Miscellaneous Stories 2000-01

Stories that earlier appeared in Nelson's News 
Note 1: Carl Nelson Consulting, Inc is not an investment adviser and may hold a financial interest or client relationship in companies discussed.
(Note 2: Carl Nelson Consulting does not endorse these companies or organizations or their activities.) 
Looking for other older stories? Visit the archives


900 to 23 to 5 In just 2 and a half years In-Q-Tel has reviewed 900 business plans, funded 23 companies and R&D projects, and introduced five technologies. .. But since Sept 11, In-Q-Tel has had to field the question that has pestered the entire US intelligence community: why didn't we know? [Justin Hibbard, The Red Herring, Dec 01] As Congress finds scapegoats in the Executive Branch, at least In-Q-Tel can honestly say that is doing its small part to remedy whatever technology shortage might have been to blame for CIA's doing things its established way. The bureaucratic barriers cannot be overcome by any degree of technology innovation.

Suppose we are in a raft, drifting toward a waterfall. To avoid a calamity, we must address two questions: How far is the waterfall? And when should we get out of the water? We deal with these questions in radically different ways. The first can be answered with the methods of science. The second (a matter of policy) is far more difficult. It has a multitude of possible answers, none entirely satisfactory to everyone, and it requires compromises among the different values of different people. George Philander [Science, Dec 7] reviews the Miller and Edwards collection of essays Charging the Atmosphere (MIT Press) on why global warming is so controversial.

The idea behind Big Blue's new Emerging Business Group is to offer small startup firms access to IBM's extensive research in information technology. In return, IBM may get a small amount of cash or equity, but the main point is to encourage the smaller firms to build their own new technologies on top of IBM software and services. [Wade Roush, MIT Technology Review, Dec01]

Technology operating margins are at their worst in 20 years. Not surprisingly, technology earnings fell 60 per cent this year. ... At the risk of sounding pessimistic, once fund managers draw a line under 2001 and start looking forward to 2002, they may well see that the fundamentals for the technology industry just do not support current valuations. [Paul Abrahams, Financial Times, Dec 23]

January 18: Larta Lunchtime Book Talk: Co-sponsored with the Harvard Club of Southern California, Andrei Cherny will discuss The Next Deal: The Future of Public Life in the Information Age. Released in 2001, it became one of the top-selling political books in the nation. The Next Deal lays out a vision for the role of government in the 21st century that meets the demands of the new economy and reflects the outlook of today’s citizens. The Los Angeles Times praised the book as almost visionary in scope. [larta Dec 21]

Overwhelmed, underappreciated, overexpectant, underdone--2001 was a year of dramatic extremes. Here's an overview of some of the trends and strategies that flew high or flamed out
Most overrated management skill: Vision
Most underrated management skill: Communication
Overrated management challenge: IT skills shortage
Underrated management challenge: Keeping top performers happy
Overrated telecom service: Broadband
Underrated telecom service: Dial-up
Overrated collaboration tool: Videoconferencing
Underrated collaboration tool: E-mail
Overrated IT strategy: Wireless
Underrated IT strategy: Security
[[informationweek.com, Dec17]

The Association of University Technology Managers (AUTM) estimates more than $40B in academic tech transfer in FY 1999 went toward the U.S. economy, supporting 270,000 jobs. Should this trend continue, AUTM suggests the U.S. will see a "maturing portfolio (in 1999) of over 18,000 license agreements" yield hundreds of new product introductions and new companies. To view An Assessment of Technology Transfer at Michigan’s Public Universities, visit MEDC, enter Business Services and click on MEDC Publications under Features. [SSTI, Dec 14] Caution: use any statistics with respect. Both the academics and the government have a vested interest in a large and provable tech transfer

Both AMD and Intel unveiled designs for future transistors a mere 15 nanometers wide at the internal switch, or "gate." STMicroelectronics was a close runner-up, at 16 nm. That's less than a fourth the size of the smallest switches now produced. These teensy critters should hit the market around 2009 on microprocessors containing more than a billion transistors--a twentyfold increase--and switch at terahertz speeds, or trillions of times a second. Intel grabbed headlines last month by claiming its 15-nm transistor could switch at a record 2.6 THz. But AMD boasted at IEDM that its version can hit 3.3 THz, or 30 times faster than today's hottest devices. How much faster can transistors go? A lot, according to IBM : not just a few terahertz, but perhaps as much as 30 THz. Researchers predict that by around 2016, switches will shrivel to 9 nm, then hit physical limits. Beyond that, transistors can get no smaller, because they will contain only about 30 silicon atoms. But at IEDM, Big Blue uncorked a concept that it believes may circumvent that limit: transistors that have stacked gates. These may go on racking up higher speeds into the 2020s. [Business Week, Dec 17]

the excitement is premature. While a bottom may be at hand, it's too early to predict when the engine that powered the 1990s boom will be ready to start chugging again. The tech sector is still only using 61% of its manufacturing capacity. Until a major corporate buying spree kicks in enough to push utilization up to 80% and above, profits will remain anemic. Don't expect those factories to fill up anytime soon. Info-tech spending increases of 9.4% in 1999 and 11.1% in 2000 were fueled by a rare combination of Internet hoopla, worries over Y2K, and unparalleled economic growth. But tech spending is expected to contract by 3% this year and only grow 4% next, according to market researcher IDC. [Business Week, Dec 17]

Lose the Mumbo Jumbo. Want to improve your chances of raising start-up money, generating increased sales or building more profitable partnerships? Then lose the mumbo jumbo from your vocabulary. That's right, try something new and incredibly innovative: plain, straightforward English. The ability to speak and write concisely and clearly is fast becoming a competitive advantage for businesses of all sizes. Articulating clearly what a business is and what kinds of goods or services it sells helps the bottom-line. Potential customers or clients appreciate -- even demand -- clear and meaningful information. This is particularly true in the technology industry. One of the key reasons why many tech companies have failed is because they used so much mumbo jumbo that no one understood what they did -- or wanted to take the time to learn more. [Neil Anderson, Chicago Tribune, Sep 10] Anderson's advice applies to SBIR proposals. Government reviewers are not impressed by proposals written like scientific papers. They are looking for the kernel of the idea from which they can judge quickly whether it the answer to their dream or just another competent scientist/engineer.

Economic growth depends on the ability of companies to do existing tasks more efficiently and the willingness of entrepreneurs to create innovative businesses and products. There is no sign that that process has stopped or even slowed. The number of patents being granted is running at an all-time high, and despite the woes of dot-coms, venture capital firms were still investing at a $30B annual rate in the third quarter of 2001. That's way ahead of any year except 1999 and 2000. The forces pushing innovation argue for growth to accelerate over the next few years as new companies form and new ideas come to market. But the next expansion will likely have a different character than the last one. Information technology will probably never regain the accelerated growth of the 1990s. Instead, there are early signs that innovation in biotech and health care will fuel the next period of growth. [Michael Mandel, Business Week, Dec 10]

Productivity gains can come only if businessmen will take risks. And risk-taking brings with it inevitable failures. Bankruptcy laws that provide no second chance therefore cut into the rate of innovation by discouraging risk. Only in America is it safe to joke that any businessman who has not gone bankrupt at least once by the age of 30 is a failure. [Irwin Stelzer, The Sunday Times, Dec 16] Government might also take risks in seed-funding productivity gains from new technology. In principle, SBIR could do that; in practice, the government has no such objective.

Change Can Hurt. The remnants of Edwardian confidence and Victorian religious faith were losing their power to influence the British people. Routine, tradition, amd unchanging aurroundings keep habits and ways of thought alive. Disruption, demolition, novelty and innovation destroy custom and certainty. For the very young, the ambitious and especially for those whose deep desires are frustrated by the invisible chains of an ordered society, change is always healthy and good and desirable. But for the those with painfully earned skills, for those who seek security in an ordered way of life, change is a mixed curse, bringing confusion and even fear along with novelty and freshness. Whether the British people liked it or not, they were destined to spend the next three decades dancing and twitching and leaping to the beat of rapid and unstoppable change, a beat that was to grow faster and wilder with each passing year. [Peter Hitchins, The Abolition of Britain, Encounter Books, 2000]

In September nearly 39 million people patronized the Great Virtual Mall. That's up 25% over the same month last year. Since the first anthrax case erupted, there has been a 20% increase in people paying bills electronically, according to Gartner analysts. Here's a safe prediction: Most of the first-timers, having experienced the convenience of paying bills online, will stay online. ... grass will grow in the parking lots of malls. That was hype. New technologies usually supplement rather than supplant older technologies. TV didn't crush radio. Airplanes didn't put trucks and railroads out of business. ... We have been through technology revolutions many times before and always with the same result: Overexuberance breeds overinvestment. Go back no farther than the late 1960s when pre-PC computers were transforming business and society. Think of the pioneering companies: Digital Equipment, Data General, Control Data, Sperry Rand, RCA. All gone or swallowed up. ... Technology eventually becomes a commodity and its benefits get diffused through the economy to the ultimate benefit of consumers and business in general. It spurs innovation in the older industries. It was that way with movable type, steam engines, railroads, autos, TV, computers-and now with the Internet. Change creates wealth, but change also destroys wealth. As much money was lost in pursuit of the "next Intel" as was made by early investors in the real Intel. [James W. Michaels, Forbes Best of the Web, Winter 01]

The pocket calculator. The light-emitting diode. The inkjet printer. If the scientists of Hewlett-Packard Laboratories never invent another product, they could gracefully retire knowing that they had hit the innovation trifecta: The three products have touched the lives of millions of people while making billions of dollars for Hewlett-Packard. But as the famous HP research center celebrates its 35th anniversary on Tuesday, its biggest challenges may lie ahead. CEO Carly Fiorina is banking that HP Labs will come through again with dramatic breakthroughs that will propel the company's earnings. [CHRIS O'BRIEN, San Jose Mercury News, Nov 26] What Carly Fiorina is doing for HP, Ron Kadish is doing to BMDO - convert an innovation driven winner into a conventional commodity vendor.

Henry Norr (San Francisco Chronicle, Nov 16) says Andy Grove's autobiography Swimming Across is a a treat for anyone. Although Tom Brokaw writes that the book "should be required reading in schools." I'm not prepared to go that far, considering all the other important books our kids don't get to read because our schools no longer allow anything but drilling for standardized tests. Read the Thoughts of Chairman Andy Grove direct from the Hungarian genius of Intel.

Sell? an Energy Stock? As we fight Middle East wars for control of the oil supply, alternate energy means draw boos from brokers. Ruth Simon's Wall Street Journal piece (Nov 23) notes that Beacon Power a spinoff of SatCon, took the hit when a broker took a dim view of Beacon's shifting emphasis from low power flywheels to high power, saying it was just looking for a product to sell. Beacon's self-description founded by SatCon to commercialize flywheel energy storage. Beacon Power has an exclusive, paid-up, worldwide, license to use SatCon’s flywheel technologies and patents for terrestrial flywheel applications. In the summer of 1997, SatCon’s Energy Systems Division was spun off to form Beacon Power Corporation. William Stanton, Joseph Saliba, and Richard Hockney as the key employees of that division became the initial management of Beacon. Beacon became a separate operating entity in 1998.. Now Beacon's price is a buck, down 90% since winter 2001. Hockney was a Principal Investigator in SatCon's mid-80s days when it got BMDO SBIR for magnetic bearings for flywheels power support on space weapons.

The Price of Power Wind turbines, however ugly on the skyline in Western Pennsylvania and California, make power for 5-7 cents per KWH. Solar is 18-20 cents, and good old fossil fuel is 4-6 cents regardless of what you pay your local power company. But the alternatives are rising, especially outside the US, to the tune of $10-15Trillion expected to be invested in the next 20 years. [facts from Leo Bruno, Red Herring, Nov 01]

A Note of Credit This newsletter frequently quotes The Red Herring, an excellent source of news in start-up finance. One author of a lot of that material hasn't gotten enough credit for having dug up and written the excellent material. Thanks to Larry Aragon for telling us what's what in the murky world of high tech start-ups, especially in info-tech. For a regular and full dose, visit The Red Herring.

Products, Not Hype. Sexy doesn't sell anymore--not if you're a technology company surviving on venture capital and not if you were going to develop the next biggest or fastest gadget in high-tech. Venture capitalists today are pressuring the companies into which they have poured millions of dollars to get a product to market and start bringing in revenue now--even if the product is not quite the lofty promise the technology held 18 months before. [Tom Witkowski, Boston Business Journal, Nov 19]

Great Stuff, Composites, Maybe. A modern material that has replaced metal in many aircraft structures has become a central focus of the probe into the crash of American Airlines Flight 587, raising questions about possible problems in hundreds of other jets. The material, used in the tail fin that broke away from Flight 587, is a composite made of many layers of carbon fibers embedded in a special resin and molded together under heat and pressure. However, the material can develop internal flaws, causing it to weaken and come apart. On Friday, the Federal Aviation Administration ordered emergency inspections of about 140 Airbus jets with a similar tail fin and rudder construction, saying "a potential unsafe condition may exist." Aviation industry experts say that even if a failure of the composite material is found to have contributed to Monday's disaster, they do not expect the widening use of composites to come to a halt. However, "we may have to do a better job of maintaining these parts of the aircraft and inspect composite-type material more closely," said Lee Dickinson, an engineer and failure analysis consultant. [LA Times, Nov 17]

How to Pitch Your Dream. Optimists buy businesses, realists invest in them. That's one piece of wisdom no aspiring entrepreneur can ever afford to forget
Q: I'm looking at purchasing a small business and need investors to help with about $200,000 in return for equity. What are the best ways to present the deal and demonstrate that they will get a return on their investment? -- D.T., Houston
A: Investors want to minimize their risk and get a sizeable return on the money they invest in a venture. They will want to see proof the business is stable and has good potential. Experts say you'll need a realistic and credible business plan to present to potential investors. The plan should be brief and modest and include a history of the business, a biography of the owner, recent financial data (including tax returns and growth forecasts for the next 18 months or so), and a short description of the team that will be running the business after the sale. "Investors want to know the price of the business and the adjusted net earnings [profits plus owner's salary and perqs, less the cost of a manager] that the business produces," says Gene Pepper of Alliance Business Consultants in Glendale, Calif.
[Business Week online, Nov 17]

Big Labs Do Great Innovation, Too. Motorola will form a new subsidiary to commercialize the breakthrough semiconductor technology developed at a Tempe research lab. But the subsidiary will have its headquarters in Austin, to the dismay of business leaders hoping to boost high tech's presence in Arizona. ... The new subsidiary has a sizable patent portfolio, and Motorola's unusual step of setting it up on its own indicates that it plans to do a lot of licensing instead of traditional manufacturing, ... Motorola announced in September that researchers at its Physical Science Research Labs had combined silicon with gallium arsenide to create a less-expensive semiconductor that can run up to 35 times faster than current chips. [Jane Larson, The Arizona Republic, Nov. 16, 2001]

Why Aren't Industries So Interested?. We are in the longest manufacturing decline since the Great Depression and the largest drop in consumer prices since March 1986.

Top Ten Trends for 2002 The Red Herring list of what to watch:
1. Data Centers: truly distributed computing.
2. Military: pilotless aircraft and face-recognizers
3. Nanotechnology: to win big, think small 4. Wireless: think mobile virtual network operator
5. M&A: buying techs at discount; 6. Regulatory Power: Europe stunts global 7. Renewable Energy: again the wave of the future (one projected winner: AstroPower)
8. Neruogenomics: drugs for your brain
9. Computing Devices: cheaper, faster, smaller
10. Digital Media Networks.

Ouch, fell off my pedestal. The Red Herring reports that Don Scifres suffered a fate like a lot of tech CEOs - a huge loss of value in the tech wreck. On the 2000 Forbes list of the rich, Scifres was #218 at $1.3B, and the Pans of E-Tek were numbers 143 and 150. This year only one photonics guy is on the list of the choice 400.

Tech strategist Laura Conigliaro of Goldman Sachs & Co. says telecom customers, who account for 24% of tech spending, will slash capital expenditures at least 20% next year. [Business Week]

the Semiconductor Industry Association. The trade group expects chip sales will finish this year down a whopping 31%, but that sales will rebound to show 6% growth in 2002, followed by 21% gains in both 2003 and 2004. Woo-hoo! Just like old times. Alas, the SIA's track record for predicting demand is a little, uh, unreliable. Care to guess what the SIA had predicted one year ago for 2001? Would you believe 22% growth? In other words, they whiffed big time, which as it happens is not infrequently the case with the SIA's forecasting. But let's not be too hard on them; the truth is, forecasting chip demand is a chancy business at best. [Eric Savitz, Barron's, Nov 12]

The economy is in a downturn. Venture capital spending has plunged. Disillusioned dot-com entrepreneurs have packed up their business plans and gone off to dental school. So it is inevitable that innovation will drop off, right? Fear not. Soon your car may be screaming at you. Put it another way: innovation is back, and it can have an attitude. [MATT RICHTEL, New York Times, Nov 12]

Five SBIR companies made the Forbes list of the 200 best small companies: American Xtal Embrex, SurModics,II-VI, and ViaSat.

losses on [Intel's] venture-capital investments are likely to take a big bite from its bottom line. Over the past 10 years, Intel has pocketed net gains of $4B from its Intel Capital unit, which invested in the likes of BlackBerry pager maker Research In Motion, Red Hat Software, and incubator CMGI. But Intel warned that VC losses were mounting and would exceed interest income in the third quarter. The losses, the first since the chipmaker began disclosing VC results in the fall of 1999, could well drain $200M from income ... Faced with such prospects, most companies would quit VC. Already, many have: VC investments by corporations fell 90% in the first half of 2001, to $353M, Not Intel. Les Vadasz, of Intel Capital, says Intel is trying to keep up the pace of its venture investments. But try as he might, he's not finding opportunities to invest even half the amount he did last year--$1.3B in 300 deals. The big problem: VC firms are offering few new deals to Intel. They're too busy with problems among their portfolio companies. [David Henry, Business Week, Oct 15]

Powering the Net. As much as 15% of all U.S. electricity is now used to manufacture and then run computers. Fully 8% of our power output is consumed just by activities related to the Internet, and increasing Internet use is estimated to be responsible for more than half of today’s growth in electricity demand. Sending a 2 MB e-mail consumes a pound of coal or five ounces of oil, all told. [Karl Zinsmiester, The American Enterprise, Sep01]

Silicon Valley Wannabes
Thirty states each got $100-150K to help small companies dip into the federal honey pot of SBIR. The Federal and State Technology Partnership (FAST) awards were stuck into the latest SBIR law for the have-not states to pretend that their sparsely populated high-tech sectors could somehow be competitive with concentrations of firms in places like Silicon Valley and Route 128. It's pure pork. But when money is being passed out with no demonstrable national benefit from pure merit competition, the politicians shift to fair-share handouts. In a bid to make the South a knowledge economy leader, the Southern Growth Policies Board has released Invented Here: Transforming the Southern Economy, a 10-year strategic plan to create an innovation-driven economy in the South. ... built around three goals:
Increasing the perceived value of education in the South;
Harnessing the full potential of innovation; and
Creating and sustaining a quality of life that is attractive to globally competitive businesses and employees.
Each of the goals is supported by objectives and benchmarks that will be used to measure the states' and the region's progress. In all, 13 objectives and 74 benchmarks are identified. What also may be of interest to Digest readers is Invented Here: Measures of Southern Growth, a several hundred page report that provides a plethora of statistics on each of the Southern states, including information on industry trends, entrepreneurship and innovation, globalization, and demographics. http://www.southern.org/main/stc/projects/invented.shtml
[SSTI, Oct 5]
Quixotic enterprises? Is it practical for states and regions to transform themselves into entrepreneurial centers? Michael Porter (whose book has never appeared in paperback) notes that clusters form almost spontaneously and grow to critical mass as the essential elements assemble themselves around centers of learning, R&D spirits of large companies, and inventive people willing to take risks. Would an information age industry newly assemble itself where creationism abounds?

Buy a chip, puh-lease. Chip stocks could tank even deeper, says Matthew Yi [San Francisco Chronicle, October 1, 2001]. Share prices have plenty of room to keep falling. Although the Philadelphia Semiconductor Index is nearly double its value in 1998, the Nasdaq is flirting with the same lows it hit during the that last major slump. The GSTI Hardware Index is 5% ahead of the October 1998 figure and the Networking Index is down 9% from three years ago. Although chipmakers say they have excess inventory under control, there's not much demand.

Semiconductor Giant Ramps Up R&D . As computer chips get harder to shrink down and speed up, Intel is embracing research and a new culture of openness. Looking to establish a new reputation as a research leader, Intel officials have played up the tiny transistors and other recent research achievements to media and industry analysts. ... multiply its R&D funding nearly 10-fold since 1990, to an estimated $4.1B this year for 6000 researchers in 80 labs around the globe... it employs 70,000 people and commands 85% of the worldwide market for microprocessors ... last year's revenue $33B. ... The industry is getting to a point where the future directions are less clear," Isaac says. That's forcing Intel to stoke its research engine and be more open about its work. "We realized a few years ago that we had to do research ourselves on new materials and processes, This is a relatively new behavior for us." The trouble was that as chipmaking grew increasingly complex and sophisticated, Intel found itself developing a reputation for playing it safe and staying off technology's leading edge, says Manny Vara, who handles public relations [Robert Service (not the Yukon poet), Science, Sep 14] Optimists with PhDs in small companies who want government help (like SBIR) should realize that the chance of making an advance that Intel will buy depends on the small company doing better at what Intel needs than Intel's 6000 R&D people. A dribble here and there of government money is quite unlikely to make any difference whatever despite all the fluff from SBIR supporters. Only a direct technical challenge of a true innovation has a decent chance of catching Intel's interest in pursuing the new idea. And government is unlikely to spend its SBIR money betting on new ideas. If you have such a world-class idea, take it to an agency that cares about world-class ideas - BMDO.

...in our times markets bombarded by statistics makes impressionistic judgments and stocks or currencies rise or fall as much on their rumoured prospects as their recorded performance. For most of our millenium, reputation has been worth more than objectively measured wealth and therefore, for the historian, qualitative evidence is better than quantitative. Even where economic historians have scraped up the statistics, the crunched numbers tell us less - as they tire us more - than the guesswork of contemporaries which really influenced events. The revolution in economic reputations during the second half of our ,millenium is reflected in the awestruck stares of what we might call the window-shoppers of history, amazed at other people's plenty. [F Fernandez-Armesto, Millenium, Bantam Press, 1995]

Eye Witness. Although the plane hit the Pentagon on the side away from my view, I did hear the explosion and see the huge plume and the long-flowing black smoke from an island in the Potomac. With some minutes I noticed that no planes were operating from National Airport and that military fighters were circling the area. About 15 minutes after the hit, I did see a crow chasing a kestrel (a small hawk) and then another crow joined in, then two more kestrels appeared and a battle was on.

Ugh. The second quarter was ugly for the semiconductor industry, ATMI included: In June, the number of chips made, as measured by "wafer starts" had dropped by 30% since last December; personal computer sales declined for the first time since 1986; many countries' economies appeared near to recession; demand for almost all electronic devices seemingly dried up. The semiconductor industry is now - definitively - experiencing its worst-ever year. This downturn is like the last two downturns - added together. Our industry is experiencing the equivalent of a 100-year flood. [Gene Banucci, CEO ATMI]

Global industrial production fell at an annual rate of 6% in the first half of 2001.The picture may soon look even worse. Early estimates suggest that gross world product, as a whole, may have contracted in the second quarter, for possibly the first time in two decades. Welcome to the first global recession of the 21st century. ... The world economy grew by 4.8% in 2000, its fastest since 1984, and most economists had expected 2001 to be another bumper year. Even those who predicted a hard landing for America's economy did not expect the whole world to slump with it. The downward revisions to 2001 growth forecasts have been unusually abrupt and they are probably still too rosy. ... The 28% average fall in share prices since early 2000 has wiped $10T off global wealth. [The Economist, Aug 25] Price: What I certainly didn't anticipate was how fast earnings would come down for a lot of technology companies. I think people were anticipating a normal recession and it has been anything but a normal recession. It has been a capital-spending-led recession. Many of these companies have gone from earning very high returns to earning hardly any money at all. So, if there is one thing to take away: Don't underestimate the leverage of the technology group in a capital-spending-led recession. ... Landis: I think we underestimated just how dependent technology had become on the rest of the economy. So what we are looking for now is for interest rates to decline enough, to make capital cheap enough. that people will invest in tech again. The technology sector is really at the mercy of the overall economy right now. [Barrron's Sep 10]

Booms begin in reality and rise to fantasy. Stock investors seemed to forget that more capital spending means more competition, not less; that more competition implies lower profit margins, not higher ones; and that lower profit margins do not point to rising stock prices. It seemed to slip their minds that high- technology companies work ceaselessly to make their own products obsolete, not just those of their competitors that they are inherently self-destructive. At the 2000 peak of the titanic bull market, as shares in companies with no visible means of support commanded high prices, the value of all stocks as a percentage of the American gross domestic product reached 183%, more than twice the level before the crash in 1929. ... Digital communications were like the wheel or gunpowder or the internal combustion engine, only better. The Internet would revolutionize the conveyance of human thought. To quibble about the valuation of companies as potentially transforming as any listed on the Nasdaq stock market was seen almost as an act of ingratitude. The same went for questioning the integrity of the companies' reports of lush profits. In markets all things are cyclical, even the idea that markets are not cyclical. [James Grant, New York Times, Sep 9]

history has repeatedly made fools of people who try to predict future technological developments, let alone the implications of those developments for long-term economic growth. And most of the mistakes have been in the same direction. Since the 1960's, futurists have consistently overestimated the future rate of technological progress and economic growth. (Rent "2001: A Space Odyssey" or read Herman Kahn's "The Year 2000" if you don't believe me.) The only major upside surprise was the productivity surge from 1995 to 2000 and that, it turns out, was partly a figment of our statistical imagination. [Paul Krugman, NY Times, Sep 5]

Entrepreneur hooked on dot-com high. Surely you've got plenty to worry about this summer, with bacteria-drenched beaches, socially awkward sharks and amusement ride mishaps. But trust me, it could be worse: You could be running your own Internet business. Oh, you are running your own Internet business? Well, so is David Tilkin, who started his Norwell-based dot-com in March 2000, and you won't catch him complaining about his lot. That's because, after so many months of coming in every day and fighting for his entrepreneurial life, he's grown used to the hourly challenge of holding on to any remnants of his once-substantial life savings. [Josh Hyatt, Boston Globe, Aug 16,01]

Not much light at optical conference The crowd is glum, the news is grim, and two out of nine top-tier sponsors are down for the count. Opticon, the annual optical-networking conference, is back -- and it couldn't be more different from last year's gathering. In 2000, money chased ideas. Now, most ideas know better than to ask. ``In terms of the optical market, the bubble was more bubbly than in any other sector, and the down slope is steeper,'' said Reed Hundt, former chairman of the Federal Communications Commission and now chairman of Sigma Networks, who spoke at the conference Wednesday. ``Today the business pages and the obituary pages read about the same, except in the obituary pages you read about the survivors.'' Conference organizers say more than 4,500 people are attending 62% more than last year. ... Remember the hype? Networking companies swaggered last year as the dot-coms died off. Gurus said the rampant growth of the Internet would create a virtually insatiable demand for the equipment that made it work. Networking was the world's hottest industry, and its hottest niche was fiber optics, the technology that uses beams of light to rush data through thin filaments of glass. ... Credit Suisse First Boston expects North American carriers' capital spending to drop 13.8% this year and 15% in 2002. It's still a bunch of money, as speakers at Opticon pointed out repeatedly, but. ... Many other cash-starved companies won't last long. [Jennifer Files, San Jose Mercury News, Aug 16,01]

Already, sales of GaN devices -- which are used in green LED traffic lights and in thousands of video billboards -- have surpassed half a billion dollars a year. ... GaN could be the cornerstone of several communications technologies whose widespread implementation depends on far better amplifiers than can be built with silicon ... The conventional wisdom is that GaN transistors won't be available commercially for at least four or five years. But Nitronex says it has made a technological leap that could cut that timetable down to 1-2 years. The company has already delivered GaN transistors to potential customers for testing. ... So, given all its amazing properties, why aren't GaN transistors everywhere? Because there's currently no cheap substrate ... -- RF Nitro Communications , and ATMI -- make GaN-coated wafers of sapphire or silicon carbide that can be turned into transistors. A 2-inch sapphire wafer costs about $2,000; the same-size silicon carbide wafer runs as high as $12,000. ... Other companies are in pursuit of a more ambitious goal -- wafers of pure GaN on which perfect layers of the semiconductor can be grown. These firms include Astralux; Technologies and Devices International; Crystal IS; and Kyma Technologies. [Glenn Zorpette, The Red Herring, June 15,01] All but one of the companies mentioned had SBIRs from DOD and almost always first from BMDO. Does BMDO need GaN for green traffic lights and for efficient wireless? Hardly. Does BMDO even know what it wants GaN for? Only vaguely. But in dealing with new technologies in SBIR, BMDO opts to get the new idea going and see what develops that will eventually feedback a lot bigger payoff than making incremental and predictable improvements could ever achieve. To avoid getting trapped in the technology, though, BMDO merely launches the best ideas that can show promise of follow-on investment (not just happy words) and then lets private greed drive the technology forward. Got a crazy idea for GaN; something they haven't heard of yet? Take it to BMDO with a compelling story of how you will exploit it. No "throw it over the fence" scientists need apply.

