![\"TikvahTherapeutics\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2014\/05\/TikvahTherapeutics.jpg\")
<\/a><\/p>\nIn my files I have a very impressive 44-page PowerPoint from the then president and CEO, Harold H. Shlevin. The first slide contained Tikvah Therapeutics’s “Highlights.”<\/p>\n
Looking back, I now especially love the lines “Proven, experienced management team<\/em>” and “A focused strategy emphasizing risk reduction<\/em>.”<\/p>\n I spoke to Dr. Shlevin this morning. He said the company needed to raise more money during 2008, but funding for biotechs dried up completely during the financial crisis. The company drastically cut expenses. And in the process, the majority shareholder, namely Paramount, fired Dr. Shlevin, who actually didn’t know about the Dissolution Certificate, until I told him this morning.<\/p>\n The obvious lesson here is that startups are dicey, with biotech startups perhaps the diciest (but also among the most rewarding).<\/p>\n I’m writing this now because I had warrants in the company which were expiring today, May 15. And Muriel, my CFO, wondered what we should do with them? (Answer: frame them and hang them in the bathroom.)<\/p>\n The second lesson is that startups coddle and love you until<\/strong> they have your money. Then you’ll never hear from them again — ever. In all those years, Tikvah had never sent me a quarterly report, an annual report or even a copy of the Certificate of Dissolution. I spent several hours yesterday on the phone and the web checking into what happened to Tikvah. The web was useless. I finally got a copy of the Certificate from the salesman, Harris Lydon, who sold me the stock in Tikvah while he worked for Paramount Bio-Capital, the investment banker who created Tikvah, stuffed it with three drugs, found the management to run it and then promoted Tikvah to unsuspecting investors (like me). Paramount was and is still headed by a fellow called Dr. Lindsay Rosenwald. There’s a glowing biography on Lindsay on Wikipedia, which fails to mention his many failures, like Tikvah and some of the others of his I sadly invested in. Many apparently went down in 2008.<\/p>\n I mention Tikvah not because I want your sympathy, but as a lesson in what might happen to you if you invest in startups.<\/p>\n Yes, startups. Even with my Tikvah wipe-out, I still think it’s reasonable to have 10% of your portfolio in startups, with the following caveats:<\/p>\n + When choosing which to invest in, the key element is the quality of the management, their brilliance and their hunger.<\/p>\n + You’ll never see the quality of startup which professional VCs see. Hence, you’re already at a disadvantage.<\/p>\n + Say NO to 99% of startups you see. OK, 98% if you want to be gutsy.<\/p>\n + If you invest in ten startups, expect nine to go bust. You won’t be disappointed.<\/p>\n + Make sure your startup has enough money to take it through the economy’s next boom-and-bust cycle. Most startups underestimate their marketing costs. Biotech companies are a money-suck beyond anything you ever imagined. It can take 10-15 years before the FDA approves your compound. Most likely, they won’t. The FDA is increasingly risk adverse — afraid of off-label abuse and disasters that might happen after years of use — e.g. Thalidomide and its affect on pregnant women.<\/p>\n + Get a written agreement to be sent regular quarterly and annual reports. Get monthly reports if you can.<\/p>\n + Become an advisor to the company. But check that management listens. Most don’t.<\/p>\n + Don’t get involved with startups if you’re over 60. You don’t need the agita. And you won’t be around before yo get a dividend or get taken over, or go IPO.<\/p>\n It’s now time for you to read James Surowiecki’s latest piece in the New Yorker.<\/em><\/p>\n \u00a0The Financial Page: We live in the age of the startup. It’s never been easier to build a product and start a company. And, thanks to the boom in angel investing and crowdfunding, it’s never been easier for startups to raise money. The analytics firm CB Insights logged more than seventeen hundred seed-investment deals in the U.S. tech industry in 2012, more than three times the number from three years earlier. But there’s a catch: starting a company may be easier, but making it a success isn’t. Competition is fierce, profits are scarce, and venture capitalists aren’t generous when it comes to later stages of funding. As Gideon Lewis-Kraus shows in “No Exit,” a new Kindle Single about startup culture, the life of a new company is often brutish and short. Though we may be seeing a “Cambrian explosion” of new companies, as The Economist recently put it, there’s a mass extinction going on, too.<\/p>\n The fact that most new businesses fail is hardly a secret. So why are so many people gambling on ventures that are likely to end badly? A traditional answer is that entrepreneurs are just more comfortable taking risks than the rest of us. The eighteenth-century Irish-French economist Richard Cantillon, who coined the term “entrepreneur,” defined it as a “bearer of risk.” And in 1921 the economist Frank Knight argued that the function of entrepreneurs was to “specialize in risk-taking.” Yet studies of entrepreneurs find that, in general, they’re as risk-averse as everyone else. Only when it comes to starting a business are they daring. And that’s because the fundamental characteristic of entrepreneurs isn’t risk-seeking; it’s self-confidence. A 1997 study in the Journal of Business Venturing found that entrepreneurs are overconfident about their ability to prevent bad outcomes. They’re also overconfident about the prospects of their business. A 1988 study in the same journal of some three thousand entrepreneurs found that eighty-one per cent thought their businesses had at least a seventy-per-cent chance of success, and a third thought there was no chance they would fail-numbers that bear no relation to reality. A recent paper called “Living Forever” notes that entrepreneurs are more likely than other people to overestimate their life spans.