A drop in the bucket, with very big impact
Reimagining the venture capital business. Venture capitalist Terry McGuire took over last month as chairman of the National Venture Capital Association, at a moment when the VC industry is concerned about increasing regulation and diminished returns. Fellow VC Jeffrey Bussgang blogged about a recent conversation he had with McGuire, a cofounder of Polaris Venture Partners in Waltham.
[McGuire] made a few observations in his usual soft-spoken but pointed way that I found particularly interesting:
(1) Small ball. At $20-30 billion per year, the venture capital industry as a whole remains a "drop in the bucket" in terms of capital deployed relative to the over trillion dollars sitting in private equity firms. Yet the impact is enormous, with 18 percent of gross domestic product provided by venture-backed companies. Thus, there is great (positive) leverage in the VC model and, as a result, policy makers should be paying more attention to it and demonstrate an interest in how to accelerate it.
(2) Wanted: Grumpy old men. There is a tremendous need for "old guys" to stick around in the VC business rather than fade off into the sunset. In the private equity world, the industry leaders hang around forever well past their 50s and 60s. In VC, it's considered more naturally a young person's game (perhaps because we're always dealing with waves of new technology, young founders). Yet, the VC business takes a long time to figure out. The industry needs the investors who were around in the pre-bubble era (1980s and first half of the 1990s) to stick around and impart their wisdom on the next generation, who has grown up in the business during unusual times. It is scary to reflect on how few of the 7,000 professionals active in the industry today were general partners before Netscape's IPO in 1995.
(3) Life sciences. With the incredible advancements in genomics, computational power, and miniaturization, we are arguably entering into a golden age of innovation in life sciences (which encompasses health IT, medical devices, diagnostics, and touches adjacent areas such as materials science and robotics.) Having an NVCA chairman steeped in that world, at a time when the US government is looking to perform a top-down reengineering of the health are system, which is projected to make up 20 percent of GDP in a few years, is good timing indeed.
(4) Boston. With 14 teaching hospitals and world-class research and entrepreneurship factories like MIT and Harvard, Boston has arguably emerged as the top life sciences start-up environment. With related technology advancements in energy technology and strong legislative support from the state of Massachusetts, it is arguably uniquely positioned there as well. Admittedly, it is a distant second to California in software and Internet innovation, but as a proud Boston-based VC, I was pleased to see Terry brimming with confidence in Boston as an entrepreneurial hub.
bostonvcblog.typepad.com
Payola in the blogging world. As some bloggers emerge as taste-makers, marketers are increasingly eager to get them to endorse products. But it may not be clear to readers when a blogger has received a free product or service. Forrester Research analyst Josh Bernoff tried to lay out some guidelines.
The recent stir started last holiday season when Sears/Kmart paid start-up Izeato to send bloggers on shopping sprees. Ford loaned Fiestas to bloggers to get coverage. The FTC weighed in with guidelines. Andy Sernovitz, author of "Word Of Mouth Marketing," is having fits. Business Week stirred the pot by labeling it "Blogola."
When my colleague Sean Corcoran and I researched this topic, we realized that this practice, which we call "Sponsored Conversation," is here to stay. Some bloggers are journalists, and some others act like journalists - those will adhere to tight ethical standards on gifts. Other bloggers will take money to write anything, and have no credibility - you don't want to pay them, since no one believes them.
Bloggers gotta eat, too. Should they take cash to write about products? Should you pay them?
Here's an excerpt of our recommendations:
Know the rules and educate everyone involved. Before you even think of dipping your toe in the water you will need to familiarize yourself with all of the necessary rules including the existing FTC guidelines, the proposed updates to those guidelines and Google's policy on the use of no-follow links [which make it easy for spammers to advertise their sites in blog comments, for instance].
Mandate absolute disclosure and transparency. We have preached this from the beginning, as it is by far the most important rule. The FTC's guidelines are clearly about deterring deceptive advertising, a practice you shouldn't be involved in anyway. Make sure any and all bloggers you work with make it VERY clear to their audience that your brand is involved in the development of the content. If you fail to do this you will put yourself at risk for not only a bad PR mess, but legal trouble as well.
Ensure authenticity. You must allow bloggers to speak freely and authentically - not just because the FTC requires it, but because credible reviews are better for your business. Just as consumers find product reviews on e-commerce sites more credible when negative reviews are included, consumers will find reviews about your products more credible when the reviewer is allowed to speak about it in their own voice.
blogs.forrester.com/groundswell
Have you seen an interesting item on a local business blog lately? E-mail kirsner@pobox.com. 
