blog

Andreessen Horowitz’s Pledge

Wed, 02 May 2012 14:40:30 +0100

Since I’ll be San Francisco based for the foreseeable future, I’ve been thinking a lot about how the Silicon Valley engages in philanthropy. Last week’s announcement by venture-capital firm Andreessen Horowitz got me pretty excited. Its six general partners pledged to donate at least half of their lifetime earnings from the firm to charity. Each partner will decide individually how and when to allocate their money.

While many other tech titans have made the Giving Pledge, including Mark Zuckerberg, the commitment of an entire VC firm is unprecedented. Andreessen Horowitz are hoping other venture capital and private equity firms will follow their lead.

In January Andreessen Horowitz announced they’d raised $1.6B for its Fund III, bringing the firm to a total of $2.7B raised since its inception in 2009. With a portfolio that includes Facebook, Twitter, Zynga, Instagram, and Foursquare, this pledge could well result in billions in charitable giving.

Awesome, right? Yes. Andreessen Horowitz’s partners deserve huge props for this. But, when I got to the end of the press release, my heart sank. The six partners announced their first set of allocations: “The six groups receiving their initial donation are urban tree-planting charity Canopy; the Ecumenical Hunger Program; Fresh Lifelines for Youth; hunger-relief charity Second Harvest; homeless charity the Shelter Network; and Via Services, which works with disabled and special-needs individuals.”

I have little doubt each of these organizations do commendable work. It’s not like the six partners don’t have a highly qualified advisor who no doubt influenced this unprecedented commitment. Andreessen’s wife, Laura Arrillaga-Andreessen started the Silicon Valley Social Venture Fund (SV2) in 1998, teaches philanthropy at Stanford University, and recently published a book on giving called “Giving 2.0.” Still, these allocations are disappointingly traditional.

I understand giving back to your community. But, anyone can cut a check to a homeless shelter. Not everyone can think big, not everyone deeply understands innovation and technology, and not everyone invests in and supports entrepreneurs for a living.

Wired’s current cover story on Andreessen has me even more puzzled. Structured as an interview between Andreessen and Chris Anderson, Anderson asks, “I remember the first time I interviewed you, back in 1995 when I was at The Economist. I thought we were going to talk about, you know, TCP/IP and HTTP. But you wanted to talk about globalization, about international trade. You were already thinking about the Internet in macroeconomic terms.”

Later in the article, Andreessen says, “Technology has been just a slice of the economy. We’ve been making the building blocks to get us to today, when technology is poised to remake the whole economy.”

“What categories are next?” Anderson asks.

“...education, financial services, healthcare, and then ultimately government -- the huge swaths of the economy that historically have not been addressable by technology, that haven’t been amenable to the entrance of Silicon valley-style software companies. But increasingly I think they’re going to be.”

So at the very least Andreessen is thinking about applying tech to the social sector. Whether he’ll fold this into his giving pledge remains to be seen. If the Andreessen Horowitz partners aspire to lead by example though, they should apply their skill-set as well as their wallets by supporting social entrepreneurs utilizing technology. It would be immensely disappointing to see tech’s best minds give big without doing it in a way that only they could.

Policy and VC: The Case of Israel

Fri, 20 Apr 2012 20:57:42 +0100

Guest post by Ussal Sabhaz

Israel, a tiny country of 7 million people, is one of the most important venture capital markets in the world. Back in early 90s, it was a stagnating economy recovering from hyperinflation. Emerging in mid-90s, a strong VC industry transformed Israel into a high-growth, high-income, innovation-based economy. The government played a central role in this transformation.

It all started when Yigal Erlich, the chief scientist under the Ministry of Trade and Industry, came up with the idea of establishing a $100M public fund of funds to invest in private VC funds. The fund of funds was named YOZMA, meaning `initiative` in Hebrew. When Erlich started this initiative, VC was nil Israel. He personally convinced Advent in Boston to be the first YOZMA fund. Within a few years, YOZMA brought 10 private VC funds to Israel. Today, Israel attracts the world's highest per capita VC investment.

