Bob Metcalfe added today to his many accomplishments the leading of 1100 people in the singing of “Happy Birthday Venture Capital.” What a way to open the VC65 event, a joint venture of Xconomy, the NVCA, and the MIT Museum. Metcalfe argued that reports of the death of innovation have been greatly exaggerated (I’m paraphrasing) and he cited two important developments in January in support of this thesis: 1. President Obama devoted ten minutes of his State of the Union address to “encouraging American innovation.” 2. Bob Metcalfe became Professor of Innovation at the University of Texas in Austin.
Sixty-five years ago, General George Doriot founded (with Ralph Flanders and Karl Compton) American Research and Development Corporation (ARDC), the first publicly owned venture capital firm. ARDC is credited with the first major venture capital success story when its 1957 investment of $70,000 in Digital Equipment Corporation (DEC) would be valued at over $355 million after the company’s initial public offering in 1968 (representing a return of over 500 times on its investment and an annualized rate of return of 101%).
Metcalfe published earlier this week an expanded version of his short talk today in which he outlined what he calls the “Doriot Ecology (Ecosystem).” Participants in this innovation model are research professors, graduating students, scaling entrepreneurs, venture capitalists, strategic partners, and early adopters.
The addition of research professors and graduating students to what we usually consider as the key players in the venture capital industry or ecosystem is important in the specific case of “technological, entrepreneurial innovation at scale,” the type of innovation that is of interest to Metcalfe the venture capitalist (and now, the research professor).
Metcalfe: “America has perhaps 100 good research universities, and it is my hypothesis that they are where President Obama should be directing all the research dollars our nation can afford. Do I propose this because research universities are well managed? No. But keeping universities competing with one another for research dollars is the best remedy for that. The real reason for doing our nation’s research at research universities is that they graduate students, who are the best vehicles for carrying new knowledge out into world markets where it can do some good.”
Sixty-six years ago, a similar advice to a sitting President was advanced, probably for the first time, by Vannevar Bush, in his “Science, the Endless Frontier.” Bush wrote that basic research was “the pacemaker of technological progress” and that “New products and new processes do not appear full-grown. They are founded on new principles and new conceptions, which in turn are painstakingly developed by research in the purest realms of science.” He recommended the creation of what would eventually become in 1950 the National Science Foundation (NSF).
So I think that a more apt label to the ecosystem Metcalfe described, an ecosystem generating new knowledge and new ways of using it, would be the “Bush Ecology,” with government funding supporting research universities.
Interestingly, the next speaker at the VC65 event described what I think should indeed be called the “Doriot Ecology,” a different model in which private funding, from venture capitalists, supports basic research, research professors, and their graduating students.
The speaker was Henry McCance, Chairman Emeritus of Greylock Partners. He is the co-founder of the Cure Alzheimer’s Fund, which has provided $13 million to 18 different institutions with the goal of ending Alzheimer’s by 2020. McCance applied the best practices he learned in the venture capital industry – proactively identify visionaries, help build successful management teams, establish the culture, dare to be great – to medical research and recommended applying this model to other social issues. He calls it “venture research.”
Research universities and research professors are no doubt important in solving big problems. The traditional way of funding them has been the Bush model with the federal government providing support and encouragement. But as McCance noted in his talk, grant-making has become risk-averse. The new, risk-taking, “dare to be great” model that McCance described is what should be called the Doriot model.
By Gil Press