says, "You are going through a phase, you are going with a group of people that you
may not necessarily wanna be associated with," but I didn't see it, but he kind of warned
me.
But he became the CIO of Cisco. And in Cisco he had a lot of workers when Cisco was a small
company, circa 1995, yeah '95-96. And Cisco was just starting and in spending a lot of
money. So he gave me a consulting job.
So this is the topic of innovation.
So where do you find innovation to happen, right? Either you do it, you come from research
institutions and there's new innovation that is happening in green tech and putting Silicon
into batteries so they can last longer or looking at different ways you have to do different
co-generation, etceter
But another aspect of innovation is when you listen to customers. So in my case we started
with my wife which was interesting. We started a consulting business in the time which the
Internet was just taking off.
Everybody wanted to figure out how to do business with Internet. And at the time there was no
security, no infrastructure, and a lot of what people were asking us to build was, "Can
you create an access control and access framework to manage access to these sites so that my
suppliers can come in and submit orders, or my-, the people the representative can get
the technical support notes to people to support our channel?"
And so we started building these the solution for Cisco. Many departments at Cisco they
networked at the time was a part later for Nortel, Oracle. All those became our customers.
But in listening to the customer two years after the fact we had built effectively what
became something called "access control with access control" and it was this interlinked
management of that.
And we said, "Two years after that we have had already 50 people working in our company"
and we said, "Do we wanna continue to be a services company? Do we wanna become a product
company?"
And so what happened at that time we said, "Well product companies get a better valuation,
maybe we can eventually go public." It was an interesting experience.
So we said, "We gonna leave all of the services business, all the consulting projects." And
we decided to move on and try to create software company.
Luckily we had made our own money and we invested in the business to create the product.
A year later then we have put the right infrastructure to create products, product management. It's
not just coding but you try to do, you need to bring all the commercialization aspects
of getting the product in cleaning, repeatable.
We actually said, "Okay, it seems like," and we sold it to two-three, Prudential, Chubb,
AT&T; so big cust, big customers starting to write real checks for us.
The first, our first customer was a university, was Brigham Young University. They pay us
$70,000 for our software.
But it was interesting that when the big corporations started comin' in, then we said, "We need,
we need VC money, we need to go to venture capital." We didn't know anybody.
And you'll, if you ever go in doing this path you will know that venture capital is an enabler
because they give you money and infrastructure to grow the company, but you all, it's always
important to get introduced by somebody else. It gives you the-, not only the audience where
so you can sell your idea and eventually people could invest money.
So making a long story short, in '97 we raised our first round of financing. We raised 4.5
million dollars. And not only just raised it from here. We actually did a little business
in Japan and actually we got Japanese companies to invest; corporations like Mitsubishi and
large venture funds in Japan.
Because the VC's here in the U.S. wanted to for very little wanted 50% of the company.
We said, "Come on, we already have customers. We have that." So we decided to take the approach
of taking Japanese money, but also work with some VC's here.
Actually Eric was an investor in directing our company. Let's see at the time he was
in Novell he created a venture fund and Novell invested in our second round. He, they lead,
led the second round which was the next year.
We were growing really, really fast so we consumed the four and a half million and we
raised 6 million the next year which was in '98.
In '99 we raised 15 million dollars of equity and then short of going public we raised 42
million dollars.
Because at that time to go public it was fashionable to go and say, "I'm gonna give you equity
before you go public so that when we go public then everybody makes money." It was, it was
the bubble.
And then short of finishing up our investing the 42 million or around, we, within the year
2000 we had wonderful companies as investors. We had Singapore Telecom, we had Italian,
Sweden, we had Fujitsu we've had a lot of companies like Novell and-and others here
the U.S. Accenture was an investor.
So everybody wanted to get into the action because the company was supposed to go successful.
So and at that time we were supposed to be public and another, a public company came
in and said, "Don't be public. We wanna buy the company."
AS a founder and as an entrepreneur one of the worst things you can figure out, "This
is my baby. I'm not gonna let it give to you." But when they, when they offer some interesting
returns, especially to the investors; when you bring investors in it gets a little complicated
because they give money in order to get more money to pay the people that give you the
money to invest.
So at that time while it was an interesting decision, it was a great transaction for everybody.
We sold the company for a billion dollars in April of 2000 and we were set for life.
Didn't necessarily left the company; decided to stay and tried to help the combined company
to do that; it was interesting. The bubble, the market crash eventually had to work with
a combined company; ended up running the combined company for a while. It was a Canadian company;
recruited a new CEO; and went back to the board and in 2001 after a year of being with
them, I left my operating role there and became more of a director.
