Fashion Technology Fashion Industry Analysis Opportunities inthe Investment Future Trends in Venture Trends University-led Entrepreneurship Entrepreneurship University-led Virtual Roundtable Blockchain – for Better – for Worse? or Blockchain Deep Innovation Venture Policy and Management Policy Venture Gig the Economy in Creation New Venture December 2019 Coller School of Management School of Coller University Aviv Tel

Coller Venture Review

Coller Venture Review | December 2019 Letter from the Editor

oller Venture Review, the flagship Bridging the dialog between theory and journal of the Coller Institute of practice is particularly significant at a Venture at Tel Aviv University, time when action-oriented entrepreneurs C relaunches with this issue in a must rapidly adapt from the field. This new format. To start, we retain our core presents a rare opportunity to develop focus on bringing together theory and generalizable new insights and feedback practice. We believe that fostering the loops. The imperative is even greater dialog between academics and practitioners when one considers that the substantive is critical to successful and sustainable outcome we seek to address – successful new venture creation. It broadens our and sustainable new venture creation – can perspective and the range of views we can affect life-altering fields including health, integrate into a new synthesis. In its most education, food, agriculture and many others. applied perspective, it helps us engage This is the place to thank Leslie Broudo in new ways of thinking related to the Mitts, our Managing Editor, for her endless conceptualization, financing, and execution efforts and dedication, Josh Lerner, our of innovation and new venture creation. Associate Editor from Harvard Business While our core focus has remained consistent, School, for his insightful comments our approach to tackling the content has and suggestions and Tal Sossover, our evolved. In each issue, starting with the editorial assistant. Special thanks to all our current one, we address four sections: Venture contributors, colleagues, and collaborators Policy and Management; Deep Innovation; worldwide for their dedication and vision. Trends in Venture; and, to support future While the results of our work will not be generations of researchers, Industry Analysis. measurable in weeks or months, we hope Each section includes the perspective this first step can help guide our future. We of both academics and practitioners. welcome any comments and suggestions from In addition, we also report insights from our readers that will help us improve the value the perspective of a Virtual Roundtable, to of Coller Venture Review to its readership. bring together global leaders in a specific Sincerely, field of interest – in this case, university- led entrepreneurship. We expect that future issues of the Journal will include case studies to help isolate best practices, and a reader’s digest of outstanding articles in the fields of entrepreneurship, Moshe Zviran innovation and new venture creation. Editor-in-Chief

01 Coller 4 56 92 Venture Policy and Management Virtual Roundtable Industry Analysis Venture New Venture Creation in the Gig Economy University-led Entrepreneurship Fashion Technology

Review 7 3 Steps to Build a Labor Market Freddy Boey 94 The  Impact of Technology on for the Gig Economy Deputy President, National University of Singapore the Global Fashion Supply Chain Diane Mulcahy Anjani Jain Jacqueline M. Jenkins Author, The Gig Economy Deputy Dean, Yale School of Management Executive Director of Strategic Planning and Innovation, Fashion Institute of Technology Jonathan Levin 14 The Future of Cities in the Dean, Graduate School of Business, Stanford University Gig Economy Stephen Spinelli Carmen Ferrigno President, Babson College Vice President Communications, Saint-Gobain Corporation Kar Yan Tam Dean, The Hong Kong University of Science and Technology 23 The Challenge Regulating Moshe Zviran Big Tech Platforms Dean, Coller School of Management, Eric K. Clemons Tel Aviv University Professor of Operations and Information Management, The Wharton School, University of Pennsylvania 77 Bringing Entrepreneurial Theory to Practice in the Classroom Michellana Jester Lecturer and Course Faculty Lead, MIT Sloan School of Management 32 82 Deep Innovation Trends in Venture Blockchain — for Better or Worse? Opportunities in the Investment Future

35 Blockchain Revolution Without the Blockchain? 85 Democratizing the World of Hanna Halaburda Venture Capital Associate Professor of Technology, Operations and Statistics, Jonathan Medved Stern School of Business, New York University Founder and CEO, OurCrowd

44 The Darker Side of Blockchain Nouriel Roubini Professor of Economics and International Business, Stern School of Business, New York University

50 Blockchain as a Solution to Cyber Threats in the Smart Grid of the Future Jacob Mendel Head of the Cyber-Security Track, Coller School of Management Coller School of Management, Tel Aviv University Tel Aviv University

03 Overview

i ur Venture Policy and Management section 7 frames questions at the intersection of new 3 Steps to Build a venture creation and policy globally. In this issue, we address the “Gig Economy” and the Labor Market for O changes that new ways of working and interacting are the Gig Economy transforming – and being transformed by – the economic and associated social policy. Diane Mulcahy Author, The Gig Economy Diane Mulcahy, author of The Gig Economy, systematically addresses flaws in the current regulatory system. Mulcahy offers concrete steps intended to help shape and eventually Venture Policy and build equitable labor markets globally. 14 Writing from the perspective of global urban infrastructure, The Future of Cities Carmen Ferrigno from Saint-Gobain helps us to consider interaction between people, their buildings, and their Management in the Gig Economy broader socio-economic context. Ferrigno’s article Carmen Ferrigno attempts to bridge the gap between working conditions Vice President Communications, and urban development in labor’s new age. Saint-Gobain Corporation Eric Clemons from the Wharton School at the University New Venture Creation of Pennsylvania offers a view on regulation of new ventures, emerging monopolies, and potential market failures absent transformative policy changes. 23 Together, these three articles combine theory and practice in the Gig Economy The Challenge Regulating to help us consider how seeming individual-level changes Big Tech Platforms become aggregated and amplified. They suggest both promise and shifts in policy and regulation to ensure Eric K. Clemons the distribution of benefits. Looking forward, future Professor of Operations and discussions in the Venture Policy and Management section Information Management, will continue to raise important policy questions and The Wharton School, suggestions in response to innovation and new venture University of Pennsylvania creation globally.

04 COLLER VENTURE REVIEW 05 3 Steps to Build a Labor Market for the Gig Economy

Diane Mulcahy Author, The Gig Economy; Adjunct Lecturer, Babson College

t’s no secret that the Gig Economy – products and services, growing their own made up of consultants, independent small businesses, and creating economic contractors, freelancers, and on-demand opportunities by hiring other independent Iworkers – is disrupting how we work. workers or employees. McKinsey also reports – The growth of independent work challenges and other surveys confirm the findings – the traditional structure of office-based that independent workers are more satisfied full-time jobs for a single employer. than employees with their work, feel more empowered and creative, are more productive, Current data suggests the Gig Economy is and are happier with the number of hours here and here to stay. An estimated 20 to they work and the flexibility they have. 30 percent of the U.S. and EU-15 workforce engages in some form of independent work, The downsides of the Gig Economy are and that share is growing. Almost all net also clear. There are corporate bad actors employment growth in the U.S. since 2005 has that hire independent workers to avoid the come from “alternative work arrangements” costs and responsibilities of complying with such as independent work, rather than labor laws and regulations for employees. traditional full-time jobs. At highly valued, There are also a minority of individuals high-growth, multinational tech companies who work independently out of necessity like Google, traditional employees are and would rather have a full-time job. • already a minority of the workforce. The benefits of the Gig Economy are evident. McKinsey’s Global Institute found in a study of 8,000 independent workers in the U.S. and EU that independent work mitigates unemployment, increases labor Independent workers force participation, and raises productivity. Companies benefit from a more flexible who start side gigs or workforce that allows them to staff up and take the risk to strike down based on their business cycles and access the specific talent, skills, and expertise they out on their own are need when and for how long they need them. the new entrepreneurs The Gig Economy increases entrepreneurship. Independent workers who start side gigs or take the risk to strike out on their own are the new entrepreneurs, launching new