YOZMA’s critical feature was an upside incentive to the private partners of the VC funds: an option to buy the government shares at cost plus an interest rate of 5-7% at the end of 5th year of the fund. At the end of fifth year, partners at 8 out of 10 funds exercised the options. At the seventh year, successful in building VC industry in Israel, YOZMA was privatized and discontinued. YOZMA catalyzed a total fundraising of $250 million and investment in over 200 start-up companies.

Critically, YOZMA also ensured local skill building and collective learning in the VC industry. The independently managed funds had to have engagement of at least one reputable foreign financial institution as well as a reputable Israeli one. They had to establish local offices with a majority of Israeli managers. The investment committees of the funds included representatives of these institutions as well as a representative from YOZMA.

Needless to say, there were a number of other conditions that made YOZMA successful: The Israeli Defense Forces had invested in technology R&D for decades. Compulsory military service (both men and women) not only reinforced math and engineering skills in special units, but also transformed Israel into a highly networked society. Of course, as an immigrant society, Israel already had an entrepreneurial spirit. On top these, immigration of almost a million Russians provided low cost labor force for technology companies. And international financial markets were enjoying times of abundance.

We’ll never know whether YOZMA would have been successful if one or more of these factors were not in place. But we almost certainly know the Israeli VC industry would not emerged at that time without YOZMA.

Different countries will need different types of interventions to foster VC, depending on their institutional conditions and endowments in various parts of innovation eco-system. However, the crucial lesson to draw from Israeli experience is twofold: First, when it comes to fostering VC, the market failures (mentioned in my previous post) make government intervention the rule, rather than an exception. Second, it is hard to formulate a one-size-fits-all approach for government interventions, and given the complexity of entrepreneurship eco-systems experimenting with policies is essential. The key to success is stopping unsuccessful government programs quickly and designing others by incorporating the lessons of previous failures.

Indeed, policy experimentation was a key feature of the Israeli Office of Chief Scientist, which had a number of programs like YOZMA. Some of these had tremendous positive impact, while some programs simply failed. For instance, INBAL, another initiative to foster VC by established two years before YOZMA, provided 80% guarantee to VC investments. It was not able to bring funds because it had a wrong set of incentives. However, it paved the way for formulation of the buy-out option in YOZMA. Indeed, as Dani Rodrik says, failure is inherent to a good industrial policy implementation.

Two recent books for further reading on these issues:

Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed--and What to Do About It by Josh Lerner, professor at HBS, covers different government attempts to foster VC, and the reasons for their success and failure.
Start-up Nation: The Story of Israel's Economic Miracle by Dan Senor & Saul Singer, is a good summary of the factors that led to the recent entrepreneurial success in Israel.

Ussal Sahbaz is an adviser to the executive director of the Economic Policy Research Foundation of Turkey (TEPAV), where he manages theGlobal Entrepreneurship Program Turkey, an effort of the U.S. State Department to turbocharge Turkey's entrepreneurship eco-system (www.gep-turkey.org). He holds and MPA-ID degree from Harvard Kennedy School (class of 2010). His thesis at HKS on public policies to foster venture capital in Turkey received an honorable mention award. You can follow him on Twitter at @ussal.

Public Policy's Role in Venture Capital in Developing Countries

Fri, 20 Apr 2012 20:58:17 +0100

Guest post by Ussal Sahbaz

One of the things that I was impressed by when I came to Boston from Turkey was the entrepreneurial environment, and how venture capital (VC) fueled it. VC is crucial in fostering entrepreneurship and innovation, yet it typically doesn’t take hold in developing countries. So should the government take action and start its own VC fund? My answer is, no!

There are multiple reasons why doing so would be problematic. First and foremost, political connections might play a significant role in the allocation of capital. Additionally, start-up investments have high failure rates that will be hard to justify politically, resulting in excessive risk-aversion. Moreover, in a public VC fund, it is politically difficult to have a carry-based compensation structure that will align the incentives of fund managers with those of the owner of the funds.