I was recruited by a firm called Warburg Pincus as an entrepreneur-in-residence. This is the
term entrepreneur-in-residence is somebody who's been in industry that's created business,
that can come into the venture capital group to become an advisor to evaluate investments
and say, "Okay do you think we should be investing here, there."
And eventually they want to interest you so that you can go run the companies that they
invest.
So Warburg Pincus is a venture fund that manages about like 35 billion dollars in investments;
so it's a big one; one of the big ones. I never knew of them. They recruited me out
of the blue and anyway I started working with them.
I remember really well it was September 1st, 2001 and we had big plans to consolidate the
industry, aggregate, create big companies because of the ideas that we thought we could
continue to work on.
But 10 days later the world changed. It was September 11th and the financial markets completely
crashed.
While we still had money to invest, there was a misalignment in terms of expectations.
Since the market crashed the valuations of public companies went down. The valuations
of private companies went down. So nobody wanted to invest so it was a very tough time
in our industry.
Like I said, we have upturns and downturns.
But it turned out that with Warburg we couldn't create a deal. Warburg was well known because
they created BEA. BEA again was another entrepreneur, three entrepreneurs from Sun, Bill, Ed, Scott,
and Alfred Chuang. The BEA and actually Warburg had invested in them and they made multiple
billions of dollars in the return, but they wanted to repeat at BEA but it was not, the
timing wasn't there.
Right after that I was recruited by Bain Capital which is another large venture firm to become
Executive Chairman of one of the companies in New York.
I lived in the Bay area for the last 27 years. I never moved, but I started to commuting
back and forth New York remotely trying to help to manage the company; eventually they
convinced me to become the CEO of this company which was in the identity management in space.
And when I became CEO which was around April of 2003, of course we needed to recruit the
team, complement entrepreneurs. At that time I didn't create it, it was somebody else's
but I had to partner with them to make it, to make it successful.
Very interesting experience and after two years of hard work and labor, Oracle came
around and said, "Look we need this type of technology. We'd love to buy the company."
So again I was involved in another transaction where Oracle paid a significant amount of
money. I sign a non-disclosure so I cannot tell you the price, but it was a great transaction.
In that case my team has stayed at Oracle; everybody's having pretty senior roles; they're
runningsignificant pieces of the company.
But as you see innovation and entrepreneurship often leads to wealth creation or new ideas
and sometimes you think as an entrepreneur you can take it.
There are very few Googles in the world where you can go and take the business and your
vision beyond that.
But a lot of times you see a lot in the news, in the trade news there are companies get
acquired. That doesn't mean they were not successful; actually they were very successful
and because corporate America right now that the market is, the market valuations are going
down it's not invested in R&D.
It's pretty sad, but we're losing our edge in the United States because we cater a lot
of our financial performance based on how much profit do we make and, or we don't lose
money.
Therefore innovation, venture capital, and all that begins to think through that either
you become a successful company, become a public company, you create a lot more solutions
to change the world in a way that you, that whatever you're trying to create or as an
innovative small company you take it to a certain level and there's other companies
that can take it to a different level.
For instance, in the last experience that I had with Oracle, of course we would have
continued to be successful, but within six months Oracle took a business that was less
than 20 million dollars into 200 million dollars because they had the reach, they had the relationships,
they had-automatically we became access to all the Oracle customer base.
So again, an entrepreneurship, a value of creations, has different perspectives and
there's different degrees of success.
They as engineers will wanna create something that a lot of people use and you can say,
"Do you see that?" "I was involved with that." But at the end of the day they also you do
these because you're, you have a paycheck, you're happy, you let you have a family, you
have a family, you wanna have your kids, you wanna send them to college, college is expensive,
and so you have to have the means and-and ways to be able to get to get to that.
So there's a, there's an interesting correlation of why you do innovation and entrepreneurship.
It's not only just to create and create value, but at the end of the day it's also to create
certain level of financial independence. I wouldn't say it's wealth. So that you can
do more things that you like without having to worry about the future.
Anyway, so and now if I start forwarding all this time I, a lot of venture group recruited
me to become a member of their staff and now I'm looking at investing in a number of areas:
green tech, mobile computing, etc.
So that's the context, that's why I'm here to talk to you about it in the context of
Hispanic is I'm originally from Peru and like you I remember we were very eager to figure
out, we looked how in the Valley the Indian community's very supportive of each other,
they created a group. The Asian group also created that and Hispanics we were falling
behind.
So I remember when I was at Apple we created a group was called AHA. It was Apple Hispanic
Association or something like that.
After I left that and have been the first successful company I remember there were a
bunch of Hispanic entrepreneurs that wanted to come together and try to share our ideas,
best practices, introductions to VC's, and we decided to found a group called Hispanic-Net
which was a, it was just a group right now of about three or four thousand Hispanic engineers
primarily that are looking to getting to talk to other people that wanna be able to do start
ups or do innovations and it's actually centered here in the Valley.