06 COLLER VENTURE REVIEW 07 workers who find work on online platforms An alternative solution is to eliminate are independent contractors, while classification entirely and have one type of Our labor markets weren’t California recently passed legislation that worker called “worker.” The fundamental classifies them as employees. At the state belief underlying this solution is that our designed for the varied, level, it is possible to be considered an labor market should support everyone who diverse, and flexible employee by one government agency and works, not just traditional employees. It an independent contractor by another. would require extending to all workers the workforce... they were benefits, subsidies, and protections that This persistent lack of clarity creates a are now available only to employees. designed to only support confusing, unworkable system, provides employees in a traditional incentives for companies to misclassify employees as independent contractors, 2. job with a single employer leaves workers on unsure footing when Extend Critical Employee negotiating their status, and leads to Benefits to All Workers ongoing lawsuits about worker classification. Our labor laws and regulations create a – The classification systems distort the labor two-tier workforce because there is one set market by creating a “classification kink”. of benefits and protections for employees A “kink,” as economists use the term, is an and a second, consistently lesser, set for all economic inflection point created by policies. other workers. The most critical benefit for The most familiar example of a kink is an all workers is access to health insurance. income tax bracket. The point at which one tax bracket ends and a higher one begins is In the U.S., benefits such as health insurance But the real culprit in the Gig Economy is the kink. People who have discretion over are provided primarily through employers only outdated labor laws and regulations that 1. their income — or over how they report their to their employees. This leaves independent fail independent workers by denying them Eliminate the Worker income — try to stay at the upper limit of a workers on their own to create a personal the benefits, rights, and protections only Classification System lower tax bracket and avoid moving into the safety net. In theory, it’s possible to replicate awarded to employees. Our labor laws have next higher bracket. The main problem with an employer-provided benefits package on The most fundamental, important and simply not kept pace with the changes in the kinks, as the income tax bracket example the private market, but it is much more time- structural change is to eliminate the outdated workforce that allow people to work more illustrates, is that people try to game them. consuming, complex, and expensive to do so. flexibly, independently, and for more than two-category worker classification system Behavioral economists have found that One reason it’s more expensive is that one employer. Anyone who chooses – or isn’t that exists in so many labor markets globally. people “bunch,” or cluster, at kinks in order employer-provided health insurance in the able – to work in a traditional full-time job is It no longer makes sense to force today’s to maximize their economic benefit. U.S. is massively subsidized by the federal denied critical labor protections and benefits. workers into a classification system that The most common doesn’t recognize the multi-faceted ways Worker classification introduces a kink in the government through a series of tax breaks Our labor markets weren’t designed for the people work. There are numerous problems proposal to fix the labor market that causes both companies and that are unavailable to independent workers. varied, diverse, and flexible workforce, or the with this binary distinction: worker classification workers to “bunch” around it in an attempt These tax breaks add up to about $300 choices about how to work, that we have today. to maximize their economics. Companies billion annually. For example, employers They were designed to only support employees system is to add have incentives to hire independent don’t have to pay payroll taxes on the value – The classification systems are vague in a traditional job with a single employer. As a workers, and workers have incentives to get of the health insurance they provide, and subjective. Even though labor markets a third category of result, they penalize independent workers and hired as employees. Changing the worker and their employees receive that health distinguish between employees and all fail to support the entrepreneurs who leave full- workers...(but) it classification policy that creates the kink insurance coverage as a tax-free benefit. time employment to launch their own business. other workers, there isn’t one that offers a would introduce an would eliminate the inefficiencies and There are numerous ways to modify this They also stifle innovation, restrict choice, clear, objective definition of which workers distortions it causes in our labor market. system to support independent workers. One and create a two-tier workforce of employees are employees and which are independent additional kink into The most common proposal to fix the worker strategy is to reduce the tax breaks awarded and everyone else. This needs to change. contractors. These unclear categories leave many workers and the companies who hire the labor market, classification system is to add a third category to employers by, for example, collecting Maximizing the productivity of our workforce them unnecessarily exposed to the legal and continue to of workers called “independent worker” or payroll taxes on the value of the insurance and the potential of the Gig Economy means and economic risks of misclassification, “dependent contractor.” Members of this new coverage they provide to employees. Those updating labor laws to include and support including potential lawsuits and tax penalties. distort the behavior category would receive more benefits than additional tax revenues could be used to everyone who works, not just employees. It’s independent contractors but fewer than those extend subsidies for health insurance to In the U.S., for example, the IRS, of companies and a monumental undertaking, but one that is offered to traditional employees. This option independent workers. Another option is to Department of Labor and National necessary to sustain a productive, efficient, workers fails to solve the exisiting problems of the cap the tax breaks that companies receive for Labor Relations Board each have their and equitable labor market. To start, there classification system. It doesn’t offer a clear, providing health insurance and extend tax own unique and subjective definitions are three key steps we need to take to create objective definition of an independent worker, breaks to independent workers who purchase for classifying workers. Adding to the a labor market for the Gig Economy. it would introduce an additional kink into the health insurance on the private market. • confusion, federal and state definitions labor market, and it would continue to distort also vary and often conflict. For example, the behavior of companies and workers. the U.S. Department of Labor released a letter this year stating that independent

08 COLLER VENTURE REVIEW 09 The European approach of relying more To create a system that provides income numerous challenges. Government pension Going Beyond Labor heavily on governments to offer key safety-net protection for everyone who works, funds are in trouble. They are underfunded Market Reforms to Support The changes in benefits such as health insurance is a proven, companies would make prorated income and struggling to meet their obligations to the Gig Economy viable model. It’s unlikely to be politically insurance payments for all workers they beneficiaries who are living longer. Corporate the way we work appealing in the U.S. currently, but it is a hire. Since companies already have systems pension funds face the same pressures of Governments can support the changing workforce and the Gig Economy through encourage us to system that gives independent workers the and mechanisms for making unemployment increasing costs and longer beneficiary ability to access affordable healthcare benefits insurance payments, those processes could lives. Companies are responding by opting policies and initiatives that go beyond consider whether without the need to hold a traditional job. be extended to make prorated income out of the retirement savings game by transforming labor laws. Two important insurance payments for all workers. phasing out or eliminating their pension areas to focus are preparing the workforce an hourly minimum Another critical benefit is creating a safe plans for new workers (who aren’t likely to to successfully compete for work globally working environment by protecting workers wage still makes Reconsider the Minimum Wage have a long corporate career anyways). and recognizing the role of innovative against discrimination and sexual harassment. startups in supporting independent work. sense if it only The right to work in an environment free Lower skilled employees in entry-level jobs Governments and companies are no longer offers a life of from harassment and discrimination is only are protected by hourly minimum wage laws. taking responsibility to provide income Prepare the Workforce to Compete Globally awarded to employees and is not currently In the U.S., nearly 60% of the workforce is to workers once they stop working. That poverty extended to independent workers. Existing paid hourly, and although just 2% of them leaves individual workers to save for their Governments have long exercised control over regulations allow employers to discriminate earn the minimum wage or less, they are own retirement, which, if relied upon, is a their national workforces via immigration against or harass independent workers for some of the most vulnerable workers. public policy disaster in the making. In the policy. The rise of both independent and any reason (including gender, age, sexual U.S., where the responsibility for retirement remote work does an end-run around these Yet, minimum wage laws offer limited orientation, and race). Changes in federal savings has already been largely shifted traditional controls. Companies seeking protections to those workers. Earning policy are needed to extend these protections to individuals, the results are terrifying. knowledge workers with particular expertise the minimum wage, even as a full-time to independent workers. In a promising first Nearly half of Americans have not saved or skills no longer have to bring workers to a worker, doesn’t guarantee a life above step in the U.S., Representative Eleanor enough to replace even one year of income physical location to employ them. They can the poverty line. Minimum wages don’t Holmes Norton (D-D.C.) introduced a bill in retirement, and the same percent have find and recruit skilled workers from around come with minimum benefits. And the in Congress to what would do just that. saved insufficiently for retirement under the world and hire them in their current minimum wage isn’t a promise of a minimum normal scenarios of health and longevity. locations, without the need for work visas. income, since employers usually control This lack of savings is persistent across the number of hours someone can work. As remote work becomes more common, 3. income levels. Both high- and low-earning so too will globally distributed workforces, Rethink Income Protection The changes in the way we work encourage workers, including many employees, fail to particularly among the most highly skilled us to consider whether an hourly minimum An essential goal of labor markets in the save sufficiently – or at all – for retirement. knowledge workers. This trend benefits wage still makes sense if it only offers a U.S. and the EU is to protect worker income. Instead of saving, workers are working, companies who can more easily access the life of poverty. Should workers instead be Current income protection policies, including or planning to work, beyond traditional precise talent they need. It also benefits the guaranteed a minimum income? Should a unemployment insurance, the minimum retirement age. That strategy is reasonable workers who are hired for better work and minimum wage or income include the cost wage, and preferred retirements savings plans, as long as the later years are healthy ones, but compensation than their local alternatives. of basic benefits such as health, disability, currently apply to employees in traditional in many cases they are not. More than 40% The negative impact is on workers who may and life insurance and some retirement jobs. There are no similar policies to protect of workers leave the workforce involuntarily, not have the skills, work ethic, or knowledge savings? After all, how much protection the income of independent workers. The Gig due to their own, or their spouse’s, poor to successfully compete in a global market. does a minimum wage really offer, without Economy offers us a chance to revisit the health or disability. Many others leave due to an accompanying safety net of benefits? Governments are so far ignoring this trend. intent and structure of existing policies and mandatory retirement ages, age discrimination They have yet to respond to this technology- rethink the type of income protection we It’s also important to recognize that the against older workers, or changes at their enabled work drain and remain myopically want to offer to all workers. There are several minimum wage doesn’t apply to all types of company that result in involuntary job loss. focused on preventing foreigners who are ways we can consider changing existing work. In our traditional economy, freelance Any realistic solution for paying for retirement physically in the country from working in policies to include everyone who works. writers, along with many other creative will include more than one payor and will traditional jobs. It’s an increasingly ineffective professions, have not been subject to minimum continue to rely at least partially on the approach. The knowledge workforce now Replace Unemployment Insurance wages. Most freelancers are paid on a project corporate contributions that have traditionally competes for work across borders and around with Income Insurance or deliverable basis, with no calculation at funded retirement. Today, many companies the world. Countries that focus on offering the end to determine how many hours it Should we extend Unemployment insurance protects employees’ provide contributions to retirement savings the best education and training systems to took. As more workers take on project-based wage protections to incomes if they lose their jobs. But a growing for their employees. One approach is to their citizens will be best positioned to create work, it raises the question of whether we percentage of today’s workforce don’t need require companies to contribute prorated the most competitive workforces globally. • should extend wage protections to workers workers who can set unemployment insurance, because they don’t retirement savings for all their workers, not just who can set their own rates and control their their own rates and have a traditional job. They need income employees. An option for helping individuals own effort? If so, what would that look like? insurance if they lose a significant amount control their own save more is to implement more automatic of work. The basic idea of income insurance savings plans. These plans have proven to Reform Retirement Savings effort? If so, what is the same as unemployment insurance: to be successful at increasing savings rates. provide a minimum level of financial stability Pensions have traditionally provided income would that look like? without creating incentives to stop working. protection for employees after they stop working, but the pension system is facing

10 COLLER VENTURE REVIEW 11 A New Labor Market for All Workers Labor and tax policies that support only employees in traditional jobs make less and less sense in a workforce that is increasingly made up of independent and Gig Economy workers. Creating a labor market that supports everyone who works requires a new way of thinking about worker classification and extending the benefits, rights, and income protections awarded to full-time employees to all workers. It’s a monumental political undertaking but a necessary one if we want to maximize the potential of the Gig Economy and our increasingly independent workforce.

