Winning with Data. Bien Frank

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      Tom Tunguz

      Winning with Data

WINNINGWITHDATATRANSFORM YOUR CULTURE,EMPOWER YOUR PEOPLE,ANDSHAPE THE FUTURETOMASZ TUNGUZ AND FRANK BIEN

      This book is printed on acid-free paper.

      Copyright © 2016 by Tomasz Tunguz and Frank Bien. All rights reserved

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      Published simultaneously in Canada

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      ISBN 9781119257233 (Hardcover)

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      Introduction

      Silicon Valley owes its existence to a Frenchman living in Boston. Born in France in 1899, Georges Doriot graduated from the University of Paris in 1920 and matriculated at the Harvard Business School in 1921. Four years after graduation, he became the assistant dean and associate professor of industrial management at Harvard.1 Five years later, he would be promoted to full professor, in large part due to his beloved manufacturing course that graduated more than 7,000 students during his tenure through 1966. The year-long course tested the general management skills of second-year MBA students, and the final reports of students often exceeded 600 pages.2 In Creative Capital, Doriot biographer Spencer E. Ante summarized his interviews of former Doriot students:

      “His lectures were so memorable and controversial – he once lectured students on how to pick a wife – that many former students who have forgotten most of what they learned at business school still remember Doriot vividly.” 3

      A sinewy 5 feet 10 inches tall, with incisive blue eyes, a thin mustache, and a penchant for fine tobacco to stuff his iconic pipe, Doriot was highly decorated by the U.S. military. In 1940, he became a U.S. citizen to assume a military post created for him by a former student, Major General Edmund Gregory. Appointed lieutenant colonel and chief of the Military Planning Division, Doriot managed all the procurement for the U.S. Army, from trucks to uniforms to rations.

      In the jungles of Southeast Asia, indigenous forces easily tracked American infantryman by their footprints. Unlike the barefooted natives, Americans left boot outlines as they marched through mud. So, Doriot contracted an anthropologist to develop molds of the feet of the locals and manufactured boots with these imprints on the soles. “If you ran down a muddy road you'd swear that was not an American, it was a native,” remembered Lieutenant Colonel William H. McLean.4

      In addition to these tactical advances, Doriot and his team resolved large-scale logistical problems that supplied the Allied Forces with the ammunition, nourishment, and equipment to fuel their success. Doriot was ultimately promoted to brigadier general, received the Distinguished Service Medal (the highest U.S. military metal given to a noncombatant), rose to the rank of commander of the British Empire, and was awarded the French Legion of Honor.

      After the war concluded, Doriot continued to change the world. In 1959, he and three of his students from Harvard Business School founded INSEAD (Institut European d'Administration des Affairs), the preeminent business school outside the United States.

      In addition, he is widely regarded as the father of venture capital. His firm, American Research and Development (ARD), led the first institutional venture capital investment of $70,000 in Digital Equipment Corporation (DEC), maker of minicomputers, in 1957. Eleven years later, DEC went public and netted more than $355 million to ARD, for a 5,000-times return and an internal rate of return (IRR) of more than 100 percent annually. Among other notable investments, Georges Doriot financed the first company of future 41st U.S. president George H. W. Bush.5

      American Research and Development's success launched the venture capital industry. A cottage industry through the late 1990s, venture capital exploded in size and impact during the dot-com era.

      In the 1980s, venture capital firms in total raised roughly $10 billion per year. During the height of the dot-com era, that figure catapulted to more than $100 billion adjusted for inflation. Since then, in the course of a typical year, venture capitalists raise more than $25 billion to invest into technology, biotechnology, and other kinds of startups.

      And the innovation fueled by this capital has transformed the world. FedEx, Google, Intel, Apple, Tesla, Genentech, Bed Bath and Beyond, Whole Foods, Starbucks, Uber, AirBnB: Is there an industry venture-backed startups have not yet disrupted? According to a recent study completed by Stanford researchers Ilya Strebulaev and Will Gornall, 43 percent of U.S. publicly traded companies founded after 1974 have been venture backed, accounting for 63 percent of the total U.S. stock exchange market capitalization. Further, 38 percent of American workers are employed by venture-backed businesses, including 82 percent of research and development employees.6

      But, to hear my senior partners tell the story of the heyday of venture capital in the 1990s is to envision a completely different industry than the one we operate in today. One old-time venture capitalist recounted the ways of the bygone days: The 10 or so key members of various firms would eat lunch together on a weekly basis. Like trading baseball cards, they would swap information on the companies they'd seen and decide to invest with each other or not. The capital requirements of these startups outstripped these early funds, so they partnered to ensure the business would have enough runway to achieve success.

      Of course, these syndicates competed. But even then, it

2

Christina Pazzanese, “The Talented Georges Doriot,” Harvard Gazette, February 24, 2015. Retrieved from http://news.harvard.edu/gazette/story/2015/02/the-talented-georges-doriot/.

3

S. E. Ante, Creative Capital: Georges Doriot and the Birth of Venture Capital (Boston, MA: Harvard Business Press, 2008), 3.

4

S. E. Ante, Creative Capital: Georges Doriot and the Birth of Venture Capital (Boston, MA: Harvard Business Press, 2008), 88.

5

S. Karabell, “INSEAD at 50: The Defining Years,” October 21, 2009. Retrieved from http://knowledge.insead.edu/entrepreneurship-innovation/insead-at-50-the-defining-years-1356.

6

Will Gornall and Ilya A. Strebulaev, “The Economic Impact of Venture Capital: Evidence from Public Companies,” November 1, 2015, Stanford University Graduate School of Business Research Paper No. 15-55.