After starting that I moved on and very late, as of late I was approached by this group
called HITEC which is primarily executives in Hispanic organizations that really wanted
to say, "Look they see that people talk about the glass ceiling, right? And minorities and
women tend to be never be recognized, they never get into the boardroom, never get to
do the executive roles, and it says, "Wouldn't it be great to come together. We have a lot
of influence, we're, we have people from Proctor & Gamble, we have people from large global
organizations. Let's work, let's network together and let's help each other let's- let's worry
about professional development; executive development; and how do we move forward?"
So all throughout, talk about the network and the concept where you're trying to achieve
the diversity is an edge, it's not an excuse. There's a lot of, a lot of I've been, I never
led with, "Oh I'm Peruvian, I'm Hispanic and you need to let me into Stanford because there's
a quota for diverse students." Never did that.
I know that there's quotas even in certain businesses, even government to do business
with minority companies.
Well that's interesting because it gives chances to, for small businesses trying to grab. I
don't use it as an excuse; use it as an advantage.
The fact that we're diverse we see things differently; we have different culture; we
bring things that sometimes need an environment; it's, you may not see it from that point of
view. You look at just the general demographics here in the United States, the influence of
the Hispanic population, the diversity is made this valley specifically what it is.
Diversity with some of the academia and also the venture capital.
So what I'm saying in the context of diversity I think it's something that you should feel
very, very proud of what you have and the perspective you can bring in and, but please
do not use this as an excuse because you're good enough to do it because for the context
that you have.
So a long introduction, but I think I covered a lot of the salient points so the next few,
two slides will just be reinforcing the theme.
So diversity's important because you have, I guess you care, you bring a global perspective;
you, but I think one of the things about this type of groups in general is that we care
about mentorship, right or sponsorship, right?
I talk about throughout my career how important the role of a mentor is. There are different
stages in your career. You may be in the stage in which you need a net, you need a mentor.
But don't forget that when you get to a point, especially sometimes you're bringing interns
from colleges, they're never, they've never been exposed to these type of cultures. Try
to make an impact whether they stay here or not or they move on, they'll remember.
And mentorship is something that you should always feel privileged to be able to receive,
but also something to give. So never forget and always- always the theme of giving back.
One of the reasons why I decided to join HITEC I said, "Look I'd be willing to help you,
be willing to open my network, be willing to do that and act as a mentor to many of
you, but don't forget to give back. What is your, what is you giving back to your community?"
Gonzalo tells me that the group goes out and works with K through 12 schools and you can
do a number of different things.
One thing that you should try to figure out is how-how to get you connected with the other
groups, the Hispanic groups that are within the, within the Silicon Valley which are very
active and I'm sure we can still make a difference in our community.
But the context of giving back because it's cultural, because we care, is very, very important.
So in summary, that's- that's kind of the perspective on diversity.
I talked about innovation and just tried to make the point: a lot of innovation comes
like with Google different way of doing searches and you can figure out different ways and
you have the 20 percent of time that allows you to think differently and try to, try to
figure out what can I do differently that people can use in there.
At the end of the day you are trying to figure out if it's something that is not being done
and you can do it or its being done in a very inefficient way.
Most of the time government sponsored research gets the universities and lot of interesting
breakthroughs come. So the biggest innovation and step forward tend to comes from research.
So there's no question about it.
But the incremental innovation comes from listening to customers. And I will tell you
that a lot of companies, even companies like Oracle they're not very innovative. They-,
okay you need to automate that, I can do that or I can buy a company that does that. But
Oracle is doing pretty well.
You have companies like Apple on the other end. It was a great innovate, lot of innovation
we hit the wall; we tank at that time, but then refocus and tried to say, "Well, --the
machine it's just the iPod.
So if eventually you start figure ways in which is now, "How can I do things differently
and how can I enable new business models."
I think some of the great things about the iPhone is not just the design, it's a, it's
a network: the app storage, the micropayments, it's the network of developers, and the way
it's changing the world. And the incremental steps they go through the operating system
and the services is making it a very unique different platform.
Of course you have Microsoft, you have here as well the different wireless platform but
again the bottom line: the world continues to be mobile and we wanna be able to have
a lot of information to consume.
So it's either research or it comes from research from universities.
So where do I see, one of the questions they were saying before preparing the talk says,
"Where is venture capital looking for money or where innovation is coming or people looking
for innovation?"