Then should the government have a hands-off approach to VC? Again, no. Several factors justify an industrial policy intervention:

The first reason is the presence of a “coordination failure” -- without institutional entrepreneurs, lawyers, and accountants who are aware of VC processes, it is very costly to start the first fund. This cost decreases for subsequent funds, which also benefit from access to the existing deal flows through syndications. Why would the first fund bear the cost of developing the market?

The second reason is high information asymmetry between the investor and the entrepreneur. Venture capitalists rely on expensive and time-consuming due-diligence methods to assess attractiveness of a deal. The problem is the cost of the due-diligence process is generally independent of the size of the transaction, and the information asymmetry is much lower when evaluating a 5-year old company vs. a start-up. So in comparison to private equity, VC is both more costly and more risky. This is why in many developing countries private equity is quite large, but there is no VC.

Indeed the skill sets required for fund managers in VC and other types of private equity are completely different, and there is no reason to expect a transition from PE to VC without any government intervention.

In some parts of the world, VC developed without a major government policy: Eastern Canada, for example, has benefited from its geographic proximity to New England. In China and India, VC funds followed presence of their investee firms, or spin-offs started by employees of these firms when their H1Bs expired. But other than these exceptions, some form of government intervention always initiated the development of VC. Even in the U.S, the guarantees provided through the Small Business Investment Companies program catalyzed nurturing of the VC activity in 1960s.

Israel today attracts the highest per capital VC investment, thanks to a government program implemented in 1993. More on this in my next post.

Ussal Sahbaz is an adviser to the executive director of the Economic Policy Research Foundation of Turkey (TEPAV), where he manages the Global Entrepreneurship Program Turkey, an effort of the U.S. State Department to turbocharge Turkey's entrepreneurship eco-system (www.gep-turkey.org). He holds and MPA-ID degree from Harvard Kennedy School (class of 2010). His thesis at HKS on public policies to foster venture capital in Turkey received an honorable mention award. You can follow him on Twitter at @ussal.

Behavioral Economics and Philanthropy

Mon, 16 Apr 2012 20:02:54 +0100

Economists like to model aid the same way they model capital markets: actors should allocate funds where return on investment is highest. Hence the focus on evaluation, which gives donors the ROI information necessary to efficiently allocate aid.

While this paradigm is bringing great improvement to philanthropic and aid allocations, it is also oversimplistic, and it suffers from the same erroneous assumptions as neoclassical economics. Behavioral economics is increasingly prominent in thinking about how the poor adopt development programs. So why haven’t its lessons yet extended to giving?

I’m constantly applying my behavioral lessons to donor psychology. What information is the actor utilizing to make funding decisions? Large foundations have the resources to hire experts who can understand available evidence and make (mostly) efficient allocations. Intermediaries like Give Well are making it easier for smaller entities to access evaluation data and fund programs that demonstrate impact. But reviewing this information still takes a considerable amount of time, and I’m convinced most philanthropic decisions are better understood through a behavioral lens. The smaller the amount you’re giving, the more this is the case.

NGOs have capitalized on this for a long time. That's why marketing materials focus on emotional pulls -- that impoverished kid with a distended belly whose face is covered with flies. We disdain poverty porn, but NGOs use it for a reason. It works. But it doesn't lead to effective allocation.

Applying the lessons of behavioral economics to philanthropy matters, because individual (i.e. smaller) donations dwarf corporate and foundation giving. In the US in 2010, Americans gave away $291B. Individuals represented 73% of this, followed by foundations (14%), and corporations (5%) [1]. Compare these numbers to US official development assistance at $26.6B [2] and UK ODA $13.3B [3].

Addressing this isn’t easy, since those raising the funds are driven to do so through the most effective means possible. Blog posts to come on this topic.

[1] Giving USA 2010. American Association of Fundraising Counsel.