Tech Firms Boost R&D. R&D spending is up 16% by info-tech companies despite revenues and profits plunging, says Steven Jones (Wall Street Journal, Aug 13). It's up to 11% of revenue, more than the previous 9.3%.

Happy Birthday PC The digerati turned out in full force Wednesday night at San Jose's Tech Museum to celebrate the 20th birthday of the personal computer. Well, OK, it wasn't really the PC per se, but the IBM PC, which followed machines created by others, including MITS and Apple Computer. And it was less an IBM event than a celebration by the two companies that have profited the most from the PC's introduction, Intel and Microsoft. ... Carly Fiorina told me the term ``personal computer'' originated in the 1970s to describe an HP calculator. ... [IBM's] Bradley fired off the night's best line after being introduced as the inventor of CONTROL-ALT-DELETE.``I may have invented it, but Bill made it famous,'' The place went nuts -- except for Gates, who looked none too amused. [PETER DELEVETT, San Jose Mercury News, Aug 10]

The Red Herring, with few tech IPOs to talk about, has noticed solar power. As conventional energy stumbles, solar energy is making a comeback. Caught off guard by energy sector weaknesses last year, particularly in California, the solar-power industry now faces more demand than it can satisfy. By playing to its strengths, photovoltaics may finally hit the mainstream. And even the noninally free-market Bushies want to keep pouring subsidies into the industry (some of the industry made political contributions). Mr. Holman predicts that using PV as a standard building material, called building-integrated PV, will be commonplace within ten years. Atlantis, a Swiss firm with U.S. operations in Virginia, is already doing this with PV products from Delaware-based AstroPower.

the recent news about corporates scaling back reinforces what I've said before: a startup should not rely on a corporate to provide all of its funding. I would advise the startup to look for strong syndicates of VCs, as well as a good combination of strategic and corporate investors. The VC and the corporate each have something to offer. VCs typically get on the startup's board, where they provide networking support like recruiting, and they can be active in follow-on fund-raising. On our end, you get more technical support, channel access, and become part of preferred programs -- and that gives you credibility. ["Max" Schroeck, managing director of Agilent Ventures, herring.com, Aug 7]

Counting the Uncountable. Susan Woodward and fellow economist Zach McReynolds are cooking up the Sand Hill Index, a private equity index that serves to benchmark the universe of private investment. The problems in creating such an index are not small from an economics perspective. Private firms don't have to report to anybody. Sometimes they share valuation information, but most of the time (about 70%, according to Ms. Woodward) they won't. Deals are priced intermittently -- when companies are raising funds -- not continuously. Among economists these problems are described as selection bias/data censoring and intermittent pricing. ... The Sand Hill Index for 2000 is not yet complete, but Ms. Woodward thinks the picture it will show will be far grimmer than those offered by data firms like VentureOne and Venture Economics. She estimates her index will show a decrease in annual returns of about 60 percent, compared to the slip in returns of 11 percent that the data firms are touting. ... Ms. Woodward is guessing that not everyone will embrace the truth as revealed by the Sand Hill Index. "On the one hand, the VCs and other professionals will sort of hate it, because it imposes a standard on them that they didn't have to be subjected to before," Ms. Woodward says. On the other hand, she says, better information could increase public interest in private equity. [MV Copeland, The Red Herring, Aug 01] It might seem a little optimistic to start musing about another bubble while so many are peeling the gum off their faces from the last one bursting. After all, don't we need an upturn first? ... Does a resurrection mean a bubble? Yes. The history of the technology industry is always the same: excitement about something new, followed by a speculative mania, then a bust. The size of the Internet bubble may never be repeated, but bubbles are a feature of new markets. For as long as people have speculated, their business sense has declined in proportion to their perception that others were profiting effortlessly. This human tendency is fantastically heightened when people invest in technology -- perhaps because the technology industry is so fixated on the future, and is so millenarian. Rational people will always queue up to throw their cash overboard in pursuit of what they perceive to be windfall profits. In 1983 it was PC software; during the '90s it was pen computing. Next time around -- and there will be a next time -- it could be biotech, nanotech, or a fad yet unfound. [The Red Herring, June 01]

they say that just because JDS Uniphase wrote down $44.8B in goodwill -- which was created when it acquired SDL Inc., E-Tek Dynamics and other companies for more than their net assets -- doesn't mean those acquisitions were failures. Their argument, which is also the company's position, goes like this: Since JDS used its highly valued stock to acquire another company whose stock was highly valued, and the value of both companies subsequently collapsed, the write-down should be viewed as a paper loss that, by itself, did not hurt shareholders. [San Francisco Chronicle, Aug 7] Which means that if you sell your company for high-PE stock, find a way to dispose of it before the market recognizes the funny accounting for goodwill.

the price of solar energy has fallen by half in every decade for the past 30 years, and appears likely to continue to do so into the future [The Economist]

Bleak for all those SBIR companies that inhabit the public space? Sure, but not impossible. Down times don't last forever. John Witty strategizes in Bloomberg Personal Finance (Sep 01) that the semiconductor cycle is typically four years and this one started in 98-99. He sees the book-to-bill ratio signaling an upswing soon. Nor does it help that the Korean government directly subsidizes an uncompetitive company (Hynix) as DRAM prices plunged 90% over the past year. (Should America retail ate by subsidizing the uncompetitive public SBIR companies?) By contrast, Alan Abel son in Baron's [Au 6] notes the pessimism: Humble thanks to Fred Hickey, the savvy proprietor of the High-Tech Strategist, whose sterling qualities include an aversion to crowd-think and an immunity to herd impulse, for reminding us in quite graphic terms that this time last year, the analysts were pawing-the-ground, roaring bullish on the chip stocks. And this time last year, in case you've forgotten, was not an auspicious occasion to do anything but sell the things.Yet one of the more acclaimed (especially by his firm and family) chip analysts declaimed to the world in August 2000 that he could spot nary a portent of softness in the semiconductor business, crediting explosive demand from the likes of cell phones, palm pilots and the Internet itself, none of which, he assured, showed any signs of slowing down. So, he confidently predicted, the boom in chips would go on for at least a year and a half. Hardly had the acclaimed analyst put down his crystal ball, barely had he time to acknowledge the plaudits of the grateful multitudes, than the roof fell in. Or, as Fred, always a man to mince words, puts it, "If you had listened to the touts in August of last year, you would have been destroyed." By all means, subscribe to any of the theories you prefer whn you propose an SBIR. The government technophiles do not which scenario is true, and in most cases don't care anyway. First, they decide which technology they find the sweetest and then they accept whatever the proposer says about the commercial possibilities.

Inc.com’s Best Market Research Resources. This guide covers online aid, low-cost research,and focus groups. http://newsletters.inc.com/cgi-bin/nph-t.pl?U=776&M=651183&MS=1164

Silicon Valley, get ready for life in the slow lane. After five years of turbocharged growth, the tech-dominated economy here is still plunging toward a bottom. When it starts to turn around, economic growth could well look positively ordinary over the next four years. Economists warn that the valley may show signs of lagging -- or performing only marginally better -- than the national economy: flat or declining real estate prices, slower personal income, higher unemployment and meager job growth. ... Already the largest tech companies in Silicon Valley -- Hewlett-Packard, Cisco Systems, JDS Uniphase -- have cut somewhere in the neighborhood of 15,000 jobs locally and more could come. ... the dot-com boom became ``the biggest Ponzi scheme in the post-war era,'' says Kenneth Rosen, professor of economics at UC Berkeley and a former student of Kindleberger's. ``And we were in the center of it, [DAVID A. SYLVESTER, San Jose Mercury News, Aug 4] If SV can't support itself, how will it support all those hopefuls in Michigan and North Carolina who depend on SV clients? Ah, look to the government. Meanwhile, more layoffs, Copper Mountain Networks, a maker of high-speed Internet access equipment, yesterday reported a huge loss for its second quarter and laid off more than 40 percent of its work force. The company, which was founded in San Diego but now has headquarters in Palo Alto, said it laid off 145 of its 342 employees. [San Diego Union Tribune, Aug 4]

Guessed Wrong on Ibis Gene Marcial touts about three stocks a week in Business Week with a performance (price gain) that's better than average. One SBIR stock he recommended last year fell on its face though. Ibis fell 67%.

without lots of high-speed connections to consumers, right now there’s a lot of empty space on long-distance networks. That’s why so many telecom network operators and equipment companies have watched their stocks nose-dive. Given the bandwidth glut, capacity on fiber networks is now dirt cheap. And as any economist will tell you, that’s a very strong incentive for people to create new applications -- new products and services to travel over those dormant wires. Since distribution is cheap, beneficiaries of the bandwidth blowout of the late ‘90s will include the companies who send things over those networks. That means software, and not just the kind you use to run spreadsheets. [Jim Glassman, Tech Central Station, Aug 3] Note that Glassman does NOT favor government investment in such entrepreneurial activities as exploiting a surplus of anything. Strangely he does recommend Excel Technology, the company that paid $3M to escape a trial for fraud against the SBIR program.

Incremental progress ain't the cure. Typically, when you're in a time like we are now, what gets you out of it is some new technology, some real breakthrough that is not incremental. We have a lot of work to do on the Internet. If you look at the next three to five years, it is good incremental, but it is incremental progress. It's not the cell phone where the cell phone didn't exist. It's not PC's where PC's didn't exist. [Judith Estrin (a serial entrepreneur who is now chief executive of Packet Design Inc), New York Times, Jul 29] Although Estrin is talking about the economic downer that plagues Silicon Valley, the government is not helping in that it uses its technology money for incremental advances useful to government and no one else. That kind of use has no potential for feeding a tech revolution of any kind. what happens when cost cannot be considered. Drugs are prescribed costing hundreds of dollars a year, but reduce the chance that a middle-aged woman will suffer a hip fracture by only 1 in 7,000. New types of X-rays cost 15 times the traditional type, but reduce the risk of a nonfatal reaction by only about 1 in 2,000. ... "the core fiction of American health care," says Professor Alain Enthoven of Stanford University: "that insurance should cover every useful medical procedure no matter how small the benefit or prohibitive the cost." [MICHAEL M. WEINSTEIN, New York Times, Jul 29,01] As long as lawyers can sue AND WIN the medical world for slights to patients, doctors will prescribe more and more tests. Which is a self-feeding bonanza for technologists who keep inventing more procedures for lowering an already low risk. The situation is made worse by government technologists who sponsor new medical technology by believing a technologists claim that ht enew procedure will lower the outrageously high medical costs in America. Baloney! The new technology will almost invariably INCREASE medical expenses as it does whatever medical good is claimed.

With hopes fading for a technology recovery this year, industry executives and investors are looking beyond their shrinking wealth to a broader issue: Will U.S. innovation suffer a lasting blow? The impact of a funding drought for new technology ideas dominated the third Internet Summit conference here. Where entrepreneurs and venture capitalists buzzed about deals at last year's event -- though the stock-market slide was well under way -- the tone on the stage and in the hallways this week was often sombre, if not downright ominous. Mary Meeker, the Morgan Stanley analyst who became famous for charting the rise of the Internet economy, estimated that $727 billion in wealth has been lost by the plunging total market value of some 362 Internet companies between December 1999 and mid-July. Though nontech companies also suffered, she characterized the current situation as a difficult "third inning" of a technology cycle that should rebound in six to 18 months. ... Stewart Alsop, a general partner at New Enterprise Associates, estimated that the Menlo Park, Calif., venture firm has made 10 or 12 investments this year, compared with six per month in the same period of 2000. [DON CLARK, WALL STREET JOURNAL, Jul 27]

Tech cutbacks go on. There still is no bottom in sight for the technology industry.As more Silicon Valley companies report second-quarter financial results and other news, the long-awaited end to the high-tech downturn falls further away. ... The prevailing view on Wall Street is that recovery won't come until mid-2002, and that means that cutbacks made earlier this year won't be enough to get many firms through the slowdown. ...Wall Street is growing more pessimistic by the day. On July 1, analysts projected that third-quarter earnings for 82 major technology companies would drop an average of 49 percent from a year earlier, according to First Call, a provider of financial information. By Thursday, they were forecasting a 61 percent drop. The analysts still expect positive earnings growth by the first quarter of 2002 -- but only a 17 percent increase, half the 32 percent rise they predicted July 1. [JENNIFER FILES, San Jose Mercury News, Jul 27]

Serious companies. Two more SBIR companies joined Value Line's list of rated stocks: AstroPower and SurModics with timeliness ratings of 1 and 2 which means that VL thinks they will go up faster than average. They join Cree on the list.

Not too long ago, anybody who questioned the religion of the start-up was told they just didn’t get it. Nimble newcomers were supposed to blow incumbents to bits with disruptive technologies. Yet the revolution, it turns out, was less technological than financial. Venture capitalists and the stockmarkets provided start-ups with capital that was essentially free. Unsurprisingly, talent and media followed the money. But high-tech incumbents and old-economy companies, too, joined the start-up stampede because they were afraid either of losing their best employees or of simply missing the gravy train. Many firms created a corporate venturing fund, spun off an Internet business or two and bought innovative high-tech gear from newcomers rather than from established suppliers. ... Yet it would be wrong to conclude that technology start-ups are down for good. Most of these developments simply mirror the excesses of recent years. Already, experienced entrepreneurs with good technology are finding it easier to raise finance than it was earlier in the year. And these new start-ups are likely to be much tougher than their predecessors. They will be built to last, rather than merely to be taken public as quickly as possible. Longer-term trends also suggest that the future still belongs to smaller firms, argues Thomas Malone, professor of information systems at MIT. When gathering information was expensive, he says, it made economic sense for decisions to be made in a few central places. Now, with information technologies driving communication costs ever lower, more and more people can be well enough informed to act independently. And staff tend to be more creative if they are doing their own thing and not following orders. [Big is beautiful again, The Economist, Jul21]
Will the return to big companies emperil programs like SBIR? Probably not. The federal agencies shopwed no sign of buying in to the idea that nimble high-tech companies were a better place for technology development. Awards have gone to the plodders while the Small Business committees in Congress protect the handout.

fiber-optic glut is 'just baloney'By challenging the widely accepted consensus that telecommunications carriers are plagued by a ''fiber-optic glut,'' a Tulsa, Okla. -based consulting firm this week released a route-by-route study that finds in most cases - including major segments serving Boston - fiber lines are actually operating at close to current capacity and will need to be expanded soon. The study by TeleChoice Inc. evaluated actual ''lit fiber'' capacity among Boston and 11 other big US cities and compared it to projected typical peak business and homeowner demand for voice calling, Internet access, and high-speed data services. [Peter Howe, Boston Globe, 7/20/2001]

``Everyone over the age of 45 in my lab was born in the United States. No one under the age of 45 in my lab is from the United States.'' With that simple statement, technology pioneer Stan Williams, chief of Hewlett-Packard's top secret nanotechnology laboratory, shocked a group of congressional Democrats into grasping the dimensions of Silicon Valley's talent crisis. [San Jose Mercury News, Jul 21]

Cold Summer in Progress? If the forecasts are to be believed, they have reason to worry. Chuck Hill, research director at Thomson Financial/First Call Wall Street's biggest earnings tracker says second-quarter earnings for S&P 500 companies are likely to tumble 15% from the year-ago period. (First Call doesn't compile numbers for the entire market.) That would be the steepest decline in a decade and, given the first quarter's 6.1% earnings decline, would mark the first earnings recession that is, two consecutive down quarters since 1991. [Lawrence Carrel, Individual Investor] Which goes with Chip Outlook: Rain Today, Rain Tomorrow. ... the trade association Semiconductor Equipment and Materials International, or SEMI, said it expected world-wide chip-equipment sales to decline 35% this year, to $31B. Based on SEMI's revised forecast, world-wide sales won't surpass last year's sales levels until 2004. Which explains why TJ Rodgers's Cypress Semiconductor is slicing 650 jobs, or 19% of its work force, as it posted a second-quarter loss of $18 million. Quick, buy some chips!

More Excuses Enabled. One of the bellweather sectors of the technology industry, semiconductor-equipment makers, expect sales to decline 35 percent this year, the biggest year-to-year drop ever.It may take until 2004 for the industry to match last year's sales, according to figures in a forecast released Monday by an industry trade association. Some think it will be mid-2002 before the industry begins to climb out of its slump. Nevertheless, the industry expects to post its second-highest year on record with $31B in new chip manufacturing, testing and assembly equipment in 2001, according to the midyear consensus forecast released Monday by Semiconductor Equipment and Materials International, at its Semicon West show in San Francisco. In 2000, at the height of the technology boom, sales grew 87% to a record $47.7B. [DAN LEE, San Jose Mercury News, Jul 17] More companies will now have an excuse for lacking co-investment in SBIR proposals and for a government subsidy.

The dot-com boom started in 1995 and went bust in 2000. Every dolt imagined he was a venture investor. There was overfunding galore, idiot businesses up the gazoo-and then pfft. Net Boom, Act II awaits. It will occur when a catalyst technology changes everything, just as the 386 chip and graphics transformed PCs. What the Net awaits is obvious: cheap broadband (enough for streaming video) and always-on connections. Already I can hear skeptics howling that bandwidth demand is not a sure thing, that the dogs will never eat it. But who can forecast demand without the supply that fires the imagination and stirs entrepreneurs to create radically new uses, not just extensions? Who in 1984 ever guessed that most CEOs would use e-mail by 1998? Who in 1989 imagined the necessity of Web-based supply-side chains, let alone the Web? How accurate is it ever to gauge, say, traffic for a proposed bridge by counting ferry boats and swimmers? [Rich Karlgaard, Forbes, Jun 11]

Blame Momentum Investing for Cloudy Crystal Ball. They all wanted endless optimism and they got it. Momentum investing powered info-tech stocks to the sky. Then the bubble burst. Now the finger pointing. 'Lousy' Forecasts Industry Secrecy And Lack of Government Data. How did the telecommunications industry get it so wrong? As late as last November, Merrill Lynch & Co. predicted that domestic equipment purchases by phone and data carriers would grow by 15%, to over $65B, in 2001. Now, the brokerage firm believes such purchases will fall 7% this year. A year ago, Nortel Networks Corp. said it would spend $1.9 billion to boost production and add 9,600 jobs to meet "explosive customer demand." Last month, Nortel said it would lose $19B this quarter and eliminate 10,000 jobs -- on top of 20,000 previous cuts. What happened? The blame lies, in part, with the calculations used to predict future sales and inventory levels of telecom gear, and in turn fed into Wall Street earnings guidance. Such forecasts are "lousy," says Gregory M. Duncan, head of the telecom practice at consulting firm National Economic Research Associates, and former forecaster at GTE Labs. ... To be fair, at this time last year, detailed analysis of demand in the then-booming telecom industry seemed a bit superfluous. Spending by phone companies on gear nearly doubled from 1996 to 2000, to $47.5B, according to the Telecommunications Industry Association, whose method of calculating that figure differs from that of Merrill Lynch. At the same time, many telecom companies had fewer experts available to forecast demand. David Loomis, an Illinois State University professor and organizer of the International Communications Forecasting Conference, estimates that equipment makers and telecom carriers let go half of their forecasting employees over the last five years, chiefly for cost-cutting reasons. ... At Finisar Corp., a maker of optical components, Chief Financial Officer Stephen Workman struggles with the information provided by outside researchers. "They're usually six months behind what's really happening. It's almost laughable," says Mr. Workman. To help compensate, he has begun talking to the actual users of telecom networks, not just the carriers. ... At RHK, a San Francisco-based telecom research firm, chief analyst John Ryan has instructed his 60 researchers to more thoroughly examine vendors' existing inventories and the specific price discounts demanded by procurement managers. But even with his new rigor, Mr. Ryan concedes, "We're all riding this massive storm, and no really knows where we're going." [DENNIS K. BERMAN, WALL STREET JOURNAL, Jul 9] Note that the same conservative smaller government Republicans who howl against regulations and taxes want exact and complete government data. Good government is that part from which you are the beneficiary.

Charles I of England discovered the importance of accuracy and impartiality the hard way. In the 1640s, he tried to boost tax revenues by decreasing the volume of a liquid measure called a jack while keeping the tax on the jack the same. That meant his subjects got fewer sips for their tax dollars, and the move led, according to some interpretations, to a protest chant dubbed "Jack and Jill." A hill was mounted, a pail was fetched, but disaster ensued: "Jack fell down." Since two jacks equaled one gill, the poor girl "came tumbling after." This type of arbitrary taxation, along with absolutist religious policies, led to a civil war, which Charles lost. "He broke his crown" in 1649 - which is to say he was beheaded. [Brian Alexander, Wired. June 01]

Venture capital is going green. A decade ago, a tiny niche dubbed ''environmental investing'' couldn't capture serious money minds for a nanosecond. But that sector has emerged as more high-tech and more pressing, and apparently with real profit potential. It's now called ''energy investing.'' And it's hot for a lot of good reasons. The trend is bigger than the California blackouts. On a grand scale, it's about rebuilding the nation's power distribution system to make it more efficient and reliable. On a micro level, it means ensuring blips don't interrupt the hurricane of data zooming around the world on the Internet. It means harnessing wasted energy in power plants and cars. And it calls for new software and wireless devices that let businesses and individuals save money by better using energy. ... Now the economy's slowing and people have to heat and cool those giant houses. They're filling the tanks of those gas gluttons at $2 a gallon-plus. If they live in California, they sometimes wonder if the lights will come on. At work, they have to worry about things like where to put that next data-storage warehouse. ... Venture Economics predicts energy-related businesses could attract as much as $1 billion in venture capital and other private funds this year. That's up from $218 million invested in 1999 ... [Beth Healy, Boston Globe, Jul 2]

Wins in Japan do not absolve Transmeta of its forecasting or inventory missteps. However, it is far too early to write off this company; it has carefully and successfully worked its way into one market that continues to validate its technology. Winning the U.S. will be difficult -- the strength of Intel's relationships with PC companies here remains a massive barrier -- but since a lot of notebook engineering comes from Japan, we cannot discount the importance of Transmeta's East-facing strategy. [redherring.com, Jun 29] Transmeta is a classic case of great innovation failing market acceptance. The better mousetrap that fails the cost-effectiveness advantage test. When Anthony and Michael Perkins penned their book, ``The Internet Bubble,'' they hit the bull's-eye. If we'd only listened! The book, published in 1999, concluded with one command: ``Sell Now!'' It packed a powerful punch, explaining that history and basic math showed technology stocks were on average about 50 percent overvalued -- exactly right based on the time they wrote the book. So when a copy of the ``revised edition'' of their book showed up in the mail last week, I was interested in what they are saying now. (The book is being sold by Amazon.com and Barnes & Noble but will hit store shelves in September.) The value of the revised book lies in its encouraging assessment of the future. (Although it does have a scooplet -- an eye-opening example of how even a top Sand Hill Road venture firm, Sequoia Capital, was drawn into the mania despite knowing better.) But the book's main message is about ``a massive opportunity'' to build out the next generation of the Web -- the same message sent by entrepreneurs and venture capitalists in recent months, but it carries more credibility coming from authors who called the crash. [Matt Marshall, San Jose Mercury News, Jun 29]

In early 2001, caapital spending slipped to 2% and IT growth rate fell to -2%. The gllomsters take on this is that too many firms spent too much money on too much technology, creating a glut of overcapacity that will take years to work through. According to the naysyaers, the whole New Paradigm construct was a chimera, a temporary event that occured druing the recent sweet spot of the economic cycle. They say we are consigned to an extended period of sluggish economy. [Jeffrey Applegate, Bloomberg Personal Finance, Jul01] Applegate's piece goes on the contradict the gloom in the words of the chief strategist at Lehman Brothers.