Recognize the Role of Startups About the Author Innovative startups have a critical role to play in supporting independent workers and the Innovative startups have Diane Mulcahy is the author of The Gig growth of the Gig Economy. They can create a critical role to play in Economy: The Complete Guide to Getting products and services that make it easier and Better Work, Taking More Time Off, and more efficient for people to find work, and for supporting independent Financing the Life You Want (Harper Collins), companies to recruit and hire independent a best-selling book on Amazon that has workers and the growth been translated into five languages. workers. They can also help companies provide benefits to workers and manage compliance of the Gig Economy. Ms. Mulcahy is an Adjunct Lecturer at with labor regulations, as well as make it easier Technology platforms such Babson College where she created and for workers to pay taxes, save for retirement, teaches the first MBA course on the manage their income, and access benefits. as Catalant, TopTal and Gig Economy. For example, technology platforms such as Upwork efficiently match Catalant, TopTal, and Upwork efficiently match independent workers and companies with independent workers and projects and assignments: They are the new companies with projects recruiters of the Gig Economy. Companies like Stride Health are making it more efficient and assignments: They are and increasingly automatic for independent the new HR department of workers to save for and pay taxes, purchase health insurance, and manage the back the gig economy office and administrative functions of being self-employed. EdX, Coursera, Udemy, and NovoEd and other online learning platforms make it possible for workers to acquire skills and knowledge when, where, and as quickly as they want at low or no cost. These companies are disrupting traditional education, as well as corporate learning and development.

12 COLLER VENTURE REVIEW 13 The Future of Cities in the Gig Economy

Carmen Ferrigno Parker’s Circle Vice President, Communications, of Fifths Saint-Gobain Corporation

t’s a simple formula: People + buildings are focused on the actual experience of the interaction of diverse backgrounds and + environment. That straightforward construction, in that complex (and changing) experiences of experts and implementing relationship has driven the evolution of process of designing and constructing the a rigorous innovation discipline across Ihuman existence for hundreds of thousands building. Saint-Gobain takes that process the company, all in the service of solving of years. But today, the formula is shifting. one step further. When all those design and real practical business problems. construction experts leave, who stays to The Gig Economy, with its independent contractors, small-scale companies, and understand how the behaviors of the people From Jazz Improvisation rapidly evolving relationships, is forcing an in these new spaces changes and evolves over algorithmic shift in the way actual cities evolve. time as they get used to these spaces, as their to Enterprise Innovation activities shift and morph, and as their needs Recently, Kinisky partnered with author and For Saint-Gobain, that combination of evolve? Saint-Gobain realized that if they entrepreneur Josh Linkner on a corporate different ways of working, new players stay when traditional builders leave, their role event for Saint-Gobain, where the two TRUST and the evolution of urban environments shifts in that relationship to occupants from a used the analogy of jazz improvisation to happens in a very unique context that takes ENVIRONMENT temporary resource and more toward a long- explain the nature of Enterprise Innovation. into account sustainable development, new term partner. They effectively shift the timeline Linkner,PERFORMANCE the founder and CEO of five tech and innovative building materials, and how of the experience and change the equation. companies, which sold for a combined value both impact the well-being and comfort WELL-BEING of over $200 IEmillion, is also the author of of people around the world. In fact, those But to fully advance that shift, Saint-Gobain four books, two New York Times Bestsellers: COLLABORATE INNOVATE activities are more than a business model — has started to look at the concept of enterprise BUILDINGS PEOPLE Disciplined Dreaming: A Proven System to innovation, where every employee, partner COMFORT it’s the company’s overriding purpose. The Drive Breakthrough Creativity, and The Road 354-year old company, founded by Louis and contractor is tapped for their expertise and their ability to not simply have a good to Reinvention: How to Drive Disruption XIV, is one of the world’s largest building and Accelerate Transformation, as well materials company and spends much of its idea, but implement those ideas in ways that add value to the company, customer, end-user as his latest book, Hacking Innovation. time focused on how to deliver comfort and and, ultimately, to society. It’s a pretty bold Keying off of the musical concept of the well-being to people in every corner of the idea spearheaded by Saint-Gobain’s Chief circle of fifths and the way John Coltrane world. But the trend toward urbanization and Innovation Officer, Tom Kinisky. Kinisky, reimagined them in his seminal Jazz wheel, PURPOSE EMPOWER the growth of megacities means that we can who started his career in Research and the two men brought very different career and must grapple with how we build these Development, shifted to business management experiences to the theme that connects complex urban environments, how people and ran a wide range of businesses for the strongly to the concept of gigonometry. interact with each other and the buildings company over the course of his 30-plus year Both men acknowledge that what John and, most importantly, how those interactions career. In that time, he came to understand Coltrane did in his composition Giant Steps Kinisky’s Circle of improve the experience of all involved. that innovation is not simply the purview of was to find a way to reimagine a traditional Enterprise Innovation In the Saint-Gobain gigonometry equation, Research and Development, but really more idea, in this case the circle of fifths, originally the math is a little bit different than for the about how we apply unique points of view and explained by Greek philosopher and typical building company. Most people areas of expertise to solve real world problems. mathematician Pythagoras. But for Coltrane, who manufacture and construct buildings The gigonometry in this case is more around the idea was to stretch that methodology, •

14 COLLER VENTURE REVIEW 15 to push it to its farthest reaches to create music Consider this: According to Forbes, about via file sharing, live, virtual conferencing, that bent, but never broke the logical and a third of U.S. workers participate in the teleconferences, chats, and texts. And when mathematical constructs of the notes. Linkner gig economy. That’s 57 million people. they succeed, those teams disband, returning compared this breakthrough to entrepreneurs Staffing Industry Analysts( SIA), a global to their far-flung geographies to live, work, who marry together very different markets advisor on staffing and workforce solutions, play, learn and collaborate with a different to create new value, while Kinisky focused publishes a yearly report on the gig economyTRUST collection of diverse experts, week-by- on how to apply those same concepts to a and estimates the total global gig economy week, month-by-month, and year-by-year. large, complex corporate culture. Using spending hit $4.5 trillion in 2018. How then, can we expect our cities to five key attributes, Trust, Empowerment, ENVIRONMENT But numbers never really tell the evolve in traditional ways as work and life Collaboration, Innovation and Purpose, whole story. We have to look beyond itself are shifting and changing in form and Kinisky showed that any individual, with statistics to understand the people and function, and at rates not seen since the the right context, can find ways to innovate. PERFORMANCE behaviors shaping this massive shift. Renaissance, the Age of Enlightenment, Like Parker, he explained that by looking and the Industrial Revolution? at a discipline differently, making unique WELL-BEING Right now, in virtually every corner of the connections and sharing the model with IE world, there are thousands of teams at work on The short answer is: we can’t. bandmates or colleagues, a leader can lay COLLABORATEhighly technical issues in fields as far-ranging Cities can, must, and are changing INNOVATEand often out a blueprint for improvisation, new ways BUILDINGS PEOPLE as filmmaking, medical research, aerospace, for the better. Our buildings are becoming of thinking and, potentially, breakthroughs and construction. Those fully functioning smarter, able to adapt to our changing needs