I will tell you that besides the logical ones: health care because of the Obama administration
is taking a big, a big topic and our health care system needs a major rehaul; how inefficient
it is; how much we have to pay for a doctor is just amazing. When you walk into an emergency
room by the time you are done it's like a bill for 20, $30,000 work. They just came
in and gave you an anti-antibiotic or whatever. Bottom line is we need to rehaul that, right?
We need to, it's not that it's innovation may have been done in the devices, but in
the cycle time of processing a patient, in the cycle time of getting the medical records,
in the cycle time that you deal with payment process and insurance that's where you're
gonna see a lot of, I wouldn't say breakthrough innovation, but there's gonna be a lot of
step functions where the country's gonna be able to save a lot of money. And companies
are gonna be able to save a lot of money.
So again, innovation in the, is the context of either you something completely different
out of research, out of, out of academia, or something that you could actually come
out from just simple needs that require efficiency. Therefore expect a lot of innovation in health
care.
Some of the interesting things with health care with mobility, some of the interesting
demos that were done in the Apple developers conference with the iPhone is the fetal monitor
being displayed in an iPhone. Because it wasn't just the operating system with the ability
to bring the signal and create the full integrated environment.
So again, green tech I wanna talk. You know that that's a major focus because we need
to figure out how do, how do we become more efficient in our use of energy.
But in particular something that I can talk a lot about you is cyber security.
I always used to tell people because I've been in venture business, I've been in building
companies, I used to always go to New York because New York had this huge concentration
of financial services, telecommunications company, media companies to go sell stuff.
Where do I go more often than not now? I'm going to Washington, D.C. Why?
When you start talkin' to people at NSA and the CIA our country's at war. Many people
oftentimes we read, we read the paper and we say, "Oh yeah we got attacked by the Koreans
in the Fourth of July and we cannot let it be."
There's not a single day, there's not a single hour when one of our critical infrastructure
sites or- or presence on the Internet is getting attacked. Our, the technology innovation that
it's been in that,
in that area is good enough to deter the attacks, but they're gonna continue to come and the
volumes are gonna continue too, so by definition there's a lot of new thinking about how do
you dealwith cyber terrorism and how can you make the United States and our allies a way
in which we can be more effective in dealing with that?
So while the context of innovation before and security and cyber terrorism has been
more of a defensive move, now we're getting in the offensive.
So we're getting a lot of vectors to determine where the attacks are coming from and these
will be able to immediately respond and target the places that they're actually attacking
us. Therefore if they say, "Look, don't bother me because I'm serious about not only defending
myself, but I'm gonna attack you."
So when you, I cannot, cannot give you a lot of detail but the most innovative start ups
that I've seen in the last six months has been in this whole general area of cyber security,
cyber warfare because it requires a lot of computing power, a lot of thinking of identity,
how you deal with identity. The devices that are comin' in are not the devices where the
attack is being-being conducted; the central command of places there's a lot of infective
machines that may be inside.
There's very funny things they never get to see light but I just got attacked by Goldman
Sacks. This is what I mean. One of the infected machines attacked my business therefore liability
should be going with Goldman Sacks. If I, if I make you lost money or brought your site
down, law says that you if it's something that came from Goldman it must have been Goldman,
but it wasn't.
It's been somebody that connected and started the attacks from companies that are inside
of the U.S. But it's a reality that both start from different places.
So if you're looking for areas where you think it would be interesting to apply a lot of
computer science, principles and just human computing interaction and just psychology,
that's an area that is still is like gaming I would tell you cyber warfare is probably
an area that we will be seeing innovation for the next many years to come.
Because it's a, it's a complex problem; it's a real problem; government is spending a lot
of money. And not only a lot of money in academia but in trying to enable start ups in the area
because what we have is good enough to defend; not to, not to be offensive and try to deter.
So and of course the other innovations that's come in not often from technology, but how
you deliver it. People talk about SaaS, Cloud, you guys deliver a lot of it there, but even
that thinking required to do that. But it wasn't until the computing infrastructure,
the bandwidth, thethe computing power, the storage came cheap that we were able to do
that. People who thought about it. "Oh yeah, what's a mainframe?" Back to the mainframe,
the centralized place, somewhere in the Cloud I didn't know that.
But again it's how all these different innovations come together to enable different models of
computing; different models of consuming information; different models of selling or buying that
type of thing.
That's why you hear a lot about SaaS, a lot of, a lot of focus in Cloud computing infrastructure
and they said today is part of the, one of the cheapest times to start a company because
you can sign up with Amazon and you can have a full computing environment for a thousand
dollars a month, two thousand dollars month, which before a computer would have cost you
that; because they only charge you on the usage of the time and the usage of the storage.
So I think it's you see that innovation again doesn't necessarily just come from research
and ideas, but even business models and delivery mechanisms.
So a little bit about venture capital.
