Building Wealth through Venture Capital. Freeman Kenneth M.

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СКАЧАТЬ style="font-size:15px;">      Almost all are driven by their own particular demons to attempt to create their own unique destiny. They are generally uncomfortable with authority imposed by others. Many as children were unable to be true to themselves while attempting to conform and placate a concerned parent. Their characteristic hostility to authority, and the limitations they sense it imposes, is a response to these childhood chains.

      The entrepreneur is not much interested in getting along by going along. They want to follow the beat of their own drum, and some see pursuing their target quickly, with urgency, as being necessary for survival. The best of the breed, though, while perhaps avoiding external authority and situations they feel they cannot control, do know their own limitations.

      Driven by Passion

      Entrepreneurs are driven by passion, often an all‐consuming passion. There are no half measures on this field. If it doesn't work, try again. They are generally not in it for the money (although that would be nice), but instead for getting something out of themselves that they need to get out, for expressing themselves in their own special way. Bruce Springsteen says it well in his book, Born to Run (published in 2016 by Simon & Schuster), writing about his career journey: “I wanted something that could come only from my voice that was informed by the internal and external geography of my own experience.” Bruce gets it exactly right; successful entrepreneurship is the external expression of a compelling inner need.

      Entrepreneurship is both artistic drive and artistic expression. It reflects an internal drive that is converted into an external impact, resulting in product or company. Steve Jobs had an internal drive initially to create a desktop computer truly accessible to the masses. That resulted back in the early 1980s in the Apple II, which was at first sold mostly to schools and to parents with young kids. As someone driven by an especially powerful inner demon, though, Jobs couldn't stop there. His focused drive pivoted in different directions a number of times, leading to a worldwide brand of devices and their integrated software.

      Springsteen and Jobs listened to their passions and followed the beat of their own distant drum, and that made all the difference. Springsteen put it this way: “I wanted the singular creative and decision‐making power of a solo artist, but I also wanted the live, rambunctious gang feeling that only a real rock‐'n'‐roll band can deliver. I felt there was no reason you couldn't have the best of both worlds, so I signed as a solo artist and hired my longtime neighborhood running pack as my band (the E‐Street Band).”

      Springsteen and Jobs both wanted it – insisted on it – their way, pursuing single‐mindedly their vision, which guided subsequent direction and evolution. Their passion and drive gave them the power to pivot when times became tough, as is so often needed in a new entrepreneurial venture, as well as to bring others along with them. In Jobs' case, the almost‐mystical persuasion of his “reality distortion field” led investors, employees, and ultimately consumers to believe almost anything he told them.

      Motivated by the Opportunity to Make a Positive Difference

      Often the best investments are those where the entrepreneur is way out on the leading edge of the possible. These breakout deals are generally priced right, with low early valuations/share price, and yet have the potential to disrupt or reinvent existing businesses and sometimes even entire industries.

      These breakout developments represent potential opportunities for big profits while also often addressing a major problem or existing challenge to the health and welfare of our society. Solving big problems with disruptive innovation is the way to both riches and honor.

      Northfield Laboratories, started just outside of Chicago in Northfield, Illinois, was such a company. In the mid‐1980s, the AIDS epidemic was ravaging society, threatening to move into the mainstream as a serious pandemic. It needed to be contained. It was determined that one major source of transmission was blood transfusions. An “artificial blood” was needed that would be totally sterile and guaranteed free of AIDS or other bloodborne diseases, could be used for any patient without having to match blood types, and could be priced competitively to current blood transfusions.

      About a decade earlier, unaware of the AIDS epidemic to come, a U.S. Navy doctor and surgeon in Vietnam saw many soldiers and sailors die on the battlefield because there was not such a product, particularly one that would not require matching blood types. Such a product would be invaluable for urgent battlefield emergency care.

      When the doctor returned from the war, he was determined to create such a lifesaving blood product. He went to work, recruiting several researchers, funding product development through government and defense grants, and moving the development well along into animal trials. Then emergence of the AIDS crisis gave the project even greater urgency.

      The nascent team came to this author's attention while I was a venture capital investor at the Allstate Insurance Company. At the time, Allstate's Venture Capital Division, which had been launched in 1958, was one of the oldest, largest, and most successful venture capital funds in the world. Its very first investment, both prescient and extraordinarily lucky, was an investment of $450,000 in Control Data Corporation. That investment serendipitously grew to nearly $50,000,000 in four years and hence “paid for all the losses ever after.” With that financial backstop, along with continued support from Allstate senior management, the Allstate Venture Capital Division would on occasion roll the dice on potentially breakaway investments, particularly when there could also be a significant societal benefit. Northfield Laboratories was such an investment opportunity.

      This author met with the Northfield team, and the company was quickly organized and funded, with Allstate as the lead investor, joined by Montgomery Medical Ventures, for which Allstate was also the lead venture fund investor. Almost immediately after this initial investment, another major Chicago company invested $40 million in the effort.

      Several years later, even though the company's sought‐after product was not yet ready for the market, Northfield went public at a high value. Still later, many investors realized substantial gains post‐IPO, even as the company continued in R&D mode pursuing the sought‐after artificial blood. Eventually over $200 million was invested in the technology.

      The company did develop an artificial blood, called PolyHeme, a hemoglobin‐based, oxygen‐carrying blood substitute. Unfortunately, the product failed the final critical human trial by just two patients in Phase Three clinical testing, and so never received FDA approval, after an over‐20‐year attempt to create and commercialize lifesaving artificial blood. Had the clinical trial group been just slightly larger, the product might have passed the FDA hurdle, and there would be artificial blood available today.

      The entrepreneur was out on the leading edge of the possible, and didn't get all the way there. In the case of Northfield Laboratories, though, money was made by the entrepreneur and his early investors, and a degree of honor secured, even though the product never made it to the market and to the patients whose lives depended on it.

      The Need to Recognize Reality: Beware the Seduction of Money and Power

      Most entrepreneurs are not driven principally by money or power, although both may result from their efforts. Most are driven primarily by a need for achievement and winning, and for the right to create based on their own unique vision.

      Unfortunately, though, some entrepreneurs have been known to get themselves into trouble when they become seduced by early success and forget their animating vision. Trouble also can come when the vision becomes everything and is detached from reality. The recent tribulations of Elizabeth Holmes and her company, Theranos, are an instructive illustration.

      From a very early age, Ms. Holmes envisioned a blood test that would require very little blood and avoid needles in the blood‐gathering process. Modeling СКАЧАТЬ