that can drive real, sustained innovation. COMFORT teams have members living, working, and not just year-to-year, but in some cases, That math and the need to more effectively collaborating from homes, offices, cafes, minute by minute. Our classrooms are engage the entire workforce has been and carparks in Europe and North America, becoming more fluid as students are taught demonstrated in the company’s corporate across Asia and the Middle East, India, Africa, to explore their surrounding world as an headquarters in North America, which and even Antarctica. They work “together” extension of their classroom curricula. • opened in 2015. The Malvern, Pennsylvania location was designed around the company’s philosophy of “MultiComfort,” which takes into account building occupants’ overall feelings of comfort and well-being in a space. The building itself employed a wide range dynamic space. By focusing on a wide range TM of Saint-Gobain products and technologies IEQ Toolbox PURPOSE EMPOWER of factors that truly impact how people feel, to improve acoustics, air quality, light Framework areas like air quality, amount of daylight, management, collaboration and concentration. That acoustics, thermal comfort and health and In order to evaluate the impact and efficacy well-being, the company saw employees’ of that Multi Comfort design elements in the straightforward perceptions of productivity and happiness new headquarters, Saint-Gobain partnered relationship at work dramatically improve. These are with a group of subject matter experts led by real results that go straight to a company’s Dr. Ihab Elzeyadi, Director of the University between people, bottom line as a healthier, happier workforce of Oregon’s High Performance Environments buildings and leads to a more profitable company. Overall (HiPE) Lab, to conduct an extensive four- perceived productivity also increased by phase comparative analysis of Indoor environment has 38.9 percent in the Malvern facility, indicating Environmental Quality (IEQ). In the first driven the evolution that employees feel like their new Multi phase of the study, a research team inspected Comfort work environment contributes to the existing unoccupied Malvern facility prior of human existence their success in the workplace. In some cases, to its adaptive renovation and reuse. In the for hundreds of increases in productivity have been quite second phase, the team examined the former plainly evident. For example, during the first Saint-Gobain headquarters in Valley Forge, thousands of years. three weeks of occupancy, the productivity Pennsylvania, to establish a benchmark for But today, the of Saint-Gobain’s Call Center increased by the performance of the new headquarters. 140 percent, with no changes in hours or staff. In phase three, the team analyzed the new formula is shifting headquarters following envelope upgrades and interior design retrofits, but prior to Looking Beyond Statistics occupancy. Finally, the fourth phase of So why does that kind of math matter for the study assessed the newly completed today’s cities? Simple. The very definition Malvern headquarters post-occupancy. of work is changing. The gig economy is The above graphic shows how this complex causing massive changes in who works where, geometry of concepts delivered a new, more for how long and in many different ways.

16 COLLER VENTURE REVIEW 17 Our hospitals are transforming from places These changes are not accidental. Architects, The Impact of the VC Community It’s a world where an improvement in the that treat disease and injury into state-of-the- building scientists, designers, and business quality of space that helps generate a world- In fact, there are two very different ways art wellness centers designed, built, and run people are planning and adapting scores of class idea is worth its weight in gold. to look at how the VC community impacts in the service of the human being, not merely different spaces, often using people actively the gigonometry of cities. The first is the One only has to take a quick peek at WeWork’s to address the maladies of their bodies. participating in this gig economy. So, we’ve investment cycle and where and how VCs play IPO and that beleaguered company’s efforts changed a variable. When is a coffee shop And this is where the math comes in. in that sphere, where investments in gig-based to provide sustainable, profitable growth no longer a coffee shop? When it becomes a businesses work and where they don’t. The projections to a market hungry for but critical of The inter-relational geometry of people, business incubator, a collaborative space, an second is really around how VC organizations this new business construct. Bhanu Ramenani, places, and their evolving uses must be office and conference center. The geometry can help fund environments where gig in his article, “Is the gig economy crushing understood at deeper and broader levels if of coffee shops is fundamentally different economy businesses can meet, collaborate, the ‘American Dream,’” offers a cautionary we want to take full advantage of this new because of the gig economy. Its purpose has and expand and/or link their models. take on the way gig economy platforms, such way of working. First, people’s behaviors are morphed and expanded. Get it? More facets, as Airbnb and VRBO, Uber and Lyft undercut changing. In this emerging gig economy, more uses, more needs, more opportunities. From an investment side, it’s a volatile world. the traditional companies, employee benefits, the labor market is moving toward short- While the vast majority of participants in Now, let’s shift to office buildings. These and the social safety net. So the real question term contracts or freelance work as opposed the gig economy are freelancing individuals, fundamental places of work, where generations in the gigonometry of business is how both to permanent jobs. That faster-moving, who enjoy and are committed to the personal of people have labored in the service of a individuals and investors can benefit from what constantly shifting labor market is already flexibility it offers, the number of entrepreneurs corporation, are changing because of the gig is inarguably a long term trend. Ramenani something with which you and I are deeply These thinkers who are looking to create larger companies is economy. Four walls and a roof just won’t do suggests that government regulation that familiar even if we don’t realize it. increasing dramatically. These thinkers and it. The math has to change. People are much and doers often protects workers’ pay and benefits, coupled doers often are looking to create environments Disagree? more likely to treat permanent positions at with a focus on shareholder value, are crucial. are looking to where ideas thrive, where collaboration companies as full-time gig opportunities, I would argue that there is a third factor that Well, how about this? Fifteen or twenty happens in a more fluid way and where the best jobs that they expect to change, and evolve create environments drives the economic side of the gigonometry years ago, coffee shops were places where and brightest want to spend a considerable in a much nimbler way than many traditional equation – a unifying sense of purpose. people drank a cup of coffee, talked to the amount of time. where ideas thrive, Shareholder value, protection of workers’ person next to them, ate a pastry, and left. corporate workers may expect. Contractors, rights, and an integrated purpose that links It was an experience that lasted somewhere temp workers, agencies, and consultants all where collaboration those two activities sets up a wholly unique between thirty and sixty minutes. Today, swirl and mingle in these spaces. Add to that happens in a more paradigm as illustrated on the previous page. • the entire purpose of a coffee house has the fact that Gig workers often are motivated changed. Now, they are virtual offices for by a greater sense of purpose, the idea that fluid way and where thousands upon thousands of Gig workers, the fruits of their labors must have a positive the best and who access information and colleagues in and vital impact on the world, whether cities and towns scattered across the globe, that is through sustainable practices, green brightest want to speaking languages that would rarely be heard technologies, a safer world or a more positive spend a considerable side-by-side. People spend hours working, society, and you can see the geometry of offices talking, and collaborating. We accept this shift even more. These new office buildings amount of time. behavior as fact, but in our every-day lives, must be an expression of the company’s brand It’s a world where most of us ignore the implications of such a — of its value to the world, and its value to those fundamental change. Commerce is taking Gig team members who have the choice to work an improvement in place in those cafes. You may be walking with, for, and among so many other businesses. the quality of space past a twenty-something millionaire, an Because let’s face it. The power is shifting. that helps generate inventor of a digitally printed manufacturing The choice, the variety, and the experience of technology, or a small business owner carving these gig economy workers will only increase. a worldclass idea out a previously untapped market. In fact, in The breadth of their work experiences across is worth its weight today’s information age, an innovative data- multiple companies, industries, work styles, miner could create an app that charts the direct cultures, and problems mean that the workers in gold impact coffee-shop gig economy workers are much more likely to see patterns of best have on the Gross National Product of Israel, practices. They are more attuned to finding the United States, France, or Singapore. better ways of working or assembling new and But here is where it gets even stranger. You unique solutions to a host of new or emerging probably didn’t notice that the design of issues in such disparate areas as manufacturing, those coffee shops has changed quite a bit digital technologies, sustainability solutions, in those years as well. Look around. The financial services, and hospitality. What they acoustics of these spaces have improved. lack in traditional corporate safety nets like Their furniture is more comfortable. Their pensions, 401(k) matches, and other benefits layouts afford greater privacy and intimacy, often are offset by flexibility, an ability to hold and virtually every corner of that space has multiple jobs, and for some, the long-term access to sunlight and the outside world. prospect of venture capital investment.

18 COLLER VENTURE REVIEW 19 economic growth, public transportation and adequate housing. They start to see their missions integrating with those other People spend hours working, purpose, driven organizations to collaborate talking, and collaborating. differently, to marry economic growth with environmental stewardship in the service We accept this behavior as fact, of livability and comfort for all residents. but in our every-day lives, most So what does that have to do with the gig of us ignore the implications of economy? Quite a lot, actually. Gig economies are in constant flux. The ebb and flow of such a fundamental change people, teams, gigs, mega-gigs, investment cycles, and evolution of behaviors itself are spawning urban ecosystems custom-designed to evolve with and in response to these factors. Purpose Beyond Profit But here’s the thing. Most of us don’t see it. We Picture a company five to ten years from now are too close to the details, too wrapped up in dedicated making the world a better place. the day-to-day activity of it all to see the larger It could be a tech company, a manufacturing picture. We hear about the gig revolution, but company, a pharmaceutical company or we can’t see it, and the reason why is simple. a consumer company. The industry isn’t We are inside it. It’s only when you step back that important. What is important is that far enough to see those patterns, that the whole the employees, contractors, suppliers, and is revealed because it is not a simple, easily customers understand the impact that company defined revolution. Instead, it is an evolution evolve to shift, change, and adapt in real- has on the world and they share in the vision revolution. A thousand tiny turns that together time. And here is where it gets fascinating. that the company will in some unique way make drive the more significant revolution. The nature of venture capital investment the world a better place. In other words, it has will likely change in similarly dynamic ways. a purpose beyond profit. These people have an It almost has to. The gigonometry demands it. aligned passion and sense of purpose that taps Evolution Revolution: Investment in gig-based companies like Uber, into their deeper intellectual and emotional Real-world Examples Airbnb, or Design Pickle will continue, even if they launch fewer IPOs and more companies cores. Think: a system that removes plastics from Here are a few examples that show how this stay private. But at the same time, there is the ocean, a new medical treatment that replaces is happening. Do you know you can take the another whole world of companies dedicated chemotherapy with immunotherapy or a shoosh out of a library? There are acoustic to supporting the design, management, and methodology for helping all people on the planet systems that allow us to control sound and evolution of the actual spaces, and that world reduce their carbon footprint. These larger overall acoustics in space so that a librarian is just starting to heat up. And when those two purposes, coupled with the gig economy’s access never has to shoosh a person again. But what investment worlds connect, the landscape for to broad ranges of thinking and experience, does that simple solution enable? Well, it our cities will morph at an even more rapid rate. in turn, married to that idea of self-selection allows a study group (run by a gig economy of a common purpose, unlocks a level of tutor) to work together ten meters away from a A great example of that evolution revolution Enterprise Innovation that could shift the nature community meeting (managed by a part-time exists just a stone’s throw from MIT and of innovation itself. This model encourages community organizer), which is itself 20 meters Harvard at Greentown Labs, which bills movement, diversity of thought, experience and away from someone else studying a complex itself as the largest cleantech incubator in background, and takes into account that such text on how to become an entrepreneur. the United States. Located in Somerville, teams need not be in the same neighborhood, Now, that library is a much more dynamic Massachusetts, it’s an organization that clearly city or continent. Instead, each urban center space. Those three activities create a new has taken to heart the concept that the space develops spaces that encourage and enable gigonometric equation that redefines a library. you operate in reflects your brand. Their new, connectivity, collaboration and commitment The same holds true for hospitals that can 53,000-square-foot expansion, which opened in ways that are unique to their cultures and shift their function from injury and disease in 2018, is a dynamic stage for some of the most geographies, separate but interconnected. management to wellness and recovery or with innovative green technologies of the last few A city with its concentrations of people, reconfigurable office spaces that can go from years in areas like energy generation, energy industry, resources, and infrastructure can open office to private or any combination distribution, and storage, transportation, develop in a haphazard or planned way. But in between. The combination of contract building technologies, agriculture, and when the “business” of urban development employees, freelance workers, or even full-time chemicals. In fact, since their inception, takes into account the shifting nature of employees who also have a “side hustle,” all they’ve supported more than 170 startups, work and purpose the nature of urban feed into this rethinking of the spaces in which with more than 86% of them still operating planning shifts as well. Instead of simply we live, work, learn, heal and play. The fact is, today. Since its inception, Greentown addressing the constant grind of urban the more dynamic these gig-based activities Labs has raised more than $415 million in growth, planners think more broadly than become, the more likely our urban spaces will funding for the companies it supports. •