We're in a very interesting time in our industry. It's a tough time because in an essence venture
capital is an agent.
So people wanna give money to a group of people to invest. And those groups are called venture
partnerships. But the people that put the money they expect the money in return. We
like we know you put it in the bank, you get a certain interest respective but in venture
capital it was always the idea of saying, "Can you identify the next Google so that
we can get the returns?"
Because the capital markets have kind of imploded; the valuation of companies has gone down significantly.
The venture capital lives and is, and is successful when they produce returns to the investors
into the venture groups.
And of course how do you make that money when a company either goes public, has liquidity
in the funds that you actually, that you actually invested, or when you, the company gets acquired?
So I think we're gonna see a major shakeup in our, in our industry. I would predict that
probably 30% of venture firms will not exist in the next 18 months or so.
And the reason being is that the limited partners which are the investors in venture groups
are basically saying, "Well I haven't received any money and it has been 10 years since I
give you the money. It's not a liquid investment. Instead I can, I have different asset classes."
For those of you in finance you can invest in different things to diversify your portfolio
and venture is not such an attractive place right now.
But again, we live in cycles and I think there will be an interesting time for the venture
capital community again.
And so what is so unique about venture? Oftentimes you have people with operating backgrounds
like myself they start, listen to some of your ideas and we like that, we will take
the risk, and let's go build the company and besides the money what we bring is a number
of relationships and other people that we know. "Oh I need somebody that's good at that."
"Okay see if you, if you like each other and started helping build a team, etc.
So that's the role of venture capital.
And I think we're very fortunate, especially here in Silicon Valley because we live in
a very special place in the world because many places have been trying to replicate
this model, like I said at the beginning and they have not been successful.
Governments have been very aggressive in putting programs, money, people, hired advisors, assistants.
They haven't been successful.
The magic here is I guess people aren't willing to take risks. They work in big companies,
they grew up, they tend to this is the next stage of learning beyond academia and eventually
you decide to take your own risks and decide to go move on and create that.
So I think that the eco system that we built not only with money, entrepreneurship, the
culture, and I think the just the general infrastructure about even the lawyers, the
accountants, they do understand how to structure this type of company so that when if, when
and if they get to a public stage there's the returns.
So it's pretty unique and I know next- next talk here in this series will be, you will
be talking to Jorge Zavala who's seated in the front. He represents TechBA which is Technology
Business Accelerator.
The government of Mexico has invested a lot of money. It's starting to invest on the start
ups in Mexico to try to access the- the U.S. market. But you don't have that bridge that
can take you there.
So innovation is happening. The problem is how can I create that same infrastructure
system in the Valley so that these companies get to access different, not only the market
but grow to a point in which they can go public or they can get acquired, etc.
So you will get to see, and I'm sure Jorge will give you a lot of detail.
And so in that context I don't think that this is something that is gonna be that important unless you start deciding to-
to start your own company. But in the diagram we have the typically- typical sources of
funds. Venture capital is not often the first place you start; maybe almost the last ones.
The beginning is an idea. You invest your own capital. You start your idea and eventually
once you get that you start with the founders, the friends and family, the friends and family
and fools are the three "F's" usually –
[laughter]
that tend to bet on you.
And then after you get that proven then there's an angel network and again this is another
one of those things about the Valley that is so unique we have a very active angel network.
I'm an active angel and when I see entrepreneurs, I like something, I tend to give money early
on and eventually venture capital comes in and some of them.
I will tell you that majority don't go anywhere, but there's two or three that make it through
and it makes it worth it. This is the--.
And then after the angel or the early stages he comes with traditional venture capital
group that basically is the one that has more formalization of it.
So just to give you a perspective and then there's private equity which we won't talk
about it; nor statistics. Let's move on.
A little bit about emerging markets because I know this was a topic that people wereinterested
in.
So we don't want, sometimes bein' in the Valley is good and bad because we think we own all
of the innovation just because of different dynamics
is created just because of being there.
When you look at the innovation first in
the mobile environment you just need to go to the Nordic countries. You need just to
go to Korea, go to Japan, go to China. It is because theinfrastructure there is newer.
They didn't have the legacy of the United States. They are leaps and bounds beyond-
beyond where we're at.
Skype came out of
the Nordics right? There's a lot of technology that where you see different pockets of areas
in the world just because of the fact that they live, where they live and the infrastructure
is different; innovation is coming through.
So I think the, depends on your interests there's pockets in the world where you will
see innovation coming through.
Right now a lot of the urban design innovation which I don't know how much of you love architecture
and new communities and planned communities. Both India and China are, the governments
of India and China are creating these communities.