<\/p>\n Entrepreneurs may recognize that, in general, starting a business is risky. They just believe that their innate skills will win out. David S. Rose, a serial entrepreneur turned angel investor, and the author of the new book “Angel Investing,” told me, “You have to have an unreasonable level of confidence as an entrepreneur, or you’ll never get started.” This helps entrepreneurs keep going in what’s often a bleak and frightening endeavor. “Starting a company is extraordinarily difficult, even agonizing,” Rose said. “You need self-confidence and ego to get through it.” At the same time, the fact that so many entrepreneurs are convinced that they will succeed makes success less likely, by swelling the ranks of competitors. This dynamic was made famous by the economist H. Scott Gordon: in a 1954 essay, he noted that, because fishermen were “incurably optimistic” about their abilities to bring in a big catch, there were always too many fishermen working in the ocean, which, in turn, made it harder for them to earn a living.<\/p>\n In the startup world, endemic optimism is amplified by other factors. The ease of developing a product and getting seed money gives entrepreneurs a lot of positive feedback early on. The rise of “accelerators” like Y Combinator-which provide funding and also mentoring and networking services (a kind of boot camp for entrepreneurs)-has made building a business seem less risky. On top of this, there’s a widespread tendency to treat failure as a badge of honor: “Fail fast, fail often” is a familiar mantra in Silicon Valley. There’s now a regular FailCon, where people come to hear other entrepreneurs tell about the hard times they endured and about how starting a business and failing actually makes you more likely to succeed in the future. It’s a comforting message, but the evidence suggests that past failure really just predicts future failure. A 2009 study of venture-backed firms found that entrepreneurs who had failed in the past were not much more likely to succeed in new ventures than first-time entrepreneurs were-some eighty per cent of those who had failed before failed again. A later study of more than eight thousand German ventures came to an even grimmer conclusion: founders who had previously failed were more likely to fail than novices.<\/p>\n You might suppose that entrepreneurs would be better off curbing their optimism. But we’ve built a whole system on unrealistic expectations. Because we don’t know how to identify good companies in advance, investors end up funding lots of them in the hope that a few will hit it big. As a character on the new HBO series “Silicon Valley” says of a V.C., “You know how sea turtles have, like, a shit ton of babies because most of them die on the way down to the water? Peter just wants to make sure his money makes it to the ocean.” The economy has come to rely on this Darwinian process to drive innovation. “Overconfidence means that many more companies start up than will ever succeed,” Brian Wu, a professor of strategy at the University of Michigan, told me. “That’s unfortunate for individual companies. The paradox is that it’s really beneficial for society.” In the delusions of entrepreneurs are the seeds of technological progress. \u0004<\/p>\n More about Art. <\/strong>Yesterday I wrote that the art market was strong because 2013’s stockmarket had been strong. My friend, a knowledgeable art collector, says I’m wrong (wouldn’t be the first time) and the real reason is:<\/span><\/span><\/p>\n + It’s two-fold. With interest rates low, and fixed income returning so little, many people started flocking to art as an alternative investment. Common notion… I can’t earn yield with bonds, so might as well buy beautiful contemporary art that hangs in my living room that will hopefully appreciate and I can enjoy it more than looking at my bond statement. This started in 2010 as the art market did not experience nearly the drop in values as real estate and stock market. The second notion is the wealth in third world countries that has emerged like China, South America and Russia. Wealthy people want to put their money in foreign currency and even be able to park it out of their home country. What else can you buy for millions of dollars that fits in a 50 inch square crate and can be shipped anywhere in the world overnite? Certainly an office building doesn’t meet that criteria. The boom in Burgundy wines, watches, art… It is also similar. In a world where yield is tough to earn, why not buy very rare special things that are appreciating but you can enjoy in the process. They don’t pay a return, but neither does a bank CD.<\/p>\n He also wanted me to understand the difference between investing and collecting:<\/p>\n + I am not an investor as you suggest, I am a collector. One of the points that I wanted to make is that you seem to make the assumption that everyone who collects art is doing it to “invest” and make a profit. Any artist or dealer and many collectors who would have read your column would be very upset by the comment. Dealers and artists (and collectors) do not willingly sell art to people who are investors. The gallery is tasked with selling the work to a collector who will hold the work long term, enjoy it in their house and then hopefully donate it to a museum, or perhaps donate it straight away, particularly in the case of very hot artists. To say that collectors are buying solely to make a profit… No collector would admit to that or want to be on record for that, and if a dealer suspected that, they would not sell the work to the collector! This is really important Harry. People buy art because they love<\/strong> the work. They may, in back of their brain, think it is a good investment, but they are buying it because they love it first and never to flip it. Most art is sold at death or divorce and rarely in between. It does appreciate, but the people collecting generally do not flip, as the minute you sell, that will be the last time the dealer wants to offer you their best, hardest-to-find work!<\/p>\n Don’t say you never learned anything from Harry’s blog:<\/strong><\/span><\/p>\n<\/a><\/p>\n<\/a><\/p>\n
\nEpic Fails of the Startup World<\/strong><\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n