20 COLLER VENTURE REVIEW 21 So what is on the horizon for these cities of the future and the gig economy participants The Challenge Regulating who will inhabit them? A more livable environment. More dynamic and changing spaces. A workforce with broader, more Big Tech Platforms diverse people who, in turn, have more extensive and more varied experience across multiple industries, cultures, and 1 technologies. Remember, these cities Eric K. Clemons Professor of Operations and though physical, are now connected across Information Management, vast distances via real-time, instantaneous The Wharton School, technologies. Video conferencing, immersive University of Pennsylvania collaborative platforms, and access to talent in any corner of the planet mean knowledge and experience can be tapped in ways impossible just a few years ago. That gigonometry is only now being investigated and is not well understood. The implications, both good and bad, are leading us to an exciting place. We are raising children who will work on problems created by technologies that have not yet been invented. About the Author Those same children will work in ways we can 1. hardly imagine with people in places many of Motivation them have never heard of, let alone experienced Carmen Ferrigno has served as Vice A small set of online physically. These continually changing, President-Communications at Saint- Across the Western World, while new legal platforms now control dynamic urban environments will generate Gobain Corporation since 2011. In this role, decisions and regulations aim to address and new problems to solve and new opportunities Ferrigno is a member of Saint-Gobain’s mitigate the disruption and harm caused by virtually all of consumers’ for investment, but also filled with risk. North American Executive Committee the business models of large gig economy online transactions Understanding that evolution revolution, and reports to Mark Rayfield, CEO of platforms, these platforms continue to grow finding ways to see emerging patterns, and Saint-Gobain North America and exponentially, amassing more power by responsibly investing in the gig economy, CertainTeed Corporation. the day. The implications of their growth will require more than money. It will require Ferrigno is responsible for overseeing all as well as the continued growth of other Executives need to understand their current forethought, respect for all participants, facets of internal and external corporate internet giants extend to the whole of and future vulnerability, even if they lead and a commitment to behave responsibly communications, including branding, society including civil society, consumers, companies that may appear dominant in executive positioning, crisis, and corporate for the planet and all who live here. workers, small businesses, entrepreneurs, their industries today. Walmart, Lidl, and social responsibility. venture capital investors, and others. Carrefour will be dependent upon online In addition to this role, Ferrigno serves A small set of online platforms now control platforms for access to their customers as as Executive Director of the Saint-Gobain virtually all of consumers’ online transactions. smart homes and digital assistants like Google Corporation Foundation. These firms often deploy novel online business and Alexa begin to dominate automated models, with new sources of power and new online ordering. Google will route orders to forms of abuse of that power, which in turn companies that pay the highest prices for may require new forms of regulation. access to consumers, duly weighted by quality scores, as they do with search today. This will Regulation often seems like a rather abstract increase companies’ costs of doing business. subject, but online abuse of power and the When the “business” of urban Alexa will route orders to Amazon and Whole future regulation of Google, Apple, Facebook, Foods, reducing or in some cases eliminating development takes into account and Amazon actually affects all of us. competitors’ access to Alexa’s shoppers. the shifting nature of work and Regulators, legislators, and the courts need Additionally, companies as diverse as BMW to understand how today’s giant companies and GM, Walmart and Bosch will likewise be purpose the nature of urban are different from their predecessors. They dependent upon these platforms for access to planning shifts as well need to understand when the forms of their consumers’ smart appliances. Consumers regulatory control that were designed for already have Alexa, Google Android, and the industrial economy may no longer be iOS devices. We do not need another life effective today, even if they seemed fully control interface from BMW, and another adequate as recently as ten years ago. from Walmart, and another from Bosch. •

22 COLLER VENTURE REVIEW 23 Entrepreneurs need to understand where There have recently been calls to regulate Googleplex — Google headquarters, it is currently impossible to compete the giant American platforms as monopolies, California with existing platform giants, and where focusing on Google, Apple, Facebook, and regulatory change may open niches for Amazon.4,5 However, despite their size and them. Regulatory change may also create their power, and their abuse of their size and opportunities for new online entrants to their power, it is not apparent that traditional replicate on a smaller scale the business models antimonopoly law is the most appropriate that these giants currently totally control. way to regulate these companies. The most frequently discussed form of regulatory relief Likewise, investors need to know when a has been the threat to break these giants into new company is or is not going to be viable smaller competing firms. As we have discussed under current regulation, and when future previously, breaking up Google Search into regulation may dramatically reduce the value smaller competing MP3PP companies would of their holdings in existing platform giants. not reduce the cost of keywords; paradoxically, it could actually increase the cost of keywords 2. to companies. Recent calls for regulation of Introduction Facebook after its complicity in fake news creation and dissemination involve threats In the Western World a small number of online to criminalize the action of its most senior platform giants have emerged as the most executives6; interestingly, while holding Mark valuable companies in the world. Four of the Zuckerberg personally liable for Facebook’s ten most valuable companies in the world are actions might significantly alter the company’s the American online platform giants Amazon, behavior, breaking up Facebook would not Alphabet / Google, Apple, and Facebook, reduce the harm created by fake news. while Chinese online platform giants Tencent and Alibaba are included in the list as well.2 Regulation of companies that provide Their wealth is truly astounding. Alphabet / essential infrastructure needs to be Google’s balance sheet as of 31 December 2018 analyzed very carefully. Countries should showed just over $109 billion in cash3, which is consider regulation only in the presence just over the combined market capitalization of the following three conditions: of American Airlines, Delta Airlines, – Regulation is justified in the presence United Airlines, and Southwest Airlines, or of demonstrable consumer harm; significantly more than the combined market capitalization of Ford and GM. They are – When markets will not provide also among the most powerful companies in solutions, or will not do so quickly; the world, with the ability to control online – And when we know how to regulate commerce in all countries, in all industries. without creating more harm than good. • The firms create enormous economic value and enormous economic benefits for their Entrepreneurs users. Indeed, this should be self-evident; if they did not create value for users they need to understand would not have been so widely adopted. They where it is currently also create significant economic disruption and demonstrable economic harm to entire impossible to industries and to large numbers of these compete with same platforms’ own most loyal customers. existing platform Such creative destruction produces economic losers as well. We don’t mourn the loss of giants, and where TV Guide now that we have online cable and regulatory change online cable schedules, any more than we mourn the passing of slide rule producers may open niches and the reduced importance of the handheld for them calculators that initially replaced them. But we should all be concerned when new technology and new business models lead to new sources of power, new forms of abuse of power, and new forms of harm to consumers.