I was with a group at Cisco a couple weeks ago and they are building these communities
of the future where the whole place is an automated place; everything is networked;
everything is controlled by- by computers. And this is the model design besides green
technology, besides measuring the consumption, besides turning on all your digital media,
etc., from just the computing power and to be able to access information they're trying
to do it in a scale.
So they're creating very aesthetic architecture, very pleasing environments often outside the
main, the main urban areas.
But I would say that you should just go to some of the communities of the future that
Cisco's building.
I know there's some projects as well where Google is involved, but urban innovation is
happening just because of the necessity, because they have the density of pop-population and
the fact that the middle class is growing in India and in China where you can actually
begin this wealth before we can cater to that but instead of just trying to do it one at
a time.
Why don't you, why doesn't the government partner with technology businesses to change
the way we should be living and just not because this building existed that way and we retrofitted
and put the-the panels on top? Is there a different way where you just build and everything
is already insulated, has the right consumption, to be measured, to be different things?
So again think through that innovation is, can come from anywhere and- and based on your
interest try to figure out what it is you can deal with.
Now specifically in the context of Latin America because some of you come from the environment,
it's interesting because I've been personally involved with several of the initiatives that
have been several countries have been trying to foster innovation.
I will give the example of Chile. Chile has been a very progressive country and because
they have the wealth with the copper they put a tax of every- every ounce of copper
that they sold and they created an innovation fund, a venture fund. It was about 100, 200
million dollars to invest in companies in Chile.
Unfortunately Chile is a small country, doesn't have a lot of maybe the schooling. They make
a big, a big effort to come to the Valley every year. They talk to different people
but you can see how government is proactively trying to create innovation, but it is not
just the money.
People say, "Oh it's, oh we just need to get venture capital; somebody that has the venture
capital to bring it into Chile." It's beyond that; it's the academia, it's the thinking,
the business environment that will allow you to do that.
So they still pretty active try to move forward.
One of the places where I was blown away in terms of innovation and the role of government
was a very small country in Latin America called Uruguay. Uruguay has three million
people total in the country. They have three main industries. They deal with forestry because
they have a lot of wood. They have a lot of horses and- and that's the second one. And
the third one is technology. And there are centers there where they do a lot of development
for wireless applications or mobile applications, a lot more focus than Microsoft.
I was invited by-by the President of Uruguay. It was Oracle, Cicso, IBM, we were three or
four speakers there and it was interesting how government was taking a very proactive
way of creating an industry to help the country. It's a small country; three million people,
but you could see the technology business accelerators, the different places where you
could create.
And then they created some innovative companies. Some of them have been bought orthey've tried
to get to the markets.
Argentina has had a lot of work in call centers and there's a lot of people that are moving
because the talent exists there, but at the same time it's just the role of government
to be able to do that.
I will tell you that even the government in Singapore offers you today even if you, even
to you and me, if we decide to put a center in Singapore, they will pay for 50% of all
of the developers. And you tell them which kind of developer do you need and if they
don't it in the country, they'll recruit it from anywhere in the world.
And they'll do that for the first two years. Why? Because they wanna bring innovation into
Singapore; the government is being very proactive to be able to do that.
I guess the message here is a lot of innovation happens outside the United States; people
wanna come to the United States because we're pretty much the largest IT market consumers
of technology.
The second largest market of consumer of technology is Japan. We always think of Japan as a little
island; second largest aggregate IT market consumer is Japan, even though they've been
going through certain flattening of the market, Japan as an aggregate purchases is second
only to the United States.
Things are changing. China is beginning to evolve and consume a lot of technology. Indian's
coming through, but we always think through the G7, the G8, or we think, "Oh, Europe is
the second largest market." What do you mean Europe? Europe is a, in a loosely capital
association of multiple countries, none of them is having the power of purchase the U.S.,
Japan, and now India and China are coming in very fast to being consumers of that.
So all the time when you also create innovation, it become who I am gonna sell these to and
which are the most important markets to be able to deal with.
Again, think through where the innovation can come from and the role of government to
encourage innovation.
I think that's the last slide that I have.
So I kind of rambled through a lot of topics because there was no general theme, but I
think if there's a –
I guess some departing thoughts this is, we're really lucky. We live in the Valley, site
of Google, you should be working right now, you're talking to, listening to somebody.
I'll tell you a little of your life story, but I also tell you it's possible. Companies
like Google are, to create a company like Google often is the exception not of the rule,
but it's not impossible it's because the environment where you live.
And a lot of it is taking the risk. Take the risk there's, especially here, there's an
environment where rewards the fact that innovation is something that we wanna live and try to
take the United States or just in general, to the next, to the next level. Because most
of innovation came from people that came in to study and decided to stay here.
So I think it's risk taking, the fact that we are the diverse, it's something that you
should value and encourage and network and spend the time, build a network, and you just
be open to the global nature of the opportunities that we have at hand.