R&D at Agilent It's our lifeblood. We spend about 12% of revenue on R&D and about 8% of that on central research. And about 70% of our revenue comes from products introduced in the last three years. [Ned Barnholt, CEO Agilent, Upside, July 01]

Why 1929 Is Not Coming Again 1) Europe's not collapsing, 2) banking is national, 3) FDIC, 4) many fewer margin stock buyers, 5) no rigid gold standard, 6) gradual economy shift. Says Upside editor Jerry Borrell. Lessons in Survival 1) Pick whom you want to work with, 2) IP has value, 3) time to market is king, 4) distribution and slaes are everything, 5) take on partners, 6) keep your business plan fluid, 7) life is a work of art. Steve James, retired on a Caribbean Island.

We're at the edge of a new explosion of knowledge. The rise of instrumentation, the rise of supercomputers, et cetera, the sheer scale of scientific activity on the planet, the degree to which it's now being brought together in real time by the Internet, the minimum change, in my judgment - this is a historic judgment we can argue about. My judgment is the minimum change in the next 25 years will be equal to the entire 20th century. And I say this to every audience. That is, if you go to 1900, no motion picture, no aircraft, no television, no mass-produced car, and you come to the year 2000, that's about the scale of change in the next 25 years. And if anything, that's on the low side. It may be bigger. Now that's very important, because the truth is, our psychological attitude is, that we are coasting at the peak of our success, not we're launching a new race. And it's exactly wrong. Exactly. You read stories, the human genome project has been completed. Utter, total nonsense. Being told you've mastered the alphabet at the foot of the Library of Congress suggests you have a lot of reading to do. [Newt Gingrich, May 01]

Too much capital can wipe out any good innovation. The innovation is there, but instead of a normal absorption curve, everything got absorbed at once by people and companies funded for specious reasons. The financial pipeline for new young companies and innovations has disappeared, and as a result large companies don't move as quickly any more. They reorder their priorities. New stuff is flushed out because corporate earnings everywhere are poor, and companies are protecting their P&L [profit and loss] statements. So you get the double whammy of unnecessary companies spending unnecessary dollars. [Art Samberg, Barron's, June 25]

Avoid, he says, "anything in telecom equipment." Those stocks are still trading on too much optimism, he says. Take Tellium, a startup optical switch company that went public in May at $15. The shares shot to $29.73 and a market value of $3.2B even though Tellium has only three customers.... Speculation like that seen with dot-com stocks thrives now among alternative-energy issues. Shares of FuelCell Energy (FCEL ) recently traded at a market capitalization of $1.2 billion despite the fact that the 32-year-old company has no earnings and has made sales for trial use only. Indeed, the company won't make an annual profit before 2004, and then only $20 million on $420 million in revenues, according to a bull on the stock, Sanjay Shrestha of FAC/Equities. The company's chief financial officer, Joseph Mahler, says buyers of the stock understand that the company will be making a lot more money by 2006. Its fuel cells are an answer to industry's need for clean, on-site power, he says. The cells make electricity from natural gas without the smoke from combustion. Shorts say that even if the technology works, which they doubt, the stock will crater before the company ramps up production. [David Henry, Business Week, July 2]

... in virtually every generation, new technologies have arisen that promised to transform the way Americans conducted business, exchanged information and entertained themselves. Each inspired an exuberant investment boom, which led to a glut of capacity, ruinous competition, falling prices for consumers and, ultimately, bankruptcies and consolidation. Most competitors contributed to a technological transformation while failing as short-term investments. Today's boom and bust is merely the latest in a series that have characterized America's phenomenal economic and technological development. The difference? In today's 24-7 environment, the rags-to-riches-to- rags cycle is shorter than ever before. And with the democratized markets, the damage caused by failing investments may be more widespread. [Daniel Gross, New York Times, Jun 20]


"there are going to be layoffs." 75% of the start-up's 40-person staff received pink slips. Five weeks later, Ereo closed its doors for good. ... [A] millionaire, Pete Estler, gave life to the start-up, and like a pied piper, brought together a diverse team of people from across the country. ... Ereo, like so many other technology start-ups back then, set out to change the world. Even as the markets crumbled around them, Ereo's people believed that their company was immune to the dot-com plague. Many came to Ereo because of Estler - a charismatic entrepreneur who provided the vision, the cash and the confidence to get started. He sold his last company for $90M and promised to build 45 start-ups by the end of 2000 with his venture fund iBelay. ...Including Ereo, four of iBelay's portfolio companies have folded, ... All total, Estler put $6M into keeping Ereo alive. Then he gave up. ... For months, Ereo raced to build a search engine that could sort and find images on the Web and eventually allow people to shop and compare products. It was an ambitious goal toward technology that has stumped academic researchers for years. The problem lies in the fact that computers can't see and distinguish images the way human brains can. Computers "see" only piles of numbers. "It's very much an unsolved problem," said Daniel Lee, a researcher at Lucent Technologies' Bell Labs. He's been studying for two years the issue of computer vision. And because Ereo's product was technical, the company fought a growing cultural battle between the engineers who created the product and the people who sold it. In the beginning, the software programmers joked that they were the "real people at Ereo," and they spoke in technical terms that left outsiders feeling like visitors to a foreign country. [Jennifer Beauprez, Denver Post, June 18] Would SBIR have saved Ereo? Maybe, but not 40 people. The government can usually be induced to "invest" in such technology, often for a long time. A champion in government can usually influence his agency, especially one like DOD, that the technology is a must-have. Government, though, typically explores such technology with academics rather than small business. This is a classic case of small business being no better than academia at the technology but better able to bring a technical success to market. Still, lots of SBIR overseers don't accept that view, and since they have to put their SBIR money somewhere, they will pursue the sweet technology in a small business anyway.
"Most entrepreneurs bet their life savings, beg and borrow from family and friends to start the company that is going to 'change the world.' Then they work 80-hour weeks, forsake their families, and pay themselves minimum wages. After fighting the odds, to have VC's end up with 90 percent or more of their companies, and then to get booted out in favor of a more 'experienced manager,' is quite a tragedy. Unfortunately, with this economic downturn, this is happening everywhere. Most entrepreneurs are in a total state of shock." [Charles Davidson, Digital South, Apr 26] Company owners who feel injustice at the workings of capitalism haven't yet accepted the nature of capitalism. They want the best of both worlds: the right to own their own business and the right to enjoy the fruits of their thinking without regard to who is taking a big financial risk. Take heart dreamers, the politicians tell you they can have both wants - just sign up for SBIR. If you believe that SBIR will turn a hobby into a well-capitalized profitable business, you are just what the politicians are looking for. Sign up now so the politicians can pretend that they saved small business from the grip of greedy capitalists - the same capitalists to whom the politicians appeal for campaign contributions.

Innovations in Weather. In my first job out of college, I covered commodities.Coffee, cocoa, sugar, and orange juice. The best part of the job was the weather: frost in Brazil sent coffee prices ballistic. So we had our own weather guy. The more accurate his forecasts, the better our coverage. CustomWeather, a San Francisco startup, thinks it can do even better, and without meteorologists. "Humans make errors, but computers, if you program them right, shouldn't," says CEO Geoff Flint. The economics of a meteorologist-free weather business are compelling. The data is free. And while all online weather companies -- each private and profitable, by the way -- use that government-supplied data, few if any of them fully automate its interpretation. Mr. Flint, a meteorologist and programmer, took the best weather forecasting models and programmed them to gather government data automatically and deliver the weather for 58,000 cities around the world. The service is being marketed for syndication on sites and wireless devices; another market is business process applications, like transportation, in which weather plays a big factor. The barrier to entry is seemingly low. But competitor AccuWeather employs 400 meteorologists for its site alone. CustomWeather's burn is only $60,000 per month, it has revenues, and it's scalable. [redherring.com, Jun 18] Got a problem? Too much data and too little information? Use a computer. Where have we heard that before? It is true that whoever does weather forecasts best will have a lot of business from commodities traders. Military tacticians should want it also although the military way of procuring services doesn't always get the best competitor.

Are Investors Jumping the Gun? Liquidity turned positive, at $2.5B, as the new offering calendar took last week off. .. However, this week CommScan tells us there are over $9B of new offerings already scheduled, including the Kraft IPO. ....Given how weak liquidity has been over the past six weeks, the fact that the TrimTabs Market Cap Index of all U.S. stocks is still up 4.1% says one of two things. Either sideline cash was been drawn down dramatically in May, or there is a new source of liquidity. Since UBS Warburg tells us that foreigners have not been heavy buyers of U.S. equities recently, our bet is that sideline cash is shrinking, which, if accurate, is a very bearish indicator. [Charles Biderman, TrimTabs.com, June 14]

Cymer, a supplier of excimer light sources used in semiconductor manufacturing, has announced an approximate 9% reduction in its worldwide work force as part of its previously announced cost-reduction program.

Triage Means Downvalue The language of venture capitalists these days goes like this: They are "triaging" their investments, "baby-sitting" their portfolio companies and "pre-money valuations are down." Translation: Your company is not worth as much as you think it is. The region's venture capital industry, which fueled the tech boom of the past several years, has not come to a grinding halt, but new investments will continue to be rare in the next six months, according to a survey released May 18 by the Mid-Atlantic Venture Association (http://www.mava.org). The study says venture capitalists are spending only about a quarter of their time and money on new deals. [Martin Kady II and Roger Hughlett, Baltimore Business Journal, Jun 4] Bob Davis, the former boss of the former Lycos, stood in front of a ballroom full of ground troops in what is too often called the Internet revolution and, in an indirect way, told them to knock it off. "To me, it's all hogwash," Davis told those gathered at a recent meeting of the Massachusetts Software and Internet Council at the Boston Marriott Copley Place. "This is not about a new economy. This is about a new medium." The Internet, Davis told the audience, is a form of communication different from television and print only in that it caught on faster. It's not changing the world. It's not changing the fundamental laws of capitalism. Hearing Davis lay out his case, it wouldn't be unreasonable to wonder if some in the room heard an irritating, now-he-tells-us buzzing sound in their ears. Some of his listeners no doubt want to capture a slice of the dot-com success, or at least the glory, that Davis enjoys. If some are thinking they'll catch the next big wave, Davis has other ideas. In his view, the Internet business wave has crested, crashed and moved out to sea. [Phil Sweeney, Boston Business Journal, Jun 4]
The inescapable if unpretty fact is that we're in the grip of a recession -- oh, okay, call it a slowdown, if it makes you feel better -- brought on by an orgy of capital spending. We haven't had one of these nasty numbers for a heck of a long while, but they do tend to hang on for quite a spell and their aftereffects linger even longer. What he bluntly calls the "bust" in capital investment is the focus of an extraordinarily well-wrought and compelling piece on the economic outlook by William Dudley of Goldman Sachs. The tenor and conclusions are not notably upbeat. Not surprisingly, he locates the sore spot in the capital investment bust in the information and communications technology sector, and dutifully points out that the markets have hardly been unmindful of this, as illustrated by the calamitous fall of the technology stocks. But he also points out that longer-term, the bust in technology capital investment has significant negative implications, for both productivity and investors, that have not been universally recognized. [Alan Abelson, Barron's, Jun 4] There are still billions of dollars out there on the sidelines looking for cutting-edge technology companies. Of course, plenty of venture capitalists are preoccupied with tidying up the messes they made during the past few years. Indeed, while often not admitting to it in public, many venture firms are marking their funds down to zero, meaning they are essentially declaring to their investors that they blew all of their dough with little to show for it.And if they aren't folding their tents, they are frantically performing triage on those portfolio companies showing signs of a pulse. That means too many VCs are now actively running the day-to-day operations of their bubble-era investments instead of beating the bushes for the next new thing.

Gregor Mendel and His Peas. Gregor Mendel was a man of ability. His Experiments in Plant Hybridization (published 1865 and available at this link) laid the foundation of the science of genetics; its predictions based on observation are astounding given the state of chemical microbiology in that day (state = zero point). The results of Mendel's efforts can be directly traced to the recent, complete sequencing of the human genome, and exemplify: (1) The ability of a determined scientist to care for hundreds of pea plants over two years in controlled conditions and meticulously document their characteristics. (2) The ability of reason to overcome speculation, randomness and unknowable causes. (3) The ability of a religious man to have a serious commitment to science. (4) The ability of mathematics to overcome all other branches of science. (5) The ability of a man's neighbors to put up with seemingly mad experiments. (6) The ability of a science teacher to continue teaching without having ever passed the teachers' licensing exam. (7) The ability of peas to be distasteful to children both on their plate and in their science textbooks. (8) The ability of monks and the Web to preserve important historical documents. (9) The ability of translator to transform a German technical paper into sensible English. Mendel's Paper: http://www.netspace.org/MendelWeb/Mendel.html Java applets: http://www.execulink.com/~ekimmel/mendel1a.htm [ Netsurfer Science]

The Lobster Lure. Efforts to lure jobs away from Silicon Valley have taken a new and possibly frightening turn. The state of Maine is now employing lobsters to do the job. Maine, one of several distant principalities targeting the valley, is offering a complete lobster dinner for two to any executives who spend 30 minutes with representatives of Maine & Co, the private, nonprofit organization that markets Maine to the business world. The Pine Tree State is FedExing live lobsters wrapped in seaweed to executives from 10 companies that met with Maine & Co. representatives who visited the valley the week of May 14, says Marketing Director Cathy Evers. That's down from 55 a year ago and 12 in January. [Timothy Roberts, San Jose Business Journal, May 29]

America is a country where the minute one person stands up and says, "That's impossible," someone else walks in the door and announces, "We just did it." [Tom Friedman, "The Lexus and the Olive Tree"] Can Lucent survive? Will Nortel claw back from being down 80+% in the last months? Will SBIR photonics companies see their strategic partners (those who have strategic partners) lose interest in the exciting new gizmos?

The global semiconductor market will likely shrink 13.5 percent in 2001 to $176.79 billion because of sluggish demand for PCs and cell phones, the World Semiconductor Trade Statistics group said Monday. [San Jose Mercury] ... industry utilization rates decreased 9.1% to 83.7% from 92.8%, the greatest decrease since the SIA began keeping records of industry utilization in the second quarter of 1994. At 83.7%, utilization rates stand just 2.9% away from the all-time lows of 80.8% seen in the third quarter of 1998, [Multex Investor]

Tech Revolution? Yawn. Sunday's New York Times business page showed a chart of the week's indifference to the prospects of Kopin. After a jump Monday in response to a claim that Kopin's new carbon-doped InP transistors would provide clearer signals and would use less power in mnobile phones. Why only a two-day response? Could it that the markets are tired of such claims? Or is that Kopin never seems to make a profit from its many innovations? Even though such advances may be good for the economy and for the industry, it will not help the stock prices of a company that cannot exploit them for a huge profit. Technical adroitness is NOT enough for real markets (even though it is often enough for government programs like SBIR which are run by people with no stake in those markets beyond their conservative retirement portfolios).

Previous booms didn't make venture capitalists think they were God's viceroys to the universe. The VCs in the past wouldn't have dreamed of taking a 35 percent carry [the VCs' cut of the profits from one of their funds]. Now it's common. Two-billion-dollar funds and 35 percent carries! Where is Tom Wolfe when we need him? His Masters of the Universe were pathetic children compared with these people.... ... In the 1980s, our existing core business - memory chips - was in disarray. We were putting about 40 percent of our developmental capital spending into a business that represented only 3 to 4 percent of our revenue and in which we had a market share of 3 to 4 percent. There was nothing wrong with that business in terms of growth potential, but we had become marginalized by our Japanese competitors. There really was no viable option for us to work our way out. We had a situation where the defining business of the company had hit not a pothole but an ultimate wall, and we had to make a very desperate move. [Andy Grove, Wired, June 01]

high-tech entrepreneurs in Silicon Valley always like to compare their supercompetitive business to the story about the lion and the gazelle in the jungle. Every night the lion goes to sleep in the jungle knowing that in the morning when the sun comes up, if it cannot outrun the slowest gazelle, it will go hungry. Every night the gazelle goes to sleep knowing that in the morning, when the sun comes up, if it cannot outrun the fastest lion, it's going to be somebody's breakfast. But the one thing that the lion and the gazelle both know when they go to sleep is that in the morning when the sun comes up, they better start running. [Tom Friedman, The Lexus and the Olive Tree]

...what I once called The First Law of New Technology: "nobody wants to be the first to buy it." Customers were alike in these ways:
1) They don't want to buy a product, they want to hire a service -- a service which just happens to be performed primarily by the product.
2) They don't want to be a Guinea pig for new technology; they want the product to have been thoroughly tested.
3) They don't want to bear the aftermath of failure -- they don't even want to bear the aftermath of success! (For instance, waste disposal after the product works.)
[Ron Graham, rgraham@tcnj.edu]

Innovation may seem a far-fetched goal for companies that are slashing operating costs and jobs these days. Creative ideas, after all, usually spring from people who feel confident enough to think originally and to risk exploring something that may flop. That mix of playfulness, passion and sheer perseverance may be difficult to muster in employees who are worried about job security, or who are being told to make do with fewer resources. Under pressure from investors to keep their companies' stock prices high, chief executives typically react to economic slumps by strategizing how much and how quickly they can cut costs. Many expenses can't be easily eliminated, so executives instead slash budgets for variables such as research, product development, new technology and advertising. Yet savvy executives believe they can't afford not to continue innovating through a slowdown. They figure if they cut spending for research, for example, they will crimp their companies' long-term growth. They realize that slowdowns provide unique opportunities to beat out rivals. ... That's a recipe Intel is following. Demand for Intel products, from processors to flash memory chips and networking chips, has been weak in recent months ... Steep competition and a slump in spending for information technology is forcing Intel to lower prices. ...Yet Intel is biting the bullet and boosting spending for research and development to $4.2B this year from $3.8B in 2000, while also spending $7.5B to build manufacturing plants, Intel's cash reserves of nearly $11 billion are "making it easier [CAROL HYMOWITZ, Wall Street Journal, May 22]

entrepreneurs are in a total state of shock. Be suspicious. Is anyone in the technology business having fun any more? Is there middle ground between the mania of '99 and the gloom of '01? Of course there is. Some say the atmosphere for starting and nurturing companies is back to normal, that it just doesn't seem normal after a couple years when everyone was drunk with optimism. Some don't say that. To wit, I got an email recently from a prominent entrepreneur in the Research Triangle Park area: "Most entrepreneurs bet their life savings, beg and borrow from family and friends to start the company that is going to 'change the world.' Then they work 80-hour weeks, forsake their families, and pay themselves minimum wages. After fighting the odds, to have VC's end up with 90 percent or more of their companies, and then to get booted out in favor of a more 'experienced manager,' is quite a tragedy. Unfortunately, with this economic downturn, this is happening everywhere. Most entrepreneurs are in a total state of shock." [Charles Davidson, Digital South, Apr 26,01]

If young people are the big winners during boom times, it is veterans who make out best during the busts. Why? Because they have perspective. Because they don't lose their heads. And because no one is smart enough to ask for their advice. ... [Says TJ Rodgers] What makes us special and different here is that we're truly capitalists. We invest. There is no safety net. You can go out of business. There are companies you can count them on both [hands] every day that go out of business, and that's life. ... [Nolan Bushnell says] My dad would always say that the minute you think that the sun is shining out of your rear, all you have is an illuminated landing area. [M Malone, Forbes ASAP, May 20,01]

Watch out for Finland. All advanced economies - and some emerging ones - are moving into the space once dominated by the US. says a report for the Council on Competitiveness co-authored by Michael Porter. The authors want the government to expand the national capacity for innovation which translates to more government R&D spending and more technically trained workers. [story from Vince Kiernan, Laser Focus World, May 01] ... Well, sure, government can spend on R&D, but who will evaluate its effectiveness? The same politicians who push money to constituent groups? Look what porridge they have made of SBIR. And education rises from the home, not from the government.

More Siligloom. After an unprecedented five-year boom, Silicon Valley is now slipping into its sharpest recession since the early 1990s, one that could bog down the economy for the rest of the year. That's the best estimate of economists who are watching how the national slowdown is hitting the high-tech industries in Santa Clara County particularly hard. ``Whether we have a national recession or not, we have one in Silicon Valley,'' agrees Ken Rosen, chair of the Fisher Center for Real Estate at UC Berkeley. ``It could last from six months to two years.'' ... A glut of commercial office space is developing as companies find they have leased space they can't use ... sales of new cars and trucks in Santa Clara County are down 17% ... Increasing power costs, higher gas prices ... [But] new businesses up 28% since January ... Construction permits in Santa Clara County for commercial office space 33% higher , [San Jose Merc News, May 18] If SV economics is no longer straight up to the sky, would they abandon their free market hype and ask for a government subsidy?

The Dow first reached the 100 level in January 1906. It traded above and below that level for more than 36 years; it wasn't until May 1942 that the market left 100 behind for the last time. The Industrial Average first reached 1000 in February 1966. It traded above and below that level for the next 17 years, leaving that figure behind for the last time in February 1983. The Dow first reached the 10,000 level in March 1999. Considering the unprecedented gains of the past several years, would it be that unusual for this benchmark to take a decade or even two before leaving 10,000 in the dust for the last time? [Daniel Turov, Barron's, May 21] If the Dow and the NASDAQ don't rise substantially, where will the money and enthusiasm come from for venture investments in new technology? The government? The government doesn't really do much of that; instead, it funds basic science and incremental improvements in its present inventory.

Just a year ago, everything was rosy: GDP was growing at 7%, Internet stocks were hot and the Dow was going to 100,000. The economy, consumers and the stock market were awash in giddy optimism. Now, bullish tech investors have turned into mad cows. What's my answer? buy tech stocks. [Marc Robins, Forbes, Apr 16] For what it's worth, Robins recommends the following speculations: Avocent, BSquare, Carreker, Oak Technology.

Prosperity financed with speculative capital must sooner or later hit the wall of arithmetic. Presented with ultracheap funds, entrepreneurs build and then overbuild, Before very long there is a surplus of fixed investment. Businesspeople are especially prone to an excess of enthusiasm if they believe - as many did in recent years - that economic cycles went out with the slide rule. ... ... recession is that season in the economic calendar when investment mistakes are re-priced and reprocessed, a joyless but necessary time. How necessary? Consider that Japan spent the 1990s refusing to confront its errors of the 1980s. The only thing worse than a bad recession is none at all. [James Grant, Forbes, Feb 19,01]
Hot Opportunity If nothing is done to rethink chip design, the most powerful microprocessors could be consuming more than 1,000 watts by 2004. "If it's business as usual, we wind up frying eggs" with microprocessors, says Dennis Monticelli, a Fellow with National Semiconductor in Santa Clara, Calif. Many of these problems could occur within two chip generations, about four years from now. Since it takes about two years and more than $1.5billion to build a new semiconductor factory, chipmakers are rolling some expensive dice betting researchers will find solutions in time. ... ... New cooling tricks are starting to emerge. In late February the fledgling Incep Technologies (San Diego, CA) introduced a technique for packaging together a microprocessor, a logic board for regulating power to the chip and a heat sink. Even though such "encapsulation" could cost $200 per unit, Incep President James Kaskade contends that it both cools the chips and saves space inside the box. Isonics (Golden, CO), a maker of specialty materials and chemicals, is proposing a new material:a "purer" version of silicon called Si-28, which channels out heat better than conventional silicon. The silicon in typical wafers is a blend of three silicon isotopes. Sifted down to just the Si28 isotope, Isonics' wafer conducts heat better. [Elizabeth Corcoran, Forbes, 04.02.01]

Suddenly tech is a wreck: Cisco and Sun are missing sales targets, inventories are climbing and share prices are falling faster than the Mir space station. Businesses are doing what they always do in a slowdown slamming the brakes on spending. Don't starve things digital. Prices are low and people come cheaper. Step on the gas, says GE's Jack Welch. That is welcome news to General Electric's Chairman Welch. While everybody else pinches pennies, lays off technology staff and delays purchases of computer gear, Welch and his crew plunge ahead with an Internet buildout, hoping to steal a march on rivals. Pursuing Welch's vision of "digitizing" every aspect of the company, GE's 7,000 tech staffers are coding up dozens of new applications, fueling demand for more PCs, servers, storage and network routers. GE will spend $3 billion on high tech this year, up 12%, three times the rise projected for IT overall. "Two years ago we would never be doing this,"admits Gary Reiner, GE's chief information officer. "We would have been cutting IT just like everybody else. Tech was the first thing we'd cut. But things have changed here." Welch, in one of his last major speeches inside GE before his planned retirement later this year, exhorted 500 managers in January: "Now, with the economy tightening, with people cutting back, don't let yourself cut back for a second on your digitization efforts. This is the time to widen the gap." [Daniel Lyons, Forbes, Apr 30]

RPI incubator space prized. When Iota Solutions Inc. moved out of the Rensselaer Polytechnic Institute's incubator earlier this month, incubator officials were not concerned about filling the open slot. There always is a list of companies that want to get into the incubator, said Simon Balint, incubator operations manager. There are 32 companies currently in RPI's incubator sites in Troy and Watervliet. RPI works with at least 30 other affiliate companies that are not located in the incubator but still receive some counseling and help from Balint and Bela Musits, director of RPI's incubator program. Of that 30, Balint said there are three or four that could qualify to move into the incubator. [Richard A. D'Errico. Capital District Business Review, May 14]

Thanks to the current, more realistic technology market, there has been a resurgence in technologically based startups. I find this very refreshing -- and incredibly challenging. [redherring.com, May 10]

The relentless decline in the prices of information technology equipment has steadily enhanced the role of IT investment as a source of American economic growth. Productivity growth in IT- producing industries has gradually risen in importance and a productivity revival is now under way in the rest of the economy. Despite differences in methodology and data sources, a consensus is building that the remarkable behavior of IT prices provides the key to the surge in economic growth. [D Jorgensen, American Economic Review]

Savvy Savi. The Red Herring 100, an honor list of the 100 companies the 50 private and 50 public companies most likely to change the world included Savi Technology (still a private company). Said Herring Savi's 12-year head start in developing its technology puts it far ahead of new entrants to its field. In addition, its ties to government, the U.S. Postal Service, and United Parcel Service give it leverage in setting technology standards.