[2] US Official Development Assistance Database. USAID. 16 April 2012. http://usoda.eads.usaidallnet.gov/data/fast_facts.html

[3] "Spending Review 2010". 20 October 2010. DFID. 16 April 2012. http://www.dfid.gov.uk/news/latest-news/2010/spending-review-2010/

User Driven Design: Lessons for Development from the Silicon Valley

Fri, 13 Apr 2012 21:43:29 +0100

Sara’s guest post on product design deficiencies doesn’t just apply to international development. It applies to tech as well. Startups fold all the time because they fail to take into account the user, investing too deeply in a sexy but untested idea. By taking a closer look at the design processes technology startups employ to mitigate this risk, we can glean valuable lessons for development practitioners -- especially social entrepreneurs utilizing technology.

Too often tech entrepreneurs spend too much time and money on an idea before they put it in front of users. By the time they start to collect feedback, they’ve invested so much that it’s difficult to objectively evaluate the data. To the extent they can, it’s painful to course correct and demotivating for the team to discard months or work. Precious time and money is lost. For some, that’s the end of the road.

Many members of the tech community embrace user driven design to avoid this pitfall. The idea is that at frequent points in the product development process, you test your idea with a user, investing the minimum amount necessary to do so.

Embracing user driven design begins with accepting an inconvenient fact: it’s extremely difficult, if not impossible, for even most brilliant and experienced entrepreneur to sit in front of a whiteboard and conceive the next Instagram (PS - Instagram was not conceived in front of a whiteboard). This is all the more true when you’re addressing hugely complicated social issues. Moreover, need I bring up the fact that your user likely resides in a village in a developing country?

The implication of this is that your first idea is almost certainly not the right one. Instead of honing in on an idea, hone in on a general space, e.g. mobile phones + financial services. Force yourself to spend at least six months kicking around ideas in the space before settling in on one. This process will not necessarily tell you what’s a good idea, but will tell you what ideas have a high likelihood of being bad ideas.

Once you’ve settled in on an idea, do not go hide away and build it. Instead, fake it until you make it -- invest as little as possible to test the idea. You will likely find that you think a lot of features are fundamental that aren’t, and things that were secondary that turn out to be crucial. This is what happened with Instagram. Instagram started out as Burbn, an app that allowed you to check in to various locations (location was hot in 2010 after all). And post photos. Check-in wasn’t so hot, but photos. People were really into posting photos. The rest is history. (More on the backstory here). YouTube, that other $1B+ acquisition you may have heard of, has a very similar story.

People often refute merits of user driven design, but most of them fail to understand the concept. It doesn’t mean that vision isn't critical. There is a huge amount of creativity required to come up with ideas and determine the form solutions take. Ultimately everyone builds something, puts it out there, and when faced with failure they iterate. Being explicitly user driven just means shortening time scales and the investment required to make those iterations.

Then maybe you won’t have to call in the academic economist to tell you why people won’t use your cook stoves.

Product Design Before Program Evaluation

Fri, 13 Apr 2012 16:06:22 +0100

Guest post by Sara Nadel

Several years ago, I saw a presentation by Yale School of Management Economics Professor Mushfiq Mobarak about encouraging poor populations in Bangladesh to adopt clean stoves. Traditional stoves pollute air inside the home, causing respiratory illnesses and increasing cancer risk. However, households refused to adopt the stoves. Dr. Mobarak suggested several reasons households may choose against using a product that is good for them: perhaps the male household head makes all purchasing decisions, but he is least affected by polluted air and thus miscalculates the benefits of the purchase. Perhaps the health returns of the clean stoves appear too far into the future for households to value the product at its price today. Or perhaps the taste of food from the clean stoves was different – worse – than the taste of food cooked on traditional stoves.

If economic theory describes the first two reasons households did not purchase these stoves, the third reason, taste, seems to be a clear design flaw. Why was an economics professor conducting research to encourage households to use a product they simply did not like? Should the product not be redesigned to produce tastier food?

In fact, the problem that useful and important products fail to capture the attention of target audiences is not uncommon in international development. Economic theory can often explain, and eventually resolve, the unpopularity of these products. But development practitioners often find themselves pushing a product that nobody wants to use. This is not laziness on the part of designers for development. Rather, I would argue that successful innovation methods and the practice of international development are uniquely incompatible.