24 COLLER VENTURE REVIEW 25 in which a company enjoys monopoly power over a core application, in this case We should all be concerned Android. They allow and even encourage creation of additional apps, since each new when new technology and app creates super-additive value; that is Why would a new business models lead just a fancy way of saying that the value of Android plus YouTube plus Google Maps to new sources of power, plus Search is greater than the sum of regulator care? new forms of abuse of their values as standalone offerings. And the owner of the core app can deliberately Why would a power, and new forms limit interoperability, as Google did with of harm to consumers the MADA, extending monopoly power over Android into new forms of monopoly consumer care? power in new areas. The earliest example of platform envelopment may have been AT&T’s Because these launch of the first commercially successful radio station, WEAF, and its attempt to very high prices create the only viable broadcasting network, using its control over long distance land lines charged to party 3 to link radio stations in cities throughout the United States. This was immediately blocked by the newly-created Federal Radio sellers invariably Are these problems unprecedented? Are Commission, which held that broadcast radio 3. they different from the types of problems networks were going to be too important to result in higher Context — The Need for a that regulators had to address before? That be controlled by a single company.13 The EU’s New Look at Regulation depends on what you mean by unprecedented. Competition Commission has not insisted prices to consumers that Google divest all of its apps, but it has The problems with today’s online platform – Facebook sells an addictive, harmful, dramatically reduced the use of the MADA giants include monopoly power and the defective product, enabled by lack of by imposing record fines on Google.14 abuse of that power, but the problems go well transparency, just like tobacco companies beyond just antitrust and abuse of monopoly have done for decades before mandatory Of course there are differences between power. Indeed, the new business models product labeling. They sell harmful and current problems and these historical embraced by today’s platform giants create unsafe products, just like the meat packing precedents. Perhaps the most obvious new sources of power and new abuses of industry did in the 1890s, before the creation difference is the breadth of industries that are power. Before we seek to regulate we need to of the Food and Drug Administration affected when dominant platforms engage in be certain that there are problems with today’s in the US and its counterparts in platform envelopment strategies. The Federal big tech companies, as of course there are. developed western economies. Radio Commission intervened because AT&T had the ability to determine, unilaterally, who – Facebook has undeniably been – Uber and Lyft and Airbnb produce negative could and could not operate a radio network. complicit in the effective creation and externalities. Uber and Lyft increase Google used its platform envelopment strategy distribution of fake news 7,8, designed to urban traffic and urban congestion. Airbnb to destroy Foundem, a comparison shopping manipulate both the Brexit Referendum changes the character of residential site in the UK; when Google launched a and the 2016 US elections.9 Indeed, neighborhoods, as long-term tenants are competing site it dropped Foundem from Mark Zuckerberg has been called an replaced by transients. These externalities 10 look different from the pollution created by number one in its list of search results to a spot “existential threat to democracy.” 15 leather tanning companies and chemical hidden five or more pages deep in its listings. – Amazon is accused of data mining online companies, but they are just as real. As we have discussed, home assistants, smart transactions and systematically destroying appliances, and smart vehicles will extend sellers in the Amazon marketplace.11 – Google has a chokehold over application platform envelopments’ effects even to developers who want to produce apps for companies that appear to have well-designed – Google may be the most expensive possible Android devices and Google uses that online strategies. It may not be possible for way to provide search, even though it power. The Mobile Application Distribution these companies to escape control by online appears to be free to consumers.12 Agreement (MADA) of Google specifies platforms, or the charges these platforms will which apps must be preinstalled on all impose for allowing the firms to continue to Android devices and which must be access their customers. As smart homes and preinstalled on the home page, which apps smart phones emerge as our new life control may be preinstalled, and most importantly, interfaces, the scope and power of platform which apps may not be preinstalled. This is envelopment will increase significantly. • a critical form of platform envelopment,

26 COLLER VENTURE REVIEW 27 And of course there are new forms of prices charged to party 3 sellers invariably cash back rewards credit cards; the cash back problems created by giant online platforms result in higher prices to consumers. programs are not funded by the banks that 6. that are without precedent in the industrial The enormous profits of the party 2 issue the cards, but by higher fees paid by Other Sources of Relief economy and that are not mitigated by platform operators are a form of tax that the merchants on every sale. But why would a If current competition law is not going to current antimonopoly regulations. Perhaps platform imposes on both the sellers and customer abandon his or her cash back credit provide relief from the present and future the most perverse is the reverse price war the buyers, but the buyers are unaware of card? The merchant or airline isn’t going to abuses of Google, Apple, Facebook, and in search, a special case of the reverse the true cost of relying upon the platform. lower the price they charge the buyer, but the Amazon, what form should regulation price war in Mandatory Participation buyer is going to lose the 1%, 2%, or more that take? We offer a few simple suggestions. Third Party Payer businesses (MP3PPs).16 they receive as their reward for using the card. 4. The basic form is simple to describe: And markets don’t solve problems with – Google’s Android, Apple’s iTunes, and Will Markets Provide Solutions? Amazon’s Alexa are emerging as essential – Party 2 operates a platform that enables platform envelopment strategies. Consumers facilities. That is, they are essential party 1 (buyers or consumers) to interact Before we recommend regulation, we need to love the obvious superadditive value creation to entire industries and they are too with party 3 (sellers or service providers). ascertain if current problems are going to be and would lose value if they switched solved by market forces. The answer is almost platforms. However, successful platform expensive to expect all retailers, or even – The platform is provided to party 1 certainly not, and certainly not quickly! envelopment strategies limit competition, all major manufacturers, to develop their without charge and buyers quickly and limit consumers’ choices, and increase own competing versions. Significantly, Markets don’t solve problems caused by nearly universally adopt the platform. consumers’ prices. Still, when comparing consumers don’t need three or four. Rather, lack of transparency. Markets don’t even We all use Google when we are the real superadditive value from the what consumers need, and what sellers and know about these problems. Most people searching for a watch or a camera or a platforms they have, against the hypothetical service providers need, is fair and fairly manipulated by fake news before the Brexit tour operator, or before we book travel. advantages of increased choice and lower priced access to customers through these Referendum or before the 2016 US elections 17 prices from competitors who do not yet exist, platforms. The Essential Facilities Doctrine – After the nearly universal adoption of the have no idea that they have been manipulated. consumers will predictably and rationally played a significant role in the regulation platform by consumers, party 3 sellers and Almost by definition, market participants remain with the platform providers and of Sabre and Apollo, airline reservations service providers cannot remain in business are not aware of lack of transparency and their platform envelopment strategies. search engines that are the closest historical without the support of the party 2 platform. There are harm that they may suffer. And even when analogs for Google, and in the decision to – Once that happens, party 2 raises the prices consumers are aware that problems may compel AT&T to make its connections into differences between it charges party 3 and party 3 has no choice. exist in their markets, the cost of verification 5. consumers’ homes available to competitors. current problems Party 3 pays whatever the platform demands. that problems are real and the lack of viable Will Monopoly Law At present the Essential Facilities Doctrine no alternatives prevent a market response. longer plays a significant role in American – The platform operator uses part of its Provide Solutions? and historical Economists have known for centuries enforcement of competition law and it revenue to provide additional services The problems we described above are not that markets don’t solve problems with has never played a significant role in EU precedents. to consumers, who now view the problems caused by monopolies. They externalities. As long as I don’t live down enforcement of competition law. It may platform as more free than free! almost certainly will not be solved by the Perhaps the most wind of a hog farm I am not directly affected need to become a central element of our application of traditional anti-monopoly law. obvious difference – The presence of competition — the by the smell, and I do benefit from buying regulation of platforms going forward. presence of a second platform — does – The harm caused by the lack of transparency ham. Markets do not fix problems caused – Facebook is a harmful product, and consumer is the breadth of not cause the first platform to lower its by externalities because customers are not and the lack of awareness of the dangers of protection law needs to be adapted to limit prices to party 3. In fact, what commonly affected directly. The benefits the business tobacco were not solved by monopoly law. industries that the worst of Facebook’s abuses. Facebook happens is that the platform increases creates go to its customers, and the harm The tobacco industry wasn’t a monopoly will continue to argue that it is not a media are affected when the prices it charges party 3, and uses the goes to others. Even transparency and and transparency isn’t a monopoly problem. company and that it is inappropriate for additional revenue to provide even more increasing customers’ awareness of the dominant platforms – Polluters in chemical industries, agricultural private companies to censor what their users services to consumers. That is, competition problems their purchases cause to others industries, and in fossil fuel industries can say. I think we can all agree that some engage in platform increases prices that party 3 sellers need is not effective. Altruism rarely solves weren’t monopolies. Pollution is a form forms of private speech are not protected; to pay for access to their customers. problems created by harmful externalities. envelopment of externality. Externalities aren’t a child pornography, calls to ethnic violence, strategies – As long as the platform’s prices are not Markets don’t solve problems with MP3PPs. monopoly problem, and externalities are and other forms of hate speech come to so high that they bankrupt party 3 sellers, Party 3 sellers have no choice, so the high not addressed by antimonopoly laws. mind immediately. Once we accept that this is stable. Party 3 has no choice; it prices they pay don’t matter. Party 1 buyers – MP3PPs aren’t monopolies. Google does some limitations are appropriate, it becomes needs to be found. Party 1 has no reason are rewarded, so they actually visibly benefit have monopoly market share in keyword acceptable to ask exactly which limitations to object; it gets services freer than free. from the high prices paid by part 3 sellers, auctions and search, but prior experience should be enforced. As importantly, even if they suffer counterbalancing harm in Facebook’s targeting of extreme forms of – Key to all of this is single homing; how with MP3PPs indicates that competition terms of higher prices. The rewards are visible; among MP3PPs actually increases the cost fake news to the most sympathetic readers often do any of us run a search in Google the higher prices are not. The credit card of the services provided to party 3. within their individual bubbles is essential and Bing? Most of us use only Google, industry is an MP3PP because of the terms Remember how competition among for the continuation of fake news; if attempted and as a result party 3 sellers have no of MasterCard and Visa’s service agreements MasterCard issuers and Visa issuers actually manipulation were more widely visible alternative. The presence of Bing does with their merchants; if a merchant accepts one increased merchants’ costs of accepting the backlash against Facebook and against not reduce Google’s power over sellers. MasterCard it has to accept all of them, and if the cards. Increasing party 3’s cost of doing the architects of fake news campaigns Why would a regulator care? Why would seller accepts one Visa card it has to accept all business invariably increases the prices would limit the harm. So a small regulatory a consumer care? Because these very high of them. Sellers now hate the most expensive that consumers pay for goods and services. change that would have enormous •