A Little Fiber Economics Each amplifier typically adds a million dollars to the price of a long-distance transmission line. For a cable thousands of kilometers long, that begins to add up to real money. And when an amplifier breaks down mid-Atlantic, there's no option but to send out a ship to dredge up the cable. "It costs a fortune to fix them at the bottom of the ocean," says Bath's Russell. [P Ball, The Next Generation of Optical Fibers, Technology Review, May 01]

15,000 Photonicians. The Photonics West Conference in San Jose had another overflow crowd - 15000+. and exhibit space overflowed into another building. Photonics is a field that should be getting a lot of SBIRs from agencies wanting to tap the commercial power of entrepreneurial companies.

Dave Matlin is the Babe Ruth of the [vulture capital] game. Ruth was the home-run leader and the strikeout leader in the same year. [Berman & Goldman, Forbes, Apr 2] Hello, SBIR-crats, if you want home-runs, you have to swing for the fences. If you want safety, you bunt. Unfortunately, bunting never wins games unless the defense is hopeless. SBIR cannot be a success by any measure unless agencies take big chances on bug innovators. Safe science by safe scientists is mere bunting.

Got a great gizmo for fiber-optics networks? Drowning in glass Can you have too much of a good thing? The history of technology says not, but that was before the fibre-optic bubble DREAMY it may seem, but "build it and they will come" is one of the most fundamental and lasting laws of technology. Each year the labs of Silicon Valley find ways to increase the capacity of everything, from processors to storage space, seemingly beyond all sense and reasonable demand. Yet somehow ways are always found to use it all. In technology, capacity drives demand, rather than the other way round. The same has been true for communications capacity, which has been growing quickest of all, thanks to fibre optics. But here, the recent stockmarket bubble changed the picture. Investors threw tens of billions of dollars at new telecoms companies that were laying fibre networks in competition with the incumbents. The pace of new fibre laying, already fast, became frenetic: sales growth at leading fibre makers such as Corning hit 50% last year, nearly three times the previous rate. The race to lay new fibre reached such extremes that one company, 360networks, rose to fame not for its network technology but because it invented a railway cable-laying machine that could rise up to let trains pass underneath, saving it from having to waste valuable time scooting off to a siding. .... a gap between the main supply of potential bandwidth capacity (the long-haul networks between cities) and the main sources of new demand (small businesses and homes). From now on, there will be fewer companies connecting these consumers to networks than before, and at slower rates. This last mile bottleneck keeps millions of homes and businesses using dial-up modems, consuming trickles of bandwidth when they might want floods, and leaves much of the fibre in long-haul networks unused. .... The result may be that once the shakeout is over, the survivors will be able to offer unprecedented amounts of bandwidth for unheard-of prices. Companies such as Narad Networks are developing technology that will allow them to offer homes up to 100 megabits of raw bandwidth at less than $100 a month. .. Fibre is not so different from other technologies, except for the cost of getting it wrong. [The Economist, Mar 22,01]

Professor Tony Warren
(Apr 9) Tony Warren, who has graced many an SBIR conference with advice on technology business, will soon become the Director of the Farrell Center for Entrepreneurship and Farrell Clinical Professor of Entrepreneurship at Penn State's Smeal College of Business. There he will get paid real money for dishing out the advice and teaching others how to dish it out. Judy Olian, Dean of Smeal College, says Tony will Tony will establish the Center as a magnet for entrepreneurs and students of entrepreneurship. Money ($4M) for the Chair comes from Pittsburgh businessman Michael J. Farrell, president and CEO of Farrell & Co., and his wife, Christine. Tony now heads Strategic Technologies LLC, a boutique investment bank for technology rich companies seeking to sell part or all of their assets. Before that he Technology Management and Funding to make investments in "seed-stage" firms; he is also a Venture Partner with Adams Capital Management.

Let's get one thing straight from the start: Wall Street's love affair with technology is far from over. Credit Suisse First Boston, the reigning kingmaker for the Left Coast,pulled in about the same level of tech-related banking fees over the first three months of this year as it did during the go-go days of early 2000, according to Bill Brady, CSFB's co-head of global technology. Given the 60 percent-plus decline in the Nasdaq and a technology IPO window that's frozen shut, you might find that little factoid hard to believe. But it shows just how pervasive Wall Street's influence has become. Whether it's a convertible debt structuring, a secondary private placement, or a billion-dollar acquisition, the Street is not about to stop devising new ways to keep this gold rush of investment opportunity going. [redherring.com, Apr 4]   It's a frightening picture, all right. Hordes of brash high-tech startups, all intent on grabbing a 20% share of vast emerging markets, getting massacred, their dreams crashing back to earth. Even the most respected tech companies are being forced to lay off staffers and slash spending as earnings fall miles short of analysts' projections. The press is stuffed with scary "end of history" articles about the death of the tech revolution. Venture capitalists, who just months before were throwing around money like so much birdseed, are nowhere to be found. Sound familiar? All this happened back in 1985, in what was then the biggest tech meltdown ever. [Peter Burrows, "Surprise--The Tech Industry Is Cyclical", Business Week, Apr 2] Your grand predictions for wonderful markets for your products might be seasoned with the perspective that you could come to market at the worst possible time for new ideas.

The $4 trillion that has been lost in the stock markets was built on assumptions of earnings multiplying to the sky and on the fairy dust of dot-com and telecom start-ups; it had no substance. Priceline was never worth as much as most of the airlines combined. Even great companies like Cisco couldn't possibly justify their lofty valuations. [S Rattner, NYT, Apr 4]

Lucent has finally managed to take public its microelectronics division, a spin-off it calls Agere. This debt-ridden stock, which started trading today, is the ninth technology IPO this quarter, compared with 98 for the same period last year. And there's barely a trickle of new tech IPOs in the pipeline. It will be this way for a while. The stock market is part of the reason, but there's another fundamental issue: the public's new, grown-up taste in IPOs. The new-issue market, when it resurrects, will support solid companies, not raw startups. Investors will want quality, measured by revenues, customers, technology, and understandable business models. [redherring.com, Mar 29] Do you think any of that quality sought will come from SBIRs granted by government agencies to serve their short-term R&D needs? Will government want quality? Of course, what agency would say otherwise? But what does it mean by quality? Sam Colella's hair has gone gray, but it isn't from stress over the tumult in the venture capital business. After 20 years in operating positions, he spent the past 17 as a venture capitalist... The young bucks who herded into VC in the past few years could learn a thing or two from old bulls like Mr. Colella. "Our business will forever be cyclical," he says. "The test of a real venture capitalist is to be able to know how to manage their business through the down cycles as well as the up cycles. That's what the young venture capitalists haven't learned yet." The past few years have been beyond an aberration. Before 1994, VCs had never taken in more than $6B a year from their limited partners. It's only been in the past four years that LPs have carpet-bombed VCs with cash. Annual capital commitments to U.S. venture funds soared from $17.9B in 1997, to $30B in 1998, then to $64B in 1999, and $82B last year, according to market researcher Venture Economics. Mr. Colella reckons capital commitments will drop by more than half to $30B this year. Still, that figure is more than double any annual capital commitments before 1997, and it's 68% greater than the amount invested in 1997. And when you consider that venture capital firms have more than $250B under management, the picture gets even rosier. What this al adds up to is that VCs still have more money than they know what to do with. [redherring.com, Mar 29]

NATIONAL COMMISSION ON ENTREPRENEURSHIP (NCOE) & HARVARD ADDRESS STIMULATING ENTREPRENEURSHIP THROUGH PUBLIC POLICY TO DRIVE THE 21ST CENTURY ECONOMY. First-Ever Conference to Discuss How Entrepreneurship & Public Policy Go Hand-in-Hand; National Leaders from Business, Government & Academia ...This first-ever conference on entrepreneurship and public policy will focus on critical issues such as venture financing, minority and inner city entrepreneurship, technology transfer, new markets, higher education and K-12 schools and workforce quality. .... as the nation looks for answers to an economy mired in uncertainty, little is being done to foster the continued growth of this tremendous economic engine. Primarily, this is due to a poor understanding of entrepreneurship, especially among the nation's federal, state and local policymakers. In addition, entrepreneurs often don't have the time or inclination to communicate with policymakers to shape relevant legislation. This "disconnect" between policymakers and entrepreneurs not only has the potential to hinder the launch of more fast-growing companies, but also further slow the nation's economy. Tuesday and Wednesday; April 10-11, 2001. The conference will be led by an invitation-only group of national leaders from business, government and academia, which will include: Governor John Engler (R-MI), Senator Tom Carper (D-DE), Representative Edward J. Markey (D-MA),l Representative Harold Ford (D-TN), Mayor Kirk Watson (Austin, Texas), Patricia Cloherty, Special Limited Partner, Patricof & Co. Ventures, Candida G. Brush, Boston University School of Management, and Researcher, women's business research group -- "The Diana Project", Michael E. Porter, Harvard Business School. ... contact: Caroline Broder, 703-556-6300, ext. 144,broder@merrittgrp.com Except for academic Porter, stand by for political posturing and credit grabbing.

I warned on this page ("Big-Cap Tech Stocks Are a Sucker Bet," March 14, 2000) that these valuations were unsustainable; historical analysis revealed that no large firm, no matter how successful, has ever deserved a P/E ratio of 100 or more. I showed these lofty valuations could not be justified even if these firms achieved analysts' very optimistic long-term earnings growth estimates (which ranged from 20% to over 55% annually) for periods of as long as 10 years. ... History caught up to these stocks even faster than I predicted. .... I should emphasize that the collapse of tech stocks has much more to do with the lack of trust in future earnings estimates than it has to do with the belief that technology won't play a key role in the future of the world economy. I believe the "new economy" is alive and well. But in the future markets will be marked by intense price competition that will make it very difficult for firms to maintain adequate profit margins. [Jeremy J. Siegel, Wall Street Journal, March 19]

The internet bubble has done a huge public service. It has demolished the widely held belief that the lack of easily available finance is the principal barrier to new business start-ups. The past three years provide a perfect laboratory test of this theory. Finance was available in abundance, in every conceivable form: venture capital, public equity, bank finance, sophisticated debt instruments, corporate investment, government initiatives. If finance were the key to success, we would see a flourishing industry of dotcoms and established companies would be under intense pressure from their new rivals. Yet the reverse is the case. ... It is not surprising that entrepreneurs themselves see finance as the critical barrier. Obtaining finance is a formal, almost ritualised process, involving the search for approval from an authority figure. It has a powerful psychological impact on the fund-seeker. And academics who have studied start-up business plans say that too many focus on details of costs (what resources they will need, how they will organise their production and so on) at the expense of a deep understanding of the revenue side. It is finance, of course, that turns all those lovingly prepared cost numbers into reality. As the internet experience demonstrates, easy access to finance reinforces this structural emphasis on costs not revenues. By postponing the moment at which serious revenues absolutely must flow, easy finance emphasises internal issues, such as building the product and hiring a full staff, over external issues, such as grubbing for every penny. ... If finance is not the crucial issue in entrepreneurial success, what is? Again, the internet experience offers a laboratory test. The crucial question is margin, the ability to generate revenues that exceed costs. Entrepreneurs, in love with their product, are often poor at assessing the likely margin. In particular, they underestimate customer-acquisition and after-sales costs. When capital is short, the financing process exposes these issues to brutal interrogation. [Peter Martin, Financial Times, Mar 12]

Growthink surveyed venture capitalists, corporate investors and angel investors on why business plans fail to raise financing. Here's what they found:
The plan's market analysis excluded successful companies competing in the same area.
Too strong an emphasis on partnerships with well-known companies.
Focusing too much on the future and not the business' track record.
Not highlighting management skills relevant to what's needed for a successful launch.
Asking investors to sign a nondisclosure agreement.
Stressing first-mover advantage, which is no longer believed to be a long-term advantage.
Focusing too much on proprietary technology and not on technology that satisfies a market need. Presenting generic, unrealistic market sizes.
Making financial projections too aggressive.
For a full copy of Growthink's 2001 Business Plan Guide, visit www.growthink.com
[Business Journal of Phoenix, Mar 12]

new competition has entered the long-distance market. "The business can support three long-distance players, and right now there are about 17," estimates Kalla. And that doesn't include the four Baby Bells that are salivating over the possibility of selling long-distance services to their local customers if they receive regulatory approval. "There are not enough revenues to support all of the players and meet the earnings guidance that managements have set." Combine too much supply and too many players and you get irrational pricing. Go ahead, project demand for your innovative gizmo on your own analysis. Tell the government your fantasy in case it cares about the real commerrcial prospects. But if you run up a government agency who wants you to validate your story with third-party commitment, you cna complain to the SBIR advocates about the evils of cost-sharing. ..not even Welch has had to cope with an 80% wipeout of prices in a core revenue stream. That's right. The underlying price structure of long distance has dropped 80% in two years, thanks to a bonanza in fiber-optic capacity. Internet tele-phony will whack the rest sometime soon. Before you snigger at Armstrong's dilemma or succumb to the Silicon Valley conceit of lumping him in with the clueless Bell Heads i.e., adopters of Moron's Law instead of Moore's Law gaze into the mirror. Could you handle an 80% smackdown on prices in your core revenue stream? ... Think Intel and Sun have strong brands? Few are better, in my opinion. Yet Intel and Sun face a potential threat from upstart Transmeta, whose chips run only 75% as fast, but here's the wow suck only 20% of the power. Designed for laptops, the Transmeta chips may find a vaster market solving the electricity crisis. Example: A server farm in electricity-starved California drinks as much juice as a town of 25,000. Think of the savings if servers ran on Transmeta chips. [ Rich Karlgaard, Forbes, Mar 9,01

Think tank offering deals for new sponsors. The Center for Applied Information Technology is the most interesting research-and-education think tank you've never heard of.... housed on the campus of the University of Dallas, .... CAIT wants to bring in more corporate and university sponsors this year to help do more technology work and marketing, events and the like. (About 80% of its revenue goes toward hardware and software for testing and research projects. The remaining 20% is used for marketing and events.) There are two types of sponsorships available: Partners, which cost $25,000 annually for a five-year commitment; and Sponsors, which run $5,000 a year for five years. Universities can participate as well and are treated the same as companies who become either partners or sponsors. The difference between the two sponsorship levels is in how much it costs the partners to access the research and other things CAIT does. Buying a "partner" deal gets you all that for free, while getting in as a sponsor will get you a discount. Among other things that cash will buy: Early access to companies in the incubator. Budding entrepreneurs make presentations to CAIT's board of advisors, which is made up of center partners and several venture capitalists. That gives the partners first shot at the new companies before they are made available to the general public. Sponsors get access around the time the companies are brought to the public. Early access to interns. CAIT has a number of interns, most of whom currently come from the University of Dallas (though Savoie stresses the program is open to anybody attending a university or community college in the Metroplex). Partners get to speak to the interns first -- including about future employment -- and sponsors are next in the pecking order. The public is third. Web site at http://www.caitud.org. Their phone number is (972) 721-4099. [Jeff Bounds, Dallas Business Journal, Mar 5]

'Whatever venture investors are making you go through is still not as bad as what customers will make you go through,' Ms. Karlin says. 'This is part of developing your scar tissue. If you can't get through the venture process, you're not going to make it as an entrepreneur.' [redherring.com, Mar 7]

Siligloom Valley During the last year, Nasdaq investors have lost nearly 60 percent of their paper wealth, a loss valued at $3.1 trillion. That's the equivalent of all the personal savings set aside by everyone in the United States during the entire decade of the 1990s. ... If you had bought one share of each of the 434 public companies in Silicon Valley tracked by the Mercury News, you would have spent $19,350 last March 10. What would your investment by worth now? $6,188 -- a decline of 68 percent. More than one in five of those Silicon Valley companies have lost more than 90 percent of their stock value in the past year, according to a Mercury News analysis. ... And most distressing of all: the Nasdaq composite index remains unusually high according to one flawed but frequently used measure of value, the price-to-earnings ratio. From 1986 until the bubble started in late 1999, investors paid an average of $41 a share for every $1 a share earned by the Nasdaq companies during the previous 12 months. By March 2000, the peak of the market, they were paying $245.70 a share. Last week, it had declined to $104 a share [DAVID A. SYLVESTER, San Jose Mercury News, Mar 3]

Never have so many lost so much on the advice of so few apologies to Winston Churchill. Forget price and fundamentals, said the Mary Meekers (Morgan Stanley), Henry Blodgets (Merrill Lynch) and a supporting cast of other bigname analysts paid millions, who never met an Internet stock they didn't like. Meeker, often called the "Queen of the Internet," earlier this year still recommended 11 Internet stocks as "outperform." They are down an average of 83% since last spring, but that doesn't in itself make them cheap. Blodget, a god in the Internet world since his prescient 1998 forecast of a big Amazon advance, is still plugging for the online retailer, which has taken a 77% dive from its December 1999 high. The undaunted Blodget's reasoning in touting this and other fallen tech angels: "The industry has passed its low point." In other words, blue skies ahead. [D Dreman, Forbes, Mar 5,01]

notes that, like the microchip and PC markets, the Internet market grew organically because it solved an obvious problem that was important to a large group of people who had a lot of money. Mr. Valentine recounts being at Fairchild Semiconductor (NYSE: FCS) when he and future Intel (Nasdaq: INTC) founder Bob Noyce marveled at the invention of the microchip but at the same time wondered what it was good for. The early days at Apple were much the same. "I remember wondering what people were going to do with the Apple II. There was no answer!" Mr. Valentine declares. In contrast, the networking boom was about solving big, important problems for corporations. "When Cisco came along, it was addressing an environment desperately in need of a solution," he explains.From a venture capital perspective, Mr. Valentine believes that it is better to invest in markets clamoring for new products than in creating new markets. "In the two previous eras -- microchips and PCs -- lots of companies went over a cliff," he says. "Uniquely in the networking world, there are almost no busts." Extending his logic, Mr. Valentine foresees what we have been predicting for a couple of years now: that the Internet space will suffer dramatic company wreckage as well. Another veteran VC, Jim Breyer of Accel Partners, concurs with this analysis: "Ninety percent of the Internet companies that exist today will eventually go out of business." [A Perkins, Red Herring, Jan 30,00]

Intel is about to go on a marketing offensive with a high-end chip that skeptics say few people really need. Facing a steep drop in personal-computer sales, Intel is looking to woo computer users to its leading-edge microprocessor, the Pentium 4. Intel wants to focus on its high-end offerings in the consumer PC market. The broader PC industry could use a boost as well, as many computer makers are struggling with flagging sales. ... has an enviable track record of persuading PC buyers to move to the successive generations of chips that have provided its explosive growth. But getting people to move to a new generation may be tougher this time. There's the economic slowdown and the reluctance of consumers and corporations to spend. Perhaps more important, PC users simply don't need to trade up to more powerful processors the way they used to in order to enjoy the fruits of modern-day computing. The Pentium 4, which debuted in November in PCs that start at $2,000, offers the average business or home user little incentive to spend more. It's great for hard-core computer gamers or tech-savvy users who want zippy video and high-quality graphics or sound. But a much older and cheaper Intel chip, the Celeron, does just fine for the Web browsing or word processing that most people use a PC for. "The Pentium 4 doesn't make your phone line any faster," and that is the biggest bottleneck for new applications, says Kevin Krewell of MicroDesign Resources [MOLLY WILLIAMS, THE WALL STREET JOURNAL, Feb 15,01] The biggest, fastest, most powerful device isn't always what sells. Trees don't grow to the sky and markets can get saturated.

Will Light Bulbs Go the Way of the Victrola? (I remember the Vic ads withe dog looking into the speaker.) Microlaser researchers see energy-cost savings in the billions The lightbulb has been humanity's most reliable source of artificial illumination since Thomas A. Edison perfected the design in 1878. That may be about to change. ... arrays of tiny lasers developed jointly by researchers at Brown University and Sandia National Laboratories .... VCSELs that produce ultraviolet radiation ... Around $15 billion worth of conventional lamps are sold each year worldwide. And by most measures, solid-state lights will be superior. They will last up to 10 times longer than fluorescent tubes and will be far less fragile. They also promise to change the way spaces are lit. Flat arrays can be mounted in any pattern, on floors, walls, ceilings, or even furniture. The biggest payoff, however, is likely to be in saved energy. Last year, researchers at Sandia and Hewlett-Packard Co. predicted that solid-state lighting applications would chop energy costs by $100 billion annually by 2025. Demand for electricity would be reduced by 120 gigawatts per year--the equivalent of about 15% of current U.S. generating capacity. ... blue LEDs are already in production. In the U.S., GelCore Corp. in Valley View, Ohio, a joint-venture between GE Lighting and Emcore Corp., and Cree Lighting Inc. in Goleta, Calif., are exploring this approach. Such light is harsh and cold, however, because it is overweighted toward the blue ... long way to go before a practical lamp emerges. The next challenge: standardizing the technology so it can be incorporated into existing lighting and electrical fixtures. [Alan Hall , Business Week, Jan 22]

YET2.COM got another $40M funding atop its prior $21M. It bills itself as on online marketplace for the exchange of intellectual property and can be found at SBIR conferences. Huge corporations -- more than 400, from Boeing to Proctor & Gamble -- list their unused research and development with Yet2.com, where other corporations can find the technologies, license it, and save that R&D from the circular file. The average value of a licensing deal will be $2 million to $3 million, and "suffice to say that these transactions don't close at click of a button," says CEO Chris De Bleser. The deals will take several years to close, and when they do, Yet2.com will take a 10 percent fee. In the meantime, the company is subsisting on membership fees, posting services, and venture capital. They expect the first licensing deal to close in 2002. [redherring.com]

Place a sales manager, chief financial officer, or company president in a conference room, and within 30 minutes, one of them will say to potential investors, "These are conservative projections." The cliche always accompanies a colorful slide showing columns marching up the steps to fiscal paradise. Some time ago, after an entrepreneur led us through another one of these choreographed presentations, one of my partners at Sequoia Capital sais, "We'll finance the first CEO who tells us his projections are wildly optimistic." ... When people like us invest in a company, nothing about it is real. A thicket of claims, predictions, and projections always surrounds a new investment and makes the kernal of truth almost impossible to discern. .. If a pattern of future success were glaringly obvious, it would be too late to make a great VC investment. [M Moritz, Forbes ASAP Oct 3,00] And when an SBIR proposer makes claims to the government about commercial potential, it is usually even more fantasy and less thought through. Little matter, though, since most of the government does not see itself as an investor, only a purchaser of R&D for some public purpose. Which means that any outrageous claims of commerce are generally ignored. Basically, if the government reviewers like the science, they will accept almost any commerce claims. If they don't like the science, they will find lots of things wrong with the claims.

In the 1880s, more miles of railroad track were laid than in any other decade. In the 1890s, more railroad companies were in bankruptcy than in any other decade in US history. It was a classic story: Overinvestment in railway tracks led to an excess supply that, in turn, led to alll-out price wars. [Hal Varian, Forbes ASAP, Oct 3,00] The result, of course, was a far-reaching railway system in the US with profitable lines in the hands of large operators. What was good for the country was not necessarily good for every enterprise. The parallel with today's fiber-optic buildout should enter the thinking of companies making projections of optical wonders.

More companies join display consortium. The US Display Consortium, the public/private partnership charged with developing flat-panel display (FPD) infrastructure, has acquired two new members, E Ink and Displaytech. USDC president Michael Ciesinski said: "E Ink and Displaytech are commercializing revolutionary technology for flat-panel displays, and are excellent examples of the potential for unique innovation in the display industry. As the industry expands and continues to push the envelope on FPD applications, USDC will help to meet manufacturing infrastructure requirements and support members in their market promotion." E Ink has developed flexible paper-like electronic displays in conjunction with Lucent Technologies. Displaytech, with the recent opening of its second manufacturing plant in Miyota, Japan, is now the world's only dual-sourced microdisplay manufacturing company.

Cyclical gloom in semiconductor industry Sales of semiconductors and the equipment needed to make them will nearly flat in 2001, according to new forecasts from two leading research firms. That's a sharp drop from the torrid growth in both categories during the last two years, and it's much worse than the 22 percent growth in chip sales that the industry predicted just a couple of months ago. The reason for the slump is simple: amid a slowing economy and high energy prices, people aren't buying personal computers and cell phones as fast as they used to, and companies are slowing purchases of networking and Internet equipment. All of those devices use chips, and the downturn suggests more bad news to come in the broader technology industry. The year 2000 represented a huge boom for the chip business, which saw sales grow about 37 percent to an estimated $205 billion worldwide. Chip equipment, including the big-ticket machines used to make chips, had an even better year: sales grew 90 percent to $43 billion. IC Insights is now predicting the chip business will grow just 7 percent this year and 9 percent in 2002. .. Since the chip industry has historically grown an average of 17 percent a year, near-zero growth is like a speeding car suddenly hitting a brick wall. [THERESE POLETTI, San Jose Mercury News, Jan 11] BACK in the 1960's, Corning Inc. developed a promising new flat glass that produced no glare. It spent a lot of money pushing the glass at auto companies for windshields and at optical companies for sunglasses. No deals. Finally, more than two decades later, the glass found a profitable home, to the tune of about $300M in sales last year, in computer flat panel displays. What if Corning invented the glass today? For one thing, the company would not turn the idea into a product until it had lined up buyers. It probably would seek out acquisitions, or at least partners, that could help it get the glass to the target market as fast as possible. Then, if the glass did not start generating cash in a few months, Corning would probably scuttle it. "We used to be like a casino invent something and then roll the dice," said Roger G. Ackerman, Corning's affable chairman. "But now we realize that, if you don't understand market dynamics, you'll crash." [CLAUDIA H. DEUTSCH, New York Times, Jan 7] If Corning spends all its R&D and energy on existing markets, from where will it get the products that will keep it from being overtaked in a few years by a surprise competitor? The same question applies to the government mission agencies although they are at less risk from big competitors than is Corning. But as Christiansen argues (The Innovator's Dilemma) surprise competiton comes from below when someone opens a low market line that succeeds and moves up market into the biggie's prime territory.