Successful innovation is the union of a vast and uninhibited universe of solutions with identifiable goals. Ideally, these two bodies of knowledge – the goal and the methods – reside in the same population. The iPod derived from Apple engineers’ passion for music and frustration with available portable music players. These engineers may not have known ahead of time that they sought a small rectangular device with a round control pad, but when they hit on it, they knew they had what they wanted.

This ideal union is perhaps rare. InnoCentive understands that people or firms who know what they want may not have the technical knowledge to design it and has built a successful business around connecting these two populations. Yet the InnoCentive model fails when users cannot accurately identify their need. Steve Jobs’ statement that it is not the consumers’ job to know what they want works for a company like Apple, whose designers are also its users, but presents a challenge to those designers working for a population to which they don’t belong.

Communication between users and developers becomes particularly disconnected in international development, where policy and social programs originate from engineers and economists who are quite different from the populations they aim to serve, regardless of how much time they have spent living (even growing among) with their target users. When the objective is to develop a clean stove for poor households in Bangladesh, engineers focus on making that stove affordable to poor populations and functional in difficult weather conditions and low-tech societies. It is easy to understand how the question of taste could be overlooked.

More difficult to understand is why, once identified, resolving the issue of taste fell to a behavioral invention rather than to the product-development team. Presumably going back to the drawing table was too expensive for developers of a social product with limited budget. Dr. Mobarak’s paper ultimately concludes that his behavioral interventions can influence short-term take-up of the clean stoves in question, but not long-term use. Perhaps innovation-for-development methods need some innovating of their own.

This blog post originally appeared on HBS Managing Innovation Winter 2012 Course Blog Website.

Sara Nadel is a Doctoral Student in Public Policy at the Harvard Kennedy School. Prior to coming to Harvard, she was the Country Director in Peru for Innovations for Poverty Action, an organization dedicated to rigorous research about development programs. She has conducted economic research in fifteen countries in Latin America, Africa, and Asia.

The Importance of Proximity in Venture Capital Markets

Fri, 06 Apr 2012 19:24:08 +0100

Accion’s announcement this week of a $10M seed fund targeted at access to finance brings me back to a question I found myself occupied with at the end of grad school: How important is proximity for venture capital markets? I believe it is critical.

Why is proximity fundamental? I think of it through the lens of the information required to make an investment decision ex-ante, and then to monitor that investment ex-post. Early stage investment opportunities nearly always come through a trusted intermediary. Investors then consider the opportunity based on both the idea and the founding team (see recent post arguing the latter is most important). The idea is evaluated through not just the pitch deck but also through the investor’s own understanding of the market. The founders are evaluated based on their professional history and “soft” characteristics such as the investors sense of their integrity. Equally critical, they are evaluated through the investor’s personal network. Once an investment decision is made, investors then monitor them through advisory sessions or, for Series A/B stages, by serving on the startup's board.

Proximity plays a central role in almost every part of the process outlined above. Critically, the investor’s personal network is largely developed through physical interactions. Entrepreneurs almost always pitch investors in person, as it allows the entrepreneur to convey “soft” characteristics in ways that video conferencing does not (pre- and post- meeting interactions are also key to establishing rapport with would-be investors). Board meetings always happen in person. All of these things are even more critical for venture capitalists as opposed to angel investors, since a VC firm's model introduces principal-agent dynamics and involves larger investments.

Additional considerations beyond the direct investor-entrepreneur interactions matter as well. Certain industries may display characteristics that lead to clustering, such as input sharing, labor market pooling, and knowledge spillovers. If this is the case (versus where opportunities are equally distributed in space), then investor activity will be most efficient when geographically proximate to clusters. The preference of VCs to invest locally may create additional incentive for entrepreneurs to be based in a specific location, creating a feedback loop. If this were the case then one would expect few locations for VCs to base themselves, which is what we observe with Silicon Valley. Additionally, in developing countries with weak formal institutional environments, social capital may play an even more important role in the functioning of early stage investments. If this is the case than physical proximity is even more important in developing countries.