And I think you are in a place where that I know the company's very supportive and has
many, multiple programs for you to gain different insights. And again, your career's your responsibility
it's not, it's not the company's. That's something that you need to- to take a proactive role.
Look for mentors; it will not be the same mentor all the time. You'll graduate from
mentor to mentor every two/three years, but there're people that will make a big impact
in your life.
Now we have questions.
>>Gonzalo Begazo: Questions.
>>Alberto Yepez: Any questions?
>>Gonzalo Begazo: Okay.
>>male in audience: [inaudible]
>>Alberto Yepez: I think the question for those of you on the phone is who will, who
do you see be the biggest promoter of that innovation so that not to lose the edge of
the United States, who's responsibility is that? Is that?
I think the responsibility lies everywhere, right? Of course the government has to take
some proactive role, but I think the government does. The U.S. has a lot of, unlike many countries,
we have things that like the Internet that was part of a government research, right?
It was a grant that was given.
We have the NSF, the National Science Foundation. A lot of innovative, innovation you are seeing
in green tech is coming from the Department of Energy, etc.
Right now because we felt that we're falling behind, all these TARP stuff and sometimes
we hear the negative things about how Wall Street is taking this and giving bonuses.
The positive part of all these is the fact that the government is taking a proactive
role to try to get, to get jobs to stay in America. It doesn't mean that everything has
to be staying here, right? We hopefully we're the creators, the designers and you can implement
it anywhere else, right? Because maybe there's bigger scale and maybe more economical ways
of delivering things.
But I think it's a combination of government, it's a combination of education.
I think the biggest risk that we face as a nation is our school systems. Not, I wouldn't
say our higher education. I will tell you it's our K through 12. That area is in big,
big disarray. That's an area that requires more innovation than ever and if we can make
a huge difference it will be that.
'Cause if you say, "Who's the," if you were, if you measure students for proficiency who
do you think are the best students that score in the world? Singapore. Singapore's number
one. They, every year they score number one in math and sometimes China, but Singapore's
consistently there. They don't have innovation. That's why the government is trying to figure
out what to do.
In our place we have some innovation, but our school system especially in the K through
12 environment is pretty, pretty in shambles. And why? You look at, every time you go to
school it says, "We don't have money." Where's all the money going? It's going to the publishers;
67% of the money goes to the book, book publishers.
I don't if you went to school here or not, but I didn't but I had children that actually
did.
If you go to a public school they give you two books: one book for the, for you to stay
and then one for home. Sixty-seven percent of the budget that goes into education goes
to the book publishers.
You guys are changing the world 'cause this whole issue about books, open source, big
time. We need it because the moment we reduce the budget that goes to books that money is
gonna be available for more computing.
And even government even steps in I think the ratio of, in K through 12 of computers
to kids is like one to three. So were, it's not like there are no computers so there's
no Internet. Even the government's paying for that. The big issue is you have all that
but you're, our teachers are not trained.
So I will tell you that besides governmentand what it takes in tryingto drive innovation
in the green technologies and research, I would say that, and I wouldn't say it's government;
the government is supposed to be us.
We all have to take a proactive way in which how can we continue to contribute so that
there our educational systems become more and more effective.
If you see the competition that exists in China and India to get to the top schools
and the amount of money that Chinese parents and Indian parents spend in tutoring so that
they can get into the top schools, it's amazing. Almost 33% of the discretionary spending goes
to tutoring and they move the kids around so that they can get to be the best tutor
so that they can get to- get to the best schools and eventually get to know it.
We are really fortunate. We have a lot of academic institutions and they have tremendous
resources when it comes to higher ed, but when it comes to K through 12 we're facing
a big crisis. We need more vocations for teachers, but again the system has to fundamentally
change just because of where the money's going.
So I gave you a broad view answer. I think our own responsibility, government has a role,
but there's some fundamental things that we need to solve before we can, we can continue
to edge.
And then government, the Congress right now is trying to figure out; there's issues about
H-1B visas. All these are actually around entrepreneurship and innovation.
We, and I know Eric is very, very active in trying to go to Congress and saying, "We need
to get more people that are more capable." The fact of the matter is they come from different
countries; that, it actually makes it better, makes us, it makes us richer in a way, but
government needs to have, take a proactive role.
Does it mean it takes away opportunities from us? Well I tell you don't use diversity or
as an excuse. If you're good, you're good anywhere, right? And you need to stand by
yourself, tall with the innovation that comes from foreign countries.
But I think there is, there is a number of things that we can proactively support and
try to give the government some of the insights of what makes this place a unique place that
it is, to try to replicate it around the world, but fortunate for us that's not been successful
in the, in the other environments so.