Whatta Game! The stock market tanks because growth is slowing and profits will slow with it. The Fed confirms the slowing by easing off on the interest rate brake. The stock market soars by an unprecedented one-day percent. What then, is the driver for stock evaluation? A bigger fool theory that overpumped the dot-coms? Anyway, some of the SBIR companies shot up with the NASDAQ Index. Emcore up 18%, SDL which is lock-stepped with JDS up 39%, AXT up 17%, Cree up 18%, Surmodics up 18%. Down were Wilson Greatbatch, HNC, and ViaSat.

plenty of reasons for venture investors to be hopeful about the new year.It will be a relief to think of the dot-com chaos and stock-market meltdown as bad memories from ''last year.'' And there should be ample opportunities to do deals at lower prices and at a reasonable pace, compared with the constant overdrive that characterized 1999. On the other hand, there will surely be fallout in 2001 from the end of the stock market's love affair with the Internet. Over the next few months, the foundations, endowments, pension funds, and wealthy individuals that invest in venture capital funds will be receiving their year-end account statements. Most of them are probably prepared to see lower rates of returns and some bad investments show up on those statements. Much as mutual-fund losses tend to sink in for ordinary investors when statements show up in the mail, the same will be true for less-sophisticated venture investors who jumped into the sector at the top of the market in early 2000. And there's another undeniable truth: Everybody, no matter how sophisticated, hates to lose money. [Beth Healy, Boston Globe, Jan 1,01]   When the history books are written, investors may discover that while they oohed and aahed at first over the wonder of the technology bull market of 2000, they were, in fact, experiencing a true financial mania. The rise that seemed so dazzling only nine months ago turned into an equally dramatic decline, turning the year 2000 into the worst year ever for the Nasdaq composite index. Even the expected December rally fizzled. On Friday, the Nasdaq composite index sank 87.24 points to close at 2470.52, down 39 percent for the year. [JENNIFER BJORHUS AND MATT MARSHALL, San Jose Mercury News, Dec 30]

EDITOR'S PICK: CURRENT RESEARCH FROM THE CUTTING EDGE. Griffin Securities scrutinizes M&As -- Photonics: the converging technologies This special industry study of merger and acquisition (M&A) activity among public and private photonics firms includes profiles of JDS Uniphase (JDSU), Cisco Systems (CSCO), Lucent (LU), and other market bellwethers (report for purchase - $100). Click here. http://www.multexinvestor.com/Download.asp?docid=5371197&promo=unl&t=8&d=20001228 [Note: Info only, not a recommendation.]

Under a deadline to deliver a top-notch speech? Patricia Fripp offers strategies for organizing and delivering a winning presentation:
-- Come out punching.
-- Monitor your "who cares?" factor.
-- Be funny, maybe.
-- Organize with a three-part outline.
-- Develop your content.
[Inc, Dec 21]

Want to know who else might be doing what you're doing? The Red Herring has a new product: We know you're interested in learning about the hottest technologies and the most revolutionary new products. After all, you're creating some of them. Red Herring is the first to find and report on the business innovations that are shaping the new economy. We've just launched HERRINGTOWN, an exclusive, searchable database of early-stage private companies. We're inviting you, and other hot private companies, to apply for membership in Herringtown. It's FREE! If your company is private and changing the face of technology and business, and you want to connect with key people -- partners, suppliers, customers, and INVESTORS -- we encourage you to apply today. The application process is simple and fast. Just visit: http://www.herringtown.com/apply If you are not a private company, we invite you to visit Herringtown and search this exclusive database. That's free, too. Factsheets, submitted by the companies themselves, can be searched by industry sector, stage of funding, people, and company name, and they include detailed business, executive, and financial information.

Tech boom a legal con game countless investors lost vast amounts of money in technology investments. Yes, they were greedy. They bet stupidly, even blindly, as suckers tend to do when they join a stampeding herd. So yes, to some degree, they conned themselves. But they had plenty of help. A daisy chain of entrepreneurs, venture capitalists, Wall Street investment bankers and stock brokerages pulled off something unprecedented. They transferred almost all risk into the public markets. The people with the least amount of information were sold the most speculative investments. The sellers were insiders who fully understood the reality...... Capitalism is all about risk and excess. People make money on new ideas, and others follow. Markets get saturated and business cycles turn down. People lose money. Just as a stopped clock is precisely accurate twice a day, markets hit equilibrium briefly on the way up and the way down, because investor sentiment is a blunt instrument. The overall trajectory trends up, but the market oscillates and always will. The losers in the debacle of 2000 are part of the capitalist system. So are the winners, who made their money from greater fools. [DAN GILLMOR, Mercury News Technology Columnist, Dec 17.00]

Doing my part to fan the flames of post-correction profitability hysteria, I've taken to asking every entrepreneur and CEO I meet when his or her company will be profitable. But I rarely report the answers in my column, for two reasons. First, for the companies not currently profitable, the answers are almost all the same: "fourth quarter, 2001." Second, I don't believe it. There is no way that every Internet and technology company now getting started is going to be magically profitable 12 months from now. But it's not like CEOs are allowed to get creative with this. As far as VCs and boards are concerned, the profitability question is straightforward multiple choice:"within a year," or "never." So everybody is aiming to make their company a nice little earner by December next. And I'm telling you, this is a big mistake. Yes, it's true that a recent lack of respect for business fundamentals is what got us into this mess, but that doesn't mean that you can put all current technology and business development into a year-size box and expect it to work. Some stews take a while to cook. If you want instant profitability, invest in nail salons. [Tony Perkins, redherring.com] Money in the Air. Semiconductor giant Intel is still betting on technology start-up businesses. The Santa Clara, Calif., company has one of the oldest and richest corporate venture-capital programs around and it is expected to announce this week that it has added $300M to its Intel Communications Fund, bringing the size of the fund -- which was created in September 1999 -- to $500M. Along with the new money, Intel will expand the areas of focus for the fund to include wireless businesses, along with the two existing areas of focus: data networking and Internet telephony. Intel makes several chips and is developing others for wireless products and the new investing initiative is designed to "fill out the environment of companies that supports that strategy," says John Hull, director of the Communications Fund. [Lisa Bransten, Wall Street Journal, Dec 4]

[Nobelist, non-physicist, Jack] Kilby was 34 then and his new job at TI was just about the first lucky break of his career. He grew up in Great Bend, Kan.[where he] decided that he, too, would be an electrical engineer [like his father]. He set his sights on that mecca for budding engineers, MIT. There were no SATs back then, so one day in June 1941, young Jack boarded a train to Cambridge, Mass, to take the entrance exam for MIT. He flunked. Six decades later, with five dozen patents in his name, with his picture hanging next to Edison's in the National Inventors Hall of Fame, with virtually every engineering prize in the world on his shelves ... [Washington Post, Dec 10] Like Kilby, one of the greatest 19th century engineers flunked an admissions test for engineering school; IK Brunel, son of another great engineer, flunked the admissions test at the Ecole Polytechnique. Brunel's works can be seen for a few weeks in a whole floor display at the Design Museum in London. But when it comes to innovation, the conventional thinking of examinations yields to getting new ideas right. Both SBIR proposers and credential-testing government reviewers should remember what Kilby and Brunel did. Innovation expands the box; it does not describe the box.

Even in an age of individualism, Brunel's public life was remarkable for his roundly expressed hatred of government officials, and of any law, rule, or regulation which interfered with individual responsibility or initiative. The Patent Laws were one of his anathemas, for it was his belief that,by enabling astute firms or individuals to take out patents of principle, they stifled invention instead of encouraging it. He himself obstinately refused to protect any of his ideas, with the consequence that his design for a rifle with a polygonal barrel, which was made for him by Westley Richards in 1852, was subsequently covered by Joseph Whitworth's patent. The latter had seen Brunel's rifle when the visited Richards's shop in 1854. Four years later Richards pointed out to him that his rifle infringed the Whitworth patent. "I have never seen Whitworth's patent," Brunel retorted. "What is it exactly he does patent? It cannot be merely the polygon." But it was, and it could be said that from that small beginning there grew a great armament business. [L Rolt, "Isambard Kingdom Brunel", 1957] Brunel was one of the greatest British engineers of the 19th century, building new kinds of railways (especially bridges) and big steam ships.

Build It and They Will Come. Despite this year's bloodletting in Internet and other shaky technology stocks, the share price of nearly every profitable technology company is selling for far more than it did two years ago. Sadly, legions of investors failed to profit from that gain. Worse yet, they're positioned to miss the boat again.That's because they've failed to recognize a fundamental shift that's taking place: Tech companies have turned the standard supply/demand model on its head. Those who understand this now will reap portfolio gains in the coming years. Traditionally, a company responds to the demands of customers by increasing or decreasing production, or making changes in the products themselves. The automobile industry is a great example of this. Yet many tech companies shatter this model supply is now driving demand. Forbes publisher Rich Karlgaard aptly likens this dynamic to ferryboats crossing a river. By counting ferryboats, we feel we have a grasp on the demand for crossing the river until someone builds a bridge. Suddenly, ferryboat traffic is no longer a gauge of demand for crossing the river because the very existence of the bridge is generating demand. [Robert Markman,worth.com, Nov 22] So, if you are proposing an SBIR to the rare agency that really cares about innovation (and not just sweet science), you need to think like Markham amd Kaarlgard. Enrich, enlarge, enliven! Tell a future.

Worldwide spending on information and communication technology (ICT) totaled more than $2.1 trillion last year and was expected to surge 50 percent by 2004, a study released on Tuesday said.Such spending -- the sum of external and internal information-technology spending, plus telecommunications and other office gear -- now represents 6.6 percent of the world's gross domestic product, including almost 9 percent of U.S. GDP, said the survey by the 41-member association World Information Technology and Services Alliance. Based on research by the International Data Corp., the study found the United States remained the world leader in 1999 with $762 billion in ICT spending, followed by Japan ($362 billion) and Germany ($139 billion). [Reuters, Nov 21]

Want to lure venture capitalists? Get to work on a business plan. If your Executive Summary isn't hot, venture capitalists aren't going to read the rest of it. Whether you hire a professional business plan writer or DIY, you'll need to be the chief architect of the ideas that will lead to success. Here are some tips:
. 1. start with a one to two-page Executive Summary. Your entire business plan reduced to its essence.Capture your reader. market, your product or service, why your management team is the best lineup put together since the squad that brought home Apollo 13, your projected revenues and expenses, how much money you're seeking, what you'll do with their money, and, most importantly, ``why you?''
2. Front-load with information about your management team. Tell the VC about the business experience and successes of the team.
3. More than ever, VCs are looking for new, unique and hard-to-duplicate technologies and ideas. VCs may read hundreds of business plans for every one they agree to fund.
4. VCs aren't looking for 10-15% per year return. They could invest in mutual funds ; 25% a year and upwards of 100%. Show that numbers like these are possible.
[Mark Grossman is a shareholder and chairs the Computer and E-Commerce Law Group of Becker & Playoff P.A. www.EComputerLaw.com]>/em>

Six Common Web Site Mistakes. Take a cue from the panel of judges for the Inc. Web Awards 2000.
Mistake 1: Putting form before function. Allowing the bells and whistles to get in the way of the actual intent"
Mistake 2: Simply putting your company brochure online.
Mistake 3: Having features that don't work properly.
Mistake 4: Making life difficult for users. Try to avoid features that slow your site unacceptably.
Mistake 5: Making it hard for people to buy.Make it overwhelmingly clear how the customer can make an impulse purchase right on the spot!"
Mistake 6: Inadequately measuring the bottom-line impact.
[Jan Gardner, Inc. magazine, November 02, 2000]

The Trends for 2001 according to The Red Herring:
1. Distributed computing redefines computer networks, underpinning innovation, company formation, and investments. (SBIR firm Scientific Computing Associates should love it.)
2. Protecting Intellectual Property will be increasingly difficult.
3. A shakeout forces a return to venture capital investment basics.
4. The rise of ECNs will push traditional exchanges to consolidate into a single electronic trading network.
5. Bluetooth nears maturity, creating significant startup wireless opportunities.
6. Carriers shift from voice and data transmission to new high-bandwidth services.
7. Wireless commerce in Japan will be a model for the rest of the world.
8. The Internet falls under the regulation of international accords.
9. Revenge of the homeowner. Fuel cells will reduce our reliance on oil and allow businesses and homeowners to produce electricity independently.
10. Functional genomics makes drug discovery cheaper and faster, reinvigorating all of biotech.
Self-grading on last year's predictions

Your Chance for a Vulture Nest. The days of buyers lined up three-deep for expensive Austin homes may be coming to an end -- in part a casualty of the big decline in high-tech-share prices. Less than a year ago, custom-home builders in Austin were working overtime to build high-end homes with no worries about potential buyers. Most of the homes were sold before the last tile was laid. Now, Capitol Market Research, an Austin real-estate consulting firm, estimates that the number of such "speculative" homes selling for $500,000 or more will drop more than 40% to about 240 from the 430 upper-end spec homes sold in 1999. In the first 10 months of 2000, only 199 such homes were sold in Austin, according to Capitol Market Research. The stock-market turmoil simply means there's less wealth in Austin, says Charles Heimsath, president of Capitol Market Research. "Many people were selling stock to purchase these homes," he says [Tanya Sasser Rutledge, Wall Street Journal, Nov 15]

Incubators treading carefully How quickly the fashions change. Incubators were as hip as city scooters in January. Less than a year later, they're considered passe, even ill-conceived, as models for deploying venture capital. One local venture pro last week slipped, describing an effort to fund early-stage companies as incubating. ''Scratch that,'' he said. ''It's more like seeding.'' Incubator has become a dirty word, largely because many people thought backing start-ups would be simple (it's not) and made bad bets. Some incubators, meanwhile, have tried to offer too little to entrepreneurs - a roof and a fax machine - instead of hands-on help with strategy and operations. [Beth Healy, Boston Globe, 11/13/2000]

Trends that The Red Herring would like to see:
1. DEATH OF THE ACRONYM. The use of cutesy acronyms by analysts, pundits, and,yes, the financial media will be made a federal criminal offense.
2. Stocks will no longer be allowed to trade on days when a company executive is going to be on television.
3. Regulation Full Disclosure will be repealed.
4. AT & T'S 53 TRACKING STOCKS. There will be more corporate breakups.
5. More dramas about the market will hit television.
6. A new exchange will be created.
7. ARE YOU SURE YOU WANT TO BUY THAT STOCK? 7. Online brokerages will be forced to institute waiting periods for investors.
8. Genomics stocks will be even hotter.
9. Investors will flock to the latest broadband technology craze.
10.More financial media companies will go public.
** Red Herring Editor's confession: The FishOrCutBait Top Ten Trends are simply a byproduct of the author's already diseased mind as influenced by unhealthy amounts of caffeine. They are in no way, shape, or form to be confused with Red Herring's Top Ten Trends for 2001 (see http://www.redherring.com/mag/issue86/mag-trends-86.html).

Real Innovation, but A Real Business? Transmeta's Crusoe chip is indeed a technical innovation, and the basis for its post-IPO market cap of $6B. Crusoe threatens to obsolete Intel after years of privately and secretively funded R&D that makes the kind of claims that SBIR proposers mouth - less power drain per computing step. In a cold dose of reality, IBM said no thanks. Now Transmeta has a price to sales ratio of 1500. What's standing in the way to market dominance? To start with, Intel which does not give up easily even with Andy Grove retired to Chairman. Intel has a solid reputation that Transmeta does not. And some observers note that Crusoe does nothing for big battery drainers like screens and storage and the result is only 20-40 minutes longer laptop use. [facts from Andy Reinhardt, Mercury News, Nov 10] How could so many intelligent people have got the prospects for this business so wrong? And is it still possible to extract lessons from the wreckage? It's not Transmeta; it's Iridium and Globalstar. Low orbit satellites for mobile communications - cell phones anywhere - sounded like a good idea until you looked at the economics. $1000 for a brick of a handset and $2 a minute may be acceptable for places that have high economic value but no infrastructure. War, for example, in the Iraqi desert. Still, Motorola bet $7B and got only 15000 customers. [The Economist, Nov 4] SBIR proposers take note. Your dreams are just dreams (which the government may believe anyway for its own convenience) unless and until you have a solution that can power a business. Technical improvements are merely interesting. If you are taking your claims to a real commercially minded SBIR program, like BMDO's, you need more evidence of real business prospects than your wishes. Otherwise, you can just stand in line with the other dreamers.

The cult of innovation at all costs has ignored the terrible difficulty of distinguishing lasting innovation from fleeting novelty. Who remembers Microsoft's "Bob" interface? If Time magazine's Man of the Year Jeff Bezos' Amazon.com doesn't make it, will it be described as a technology innovator but a business failure? A business innovator that failed? Or a faux business innovator that rose to prominence on the crest of a speculative bubble? Even now, after the company's been in business five years, each of those conclusions is feasible. [Michael Schrage, Fortune, Nov 13]

Advice from 4 Silicon Valley entrepreneurs: Al Shugart, founder of Seagate Technology Inc.; Ray Lane, former president of Oracle Corp.; Ray Bingham, chief executive of Cadence Design Systems Inc.; and T.J. Rodgers, CEO of Cypress Semiconductor Corp.
Shugart preached the Gospel of Cash. When he launched Seagate in 1979, Shugart says, generating cash flow was his No. 1 priority. He was always cooking up ideas to bring more money through the door, such as striking licensing deals for his technology. Nowadays, he says, young entrepreneurs look to VCs to fork over dough instead of raising it themselves. Besides diluting the value of a start-up, the approach strikes Shugart as greedy.
Bingham joined Cadence in 1993 from the hotel industry. Though at first it might seem a strange fit, the pedigree may have shaped Bingham's mantra of putting the customer first. ``Be very clear on the market you're trying to serve,'' ... Once a young company has zeroed in on a market niche, execution becomes key, Bingham adds. ``Drive, drive, drive,'' he says. Companies that don't deliver on their promises to customers tend not to be forgiven.
Lane echoes the importance of a customer focus. Lane, who resigned as Oracle's No. 2 executive says he sees a parade of business plans cross his desk. Too many of them don't reflect the tough homework to see if there's actually a demand for their whiz-bang technology. .. Lane's not a big fan of techies trying to wear the CEO's hat. To him, there's a whole different skill set between devising a technology and building a company around it.
Rodgers remembers how tough it was for Cypress to land its first account in the early 1980s, and like Bingham, he emphasizes the importance of delivering the goods. Once in business, too many CEOs stray from the main focus of building value, ...Rodgers spoons some disdain on the dot-com crowd, whom (like Shugart) he sees as focused more on the dollar than on building a business. ``I don't know anybody who wanted to be instantly rich who became instantly rich,'' [PETER DELEVETT, San Jose Mercury News, Nov 10]

No Start-up For Me. Fewer MBAs are launching start-ups this year, students and venture capitalists say. It seems the tumultuous stock market has scared off the less bold of the bunch. The dive in the stock market has given them the jitters, says Sunanda Narayanan, who is bucking the trend. She is working on a telecom consulting start-up, called Booleo, with two colleagues. In the past two years, with the Internet boom and a hyperactive stock market, students shifted their attention to what seemed a sure path to success and riches. Even fame. At Sloan rival Harvard Business School, 12% of the class of 2000 has founded companies, up from 0.5 percent in 1990. ... The median pay package for a Harvard entrepreneur last year was $100,000. For consultants, it was $135,000. With the IPO market in the tank, entrepreneurs can't expect to make a quick fortune the way some of their recent predecessors did. ... Scott Tobin, a partner at Battery Ventures in Wellesley - the firm that spotted Akamai at MIT - suggests MBAs who can't stomach the ups and downs of the market aren't meant to run start-ups. ''I'm so sick of these prissy people saying, `I'm contemplating a job in investment banking, because it's very hard to do a start-up,''' Tobin says. ''Life's not easy,'' he challenges. ''The reason you have so much roadkill is you've had people who were interested in making a lot of money but not interested in building companies.'' .. Last year, hordes of budding MBAs seemed eager to become CEOs of their own companies. They entered business plans at record rates. A slew of angel networks went live to target their talent, as did dozens of incubators, from Softbank's I-Group HotBank to Bo Peabody's Village Ventures. That must have been a sure sign it was the top of the market. [Beth Healy, Boston Globe, 10/30/2000]

Xerox' woes might seem to provide evidence that there's something wrong with the U.S. system of corporate R&D. That's not the case. Innovation is rife in the U.S., from industrial labs to contract research outfits and Silicon Valley startups. Says Martin N. Baily, chairman of the President's Council of Economic Advisers: ''We've been able to generate a fertile breeding ground because we have a range of funding mechanisms.'' Start with the corporate labs, which once resembled ivory towers. Today, their PhDs are getting their hands dirty on real-world customer problems. ... Companies that get more pragmatic about research aren't dropping the ''R'' to do more ''D.'' Many tough business problems can't be solved without resorting to basic science--but these days it's a lot more focused. The National Science Foundation says growth of industry investment in research outpaced investment in development from 1994 to 1998, 64% vs. 46%. ... Josh Lerner of Harvard Business School has found that VC-backed companies produce lots of patents that are frequently cited, showing that startups aren't freeloading off research done by others. ... There are many good models for industrial R&D. The one model that doesn't seem to work is PARC's: corporate lab as dream factory. [Peter Coy, Business Week, Nov 6] Nor will dream factory work for government funding hobby science and narrow mission functions in SBIR.

San Jose small businesses get a one-stop place for help. Touted as the largest of its kind and a model for the rest of the country, the Entrepreneur Center in downtown San Jose opened with much self-congratulatory fanfare at a Friday ceremony. It officially opens to the public Monday. The goal of the one-stop small business resource center -- known as the SBA-Cisco Systems-San Jose Entrepreneur Center -- is to fuel entrepreneurship and support existing small businesses, particularly those in minority communities. The center on Santa Clara Street will bring services previously available, along with new ones, into one building. [K. OANH HA, San Jose Mercury News, Oct 22] One consequence of the changed nature of investment is a strong tendency for markets to develop into temporary monopolies. Why monopolies? Because when the required size of investment doesn't depend on how much you sell, a bigger market share is definitely better. Why temporary? Because sooner or later, and usually sooner, new technology makes your old investment worthless. The inevitability of monopolies in a knowledge economy indeed, the hope of achieving such monopolies becomes the main driver of investment creates new puzzles for antitrust policy. The Microsoft case poses real dilemmas, and it is surely only the first of many. [Paul Krugman, New York Times, Oct 22]

America is unparalleled in the amount and range of its entrepreneurial activity, pumped into hyperdrive by venture capital and technological innovation. This hotbed is being watched throughout the world, especially in Asia, where corporate interests are looking for the next big thing. Japanese are known for being good students, which has obvious advantages. Just listen to Nobuyuki Nagata, executive officer at Intellasset's Capital Management group, an incubator for Internet startups. When evaluating new company business plans, Mr. Nagata says he looks to America for validation. He'll sometimes tell Japanese entrepreneurs, "Your business model already was proven wrong in the U.S."

Michael Mandel adapts from his book "The Coming Internet Depression" for Business Week, Oct 9
The U.S. boom has been driven by an unprecedented explosion of ''risk capital,'' led by venture-capital funds and initial public offerings. Here, for the first time, is a set of financial institutions devoted to systematically finding and funding innovation. Here, for the first time, is a marketplace in which entrepreneurs with bright ideas can actually get enough money to challenge existing companies. Here, for the first time, is an economy, as Treasury Secretary Lawrence H. Summers has said, ''in which entrepreneurs may raise their first $100 million before buying their first suits.'' This is what makes the New Economy new. If technology is the engine for the New Economy, then finance is the fuel. Over the past 10 years, venture-capital funding has swelled from about $5 billion annually to an annual rate of around $100 billion today. But now venture capital has increased to the point where it rivals R&D as a funding source for innovation. In the first half of 2000, venture capital is running at an annual rate of about $100 billion, or 40% of all money spent on R&D. The impact of venture capital may be even larger than these numbers show. One 1998 study calculated that a dollar of venture capital stimulates three to five times more patents than a dollar of corporate R&D spending. Venture capital is no substitute for systematic R&D investment by corporations trying to improve their existing products or develop new ones. Nor does venture capital replace basic research, which has no immediate profit-making application. Almost by definition, basic research must be funded outside the market system, by governments and universities. But when it comes to getting new ideas to market quickly, venture capitalists have a big advantage. For one, they are single-minded in pursuit of profits. Venture capitalists are not hobbled by the need to protect existing products and markets, as big companies are. Nor do they need to worry about national security or political considerations, as government funding agencies do. The result: Money is directed toward the ventures with the highest expected payoffs. That's a good recipe for speeding up innovation.
Christopher Farrell argues the optimism, Curl up with The Perfect Storm if you want a good read, but don't bet your protfolio that its economic equivalent will happen.
Got a Great Innovation? By the end of World War I the average speed of cars had so increased that the public demanded an hardtop "limousine", "sedan", or "cabriolet", hitherto the privilege of the rich. As these terms indicate, and also "chassis", "garage", "chauffeur", and even "automobile", France was the original home of the motor car. At the time of the Paris Exposition of 1900, cars were almost driving horses off the Champs Elysees. But in America for eight or ten years more the automobile was an imported toy, a plaything of the rich, disliked because it was smelly, noisy, and frightened horses. Automobiling was one of those things like tennis- and golf-playing, smoking cigarettes and wearing wrist watches, which politicians did not dare be seen doing. [SE Morrison, The Oxford History of the American People, 1964]
Adversity Quotient. Professor Gideon Markman of RPI tested the AQ of 200 patent holders and found the entrepreneurial inventors who used their patents to start companies had higher AQs than those who didn't use their patents for that purpose. Markman says VCs should measure AQ before investing. Markman's respondents average 47 years old with 20 years of formal education, held more than 13 patents, and earned $120K a year. His average entrepeneur had started 1.5 firms with two co-founders and had raised more than $6M for the company. [story from Rensselaer Alumni mag]

Some Perspective. Real wage in England was the same in 1800 as in 1300; real wages in China were lower in 1800 than in 100. Growth rate of GDP per capita in Europe was ZERO from 500 to 1500. [facts from O Galor and D Weil, "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond", American Economic Review, Sep 2000] Contrast such figures with our present politcians who talk as though a 4% GDP growth rate was a God-given right for Americans.

after looking at seasonally adjusted data showing a slowdown in PC sales, Kumar came to the conclusion that the PC market is close to saturation. He also keenly observed that as PC prices drop to "$800 (excluding monitor), it becomes harder to sell a powerful $600 CPU [central processing unit] chipset." This trend of lower PC prices particularly poses a problem for Intel's business model, which is based on selling faster, more expensive microprocessors brought to market about every 18 months. ... This underscores Intel's real Achilles heel: it's still focused on high-end systems, which will make up a smaller and smaller portion of future sales as the masses move online via Internet appliances. The importance of cheap connectivity will soon overshadow the importance of processor speed, when the destination, and not the vehicle, becomes paramount to the everyday user. [Chet Dembeck, The Raging Bull, Sep 15] What's your business model for your golly-gee-whiz new technology that you want the government to subsidize with SBIR? Can you convince the government (if it cares) that you even have a business model? What is your unit cost and why would anyone buy it at that price?