All of this doesn’t paint a rosy picture for early stage funding in lesser developed countries. Two things give me hope. The first is the emergence of social networking tools. As outlined in my recent post based on Reid Hoffman’s TED talk, social networking tools like Twitter remove the proximity constraint for establishing professional networks. They not only remove the constraint, they greatly expand and strengthen linkages. The second is impact investors. If (and this seems to be a big if) impact investors were willing to take on more risk as well as higher due diligence and monitoring costs, they could help to bridge the market until it grows sufficiently large to justify physical presence for most investors. If impact investors cannot make such small and risky investment profitable, philanthropic angel investors (is there such a thing?) or grants could help address the gap.

Behavioral Economics and Venture Capital

Sat, 14 Apr 2012 17:44:17 +0100

Two general types of information are necessary for making investment decisions. One includes “hard” (i.e. quantitative, objective) factors like the size of the firms, credit history, debt levels, collateral, industry trends, etc. The other includes “soft” (i.e. qualitative, subjective) factors such as the quality of management, trustworthiness, reputation, and even “chemistry”. Venture capital funding decisions disproportionately weight the “soft” considerations – specifically those relating to the entrepreneur – and furthermore that assessment of these subjective considerations is highly dependent on imperfect signals and psychological factors. This leads to inefficiencies and excludes many entrepreneurs and ideas from early stage funding. While to some extent these inefficiencies are inherent due to ignorance in venture capital decision-making, conscious efforts to increase diversity within venture capital firms may be a mechanism to improve outcomes.

Due to the stage of venture capital funding, risk and uncertainty are enormous. Success moving forward from such an early stage depends on the execution of the idea, which makes the founding team a critical factor in funding decisions. Furthermore, outcomes are so uncertain and priors driving beliefs so nebulous that decisions are made largely in a state of ignorance. In this state, information that is easier to obtain gets weighted disproportionately. With early stage investments, information about the product or service itself is limited to ideas and understanding of market and competitive trends. In some instances the entrepreneur has developed a prototype of the product, but rarely has the idea gained enough traction in the market to indicate successful adoption. Information on the founders of the company is much richer: their past entrepreneurial experience, their work history, their schooling, their business connections, etc. Therefore, due to the importance of execution and the relative ease of obtaining information about the entrepreneur versus the product or service the firm will develop, the entrepreneur becomes the most critical factor in venture capital funding decisions.

How do venture capital firms obtain and process information about the entrepreneur? I believe it is highly dependent on imperfect signals and psychological factors. Signals such as business connections, past employers, academic pedigree, and past entrepreneurial success are what get the entrepreneur in the door. This reliance on signaling fosters a small and incestuous network of venture capital firms and entrepreneurs. Once entrepreneurs do get in the door and begin pitching their idea, psychology takes over. Partners in venture capital firms ultimately make funding decisions based on things like whether the entrepreneur fits their stereotype, what he (yes, he) is wearing, how well he pitches his idea, and how pretty his powerpoint presentation is. The partners in venture capital firm thus quickly form an assessment of the entrepreneur, based on the outside signals that got him in the door and the immediate impression he makes once he enters it. That assessment further creates a confirmation bias, through which all subsequent information is filtered (i.e. information confirming the bias is given greater weight than information that refutes it). This suggests that venture capital funding decisions are ultimately based on much less information than most neoclassical economics would assume.

These claims are supported by evidence from studies of gender in the high technology industry. Men dominate venture capital firms: in a 2009 ranking of the top 85 venture capital partners, only one was female [1]. A recent study showed that there is little difference between men and women in terms of level of education and motivation to start a company.[2]. One study showed that women-led startups have higher revenues and lower failure rates than men [3]. Yet, women account for only 1% of founders in high technology firms. There are surely other elements at play that lead to lower rates of female entrepreneurs, such as lack of role models, but I believe that hidden biases due to reliance on signals and psychology in decision making is a contributing factor. John Doerr, a legend in the venture capital community, publicly stated that his most successful investments – and the no-brainer pattern for future investments – were in founders who were white, male, under 30, nerds, with no social life who dropped out of Harvard or Stanford (italics mine)[4]. Doerr’s comments are of course only anecdotal evidence, but coupled with the lack of representation of females, begin to support the claims made above regarding the venture capital funding decision process.