28 COLLER VENTURE REVIEW 29 benefits is limiting Facebook’s complicit cooperation with fake news campaigns. Big Tech firms are among the most profitable in the world today, and they are among the largest spenders on public relations and on lobbying. It is not yet clear that any form of regulatory relief is feasible. Prior experience with the Stop Online Piracy Act / Protect Intellectual Property Act is instructive. The idea was to limit giant platforms’ abuse of material under copyright. The largest abuser at the time was Google’s YouTube, but Wikipedia felt threatened as well. The bills initially seemed certain to receive approval

in the House and Senate. Google equated it 1  This paper benefited 9  https://www.amazon. with censorship, and Google’s home page had from the insights of and com/Mindf-Cambridge- from discussions with my Analytica-Break-America/ the image of CENSORED stamped across it. colleagues at Copenhagen dp/1984854631/ref=tmm_ Wikipedia asked us to imagine a world without Business School, principally hrd_swatch_0?_encoding= Jan Trzaskowski, and from UTF8&qid=&sr free access to knowledge and then took itself work with my colleagues at 10 https://www.bbc.com/ offline for a day. Seven million people signed the Technical University of Munich, principally news/technology-41036802 petitions against the bills. The bills didn’t Helmut Krcmar and 11  https://www. Sebastian Hermes. have a chance of passing after that, since washingtonpost.com/ About the Author the opposition involved millions of voters. 7. 2  As of 13 January 2019, technology/2019/10/01/ https://fxssi.com/top-10- amazon-sellers-say- online-retail-giant-is- We expect that consumers could easily Regulation in the Context of most-valuable-companies- in-the-world trying-help-itself-not- be rallied to sign petitions arguing that Social Welfare Computing consumers/?arc404=true Eric K. Clemons is Professor of 3 As of 31 December 2018, 12 Operations Information and Decisions regulations would destroy the basis of Welfare Economics acknowledges that not all https://finance.yahoo.com/  http://newpatternsofpower. com/ at the Wharton School of the University the internet as free, that they would add quote/GOOGL/balance- individuals are able to function in our industrial sheet/ 13 of Pennsylvania. He has worked with considerably to users’ costs, and that the https://www.amazon.com/ society at all times, and seeks to provide 4 Master-Switch-Information- the most senior executives in areas as current regulatory regime does not subject  https://www. some form of economic social safety net. washingtonpost.com/ Empires-Borzoi/ diverse as international finance, global dp/0307269930 them to any harm. It is not clear that regulation technology/2019/09/08/ counter terrorism, craft brewing, facebook-google-face-off- of giant platforms is feasible until the nature This paper is part of an ongoing research 14  https://www.npr. against-formidable-new- credit card banking, and marketing org/2018/07/18/630030673/ program in Social Welfare Computing, which foe-state-attorneys-general/ of the harm they cause is much more clear eu-hits-google-with-5- of consumer packaged goods. both to regulators and to consumers. is being conducted with my colleagues at 5 billion-fine-for-pushing- https://www.nytimes. More recently, Clemons studies the Copenhagen Business School’s Departments com/2019/09/08/technology/ apps-on-android-users antitrust-amazon-apple- public policy implications of online of LAW and of Management, Politics and 15 https://www.theguardian. facebook-google.html business models. Philosophy and at the Technical University com/technology/2017/ 6  https://www.nytimes. sep/11/google-appeals-eu- of Munich’s Chair for Information Systems com/2019/04/03/world/ fine-search-engine-results- Clemons’ most recent project integrates in the Department of Informatics. Social australia/social-media- shopping-service three decades of study into a single law.html 16  Welfare Computing specifically addresses http://newpatternsofpower. volume “New Patterns of Power and 7  https://knowledge.wharton. com/ Profit: A Strategist’s Guide to Competitive developing societal mechanisms to mitigate upenn.edu/article/build- 17  https://en.wikipedia.org/ Advantage in the Age of Digital the disruption and harm caused by digital fake-news-campaign/ wiki/Essential_facilities_ Transformation,” which was published transformation. It does not address using 8 doctrine https://knowledge.wharton. in 2018. technology to address existing social problems. upenn.edu/article/how- private-information-helps- It does not address use of computing to fake-news-to-hoodwink- He has published over 100 scholarly improve rural access to health care or to the-public/ articles and regularly publishes online It is not clear that regulation of higher education, or the improvement in Huffington Post, Business Insider, and Knowledge at Wharton. giant platforms is feasible until of government services, as important as these topics are. Social Welfare Computing the nature of the harm they addresses developing mechanisms to mitigate cause is much more clear both the harm caused by new forms of online power, or by abuse of private information, or to regulators and to consumers by fake news and manipulation of elections.

30 COLLER VENTURE REVIEW 31 Overview

ii ur Deep Innovation section frames questions 35 related to technology-led transformation. Blockchain Revolution In this issue, we address blockchain, and dig deep into an innovation interestingly Without the Blockchain? O characterized by a lack of consistent understanding Hanna Halaburda about what the technology is, including related lack Associate Professor of Technology, of consensus on potential benefits and risks. Operations and Statistics, Hanna Halaburda from the Stern School of Business, Stern School of Business, New York University, begins by summarizing the New York University potential benefits of blockchain-like solutions. Deep Innovation Halaburda then addresses the mechanisms and tools for our accessing and gaining benefits supposedly tied to blockchain, without the use of blockchain 44 technology itself. Blockchain — The Darker Side Nouriel Roubini, also from the Stern School of Business, of Blockchain asks us to consider that the risks of blockchain-based technologies surpass the benefits. Roubini argues that Nouriel Roubini blockchain technologies, which he clearly distinguishes Professor of Economics and from distributed-ledger systems, appear increasingly for Better or Worse? International Business, connected to fraud-racked cryptocurrency trading. Stern School of Business, New York University Jacob Mendel from the Coller School of Management describes the ways blockchain technology may help protect cyber threats, specifically in the smart grid of the future. 50 Together, these three authors clarify an important emerging technology, the advantages it promises, Blockchain as a Solution and the reality in practice. to Cyber Threats in the Looking forward, it seems clear that the tension between Smart Grid of the Future reality and practice, between reality and future promise, Jacob Mendel are related to many technologies beyond blockchain. Head of the Cyber-Security Track, Future versions of Deep Innovation will continue to bring Coller School of Management, together varied perspectives on such new technologies, Tel Aviv University with the aim of promoting new syntheses and insights.

32 COLLER VENTURE REVIEW 33 Blockchain Revolution Without the Blockchain?

Hanna Halaburda Associate Professor of Technology, Operations and Statistics, Stern School of Business, New York University

lockchain—often called “the smart contracts, encryption and a distributed technology behind Bitcoin”— ledger—are separate concepts. The three may has attracted a lot of attention, be implemented together, but they do not need Bperhaps somewhat comparable to be. We analyze them separately and argue to that devoted to the Internet at the time of that most of the proposed benefits come from the dot-com boom. Many are excited about encryption and smart contracts. But encryption this new technology, supposedly based on and smart contracts do not need blockchain. a public, permissionless, distributed ledger So, while the wave of excitement may facilitate that cryptographically assures immutability adoption of new technology solutions, the without a need for a trusted third party landscape after the so-called blockchain and allows for smart contracts. Large and revolution may include very few actual small companies want to get on board, blockchain applications. Instead, the changes since they expect this technology to lower could focus on encryption and smart contracts. their costs by making transactions quicker, safer, transparent and decentralized. However, the technology behind Confusion around what the blockchain is for the most part blockchain actually is not well understood. There is no The market’s excitement about blockchain consensus on what benefits it may technologies is growing and is perhaps best 1 really bring, or on how it may fail. summarized in the increasingly popular slogan Optimism in the face of novelty and “blockchain revolution.” It is estimated that uncertainty of a new technology is not a the blockchain market size will grow from new phenomenon, but it does affect the US$210 million in 2016 to over US$2 billion by 2 economy, for example, through optimistic 2021. Blockchain technologies are expected valuations of blockchain-referencing startups. to change the way the financial industry, This optimism also appears in estimates supply chains, government record-keeping quoted by the media that indicate large and many other areas operate. The Financial 3 cost savings but don’t offer much detail Times describes the technology as follows: • about how those savings would occur. A more careful look into the technology reveals that most of the proposed benefits of so-called blockchain technologies do not actually come from blockchain. What gets bundled up as blockchain technologies—