P2P=path to profitability.

Whether or not Al Gore invented the Internet, at least he's not suing all the users for license fees. As is Rockwell which is still pursuing everyone making money on MOCVD. A recent suit against OptoPower (Tucson, AZ) followed one against SDL in 1995. SDL, which settled the case for an undisclosed amount, says the patent is invalid. And now, blessedly, it has expired although Rockwell's lawyers are alive and well. [facts from Photonics Spectra, Sep 00]

Gildergasm, says Paul Bout in [Wired, Sept 00] of George Gilder's Telecosm wherein the great Gilder opines on bandwidth for the post-computer age. The dumb network, of course, is near dogma today, but Metcalfe himself credits Gilder for evangelizing that a bandwidth explosion would render complex, expensive ATM backbones - the Next Big Thing in early 90s networking - unnecessary.

Innovation Grants Competition, not from the government. but from Merrill Lynch, for eligible Ph.D.s who best present the potential commercial applications of their dissertation topics. A $50K prize plus an intro to VCs. Application Deadline: December 15, 2000.

Meetling: An employee who seems to do little else but call for and attend meetings. [Wired]

It may appear that the April correction had a negative impact on the IPO market, but in fact, according to Redherring.com IPO editor Stephen Lacey, so far this year 361 IPOs have raised $66.9 billion. By the end of the year,the amount will almost certainly eclipse both the total raised in 1999 ($68.8 billion) as well as the average amount raised per company. [Redherrring.com, Sep 13]

THINK INFRASTRUCTURE. Demand for chief executives at companies that make technology infrastructure, such as devices for computer networking and data storage, has doubled since last year, says Christian & Timbers, an executive-search firm in Cleveland. It says the downturn in dot-coms earlier this year focused more investment on producers of "real" technology. [Wall Street Journal, Sep 14]

MEMS clearly shows promise, but the land-grab mentality surrounding the technology has many concerned. As one switching vendor told me, "It's really a problem because everyone's focusing on building the next little-mirror company for billions of dollars, and you can't get anyone to focus on the serious engineering issues for building real switches. They don't realize some company [Xros] won the Nortel lottery and it ain't gonna come again." ... Buyer's Remorse.. Needless to say, the companies making all this wonderful equipment and the brilliant scientists they employ, are very much in the driver's seat. Which explains the mood swings among the phone company executives, who were by turns perplexed, elated and frustrated trying to sort it all out. After all, they have to figure out how to pay for DWDM, ULH and optical switching, even as they depreciate their old "junk." Over the course of the conference, they voiced concerns ranging from the futility of managing so many networking gadgets to the poor quality of installed fiber to the fact that there are just too few mature optical vendors to choose from, if you can believe that. The PowerPoint promises of the many rich, young start-ups looked fanciful in light of the problems facing customers who are having all manner of problems making it all work but who must not fail to try.As another frantic session of paper presentations drew to a close, two rainbows stepped out of the fog and arched high above the Denver drizzle. Nothing all week had seemed so crystal clear. [Smart Money, Sep 6]

Many wannabe inventors don't get much benefit from outfits that promise to help sell their ideas. So professional inventor Ronald Riley in Grand Blanc, Mich., is launching a Net mailing list to aid neophytes. He has lined up a panel of 20 experts to field questions in such areas as marketing inventions and patent law. Information about the mailing list is at www.InventorEd.org/forums/InventorEd-L.html. [Business Week, Sep 11]


Will Disruptive Innovations Cure Health Care? Simpler alternatives to expensive care are already here everything from $5 eyeglasses that people can use to correct their own vision to angioplasty instead of open-heart surgery. Just as the PC replaced the mainframe and the telephone replaced the telegraph operator, disruptive innovations are changing the landscape of health care. Nurse practitioners, general practitioners, and even patients can do things in less-expensive, decentralized settings that could once be performed only by expensive specialists in centralized, inconvenient locations. But established institutions teaching hospitals, medical schools, insurance companies, and managed care facilities are fighting these innovations tooth and nail. Instead of embracing change, they're turning the thumbscrews on their old processes laying off workers, delaying payments, merging, and adding layers of overhead workers. Not only is this at the root of consumer dissatisfaction with the present system, it sows the seeds of its own destruction. The history of disruptive innovations tells us that incumbent institutions will be replaced with ones whose business models are appropriate to the new technologies and markets. Instead of working to preserve the existing systems, regulators, physicians, and pharmaceutical companies need to ask how they can enable more disruptive innovations to emerge. If the natural process of disruption is allowed to proceed, the result will be higher quality, lower cost, more convenient health care for everyone. [Clayton M. Christensen, Richard Bohmer, and John Kenagy, Harvard Business Review, S/O 00] Christensen is the author of the business best-seller "The Innovator's Dilemma" wherein he touts the low price innovations in a novel application eventually moving up-market to dethrone the market kings. Are you an old business model innovator or do you really have a better idea? If you are proposing one-on-one substitution, you have an uphill struggle against the establishment who will not stand still. It is not hard to see the future of medical care for today's senior citizens. Technological advances in pharmaceuticals and other health care services are already producing drugs, devices and procedures that cost thousands of dollars per year or per treatment. There will be more "miracle" drugs (such as anti-TNF for inflammatory bowel disease, a common elderly ailment) and products of human gene therapy (coming soon) that will rapidly send our national health care bill to astonishing levels if access to all health care interventions continues relatively unabated (HMOs initially brought lower costs, but now even their prices are rising exponentially).The technologic imperative will break the health care bank in the next five to 10 years. Now along come the candidates with proposals (and cost estimates) that fail to deal with this phenomenon. ... The Bush and Gore plans fail to foresee the breathtaking future of pharmaceutical advances. This oversight will fuel the crisis instead of harnessing it. Negotiations with drug manufacturers to accept lower profit margins, even if fruitful, will not solve the problem. The pharmaceutical industry is a wildly successful research and development enterprise (with a big assist from the federal government) from which Americans want to benefit. [Alan Hillman, Washington Post, Sep 9]

$500K Prize for Business Plan Search engine Lycos will offer $500K of in-kind services first prize in a B-plan contest, the B-Plan Slam. The prize is one of the biggest in the nation for such events, promising 10 times the payout of the famous $50K Entrepreneurship Competition at the Massachusetts Institute of Technology. ... [Beth Healy, Boston Globe, 9/5/2000]

Short Positions. Two SBIR companies showed larger than normal short positions on NASDAQ. AstroPower had an eight day ratio and Irvine Sensors a five day ratio. Average ratio is two days.

Investing in fast-growing companies is no more predictable than betting a teenager will become the next Shaquille O'Neal. Some of the hardest-charging companies turn out to be duds, tripping over their own overgrown feet. And yet investors keep searching, because growth is what has driven the stock market for years and what will continue to drive it. [David Rynecki, Fortune] Two SBIR companies made the list of the 100 fastest growing companies - Cree and SDL.

Greed, fear, greed, fear, ...Is the party over? Companies that make expensive equipment used by semiconductor chip manufacturers have enjoyed a roaring business for the past two years, but suddenly investors are selling stocks as if the notoriously cyclical industry might be heading south. The evidence is hardly conclusive, and many analysts believe demand for chips used in everything from personal computers to cellular telephones will remain strong for at least another year. Continued demand for chips means the same thing for companies that sell the equipment needed to make them. But the industry's boom and bust cycles that can last two or three years each are accompanied with similarly severe stock swings, so no one wants to be the last to realize fortunes are taking a turn for the worse. Huge advances in semiconductor equipment stocks over the past few years only add to the jitters of the moment. ... No one catches cold alone in this crowd. [Steven Syre and Charles Stein, Boston Globe, Aug 4,00 ]

To hear Moore tell it, everything that has led to Old Economy success will now lead to depressed stock prices and vanishing competitiveness. Proud of your efficient operations? Outsource most of 'em. After all, nobody cares if you can save a few pennies when there are vast new e-markets to conquer. Got a world-class R&D outfit? You're probably better off scrapping it and just buying up hot tech startups, a la Cisco Systems Inc. [PETER BURROWS reviewing Moore's Living on the Fault Line, Business Week, Aug 21] Does that make more opportunity for high-tech start-ups? You bet, if they have a marketable technology. Will the government exploit that opportunity in SBIR by sponsoring marketable technology? Expect the leopard to change its spots?

My advice to those of you who love the Internet: Patronize your favorite sites. Don't invest in them. [J Stewart, Smart Money]

Thinking Incubator? Look for Competence. . Another improvement is to do what all incubators promise, but few manage: to help their hatchlings. For all the bragging incubators do about their expereince and skills, most are stretched to work side-by-side with their incubatees and help build their businesses. Recognizing this failing, campsix, a San Francisco incubator, spent half a year building a staff of technology, marketing and recruiting experts before it took its first start-up. It aims to keep a roughly 1:1 ratio beteween its own staff and those of its incubatees. [The Economist, Aug 12]

Telling Your Story.. Alex Daniels (Washington Techway) offers some tips on presenting your story to investors:
1. Keep it simple.
2. Don't be a bore. Put the "wow" up front. Business first, tech details only as needed.
3. Be market-driven. Who's gonna buy what and why?
4. Close your mouth. Listen for their criteria.
5. Be honest up front. Realistic profit margin forecasts.
Remember that investors want to make money, not an expensive showcase for your beautiful technology. While your're at it, if you're going to propose an SBIR, you might use the same rules.

CONTEST: SEEKING THE PERFECT PITCH. Imagine you're in an elevator with two of the country's best-known venture capitalists. You're desperate for cash to launch your new business and know that it's now or never. What would you say? Do you have a pitch prepared to make the most of your 30-second ride? If you don't, get one ready and enter inc.com's "The Perfect Pitch" contest to compete for a ticket to Garage.com's Boot Camp for Start-Ups: Boston, September 20-21, 2000. The writers of the top two pitches each will receive one ticket to the popular two-day conference, where you'll get tips from investors and entrepreneurs for raising capital, pitching to investors, building management teams, and much more. For contest rules and details, see "The Perfect Pitch Contest" listing. http://wwwrd.0mm.com/INC140001 [Inc, Aug 1]

No firm is profiting from high-temperature superconductors yet, and price remains a roadblock to wider acceptance. But with ongoing progress in a market that could be worth $30 billion by 2020, high-temperature superconductors just might justify some of the hype of 1987. [A HREF=http://www.sciam.com/2000/0800issue/0800techbus1.html>Scientific American, Aug 00]

Upside Down., says Barron's Bill Alpert (July 31). The Internet's Big Bang turned many investment ideas upside down. Up with burn rates. Down with value. Down with the downside. Soccer dads became venture capitalists -- day-trading venture capitalists. So did a lot of businesses. And for a thrilling few quarters, cosmic investment gains also turned income statements upside down. Stock-market profits outshone widget making as a source of earnings. Several high-tech biggies got a big earnings boost (non-recurring) from their VC operations, a notoriously up-and-down business. Every operating company is now investing in startups, This is becoming the norm. Because Alliance's operating numbers have not been big, he surmises, its investment gains have stood out more than gains at the likes of General Electric. But for all tech firms, says Reddy, corporate venturing has become a way to outsource research and development and to stay at the leading edge. While that's great for startups who need cash and a strategic partner, it's a mixed bag for stock prices that prefer predictability to promise. With all those venture profits rolling in to private companies and VCs, you would think there's no need for government to try to do the same thing - only worse. Programs like SBIR and ATP claim to be filling an alleged investment gap which these market numbers say is more over-investment than under-investment. Why not then end SBIR? Well, because a political handout,once started, is nearly impossible to end. And besides, the government isn't really investing much of the SBIR in real ventures anyway. It is doing what it understands, investing in decent R&D. Does that take a special program? Of course not; the government has been buying decent R&D for decades. Is SBIR helping the government buy better R&D? We're still waiting for any convincing evidence to appear.

Can the fiber-optic companies live up to all this attention and soaring valuations, or is it just Wall Street's latest Cinderella? asks The Red Herring after Corvis and Avici Systems (not SBIR beneficiaries) had big opening-day IPO gains. Sure! "The demand for fiber optics is not a passing fad," said Todd Koffman, an analyst with Raymond James in St. Petersburg, Florida. "The companies in this sector are shipping real products for real revenue -- the growth in this area is staggering." What should the government do except stay out of the way? With its SBIR, it might fund the startup of innovators who can reach beyond what even these new companies are doing. Funding more of the same, or funding systemization of applications, will add nothing to the market.

Some Investing Advice from Howard Anderson in Technology Investor, Sep 2000.
1. Get a double whammy.. In any sector you love, say fiber optics, buy the smaller companies that the leaders will have to buy up. Good SBIR companies (a rare bird) make good targets.
2. Listen to the sine curve. Sell when they're hot and buy when they're cold. Stocks will fluctuate, which is the only sure bet on Wall Street.
3. Watch market cap Buy the smallest market cap in your industry unless no analyst follows it. Orphans wither.
4. Sell at the first bad news. More bad news to follow. Companies are full of excuses.
5. Look for revenue growth, not acquisitions.
6. Follow the insiders. They know, you don't.
7. Get better advice than this. Consider what you paid.

A writer in the United States Review in 1853 predicted that electricity and automated machinery would so transform life and relieve mankind of drudgery that, within half a century, "Machinery will perform all work - automata will direct them. The only task of the human race will be to make love, study, and be happy." [SE Morrison, The Oxford History of the American People,1965] Are we almost there yet?

Wanna make your elevator pitch to the money mongers? red Herring has a new way. SUBMIT YOUR ELEVATOR PITCH FOR DEALFLOW E-NEWSLETTER Looking for funding? Drop us a line at elevator@redherring.com. Let us know who you are, how much you're seeking, the funding sources you're targeting, your contact info, and, of course, your pitch. Please keep the pitch to no more than 100 words. Submissions should have "Seeking Funding" in the subject line. Elevator pitches are a new part of Dealflow, the weekly e-newsletter covering venture capital funding and important events in the entrepreneurial community. OK, SBIR hopefuls, can you condense that governmentese into 100 convincing words that convey both the technology and the business excitement to people who have heard it all before?

The bottom line is that we are midway through year 6 of what could be a 30 year effort to build out and fully leverage the global digital network. - Tony Perkins, editor The Red Herring

Wired Aug 00 (available on line Aug 15) has a convincing picture of what technology can do when enough pieces are harnessed together. A machine is conducting an arthroscopic heart-bypass surgery in an operating room. The pieces of the machine are draped in clear plastic covers and the gree-gowned surgeon sits several feet away at a CRT. Tubes and wires, of course, running all over the scene. After introduction in Germany, the daVinci Surgical System got FDA clearance in July for laparoscopic surgery. The maker, Intuitive Surgical offers a look.The company went public in June 2000 at $9 per share and now trades around 18.

From Tony Perkins at redherring.comPERSONAL CAPITAL: Batting .100 Maybe it's time for venture capitalists to go back to wherever they were before they caught the media's fancy -- tucked away in boardrooms, sipping Chateau Latour in Woodside, etc. This is no slight against the teeming mass of VCs with honorable intentions and hyperactive neurons. However, a certain number of them -- either accidentally or intentionally -- became media stars. That was a very bad idea -- and not just because observing the average VC is about as entertaining as watching wallpaper peel. VCs traditionally serve a very specific purpose in this world: They take large sums of other people's money, invest it in extremely risky ventures, and hope that over a long period of time, they come out with astronomical gains from a small percentage of those deals. The often-cited goal is to get 1 big hit in 10 tries. It's as if you were a baseball player being asked to bat .100, but every hit had to be a home run. It sounds like the best job in the world because you can fail 9 out of 10 times and still be successful -- but the job is actually maddeningly difficult. You cannot bat .100 day-trading stocks on ETrade and be successful. THROWING BRICKS IS RISKY BUSINESS. In the late 1990s, venture capital seemed to lose this "risk" component. We saw VCs everywhere making money hand over fist. As one VC told me in late 1999, "Making money right now is as easy as throwing a brick off a truck." In fact, it looked so easy that Wall Street got the bright idea that risk could be shifted to individual investors by allowing companies with no revenue, run by neophytes with bright-colored hair, to go public -- instead of corralling them in an incubator space for another 12 months of close observation. The public felt they should be able to make the same money by throwing bricks off trucks too. So they piled their money into anything that looked like a "technology venture" -- including companies whose sole purpose was to create other companies. The fervor for all things "venture" became so hot that privately held incubators such as Idealab and Divine Interventures filed to go public, and other companies, such as iGate, revamped their entire company into an incubator model. There was some problems with this trend: It was unsustainable and cyclical -- as well as cynical -- and as soon as the stock market crashed and the IPO pipeline tightened, the vast production line of companies backed up like an expressway during rush hour. And all those individual investors don't get preferred shares -- they get common stock.

Abby Speaks on Tech. Q: What's next for tech and telecom stocks?
A: Fundamentally, the technology sector is in very good shape. U.S. companies are still at the leading edge, and we expect to see enormous penetration into non-U.S. markets. There's a great deal of good news coming from these companies in terms of both products and earnings. From a stock standpoint, however, it's a very mixed bag. There is going to be significant consolidation within the industry. We're not negative on technology, not at all. It's still 35% of our model portfolio. But in the case of many poorer-quality companies, investors had put too much emphasis on share-price momentum, rather than earnings momentum and cash-flow generation. [Barron's, Jun 26]

The Internet fails the hurdle test as a Great Invention on several counts. First, the invention of the Internet has not boosted the growth in the demand for computers; all of that growth can be interpreted simply as the same unit-elastic response to the decline in computer prices as was prevalent prior to 1995. Second, the Internet provides information and entertainment more cheaply and conveniently than before, but much of its use involves substitution of existing activities from one medium to another. Third, much internet investment involves defense of market share by existing companies like Borders Books faced with the rise of Amazon; social returns are less than private returns. Fourth, much Internet activity duplicates existing activity like mail order catalogues, but the latter have not faded away; the usage of paper is rising, not falling. Finally, much Internet activity, like daytime e-trading, involves an increase in the fraction of work time involving consumption on the job. [Robert J. Gordon, Northwestern University, "Does the "New Economy" Measure up to the Great Inventions of the Past?", draft paper]

Popular economist Paul Krugman writes in New York Times June 18. There is an ongoing debate among economists, engineers and futurists about whether we are really living in a golden age of technological progress. Nobody questions that digital technology and its consequences -- including the Internet, cell phones, smart appliances and all that -- have made and will continue to make spectacular strides. But how much difference will those technologies make to our overall standard of living?
On one side of this debate are the enthusiasts who proclaim the onset of the digital age more important than the Industrial Revolution, the biggest thing since bread, never mind the slicing. On the other side are economists and historians who compare our current roster of new technologies with the transforming technologies of the late 19th and early 20th centuries, and find our latest gizmos relatively trivial by comparison. The economic boom that has swept the United States during the second Clinton administration has made the arguments of the enthusiasts more plausible, but "1900 House" (a BBC program wherein a modern couple lives in a Victorian-appointed house) seems to me to be a reminder that the technoskeptics still have the better case. One of the leading skeptics is Robert Gordon of Northwestern University. In his new paper "Does the 'New Economy' Measure Up to the Great Inventions of the Past?" he argues that each of five "clusters" of innovation -- electricity, the internal combustion engine, modern chemistry, mass media and plumbing -- was in itself a bigger deal than the digital revolution as a whole. And if you really think about what it was like to live in the 19th century -- an imaginative exercise that the show makes considerably easier -- this starts to sound persuasive. If I were deprived of the last century's technical progress, I would miss my ability to read Brad DeLong's economic history of the 20th century on the Web; but I would be much harder pressed to do without electric lights, or last-minute trips to the supermarket, or detergent, or hot showers. And I would even miss TV.

Revisiting a Prediction. Richard Brant in UPSIDE last year predicted: Most government officials in the United States will decide that it is necessary to implement an Internet tax, but will fail to do so. It's an election year. His 2000 UPDATE This one you probably didn't miss. The politicos keep wringing their outstretched hands over the issue, but nothing has happened yet. Except that Andy Grove, my personal hero, had the guts to stand up before them and tell them equal tax collection laws would only be fair. I'm sticking by this one.

Nortel is buying yet another Boston area high tech company for $275M in high-flying stock. Epicon (Chelmsford, MA) develops technology for ASPs (which sell businesses access to software programs over the Net). No, Epicon never got any SBIR help in its three years of life; its early money came from the Egan family, founders of EMC Corp., and Route 128 technology pioneers including Raymond Stata, former BBN chairman Steven Levy, and Thomas Landry of Lotus. [facts from Boston Globe, Jun 15]

The Top Ten Emerging Technologies of the Future as divined by The George Washington University Forecast for the World Future Society:
1. Portable information devices
2. Fuel Cell Powered Auots
3. Precision farming
4. Mass customization
5. Teleliving
6. Virtual assistants
7. Genetically latered organisms
8. Computerized health care
9. Alternate energy sources
10. Smart, mobile robots.

Myth No. 10: The Internet changes everything.
The reality: The Internet touches everything but doesn't necessarily change it. "Conventional wisdom is that the Internet is the biggest technological phenomenon in the history of mankind," Mr. Reichert says, clicking on a Powerpoint presentation to prove it wrong. The computer screen shows a big ski slope and a smaller one. The big slope? I guessed television. Wrong. It's actually radio. In its first seven years on the planet, radio was adopted by 45 percent of the U.S. public. In that same time frame the Internet has penetrated just 25 percent of American households. Slide shows aside, Mr. Reichert makes an excellent point for would-be entrepreneurs: "Just because you're part of the Net doesn't mean that the laws of economics have been repealed. You've got to have a real business." Careful not to alienate Vint Cerf, Mr. Reichert notes that he "would never want to come across as someone who doesn't think the Internet is important. The Internet clearly can have a dramatic effect on the way business is done, but it's still business. That means it's still about creating value and creating profits." [redherring.com, Jun 12]

Tracey Drury, Business First, Jun 12]
Laser research center has high-tech mission. When businessman Ron Schreiber answered a request to tour the Institute for Lasers, Photonics and Biophotonics at the University at Buffalo, he found himself pleasantly surprised at what he found. "I was shocked at the volume and the quality of the intellectual properties being developed there. I literally was shocked," said Schreiber, managing director of Seed Capital Partners, a venture capital firm and Softbank affiliate fund. "There are brilliant people over there," he said. "I was saying, `Why doesn't anyone know about this stuff?' " [ Noiw that's a good question. Does it show general ignorance or just Schreiber's personla ignorance? Or is it because such centers live on government sciencemoney and have little incentive to pursue Ip and profits? Is there a lesson in it for SBIR's devotion to government research as the SBA claims?

Q.(to Kevin Kalkhoven, CEO of JDS Unipahse) Can we look forward to optical chips?
A. . We'll never see an optical chip, but eventually we'll have hybrid optical chips. You need a silicon substrate to drive the electronics and silica for the optical circuits, and the lasers will be made from GaAs or GaInP, just as they are today.

The prototype works. Great! Or does it? Consider a tale of 2010 technology: We unwound Smart Alex's Bubble Wrap, and four rapt preschoolers confronted a strangely proportioned soft yellow plastic book with long arms and legs and a pair of googly eyes that suddenly opened as the toy began to speak. My dog barked. The kids backed away. "Do you want to play a game?" Smart Alex cheerfully asked. "Or hear a story? Say 'game' or 'story.' "The kids stared at the toy, then at one another. "Say 'game' or 'story,' "Alex warbled, with no trace of the rancor that often accompanies repeated parental requests. Finally Avery took the bait. "Story," she murmured. Instantly, the toy launched into a plausible and only slightly cloying version of "Goldilocks and the Three Bears." The only problem was, before Goldilocks had even finished sampling the bears' porridge, Zander and Tim had wandered off. A moment later Avery followed, and soon all three were busy playing with a marble game I bought for 75 cents at a garage sale. Charlotte stuck around a little longer, poking Alex's moving plastic lips and giggling. But by the time Baby Bear found Goldilocks sleeping in his bed, Smart Alex was alone in the middle of the room, still talking, like an overzealous host whose weary guests have all gone home. [FERNANDA MOORE New York Times, Jun 11.00]

Winning Business Plan
(Jun 9) Energen, Inc (Billerica, MA) won the Seventh Annual Business Plan contest by Worcester Poly. Inknowvation reports that the company started in 1995 and was an SBIR Award winner just a few months later leading to "a strong SBIR record now established in DOD, NASA and DOE." Energen develops, manufactures and markets precision actuators based on magnetic smart materials technology for precision positioning, robotics and active vibration control. SBA data say it has one Phase 2 from DOE, and two Phase 1s from BMDO in '97 and '98. I wonder why it can win a business plan contest and not get a BMDO Phase 2 in the one agency that respects credible business plans. Maybe it never even proposed because it too well understood BMDO's clearly stated terms of competition that business plans without market validation are just pleasant fictions.

Q. Are VCs more interested in foundational companies than angel investors are? (See Bill Tai's Wild Ride, part 1 for an explanation of foundational companies.)
A. It probably depends on the individual VC or the individual angel investor. But I'll bet that any investor in any category would love to have a portfolio of foundational companies. The difference that I think is relevant when comparing VCs with angels is that I have found that angel investors tend to invest risk capital more on the basis of a personal relationship than an idea. Often, there is an element of trust or a payback for making someone money in the past that drives an angel investment. [redherring.com, Jun 7,00] Of course, companies who want only to do government research needn't pay any heed to where capital might come from and under what conditions. They should sift the SBIR solicitations for the perfect government stated need (which could change by the time the proposals are read) to match the company's sciencabilithy.

Need some smart help? Get ready Internet industry, more layoffs are coming. Over the next 6 to 12 months, expect a steady stream of bad news to flow from Web startups. As funds dry up, staffs regroup, companies re-position, and organizations fold, damage control -- not hype -- will be first priority for corporate barkers. Welcome to a world where pink slips are a way of life. [redherring.com, Jun 5]

Alumni Angel Connections Your alma mater may be a hangout for the angel investors you want to entice into your perilous concept. UniversityAngels is an on-line angel marketplace, and entrepreneurship resource, just for students and graduates of top (they think) universities. It works like the SBA Angel network: you post your business plan on the site and the certified alumni angels (more than $1M net worth plus $200K income, which UA claims is about the median for Ivy League schools) ) get a chance to make you a deal. Two weeks later the plan is opened up to a wider field of about 1000 angels. UA gets a fee. About 25 schools participate so far, including most of the nation's prestige schools such as Harvard, Yale, MIT, Stanford, Princeton and Northwestern, and UA expects to add 75 more. Note that UA is a private enterprise, NOT endorsed, sponsored, or affiliated with the schools.

