[THE INVESTOR] Silicon Valley offers various myths on the success stories of startups and venture capitals.
For instance, there is the story of a graffiti artist who painted the wall of Facebook’s first office. He received stocks of Facebook instead of cash which is now worth millions of dollars.
And this might be one of the distinctions between the ecosystems in Silicon Valley and Korea, according to Adam Sterling, executive director of the Berkeley Center for Law and Business. Sterling brought a three-day Berkeley Venture Capital Academy and another two-day Blockchain Academy to Seoul last week in tandem with Startup Alliance Korea, internet giant Naver-backed nonprofit organization that links startups.
“Silicon Valley has been really good at promoting myths of the success of startups and venture capitalists,” he told The Investor in a recent interview. “Perhaps talents in Silicon Valley overvalue equity opportunities offered by startups while Korea has the exact opposite problem of talents valuing more what large companies can offer.”
Sterling picks appetite for risks, capital, and talents as ingredients for an efficient and healthy ecosystem for VCs and startups. While Korea’s talents prefer large companies like Samsung and Hyundai, as they are reluctant to fully accept risks and failures which is detrimental to building a sound ecosystem.
Meanwhile, one of Korea’s strengths is the existence of established companies such as Samsung Electronics and Hyundai Motor, he said.
“The presence of patron companies, established companies that invest and support innovations, is a relative strength,” said. “Samsung, for instance, is one of the most active acquirers of startups in Silicon Valley. So you have incumbent companies who are very familiar with venture finance.”
While he did not bring Silicon Valley’s good skills of promoting startup myths to Korea, what he wanted to bring is what Silicon Valley does the best -- VCs ability to reduce friction for allocating capital quickly and efficiently.
“If we can reduce those frictions in other ecosystems, then we can allocate our capital for better projects because there are a lot of great projects outside Silicon Valley,” he said. “That’s our goal to come to Korea and teach participants of our program.”
Adam Sterling, executive director of the Berkeley Center for Law and Business at Berkeley Law, gives a lecture during Berkeley VC Academy in Seoul on Dec. 6.
Sterling is a venture finance expert. As a former lawyer, he was involved in several startups and VCs as well as his own startups before he joined academia four years ago.
About two years ago, he observed a growing number of startups funded through initial coin offerings and more and more VCs investing in those projects. That’s when he started to wonder if token sales would disrupt traditional VCs. In 2017, he launched Blockchain Unlocked, a three-day executive and certificate academy at Berkeley.
ICO: Future of VCs?
“When we first launched the program, many participants were interested in how to trade cryptocurrencies but it’s quite different this year,” Sterling recalled.
This is because a lot of speculative interests -- one of the two factors driving ICO values along with interest in the underlying utility of the blockchain technology -- have faded out.
Now who’s left after much hype are people who are really interested in the technology and Sterling said that capital could be allocated to best projects amid tightening regulations.
“Much of the market up until now has been driven by the fact that ICOs for a short period were allowed to avoid regulatory burdens of traditional venture finance. Because its going away, that’s why we’re seeing a decrease in ICO activities,” Sterling said.
Even though technology evolves very fast, the valuation mechanism for VCs will not change much. ICOs won’t be the future of VCs, Sterling said.
“I don’t think valuation is a science but an art so it won’t change much.”
It will be always the case that VCs bet on one or two major successes out of perhaps 100 startups, regardless of how fast technologies evolve.
By art rather than science he meant that an investor has to deal with businesses that have little to no track record and their future success is highly speculative. “Luck certainly plays a role, but investors need to be disciplined about how they approach negotiations and assess teams in order to maximize the probability of success,” Sterling noted. “This includes utilizing strategies to assess teams, support access to downstream capital/funding, and having a focused investment thesis and pricing strategy.”
Silicon Valley problem
In spite of being a role model for other VCs around the world, Silicon Valley needs to be diversified, globally, geographically and by gender and race, he said. “In Silicon Valley, most of the people look like me -- white males.”
“A small number of VCs in Silicon Valley are more or less looking to the same places like Stanford or Berkeley. But there are both entrepreneurial talents and markets well beyond Silicon Valley and we need to look for them,” he emphasized.
One thing he has learned through his experience, he said, is that success of VCs is not by who has the best product but it’s who has the best access to capital. ”If we can improve access to capital we can end up with better companies.”
“So I think the future of VCs is not in Silicon Valley, but in other parts of America and other parts of the globe,” Sterling said.
By Park Ga-young (firstname.lastname@example.org)