Any other questions?
>>male in audience: Yes.[inaudible]
>>Alberto Yepez: Very good question.
So when you talk about emerging markets and innovation and entrepreneurship we don't have
to go that far; Mexico, Canada, or even Peru for what it's worth.
It starts with what you think you're creating. My belief is if you're, if you're building
some, you need to recognize the fact that it's a global market.
And the fact that you start from in one place doesn't mean that that's the place you need
to just stay. If you try to build a business that is only gonna stay within that environment
you're chances for access and your chances to- to succeed are, they become exponentially
less, right? They, you won't have a lot of access. And there you can got to be listed
in a, in a public market in a very small volume of a stock market that may not give you the
returns you want.
But I think in the context of emerging markets what we're seeing in the VC community is getting
very, very interesting. It's going out to those markets to understand who has, who's
solving a global problem and to what degree I can enable that team to be able to access
the global community?
In certain cases, countries do not have the same, even though I was complaining a short
moment about H-1B visas and other things we've been, that we have not been as proactive,
etc. In other countries we don't have the legislation to actually provide a tax incentives
for businesses to be created, and so some specific regions are not only learning that
it's not about money, it's about the role of government; it's the role how can they
provide incentives for people totake those risks.
'Cause I remember if we would have stayed in Peru we would have been working for one
of the probably American companies and luckily we could have become an executive here or
not, but it was probably the best, but from a, from an innovation entrepreneurship we
probably would have been building a mom and pop business. That it would have been a lifestyle;
would make good money; live well, but that's it, right?
So I think it's a combination of things. It's a combination of things and I think it- the
successful emerging market entrepreneur will be the one that recognizes that the world
is a market. It is not the market or the region where you're building it.
And I think more and more just because we're getting interconnected and information is
being shared we'll see more of that innovation come.
>>male in audience: [inaudible]
>>Alberto Yepez: Yeah.
So there's many, many examples where you start in a specific markets and you get to your
access locally. But our stock markets do a lot of dual listings to do that.
And even in the U.S. I will tell you like Oracle went public in Japan again.
Yeah because they wanted to get into the Japanese market and they said Yahoo did, went public
in Japan again.
There were a few exceptions but it's not only one way; it goes the other. So you wanna access
the market. You incent local investors; they do that; you get listed; eventually you move
on.
And you're right so in the context of innovation you could actually, you should shoot the world
for be in the market and try to why not be listed on the New York Stock Exchange, the
NASDAQ, or- or if for what it's worth if Canada is giving you more incentives than the TSX
why not do that and eventually come and then access the rest of the North American market,
absolutely.
Any other questions?
>>Alberto Yepez: Yes.
>>male in audience: [inaudible]
>>Alberto Yepez: Yes.
>>male in audience: [inaudible]
>>Alberto Yepez: It's specifically in Peru no, but what his name, Jorge is gonna tell
you next time in a month from now whenever the talk is, the government of Mexico has
given him money and it's called a, it's like a- a business accelerator.
They only, it's a great deal. I think you pay $5000 and they give you access to consultants;
they give you access to office space, Internet access; they give you business plan, templates;
they give you everything.
And the idea is that for the Mexican entrepreneur not everybody gets, there's lot of applicants,
very few get through, but it's this wide incubator concept where you begin launching into your
business.
So many governments are taking that proactive road.
So a way for you to learn would be to get engaged and involved. They would love to be
working or talking to a Google engineer or a Google something to see how can you collaborate.
You can learn from that. That's only one example.
There are several of those that exist here in the Valley. Japan has several incubators
here. Singapore has incubators here in the Valley.
Unfortunately the ones, Peru and all this is still not- not there yet, but there's a
number of those.
And actually there is a group here called Wide Incubator here as well. There's a number
of those that exist and not only just here in the Valley in multiple places.
If you are interested give me your card, I'll try to forward you a couple of those and I
think Jorge would be actually good resource for you when it comes to figure out how they
are tryin' to bring technology companies from the Mexican market into the U.S. market and
he has to provide all that infrastructure all the way from how do you do a business
plan, how do you do a marketing plan, how do you recruit directors, how do you sell
your stuff, how do you set up a strategic relationship so that you don't have to be
the one spending the money and selling, but another company will be the one reselling
your products, etc.
So I think your talk will be something that people would look forward to.
>>Gonzalo Begazo: [inaudible]
>>Alberto Yepez: Yeah.
>>Gonzalo Begazo: Yeah just, Jorge zavala is there. Jorge's gonna be with us on September
18th talking about Mexican start ups and TechBA.
So thank you very much, Alberto for being here with us.
[applause]
It was a great talk.
[techno music playing]