Earlier this year, a biotech stock went to $159. I had it at $60. One morning, the company's president is on CNBC. Mark Haines asks him, "When will you release your first product?" Three times he asks the same question. Finally, the president replies sheepishly, "In three years." Five minutes later, I'm out of the shower. I tell my wife, "I'm selling that stock. It's ridiculously overpriced." She asks why. I reply, "The Shower God told me so." Logic is the Shower God. I worship him. [Harry Newton, Technology Investor, July 00] If the government cared about the economics of SBIR, it would ask every proposer the same question, "When will you release your first product?" The answers should vary with the maturity of the technology, but no answer should induce the government agency to invoke the Shower God and fund somebody else. Release means a realistic intention of selling something at a profit.

Six Predictions: 1. Point of sale custom manufacturing will replace mass production.
2. Knowledge workers will dominate manufacturing.
3. No matter what advancement occur, paperwork will not go away.
4. The US will still not go metric.
5. Intellectual property will become the coin of thr realm.
6. Regular software will be replaced by software embedded in devices.
[PE Moody & RE Morley, "The Technology Machine", 2000]

In a Bear Stearns newsletter last month, analyst Robert Winters quoted Ford chairman Bill Ford Jr. as saying: ''I believe fuel cells will finally end the 100-year reign of the internal combustion engine.'' Ford did not say when this would happen, though, and Winters said he thinks the changeover is years, maybe decades, away. ... Frost & Sullivan, another marketing consultant, predicted this year that only about 1,000 fuel cells would be in use by 2005. ''The fuel cell market isn't going to explode, because they're expensive to make,'' Still, almost every auto manufacturer in the world is in the game. [Jerry Ackerman, Boston Globe, 5/30/2000] Although Ackerman's story highlighted SatCon it does tell why the fuel-cell run-up fizzled when reality returned to stock prices of fuel-cell companies. The government, however, keeps grinding away at research with mostly incremental advances. Which is OK for normal government R&D which is supposed to fund research that is uneconomic for companies but good for society. Government, though, thinks that SBIR is supposed to do the same thing - grind away at stuff like fuel-cells. And lots of companies take advanatge of th=at government mindset by grinding away with the government money while making a minuscule profit and fostering little or no commercial market impact in any reasonable time. Ackerman unwittingly told the tale by labeling Giner, which last week announced a joint development enterprise with GM, "a consulting company".

MIT's $50,000 means big money There are few better ways to launch a company in Boston than to compete in the MIT $50K Entrepreneurship Competition. Win it, and you could be like Direct Hit, the Internet search firm that took first place in 1998, and was acquired by Ask Jeeves for $506 million this year. Lose it, and you could be like Akamai Technologies, a finalist that same year. It didn't win, place, or show, but Akamai, which expedites the delivery of Web content, was worth more than $15 billion on the day it went public last November. ... In addition to teaching MIT students about building a company, the event has become something of a festival of early-stage financing. ... Another aspect of being perhaps too successful as a launch pad for companies is that the $50K can catapult MIT students out of school. Part of the deal when you take investors' money is that you usually can't remain a full-time student. They want you devoted to the start-up, 24/7. ... catch the final presentations this Wednesday evening at MIT's Kresge Auditorium (see 50k.mit.edu for more info) ... Bill Weld, now a part-time venture capitalist himself, is keynoting. [Scott Kirsner, Boston Globe, 5/8/2000]

The days are over for companies with $100 million-a-year capital ``burn rates'' and no clear path to profitability.

Don't solve problems. Pursue opportunities. [Peter Drucker] The mission SBIR agencies could take note: Don't use SBIR to solve problems; use SBIR to harness entrepreneurs with new ideas to open opportunities to endrun problems and create new things. The agencies can hire smart people to solve problems by the boxcar load. It doesn't matter what kind of entity the smart people live in: university, small business, large business, non-profit. Solving differential equations does not need entrepreneurship; any PhD can do it. But inventing a new use for the solution and selling it to a fast moving market definitely needs entrepreneurshhip, which only some small businesses have. The SBIR money should go to the entrepreneurs who will risk their own wealth and the wealth of other private investors on making and selling a solution.

The NIH jealousy of Craig Ventor's private sector success in the human genome mapping while the government drones plod has led to re-thinking of government investment in commercially lucrative science. Even in Congress which pays the NIH bills. Siddhartha Mukherjee from Harvard Med School in The New Republic [May 6,00] suggests one strategy: The Human Genome project should have spent perhaps a few million dollars to let scientists like Ventor test new techniques and sreaemline proiduction. When these sequencing efforts finally matured, the NIH should have pushed the projects out of its nurseries and let their inventors hunt for private investors to finance their expansion and further development. Scientists like Ventor would still have left the NIH. But they woiuld have been forced to do so early on, before the government pumped in millions of public dollars. What a novel idea! Seed investment only with government dollars and then sink-or-swim in the tough private investment world. What would SBIR look like if it had adopted (it still can) Mukherjee's suggestion? A lot different, especially if someone kept score on the results of projects. Oh, don't worry, the political fix is in and the government plodding will continue.

Jeff P. Bezos, the founder and chief executive of Amazon.com is more than the top retailer on the Net. He's also the leading evangelist for the movement. Besides building his company into a retail giant, he has invested heavily in similar companies. But now Amazon's portfolio of e-tail investments looks like a who's who of dot-bombs. [BusWk, May 8,00]

Culture matters. The best new technologies won't be developed at IBM headquarters. (Nor NIST headquarters, neither.) People designing technolgoies that will change the world don't fit the corporate mold. Freeing an innovative business from "corporate speed" (or government speed) allows it to compete with numble competitors. [Kevin DeGeeter, Technology Investor, Jun00]

Tech patriarch sees need to keep genies bottled . Is the pursuit of knowledge sacrosanct? Or should technological developments that promise profound benefits, yet may someday cause catastrophes, be halted? Such questions have traditionally been the province of academics. So when Bill Joy, chief scientist at Sun Microsystems and one of the most revered figures in high technology, recently suggested that scientists step back from genetic engineering, robotics, and nanotechnology, eyes popped open.Most industry leaders responded like polite family members whose aging patriarch has begun to behave erratically. They politely discounted his suggestion as hysterical pessimism. But Joy's lengthy polemic in Wired magazine boils down to a simple premise: Humans are not ready to be gods, so we should pause long enough to think carefully before passing the point of no return with technologies that offer God-like powers. [Charles Piller, Los Angeles Times, 4/30/2000]

To add to Harry Newton's rules (yesterday), we have R. Scott Raynovich (Red Herring on-line, Apr 3)'s new new rules:
1. The weak are toast. Are you meek in soul, poorly capitalized, or unreasonably leveraged? Can't handle volatility? Get a day job. Buy Treasuries.
2. Every company is a startup. A great company is only great on the day it announces a great quarter.
3. A company that has never shown a profit should never be valued over $20 billion.
4. Avoid companies in which the executives regularly brag about their market capitalizations and implore the public to buy more of their stock. Especially if these companies are breaking some of the other rules.
5. The $5 billion/$100 million rule: companies with less than $100 million in projected annual revenues are not allowed to have a market capitalization of more than $5 billion.
6. Real technology markets matter. Invest in companies that are real technology innovators with rich customers. Is the company supplying complicated, proprietary networking gear to deep-pocketed telecommunications vendors or is it experimenting with avant-garde business models for selling beauty products over the Web?

You can add a few Carl Nelson's rules on SBIR companies:
1. A company with over $15M SBIR that has not yet filed for an IPO will never go public. Life's too comfy with the government to risk the public capital markets.
2.The government agencies that provided most of that $10M will not be impressed by a company's intention to go public. They don't care.
3. An SBIR company really planning to go public will have private capital as validation of intent in Phase 2 awards.
4. Any company that asks for the $11th million for a technology is ready to ask for the $21st million.
5. Any government agency that hands $10M to any company has been well schmoozed.

Lessons for a Volatile Tech World For those dealing in the stock price vicissitudes of publicly traded companies, Harry Newton gives some advice in Technology Investor June 00.
1. Don't overreact. Don't dump shares when the price falls.
2. Watch the volume. On big drops in low volume, buy big.
3. Don't jump from technology. Old Economy stocks are not a safe haven.
4. Diversify within technology. Technology is a continuity.
5. Reality and logic count. $170 a share with first product in three years isn't logic.
6. Disappointment are death. Earnings MUST rise or at least meet expectations.
7. Don't watch TV.

venture capitalists remain extremely upbeat. They still have more capital than they know what to do with. And they still believe that the Internet is going to change the world, and that the revolution is in its infancy. Moreover, most venture capitalists are delighted with the public market valuations for dot.coms, even at their current reduced levels. Since it went public on February 29th, the market capitalisation of Onvia, a small-business-to-small-business exchange, has gone from $6 billion to about $1 billion. Yet, during the first round of venture financing a year ago, it was valued at only $20m. "I may not make 200 times my money but if it is only 10-15 times, that is still a fabulous result," says one of the lucky adventurers invested in Onvia. For bears, that probably indicates how far the market still has to fall to reach rationality. [The Economist] Welcome to the era of suddenly earthbound Internet IPOs. Don't blame it all on the recent harrowing drops in the Nasdaq Composite. The market has been getting tougher and less rewarding since early March. At least 26 of the 48 IPOs launched in the past four weeks now trade below their offering prices. ... In the latest turn of the market, IPO buyers are flocking to companies that have patented technologies and long-term customer contracts that insulate them from the need to spend heavily on marketing. Investors still don't demand to see earnings--this remains the Web, after all--but they want companies to show clearly how they will be profitable within a year or two. [TJ Mullaney, Business Week, Apr 24]

Knowledge Express Data Systems LC wants to help organizations license their technology -- at no cost to them. ... a service called KE Technology Transfer eMarket, which allows universities, corporations and others with technology that they want to license to post a description of it on Knowledge Express' Web site. Site customers looking for a specific technology can do a search, find ones that meet their criteria and contact the entities looking to license them. Knowledge Express doesn't charge organizations to post technologies. Nor does it take a percentage of any licensing revenues they may generate through deals made as a result of the site. The reason is that it charges its customers -- companies and research organizations in the technology, pharmaceutical and biotech fields -- for being able to access informational databases via its site. [Philadelphia Business Journal, Apr 10]

NVST.com is a dating service that promises to match your company to investors. You pay $999 to post your business plan with a video clip for six months. For only $399 you can post just your elevator story - you do have one don't you? The bad news is that NVST, a business plan writing company, won't edit your plan, no matter how awful.

The tradintional business plan - that familiar road map the detailing the particulars of a company's intentions - is gathering dust on the shelves of business-school libraries. A victim of intensified pace of dealflow and the increased onslaught of amateur venture capital investors, the venerable tome has by necessity given way to new, minimalist versions. [P-DD Nguyen, The Red Herring, May00]
Do you need a business plan for your SBIR? Yes and no. Depends on where you are peddling your plea for money. At commercializers like BMDO your competition has business plans as good as you'll find anywhere in government. And they matter heavily. At purely mission agencies like Army your competition has no need for anything more than a superficial promise to do good in some vague future as long as you can deliver the prototype that the Army wants. . At in-between places like NSF where academics dominate the selections, a good story won't hurt but a great business plan probably won't swing the decision.

High-tech executives offer start-ups guidance, access to cash. You've been the big Kahuna. You built a billion-dollar company out of an idea. You led the development of the operating system that now dominates the PC market. Now what? For several Seattle-area high-tech executives, the answer is this: Go back to the beginning. In the past six months, they have formed a new breed of hybrid venture-capital funds. Their plan: to mentor young start-ups and fund them at their genesis. Their qualifications: been there, done that. "We're mentoring, not investing," says Keith Grinstein of Second Avenue Partners. Until September, Grinstein was chief executive officer of wireless-phone-service provider Nextel Communications. Senior and chief executives have flown the coop of high-tech companies - among them, Microsoft, Nextel and Nextlink - to join two investment partnerships: Second Avenue Partners in Seattle and Bellevue-based Ignition. Now the search begins for entrepreneurs and ideas.[Sharon Pian Chan, Seattle Times, Apr 25]

Firms Must Innovate. Economic guru Ed Yardeni's rules for the New Competititve Economy note that firms must innovate and they are doing so. Competition tends to depress profits. So firms must constantly innovate to boost profitability. The result is the High-Tech Revolution. In the New Competitive High-Tech Economy, high-tech spending now accounts for more than one-quarter of real GDP growth. Spending on high-tech now accounts for 7% of real GDP, up from less than 2% in 1987. With high tech spending more than triple its 1987 numbers, why does the government have to pretend to be helping by subsidizing firms with no credible commercial intent in programs like SBIR? What problem does Congress think it is solving?

To say that entrepreneurs and venture capitalists are wasting money in these exuberant times is provincial at best, and anti-markets, anti-risk-taking and downright un-American at worst. It is true that in many instances, young entrepreneurs are spending like drunken soldiers on leave (hopefully, none are in our portfolio), but they are the exception, not the rule, and market forces quickly dispose of inefficient market behavior. The typical start-up aspires to be the leader in its space, often requiring a big marketing budget to grab market share before the competition does. Creative marketing doesn't have to be expensive, but I know that when a company has a breakthrough and customers are anxious to buy, it is time to pour in the rocket fuel. The Internet is the greatest revolution in the history of the world. And for all the capital we have plowed into Internet businesses, we are probably undercapitalizing the industry as a whole. When adequately capitalized, these revolutionary companies can improve our quality of life that much sooner. [TIMOTHY DRAPER, NY Times, Apr 23]

Calling All Entrepreneurs.. While the SBIR advocates whine to Congress about a shortage of capital, the capitalists who want to invest in entrepreneurs have to invent gimmicks to attract takers. Funds And Games. Little-known internet incubator Compareitall.com was desperate for new businesses to spin off. To multiply its Web site inventory, it recently offered $25,000 each for the best business plans by a total of eight M.B.A. students, hanging posters at the top 100 business schools and running ads in campus papers. ...Piddling compared with what Hummer Winblad Venture Partners did. Its February Madness Startup tournament pitted "seeded" teams from 64 different colleges and business schools against each other for a $5 million prize. Judges winnowed the group to 16, then flew them to one of four regional sites for a battle of the business plans. The finalists traveled to the firm's San Francisco headquarters for the tournament crowning. Quang X. Pham--founder of Mydrugrep.com, a B2B site providing pharmaceutical data--took home the five mil for an undisclosed equity stake. He got so many calls the day his news was announced that he deleted his phone number from his Web site. ... ... It gets even loonier. Atlanta-based Ptek Ventures cooked up Million Dollar Challenge hosted by a Regis Philbin impersonator for Red Herring's Southeast venture conference in March. Before a crowd of 400, with music blaring and bright lights pulsing, four entrepreneur finalists, screened for their business plans, competed in a speed round of area code numbers for high-tech centers from west to east. Michael Bruce, chief executive of the e-shopping service outfit SingleShop.com, .. walked away with $5 million in equity financing; the three runners-up got $1 million apiece. Universities like MIT have quietly held such competitions for years. Direct Hit and Akamai Technologies are two former contestants. Still, you've got to wonder whatever happened to the old-fashioned pitch letter--or courtly introductions over the ninth hole. Gone the way of the 80286 microchip.[Luisa Kroll, Forbes, May 1,00]
What? They had to give up equity? The government doesn't take equity for its SBIR money. Right! Neither does it help you with your business, stand ready for another larger tranche when you need it, introduce you to the people you need to know, find you executive talent, or have any stake in your success or failure. The government cares about getting its hands on your technology. The government doesn't even keep score on how well its investments do; it just publishes vague reports about some good things that happened when it sprinkled $1B a year randomly around.

The sages of the New York Times business page. For once they called the tech stock market peak. Of course, that's out of some 37 tries since 1994. [Rich Karlgaard, Forbes, May 1]

Research Company Folds Paul Allen folds lab seeking computer breakthroughs. Long-term goal to create spinoffs never enjoyed much success , says the headline [Houston Chronicle, Apr 22]. Allen pured some of his enormous Microsoft wealth into a Interval Research to pursue new approaches to the computing future with the intent to spin off business enterprises. Eight-year result? Close the doors. Can the government do any better? The government has Allen's problem writ large. It funds researchers to do research and then wonders why not much business comes from it. Oh, the government talks spinoff and pretends great results, but if measured by any efficiency standard, it is a hopeless enterprise. Which is one reason that government avoids accountability and standards in its SBIR and in its general research program.

Semiconductor booming with February worldwide sales of semiconductors at $14.5B, up 33% from last February, profits were up. Says Individual Investor analyst Eric Singer, indications are that when many begin releasing first quarter earnings over the next few weeks, results will be phenomenal. Cree, for example, had "blowout profits" of $9.2M, more than double the quarterly profits of a year ago, on revenue up 19%. But in old expression, To keep things going, Cree is investing $75M in new plant and $200M in buying little SBIR firm Nitres. When the paddy wagon comes, they take the good girls with the bad. Semiconductor stocks had a horror week, too. Cree was down 30% despite all the good news.

Market research firm RHK says optical networking components market will zoom from $6.6B last year to $23B by 2003. [Wall St Journal, Apr 3] In response the SBIR program could overweight in such companies to get the economic boost from high-tech new developments. Or it could use market prospects as a guide to where investment would do the most good. Think either will happen? Not bloody likely. The SBIR agencies don't match their funding to market opportunities; they match the programs to internal power struggles for budgets that match the agency's agenda.

A new Website for free market high-tech types. James Glassman of the Washington Post and the AEI has TechCentralstation. Glassman was the co-author of Dow 36,000 last year.

'You know what potential means? Potential means you haven't done a damn thing.''Bill Parcells, New York Jets. SBIR agencies who ask for commercial potential statements from proposers could take a lesson from Parcells (who won a Super Bowl with two different teams). Science houses who propose more science with "commercial potential" should be required to show they have done something with past "potential". The more money they got in the past, the more they should have to show. Some of the enlightened voices in Congress are trying to inject such discipline into SBIR in the re-authorization. They are being stoutly resisted by the forces enjoying the ride without economic discipline and the politicans who don't want to ask hard questions of a motherhood constituency. Meanwhile, the Parcells quote starts a Steven Syre and Charles Stein-Boston Globe piece on outlandish price-to-earnings or sales ratios in technology wonder stocks. Parcells with his hard-nosed attitude would be lost in today's stock market, especially the technology end of the market. To tech fans, potential is everything. A company with potential might become the next Cisco or Microsoft. The fact that a company ''hasn't done a damn thing'' is not a handicap. It is an advantage. As Michael Lewis put it in his bestseller on Silicon Valley, ''The New New Thing,'' ''The most appealing companies are those in a state of pure possibility.'' ... Investors have grasped that. They also have seen enough bona fide success stories to know that great things are possible. A dollar invested in EMC in 1990 was worth more than $800 at the beginning of this year. All you have to do is find the next EMC and bingo, you've got it made.There's only one problem: there aren't going to be that many EMCs. The attrition rate in high technology has always been enormous and there is no reason to think that has changed. In fact, the failure rate could be higher this time around because Wall Street has funded so many direct competitors in so many different niches.

As of Tuesday [Mar 28], the Nasdaq Composite was up 94% since August 10, 1999. New technology initial public offerings have reached market capitalizations of more than $20B during a period of months -- an incredible feat considering these companies have yet to announce $100M in annual revenues or even a single quarter of profitability. ... I recommend starting a shopping list of technology stocks that would be attractive if their prices suddenly fell. They should be real companies with a proven ability to earn profits and ride out difficult shifts in technology markets. [The Red Herring on-line, Mar 29] With that kind of market action, what can the government get from a subsidy program for high-tech companies that wouldn't have happened anyway to the companies who deserved market attention? For those companies that do not deserve market attention, what is the government doing but wasting money? Is there, however, a narrow window of opportunity for subsidies to companies that would get market attention if the high technical risk of a new idea were reduced? Yes, but mostly that is NOT what the government is doing with its SBIR. The agency technocrats simply divert the money into their favorite technology projects with little regard to market prospects.

Q When you first started out, things were different. You cared about price-per-earnings as a concept.
A We've evolved our strategy. The P/E was significant for us six years ago because we felt committed to the income statement without really digging into the balance sheet and the underlying strength of the business. The P/E has now become insignificant. First, it's in the nature of any small, growing company that they're probably not going to have any earnings. For the market to understand and accept this might actually be a good thing. One criticism of Coca-Cola's development as a business -- one of the greatest businesses of the century -- is that in the first 10 years they actually tried to make money, when an argument can be made that they could have actually sped up their success and beaten back a lot of cola competitors back then by saying: ``You know what? We believe so much in this product and its global attraction that we're going to go ahead and spend now to build our infrastructure and our brand name.'' ... there are enough companies that are going public that are excellent, and saying that their P/E is too high is like saying General Electric's P/E was too high in 1946. In fact, it didn't really matter that the stock was 20% overvalued because its stock price was going to go up 20% a year for the next 50 years. It was one of the greatest investments ever. [Tom Gardner (The Motley Fool), San Jose Mercury News, Mar 27,00]

A bandwidth boom Soon, a fiber-optic thread will be able to convey 2,000 waves of light at once, up from eight or 16 waves last year. This means that in a single second, a fiber-optic cable (with 864 individual threads) will carry the same amount of traffic that crossed the Internet in a whole month two or three years ago., predicts techno-seer George Gilder.

Denver billionaire Donald Sturm wants to bet millions that he will find the next eBay with a new business called iVention Group, which will house, finance and nurture high-tech startups in Denver. ... looking for breakthrough ideas that make telecom or the Internet go "faster, smarter or better" or ideas that "disrupt the traditional business model," much in the way eBay reinvented how individuals buy and sell to each other. Once those ideas and willing entrepreneurs are found, iVention will take an equity stake in selected startups and, in exchange, offer the companies administrative services such as accounting and payroll help, office space and startup money. ... Investors like incubators because they can get in early on the next big thing in technology and buy a big stake for relatively little money. Some entrepreneurs sell as much as 50 percent of their [Denver Post, Mar 20] Note that this is not another political incubator, this one expects to make monay and cares not about job creation. Capitalism, not politics.

a pattern that has been evident for more than a decade. Back in the Cold War years, more than half of US R&D spending (public plus private) was provided by Uncle Sam. Today the federal share is only about 30%, but the grand total is still escalating. In short, the booming economy has given a big boost to R&D spending in the private sector and, by producing enough tax revenue to balance the federal budget, has permitted an increase in federal R&D spending at the same time. For that we can thank a great many contributors, ranging from Alan Greenspan to Lady Luck. [Teddi Laurin, Photonics Spectra, Feb00]

More Insurance, More Risk, More Ventures
(Mar 17) The Federal Reserve is ordering banks to set aside more capital to cover the risks of their venture funding. About a third of venture capital would be slowed if the Fed didn't also turn the banks loose to do more venture investing. The banks are thirsting to get deeper into the game, yet another sign that government direct subsidy for economic purposes is no longer needed. Typically, when a government subsidy loses its need, it hangs around and funds sick companies because the politicians cannot bring themselves to end a payout to somebody. There are no votes in letting the banks do it.

Value comes from the ability to sell above cost, not from sales. If sales alone created value, General Motors would be the world's most valuable corporation. In a competitive economy, no profitable firm will go unchallenged. [JJ Siegel, Wall Street Journal, Mar 14] Although Siegel was talking about why "Big-Cap Tech Stocks Are a Sucker Bet" , he has it right for SBIR-funded technologies as well that want to commercialize (or at least pretend). The companies who cannot commercialize have not thought through how they will make enough profit to attract the needed investment.

War? My policy papers might get wrinkled, says the cartoon academic type with a wagon full of binders and a neat suit. [The American Enterprise, Apr 00] Well, many, many SBIR proposers have the same attitude. They would rather have nice science than a business success that requires warfare, as all do.

Eighty-eight of the top 100 [small-cap stock] performers this year are from the tech or medical sectors. Want a stark contrast? The 795 companies in the tech and medical groups are up an average of 27% year-to-date, 81% in the last six months and 146.5% in the last 42 weeks. The remaining 965 stocks aren't so fortunate. These stocks are down 5.2% year-to-date and off 2.5% the last six months. For the last year, they are up an uninspiring 3.2%. So the world of small caps is really no different than the universe of large stocks. Growth is king and value continues to lag. [Individual Investor, Mar 15]

Fiberless Wire
(Mar 15)a Seattle company says it has found a way to bring fiber speeds without the wires -- using light waves to carry the data. The idea is audacious, but it may well be the kind of technology that turns an industry in new directions. TeraBeam Networks has been working in stealth mode since 1997. The company got its first major public attention just last week, when it announced it had lured Daniel R. Hesse, president of AT&T Corp.'s Wireless Group, to become TeraBeam's chief executive. The technology itself was unveiled here Monday at PC Forum, a high-level industry conference where linkages between the Old and New Economies were high on the agenda. ... If TeraBeam can deploy this bandwidth as it claims, it has a chance to -- a breakthrough that wrecks old business models and inspires new industries. The company is aiming what it calls its ``fiberless optical'' networks at metropolitan areas, with transceivers on customers' premises exchanging data with TeraBeam devices installed around a city in a pattern somewhat like a mobile phone company's overlapping cells. But this isn't about radio waves. Light itself will carry the signals. [San Jose Mercury News, Mar 14]

The United States solidified its position as tech toy store to the world last year as exports of digital gear reached a record $181 billion, accounting for 26% of all U.S. goods sold abroad, a leading industry group says in a report to be released today. The American Electronics Association, representing about 3,000 of the nation's biggest technology companies, based its findings on analyses of more than 65 world markets where the United States sells at least $50 million in high-tech products. The report, titled ``Cybernation 2.0,'' was compiled in conjunction with the tech- heavy Nasdaq Stock Market. ... ``High-tech money tends to flow where it's treated most warmly,'' William Archey, president of the American Electronics Association, said. Part of the reason U.S. tech outfits are turning left at Tokyo and settling in Singapore is because of Japan's recession, Archey observed. But he also cited continued barriers to free trade erected by the Japanese government, as well as a lack of venture- capital funding and a culture that shuns risk. ``The whole Silicon Valley ethos is something the rest of the world realizes it will have to adapt to,'' Archey said. ``But in places like Japan, that ethos flies in the face of government control and some of the cultural considerations.''[SF Chronicle, Mar 13] Personal computers and the Internet are improving productivity, but a panel of four Nobel Prize-winning economists threw cold water on the suggestion that technology is yielding some kind of new economy. "We've had one innovation after another," said Kenneth J. Arrow, professor emeritus of economics at Stanford University. "The telegraph marked the first time we could eliminate distance. ... Electricity's most important impact was its use in the factory." The Internet, he said, is simply an improvement on telecommunications capabilities. "Let me add a bit of caution to those who think we have arrived in a new world," said James M. Buchanan, professor emeritus at George Mason University. "The closest analogy for the Internet today is the automobile in the 1920s." And while cars yielded many positive contributions for manufacturing as well as transportation, they didn't keep the stock market from crashing in 1929. But Gary S. Becker, professor of economics and sociology at the University of Chicago, said the Internet will bring tremendous efficiencies because it allows for much larger-scale interaction.For example, he said, a professor who ordinarily teaches a course to 100 students could reach 100,000 students over the Internet.[ALAN GOLDSTEIN (Dallas Morning News), Raleigh News & Obersver, Mar 13]

Acknowledge or make up the enemy.Venture capitalists will make two assumptions if you tell them you have no competition -- they will think you're clueless or there is no market. VCs want to see how you'll defeat the competition and conquer the market. [Guy Kawasaki, garage.com]

More SBIR Opportunity With demand for chips still surging after last year's sales record of $149 billion, chipmakers will soon head off on another buying binge for production equipment. For the suppliers of these esoteric machines, this year will easily top 1999, predicts market researcher Dataquest Inc. (chart)--but it's nothing like the bull that will rage next year. Chip companies are expanding capacity as fast as they can get delivery of new capital equipment. In the rush to grab as much market share as possible, hipmakers will almost certainly overbuild--and precipitate another slide. Dataquest figures the next crest is coming in mid-2002.