As a consequence of the role of ignorance and psychology in venture capital decision-making, many entrepreneurs and ideas are never considered and others are over weighted. This creates inefficiencies in the system. To some extent inefficiencies due to ignorance are inherent due to the stage associated with venture capital. However, incorporating a deeper understanding of the psychological factors influencing decision-making within venture capital firms can lead to practices that improve efficiency. In particular, venture capital firms can actively seek to diversity the composition of their partners, which will in turn foster diversity in the entrepreneurs that receive funding.

[1] Schonfeld, Erick. “TheFunded Ranks The Most Loved VCs of 2009.” Tech Crunch. 2 Feb 2010. http://techcrunch.com/2010/02/02/most-loved-vcs-2009-thefunded/.

[2] Wadhwa, Vivek, Holly, Krisztina, Aggarwal, Raj, Salkever, Alex. “Anatomy of an Entrepreneur: Family Background and Motivation.” Kauffman Foundation Small Research Projects. July 7, 2009.

[3] Padnos, Cindy. “High Performance Entrepreneurs: Women in High Tech.” Illuminate Ventures.

[4] Wadhwa, Vivek. “Silicon Valley: You and Some of your VCs have a Gender Problem.” Tech Crunch. 7 Feb 2010. http://techcrunch.com/2010/02/07/silicon-valley-you’ve-got-a-gender-problem-and-some-of-your-vc’s-still-live-in-the-past/.

Spawned by TED: Reid Hoffman on Careers in the Network Age

Tue, 06 Mar 2012 17:19:47 +0100

Last week at TED there was a session entitled “The Crowd.” Given my interest in how technology impacts system dynamics I was particularly excited for this set of talks. Reid Hoffman, LinkedIn founder and legendary Silicon Valley venture capitalist was amongst the speaker lineup. He spoke about how the network age transforms the world of work (also the topic of his new book, The Startup of You).

Ried talked about how the story of work we’ve always told ourselves, one of riding up an escalator (or more commonly climbing a ladder), is no longer true. In the hyper-networked world of Web 2.0 (i.e. the network age) the new model is one of a network. Operating in this paradigm, we can “be the entrepreneur of our own lives.” That is, we need to run our careers in the same way that entrepreneurs create and build companies -- by leveraging our networks. Those who can conceptualize networks will have an edge. In particular, we must understand four attributes: 1) enabling technologies, 2) identity, 3) network intelligence, and 4) network capabilities.

I hate to say it, but I was underwhelmed. There were so many intriguing things Reid could have said! Technology has altered our networks profoundly indeed, in ways that have opened up entirely new career opportunities. Internet-based communication changes three fundamental attributes of our social and professional networks: 1) the number of linkages, 2) the magnitude of information flow and 3) the strength of connections. This shift in the structure and efficiency of the network in turn dramatically expands our professional opportunity set. Ironically it’s Twitter, not LinkedIn, which best illustrates this phenomenon.

It used to be that the only way to meet someone was to be proximate to them in space. If you attended enough conferences and other events, you could build an impressive network. When an opportunity arose, someone might think of you. It wasn’t easy to keep many individuals in your network close -- there were only so many people you could interact with at one moment in time whether in person, on the phone, or over email. If you needed information, you generally had to reach out to people individually. Information was almost always a “pull” process. It rarely came to you.

Enter LinkedIn. Suddenly, you have visibility into your “extended network,” the people who you know know (and who they know). Now, you can tap the right person to get to the right person (to get to the right person). Hugely useful. Profound? Sort of.