Getting Started After Years of Research A professor and in incubator and $900K from BMDO's SBIR have high hopes for a semiconductor processing technology. A UB chemistry professor who has spent the past decade developing A laser ablation apparatus by Jum Garvey at University of Buffalo claims to solve one of the trickier problems in computer-chip fabrication. To induce BMDO to invest in yet anpother academic with a dream that has absorbed a lot academic granyt research money. Garvey made a manufacturing-and-marketing deal with Neocera, the world's top supplier of pulsed laser deposition equipment, providing the team with automatic access to its market. UB's role, other than to get funding for faculty research at AMBP Tech (Assisted Molecular Beam Process Technologies). is space in its incubator.Says Garvey, Once we do, our laser ablation source then will be added to Neocera's catalog and will be marketed as part of its product line. That's the kind of SBIR deal BMDO wants to see, not happy "better mousetrap" words from an academic. [facts from UB Reporter]

The really big shew - Optical Fiber Communication Conference - filled the Baltimore hotels and the Convention Center. Everybody wants to talk over glass. The leaping stock-price multiples in the industry certainly draw a crowd - 15,000 expected, up from 10,000 last year and 475 companies exhibiting. Last-minute goers had to settle for hotels around Washington.

ATTENTION ALL CEOS of companies that are hopelessly mired in the Old Economy. There's a quick and easy cure for what ails your stock. Sell off whatever boring business you're in and become an Internet incubator. ... A company aptly called Jackpot Enterprises announced on Wednesday that it is establishing a $100M fund focused on Internet investments. What makes this announcement so interesting is that Jackpot is, literally, in the gambling business. The Las Vegas-based company runs slot-machine routes in Nevada. Not any more. Jackpot now intends to sell off the gaming business.... So if you own stock in any public company, I strongly urge you to write the CEO and implore him or her (then again, Hewlett Packard (HWP) shareholders should probably leave Carly Fiorina alone since she's doing just fine) to shed the burdensome vestiges of the 1900s and get with the program. [PR La Monica, Rational Exuberance Smart Money, Mar 8]

1 million square feet of office space sought to birth next generation of web startups. Five high-tech incubators are seeking 1 million square feet of office space in San Francisco as the city fast becomes the preferred launching pad for new ventures. Another seven incubators -- mostly geared toward birthing Internet startups -- already operate in the city. The various for-profit and nonprofit projects, if they come to fruition, would almost guarantee that an entire new generation of Internet and high-tech hatchlings mature in San Francisco. [Adam Feuerstein and Douglas Robson San Francisco Business Times. Mar 6]

Internet changes all the rules for start-ups the Internet has drastically changed the way the game is played. Time, for example, has become more valuable than money for many executives involved with Internet companies. That's why one VC, who has always calculated return on investment -- ROI -- when deciding where to invest his partnership's millions now also calculates ROT -- return on time. This VC gets so many business plans he spends only 15 seconds looking at each unless something he reads in that short time catches his eye. The Internet itself, of course, contributes to the problem. One angel investor says he gets 500 e-mails a day. Smart entrepreneurs recognize the value of time when they bargain with venture capitalists. [JAMES J. MITCHELL, San Jose Mercury News, Mar 5]

''Economics is for economists,'' says JDS Uniphase CFO Muller, himself an economist by training. His company, which makes fiber-optic components used to build the Internet, has seen shares rise 23%, to $264, since Feb. 17--leaving it with a $92 billion valuation eclipsing that of General Motors Corp. The simple reason: Demand is expected to continue soaring for its products as high-bandwidth networks spread. But there's a potential dark side to all this. For while the red-hot tech sector may seem to be ignoring the laws of Econ 101, the fun will be short-lived if the Old Economy doesn't come along for the ride. If interest-rate hikes slow the general economy, it could reduce technology spending over time. ... the sales scenario remains rosy for now. Wall Street analysts expect earnings for tech companies to rise 30% in 2000, compared with 12% for non-tech companies, Chipmakers will lead the charge, with 49% earnings growth, almost matching the blistering 52% gains in 1999. [P Burrows & K Kerwin, Business Week, Mar 13]

G. Pascal Zachary complains in Technology Review (MA00} that Something is wrong with the world when the "Queen of the Internet", a cheerleading analyst touting e-commerce stocks, pulls in $15M a year. His target is Mary Meeker who he says has never sold a line of code or published a scientific paper or founded a high-tech business. ... A scant half-decade ago, respected high-tech analysts earned $150K, 100 times less than Meeker. ... and is the human face behind one of the greatest sales jobs of modern times. Pundit jealousy? Perhaps analysts' income is proportional to the rate of rise of PE multiples in their field. If you are the typical SBIR proposer or wannabe, you have sold code (at least to the government), published scientific papers, and founded a company. But you don't get the $15M a year until you convert all those skills into a market-demand product. Meeker's product is mere opinion; what's yours?

Hot Stuff Last Week
(Mar 6). Irvine Sensors doubled which makes it six times what it was in mid-January. Irvine wasn't hurt that the Philadelphia Semiconductor Index rose 15%. AstroPower up 25% which is 2.5 times its mid-Jan price. American Xtal up 20% to triple its Feb 1 price. Conductus lost a third but it is still five times its Jan 1 price. HNC Software up a fourth. Making this honor role is like competing for BMDO Phase 2 SBIRs - everybody's got a good proposal and you gotta beat at least half of them. II-VI doubled. Implant Sciences up a third to triple its October price. Illinois Superconductor dropped to half its Tuesday value which is still 18 times its Jan 1 value. NanoPhase up a third to triple its January price. Superconductor Tech dropped 40% from its Tuesday high. SDL passed the $15B market cap level. Oh, if only the SBIR Program Manager who invested BMDO's money in these stocks in the 80s and early 90s, and the SDIO/BMDO Director, could have had a piece of equity for their investments as they would have had if they were real VCs. But then, it wasn't their money and they took no personal risks, so they will have to settle for their generous government retirements. They can, though, invest their pensions in the companies after they left they government. One did, with an obscene percentage gain for an old bureaucrat.

Scott Herhold is the new tech stock guru for the San Jose Mercury News in the heart of tech America.His rules:
1. I care more about how stocks will look a year from now than how they will next week.
2. I prefer companies that advance the envelope technologically -- or offer a service that their customers find difficult to replace easily.
4. I care more about when insiders buy than when they sell.
5. I care more about when analysts criticize than when they praise.
6. I believe in betting on the right CEO.
7. I believe a smart cell phone, probably voice-activated, will become the dominant mobile device of the future.
He says:I've covered city hall, county government, night cops, the courthouse and downtown. I did a stint as an assistant city editor, wrote the ``Insider'' political column, freelanced for our Sunday magazine and downed a cup of coffee in a short stint as a graphic artist. For this column, however, my most significant experience has come in the past three years in which I've covered venture capitalists and start-ups.

They Go Up, They Go .... The superconductor stocks hit another air pocket yesterday. Conductus -17%, Illinois Super -35%, Superconductor Tech -29%. Conductus announced a product 30 times better than its previous product. So? Where are the earnings? Meanwhile, info tech stocks did well. ATMI a new high in its steady climb in optimistic PE multiple territory. SDL announced it was splitting its stock again (400+ is a high number) and was to buy another company, Veritech Microwave, for $590M is stock. When you stock is in the stratosphere, use it to buy other lower PE companies if they will accept your inflated stock in exchange. SDL is now a $15B market cap company with a PE of 550. Are You A Real Technology Investor? asks Howard Anderson in Technology Investor (April 2000). He divides the tech world into three kinds of companies: Defenders, Attackers, and Arms Merchants. The defenders (e.g. Citibank) lose market share slowly at the gain of the attackers (e.g. Schwab). The companies he loves are the arms merchants (e.g. Sycamore Networks) who sell to both sides. Conversely, the companies the government tends to love are the defenders, because government is itself a defender. So, government so-called investment programs tend to be conservative and look for modest improvements in existing dogma. Just look at the SBIR programs of the military services and NASA.
Cool is Hot
(Feb 28) The superconductor stocks rocketed last week. Conductus led the NASDAQ percentage gainers with 137% and Superconductor Tech was fifth with 101% despite losing another $2+M for the most recent quarter.

But Eyes Are Not. The technology works great, so great that competitors are coming into the profitable market. With the patent claims under a cloud, Summit and VISX find themselves now challenged by Nidek and Bausch&Lomb. Even in a rising market, doubling the competitors lowers the profit growth potential and puts the skids under growth-sustained stock prices. So Summit and VISX dove last week. Autonomous Technologies 's contribution of Summit got swept into the gutter along with the main business. Summit is down two-thirds from its 52-week high.

The Merrill-Lynch Internet stock analyst introduced himself as the tulip-bulb analyst.

More high-tech stock gyrations. Superconductor Tech took a 16% dive as it announced a new CFO. Emcore gyrated as rumors swirled from 128 to 173, ending up 7% to 150. Cree fell 11%. Vixel up 20% without news. American Xtal took a 12% dive when it rescheduled its earnings report. In case you are an SBIR company hoping to make it big on NASDAQ, you better have your earnings story straight. That means you have to make profits in a legitimate accounting system. High sounding science stories for government handouts won't sell there.
Three of these oscillating companies in the high-tech commercial maelstrom got infant help from what is now BMDO's SBIR. Infant means the Phase 2 was among the company's first serious money. If SBIR ever gets a serious measure of the ROI, BMDO's investment in SuperTech, Cree, and Vixel would make a shining example of what government could do with a little money in the right places. Alas, the SBIR advocates of handout will probably politically block any realistic evaluation.
Who Do We Thank? asks AEI
American Businessmen (this is a grammatically impaired (should be "whom we thank") gaggle of men)
Thanks to our resilient, mobile workforce and the frontier traditions of leaving the old behind to embark on the new, America weathered this revolution in business management and finance with remarkably little long-term pain, But much of the press, along with some politicians of both Left and Right focused so intently on the discomfort that they misjudged what was happening right before their eyes.
New Technology
The seeds of the 1996-99 surge were planted in late 1994, when Netscape's new browser, combined with Mac-Windows point-and-click computing, made it easy for amateurs to make use of the World Wide Web. It wasn't until a year later, however, that the awesome commercial possibilities of the Internet grew big enough to be fully recognized, even by Bill Gates. The Internet economy then took off like a rocket. The number of servers hosting Websites increased from 1961 in October 1995 to 5089 by Nov 96. By no coincidence, this is precisely when the US economy and stock market began to soar.
The self-congratulatory piece in The American Enterprise (Mar00) does not mention any help from SBIR or other government subsidy programs. They were mainly harmless political fluff for gullible interest groups. Conversely, it credits Clinton for hands-off economics.

Buying Panic In recent weeks, companies such as APA Optics and Coherent have incited buying panics after issuing press releases stating they intended to enter the DWDM market. Individual Investor notes that fiber optics is the hottest thing on Wall Street. SDL, has also witnessed spectacular top- and bottom-line growth. SDL’s technical proficiency in active components -- the devices that generate and amplify light through a network, including pump lasers -- has enabled the company to become a preferred supplier to some of the world’s largest subterranean carriers. Going forward, SDL is expected to play a larger role in both long haul (terrestrial) markets and in the urban loop market, which will connect consumers and businesses within cities. But with JDS and SDL on the tongues of virtually every growth fund manager in America, individual investors may be wise to look for the next optics play. Both companies are trading between 30 and 50 times estimated 2000 revenue. ... Ortel , which in many ways has the weakest fundamentals in the group, had enough broadband potential to lure Lucent into making a $3B offer to buy the company. [ Luciano Siracusano, II, Feb 16]

The Ultimate Tech Portfolio Smart Money (a Dow Jones pub) listed its high-tech stock picks for the Internet revolution. PEs listed are based on 2001 earnings (as if anyone can project such reliably) which holds down the PEs.

Technology Growth Stocks (hang the PE!) PE Value Stocks (for the sane) PE
Semiconductors PMC-Sierra 99 LSI Logic 25
Fiberoptics JDS Uniphase 207 Lucent 29
Networking Cisco 85 ADC Telecom 35
Semiconductor Equipment Applied Materials 32 too many alike
Wireless RF Micro 107 Powerwave 41
Contract Manufacturing Taiwan Semi 56 Sanmina 30
Info mgt Software Veritas 164 Hyperion 24
B2B Software Ariba NM Parametric 19

More High-Tech High Jumping
(Feb 16) Emcore up 18% and quadrupled in a few months, Ibis up 11% and ninefold in a steadily rising eleven months, and American Xtal up 11%. A little air leaked out of APA Optics, down 30% from its high last week on news of yet another quarterly loss; APA trades for 300 times revenues and its quarterly report is the usual stuff of SBIR companies barely breaking even on low revenues. Somebody knows something or we have seen a gigantic 'pump and dump".


The most innovative technology cannot support a new product if there is no demand to meet, no need to fill. Experts suggest that marketing plays a critical role in product development. [Gaynell Terrell, Photonics Spectra,Jan 00] About 35% of US households are able to access the Internet. The race is on to own the 25 million households expected to go online within the next 48 months. [Ann Winblad, Forbes ASAP, Feb 21]
It is easy to scoff. The average Silicon Valley entrepreneur sees government more as a problem than as a solution. But Asia has a long history of government-led economic transformation. ... Many of the billions of dollars Asian countries are spending to reproduce Silicon Valley's high-tech hum will be wasted. Asia does have a high-tech future - but it is not the one its governments are hoping for. ... It is not hard to make an IBM-PC clone cheaper and just as good as the original, but cloning Yahoo or Amazon is another matter. ... Truly creative entrepreneurs are thin on the ground and, when they do appear, too many choose to migrate to America. ... Asian governments have a poor record in financing high-tech start-ups. As a result, much of Asia's plentiful high-tech money is sitting idle for lack of talent. Hong Kong's first fund, which was allocated by bureaucrats, routinely saw applications languish for nine months or more, a lifetime for a start-up. Singapore has a handful of programmes to help start-ups, but most are ruined by restrictions that make them unsuited to Internet firms. Happily, the governments of Hong Kong, Malaysia, and Singapore are learning the lesson, and all three now direct the biggest funds for high-tech entrepreneurs through VCs. ["Asia Online", The Economist, Feb 9]
The lessons are not just Asia's. Substitute any have-not state for "Asia" and SBIR for "government" and you have the US situation for SBIR. As they say in Texas, "all hat and no cattle". But the current political thinking (an oxymoron?) has SBIR doing more of what has made it an economic flop for 15 years - letting federal bureaucrats spend money in search of high-tech economic miracles in places and firms that have already failed at market economics. Still, as one Congressional staffer says, Congress loves this program.

In the mid-1990s, many predicted that optical fiber would be neck-and-neck with copper twisted-pair transmission media in reaching the desktop by the year 2000. Estimates today place the total premises fiber optic cabling in North America in 1999 at about 30% of the value of the unshielded twisted-pair market. Now some researchers are predicting that revenue parity between the two may be achieved about 2005, but most such market projections in the past have underestimated the vigor of copper media (and overestimated the performance-versus-price for optical fiber). Manufacturers are currently offering GB transmission over copper wire, and are promising multi-GB within the next few years. [AS Powell, ed Cabling, New Millenium, Jan2000] Just the situation with silicon and GaAs. Never underestimate the power of an entrenched industry to resist a fatal competitor. SBIR proposers should also note that a few government reviewers can tell hype from analysis and have been around long enough to see silly assumptions.

At Both Ends. IntelliSense (Wilmington, MA) teases its newsletter readers with a monthly puzzler. You have two different candles which burn out in one hour each but at a randomly varying rate (poor quality control, no doubt). How do you measure 45 minutes? IntelliSense Solution: Light one candle at one end, and the candle other at both ends. When the doubly-lit candle has burned out, half an hour has passed. The singly-lit now has 30 minutes left. By lighting this candle at its other end, the time for it to burn out is halved to 15 minutes. When this candle burns out, 45 minutes have passed. (Questionable. Since the rate varies randomly, half way is not necessarily half time. Also, candles won't burn at both ends very well since they rely on a flame above the melting surface to form a pool of liquid that the wick takes up to fee the flame.) An equivalent solution is to cut each candle in half and burn three halves in sequence. It mamkes the same assumption that half a candle burns in half an hour but does not defy the laws of combustion.

Dinner, some networking and a few million dollars in start-up money are going to be served up monthly by at least 50 of the Washington, DC area's senior technology executives in a new angel- investment fund, the fund's manager said today. The Maryland Angel Council is the brainchild of the High Technology Council of Maryland. The group could raise as much as $7 million and in turn use it to help high-technology fledglings with seed money likely to total around $200,000 each company, [M Bruno, Washington Techway, Jan 17]

Where is info-tech booming? Ride the Dulles access road and see the new buildings sprouting and read the names on the existing buildings. Not a name that sounds like industrial America.

Videmus,inquit suam cuique rem esse carissimam; reddant nobis tunicam nostram et pallium suum recipiant." Etsi rustico mulierique placebat permutatio, advocati tamen iam paene nocturni, qui volebant pallium lucri facere, flagitabant uti apud se utraque deponerentur ac postero die iudex querelam inspiceret. Cover story at WashTech. Probably only a select few studied Latin as college prep since it seems to have disappeared since the 50s.I wonder what Latin is for fiber-optics.

If It's New Technology, Is It Necessarily Good. Digital technologies have so thoroughly permeated everyday life that they seem to have short-circuited the kind of instinctive questioning that was a hard-won lesson of technological mistakes of the past - from X-raying feet in shoe stores to find shoes that fit perfectly to the endless development of nuclear power plants. We trust the high-tech elite, for the most part, to build the new economy. We grant them wide discretion for what they often call their ''real'' motivation: to change the world. By default, they've been awarded a license to decide what technologies consumers need. But this ascendancy of high-tech wizards should give pause, considering their track record. For example, high tech's wealth-creation machine has generated staggering inequalities of income and opportunity. The vast sums spent on installing technology in schools have returned scant evidence of higher student achievement. Little is said about the time-wasting or alienating aspects of digital life. Rarely does one hear a challenge to the idea that perpetual connections via e-mail, voicemail, and wireless, Web-based hand-held computers, cell phones, and pagers actually improve our quality of life. ... To be sure, many benefits of high tech are real. Critics who ignore them and see nothing but greed or manipulation deserve the fanatic label. And don't blame business people for trying to make a buck, even by exploiting gullibility. But we need social critics who ask penetrating questions about the basic assumptions of technology's leaders. If those questions fail to get a fair hearing, it is at everyone's peril. [Charles Piller, Boston Globe, Jan 19] SBIR proposers have the disease, too. If the technology is good, it must be good for everyone. The government encourages blind devotion to new technology without judging any social cost and even requiring that the proposer think large. In most cases no harm comes because the technology isn't really new anyway, only an incremental advance in (or worse, a mere explanation of) some existing technology.

A Better Mousetrap. in the 1980's Apple thought that simply because the Macintosh was insanely great it could be sold at a premium price from day one. It was Mr. Gates who understood the power of ubiquity, and used that knowledge to build an unassailable market position. "Windows 95 is Macintosh 89," declared the losers bitterly when the struggle was all over. They were right, but that in itself tells you how much better Mr. Gates played the game. [Paul Krugman, NY Times, Jan 16] Does Apple's stand sound like your last SBIR proposal? Did the government fund it anyway despite your obvious naivete? Did BMDO reject your story as pure Apple-ian fantasy? Get a business story to go with your techno-dreams in case your crazy idea actually works. What? Your idea isn't crazy? Then why do you deserve government subsidy?

A high tech startup, Quantum Computer Services, that went public in 1992 will now own Time Magazine, CNN, and Bugs Bunny.

Infotechphoria Yahoo's market value is twice that of General Motors and the market value of cell-phone-maker Nokia is bigger than the gross domestic product of its Finland home country.

Change Resistors can be found for any advance no matter how valuable you think it is. ISRAEL'S leading orthodox rabbis have issued a ruling banning the internet from Jewish homes, arguing that it is "1,000 times more dangerous than television" and threatens the survival of the country. The ruling, issued by the Council of Torah Sages, is an attempt by the rabbis to halt the inÞltration of "sin and abomination" from the internet into the homes of the ultra-orthodox, whose children have hitherto been shielded from the temptations of the modern world. The rabbis recalled that they had banned television 30 years ago, and said that the dangers from the internet were even greater.


Tech Futures; Five Long Term Trends Something to Believe In No fewer than five broad movements in technology are virtually certain to remain in force as far into the future as anyone can see.
1) Moore's Law II. Every advance in computing ensures a further advance because computers are the main tools by which we design computers.
2) Carbon-Silicon Union Machines are becoming biological, and the biological is becoming engineered.
3) Intelligence to the Edges The Internet, for one, has no intelligent center -- indeed, no center at all. It is pure periphery, yet very smart as a result. [The end of a strong central government with an information monopoly after a failing intense struggle by government to keep its hands on the reins.] The the explosion in "open source" software development
4) Picturing Data. to search for risk patterns and to play out the effects of strategies in the marketplace
5) Unintended Consequence. Drug makers call them "side effects." To the extent we're blind to technology's unintended consequences, we can be forgiven. To the extent we ignore them, we're acting unethically.[THOMAS PETZINGER JR, Wall Street Journal, Jan 1]
Making Predictions? Of course you are. Those SBIR proposals teem with predictions, usually too linear and fearfully conservative. Virginia Postrel says, From the late 19th century through the middle of the 20th, futurists imagined electric lighting, but no electric guitars; supersonic jets, but no hang gliders; laser weapons, but no laser surgery or compact disks; giant computer databases, but no Palm Pilots or video games; nuclear power, but no nuclear medicine; government surveillance cameras, but no baby monitors. These stunted visions -- produced by social critics and science-fiction writers -- are neither random nor isolated. Optimists and pessimists alike conceived of the future -- our present -- as a uniform society, a flattened, unnuanced world designed by a few smart men. They didn't imagine the quirky products of creativity applied to small-scale, personal problems and passions. They didn't factor in the power of vanity, self-expression, chance, novelty, or fun. Theirs was a future without surprise. Those government experts and bureaucrats have more imagination than you credit them with. Their jobs require them to suppress their imaginations and pretend they can analyze proposals about future technologies. (Actually, some demur by considering only present technologies.) If you have a future technology, talk like you can see the future but be sure to write like you have advanced from the 19th century.

Everything that has already happened -- the development of increasingly powerful microprocessors and wireless phones, the dizzying growth of networks -- will seem puny compared with the explosion to come as all of the technology works together better, faster and cheaper. Want to know why a company like Qualcomm, a pioneer in wireless technology, has suddenly rocketed this year from $25 a share to more than $600? A lot of investors are betting that we are not at the end of an expansion but at the dawn of an economic revolution. [Dan Barkin, Raleigh News & Observer, Jan 2]

A Wall Street Journal chart of GDP since 1930 shows an inexorable and steady rise from under $1T in the mid 1930s to nearly $9T today - in constant 1996 dollars. The worst periods are merely brief plateaus, no matter what the politicians of the time cried. Did the government programs devised by those politicians cause the rise? The answer will depend on whom you talk to. It is probably safe to claim that subsidy programs, SBIR included, had no effect The took dollars from the economy in taxes and spent them in less economically efficient ways for the benefit of particular interests. The government's accounting, and particularly the accounting by the beneficiaries, made economically silly claims of great benefit. The American Economic Association this week will have a session on the measurement of SBIR's net gain at which the beneficiaries will not be represented, mostly because over the years they have continually tried to change the subject.

Clayton Moore was reminded how difficult it would be to play the [Lone Ranger] role. He would be wearing a mask all the time. With his eyes and much of his face covered, he would be unable to show any emotions or facial expressions whatever.The climactic question of the interview: "So how can you play the Lone Ranger?"Then came the deep, sonorous, authoritative voice that none of us, boomer or not, will ever forget:"I AM the Lone Ranger." Moore, determined to win the part, had been practicing singing scales, listening and checking himself again and again against the recorded voice of Brace Beemer, the actor who played the Masked Man on radio. And that's how he got the part.I always liked this story. It's not about sweating the little details of life. It's about getting the one big detail right. Moore loved being the Lone Ranger. After 169 television episodes, he continued the role at shopping mall shows and on TV commercials, including some for the Texas Rangers baseball team, right up until his death Tuesday at 85. [Washington Post, Jan 2]

helping small high-tech companies get from idea to market