Enter Twitter. Now, you can build a global network, without the constraint of proximity. People with like professional interests can easily find each other; this grows not your extended network, but your immediate one. Because we are regularly tuned in and we can broadcast to thousands of people at once, information flows through our network in massively larger quantities. Finally, our network is not just larger, it’s stronger. People you’ve never met feel like they truly know you because you communicate to them regularly. Even people you have met before feel more connected because of the increased frequency of communication.

I experienced this first hand when I started using Twitter. 140 character tweet by 140 character tweet, I was able to develop relationships with amazing and inspiring people like @auerswald, @endeavoringE, @whiteafrican, @RachelStrohm, @joshnesbit, @MollyKinder, @kenyanpundit, the list goes on... It’s because of connections like these that I stepped off the corporate escalator and ventured off on my own just a few months ago.

Reid is right, in this network age, you can be the startup of you. The irony is that it's Twitter, not LinkedIn, that has changed the game.

Rethinking Education

Tue, 21 Feb 2012 23:30:58 +0100

It was never apparent to me how technology could improve education. The teacher to student, person-to-person interaction seemed immutable. As far as I could see, technology could drive increased efficiency on the margins, but that was about it. Then, just about a year ago, Salman Kahn took the stage at TED. His talk forever changed how I think about the opportunities for technology and education. It also upended everything I thought I knew about teaching our children.

I read a couple pieces on education recently which echo the Khan Academy tenets that Salman described onstage at TED: Larry Summers’ “What You (Really) Need To Know” in the New York Times, and a Google+ post by Alex Lindsay. Taken together, these three treatises outline a handful of principles that lead to a radically different model for education:

Lectures should be standardized. It’s strikingly inefficient for millions of teachers to prepare and give essentially duplicate lectures. It makes far more sense for students to watch videos of a handful of people who are gifted at conveying certain subject matters. Furthermore, the video format enables students to rewind and rewatch any segments they do not follow the first time around. They are able to do so without the stigma of raising their hand and revealing to peers that they don’t understand something.

Classrooms should be used for interactive learning and group exercises. Standardized multimedia lectures do not preclude the need for face to face student-teacher interactions. On the contrary, teachers -- freed from spending the majority of class time on lectures -- can redirect to much more valuable activities: discussing the materials with students; helping them work through exercises; and facilitating inter-student learning.

Self-pacing should dominate. The current model of teachers dictating a single pace for an entire class is a recipe for leaving kids behind. Once a student fails to understand a concept, they are often lost for multiple lectures which build on that first idea. Instead, what if all students moved at their own pace, only advancing to new material when they attain mastery? Taken to an extreme, one could do away with grade levels all together. Instead students could accumulate points across subjects, with the expectation that students earn a certain number of points each school year. Students at the same objective level would sit in classrooms together, independent of their age.

Skills matter more than facts. Today, information is available on demand through the devices that we can access at all times. Yet, in evaluating learning, we still principally emphasize the ability to regurgitate facts. Instead, educators should focus on information processing, teaching children the requisite analytical skills for each discipline. In his article, Summers highlights the need to understand statistics and decision analysis in particular.

Data can change everything. If students utilize an online interface to review lectures and complete exercises, educational programs can collect large amounts of detailed data about what students understand; and what leads to better understanding. This enables pedagogical improvements, as well as a tremendous amount of transparency between teachers and their classrooms. Educators can then tailor class exercises to the most important materials, focus their time on the students who need help most, and pair students together to teach each other.

Students can be teachers too. With detailed data on who understands what, teachers can group students together to teach each other. This is beneficial for everyone, as it also reinforces the material for the students explaining a concept to their peers. This principle is perhaps most compelling of all, because if educators can better utilize students to do the teaching, then teachers can focus their limited time where most needed. Especially in the poorest parts of the world, a primary constraints is likely to continue to be the availability of quality teachers -- so this increased efficiency may be the biggest gain of all.

Though I don’t consider it a first order principle, I would be remiss to omit one of my favorite things about the Khan Academy -- they employ game mechanics to incent kids to move through materials. #genius.