34 COLLER VENTURE REVIEW 35 ledger can be secure without a trusted third the properties of the distributed ledger that party9 or needs to involve smart contracts. is supported by this modified system. More importantly, encryption or smart Smart Note also that smart contracts are not a core contracts do not require a distributed ledger property of the Bitcoin blockchain. The Bitcoin (i.e., blockchain) to be implemented. contracts, system allowed for additional comments encryption along with the transactions, which provided Where is this confusion and rudimentary capability to create code that coming from? would allow for automatic execution of some distributed transactions. Ethereum expanded on this Confusion around blockchain can be traced to ledger feature, introducing a blockchain with the the origin of the term. The term “blockchain” main purpose of facilitating smart contracts.13 was introduced as shorthand for a “chain of each bring Mainstream media’s use of the term “smart blocks of transactions,” which was part of different contracts” solely in the context of blockchain the Bitcoin system. Therefore, in the Bitcoin may have created the perception that smart context it meant a “distributed ledger of benefits contracts are native to blockchains. However, transactions.” Later, “blockchain” became a code automatically executing a transaction an independent term in media discussions of can be implemented by a wide range of entities. whether there are other uses for distributed ledgers of transactions beyond Bitcoin. Therefore, smart contracts, encryption and distributed ledger are separate Since it started in 2009, the Bitcoin system, concepts. They may be implemented which operates without a trusted third party, together, but do not need to be. The term has been successful in preventing fraud on “blockchain” should not be used as a catch- 10 its blockchain. That is, Bitcoin’s blockchain all aggregation of these different terms. has proved to be for all practical purposes “immutable.” For this reason, it is often said to be secure. Bitcoin’s blockchain is also public Why is it important to consider (all transactions are visible) and permissionless smart contracts, encryption and (any computer may participate in validating distributed ledger separately? transactions and adding them to the ledger). Blockchain is an electronic ledger of The main sources of savings are supposed A technician inspects The broadening of the meaning of the backside of bitcoin transactions that are continuously to come from increased security, faster Some pundits erroneously extrapolate that “blockchain” to include smart contracts, 7 mining at Bitfarms maintained in blocks of records. What transactions and a shared ledger. Faster any blockchain will have these properties: encryption and distributed ledger could in Saint Hyacinthe, gets its developers, investors and fans so transactions on blockchain are often—but distributed, secure, public, permissionless simply reflect the evolution of a term in a Quebec excited, however, is that ledgers are jointly not exclusively—ascribed to smart contracts and will operate without the need for a living language. However, precision matters held and run by all participants. It is meant (i.e., automated execution of transactions). trusted third party. This extrapolation may for estimating costs and benefits, or even to be cryptographically secured to prevent A shared ledger is supposed to contribute to come from an illusion that the Bitcoin’s for predicting the best uses of blockchain anyone being able to manipulate records, cost savings because blockchain is assumed blockchain properties come solely from technologies. Smart contracts, encryption such as who voted for whom, or who to operate without a trusted third party and technology, while they actually come from a and distributed ledger each bring different 4 owns a bank account. therefore to eliminate intermediaries. combination of technology and an incentive benefits. And since they can be implemented system that accounts for the behavior of However, these assumptions about the benefits independently, an optimal solution for a human participants. Yes, the Bitcoin system The revolution is supported by a few forces, of blockchain seem to confuse at least three particular application may include only some uses cryptographic tools: public-private key the most significant of which is the expectation different concepts: (1) encryption, (2) smart of these tools but not others. This may matter encryption, hashing algorithms. But the system of substantial cost savings, as described in the contracts, and (3) distributed ledger, a type of a for the future of the blockchain revolution. is virtually immutable11 because changing following quotes from the Financial Times: distributed database. The three may be applied the blockchain’s history is too costly.12 Smart contracts are computer programs together. But they are separate tools, and not all Blockchain is the electronic ledger that automatically implement the terms of them are necessary in a blockchain system. Bitcoin’s blockchain has these properties originally built to underpin bitcoin of an agreement between parties. One because it is a part of the Bitcoin system. markets. Promoters say it will lead So, what is “blockchain”? example typically given is that of a car Other distributed systems may not be able to cheaper, more secure ways of lease: upon a missed payment, the car While there is no one standard definition to sustain these properties. This is because settling all kinds of transactions.5 would automatically lock and control would of blockchain, the most parsimonious and the Bitcoin system is much more than just return to the lender. Since execution of a commonly used is a “distributed ledger the blockchain. The system also involves The technology—an electronic ledger smart contract does not involve a decision of transactions.”8 This is why the term native cryptocurrency (bitcoins), mining with records stored in “blocks”—aims to or an action by a human, it may be faster “blockchain technologies” is often used and other elements. Changing the elements automate the complex networks of trust and minimize the number of mistakes. interchangeably with “distributed ledger of the system, e.g., by removing the native and verification on which modern finance Both the increased speed and reduction technologies.” This parsimonious definition cryptocurrency, or by changing the proof- sits, potentially cutting tens of billions of in errors would result in cost savings. • dollars of costs from the financial sector.6 allows blockchains to have different of-work mechanism, affects the incentives attributes. Specifically, not every distributed of the participants and therefore may alter

36 COLLER VENTURE REVIEW 37 The term “smart contracts,” and the car This essentially describes a paradigm shift example, come from Nick Szabo’s 1997 US$17 million in the approach to cyber security, and article,14 published 12 years before Bitcoin we should pay attention to it. Given the and its blockchain. Some media outlets Average annual cost of cyber crime large sums currently spent in relation to to a large U.S. company, 2016 state that “through blockchain technology, fraud and hacking, this shift has potential smart contracts are now a reality.”15 for significant cost savings. A 2016 study However, smart contracts were a reality of large companies estimated that cyber long before. An automated recurring crime costs the average large US company payment that someone sets up with a bank US$9.5 million US$17 million. The global average is US$9.5 is an example of a smart contract. Blockchain million.19 However, it is doubtful that we need is not needed to gain the benefits from Average annual cost of cyber crime By looking at Bitcoin’s blockchain blockchain to get the benefits of encryption smart contracts, because smart contracts to a large global company, 2016 and the fact that it has not suffered a and to trigger these cost savings.20 can be set up on a centralized system – a bank’s system or a platform dedicated breach since its inception, the pundits to smart contracts used by individuals. extrapolate that any blockchain by its What are the benefits of blockchain? Encryption, which increases the security of a nature offers added security benefits The arguments above show how smart computer system, may also result in significant contracts and encryption can result in cost savings.16 Currently, encryption is beyond encryption. cost savings. But what about the benefits underutilized in business practice. For of distributed ledger, i.e., the blockchain example, until recently public-private key itself? Distributed ledger allows multiple encryption was typically used to log into a parties in the system to add transactions to business’s information technology system, a shared ledger in a way that the changes but once users were admitted into the system, are reflected consistently across all its 21 there was some, but little protection.17 copies. It brings benefits in places where reconciliation of contradictory ledgers Excitement about blockchain turned is costly. At the same time, recording more attention to new developments in transactions on a shared ledger takes more cryptography. Bitcoin’s blockchain uses time than on a centralized ledger because of the reconciliation mechanisms (consensus standard, well-established cryptography tools mechanisms) that need to be employed. (public-private key encryption, hash functions, Moreover, the need to store the copies of the etc.). But novel tools developed in recent years ledger in multiple locations may significantly allow for much bolder uses. The premise is to add to storage and computational costs. To create encryption systems that would protect date, it has not been clearly demonstrated the information—no matter where it is stored— in which circumstances the benefits of rather than protect a specific computer. employing a distributed ledger outweigh Serious efforts in this direction have already the cost of delays and duplicated storage. been undertaken by industry heavyweights, Moreover, with the experience of Bitcoin, as stated by proponents of blockchain technologies R. Martin Chavez, the Chief Financial expect more from the new technology Officer of Goldman Sachs: than just a distributed ledger. By looking at Bitcoin’s blockchain and the fact that it has We focused on encryption and key not suffered a breach since its inception, the management, worked on these issues with pundits extrapolate that any blockchain by its AWS and Google, and now we are in a new nature offers added security benefits beyond state. Our developers are indifferent as to encryption. They also expect that adopting whether a particular data compute load will blockchain would result in further cost savings happen out of Amazon and Google [cloud due to disintermediation, since Bitcoin’s computing services] or whether they will blockchain does not require a trusted third happen in our own data centers. And we party to be virtually immutable. Indeed, the assume that all the computers are hostile; core of Bitcoin’s computer-scientific innovation it doesn’t matter whether they are at AWS was the security of a permissionless distributed or our own data centers.18 ledger, so that there is no need for a trusted third party anywhere in the system.22 Distributed ledgers are a special type of distributed databases, which have been •

38 COLLER VENTURE REVIEW 39 known and used for three decades. But Bitcoin’s virtual immutability comes not while previous distributed databases were only from encryption but also from the permissioned and required a third party to incentives embedded in the system. What manage the permissions and help maintain the makes the ledger immutable is the fact that database, Bitcoin was the first that allowed for adding a block to the blockchain is costly. The technology a permissionless distributed ledger.23 So yes, A network participant (say, a Bitcoin miner) Bitcoin’s blockchain is virtually immutable needs to expend significant resources to win behind the without a need for a trusted third party. the tournament (to be the quickest to find ) However, these benefits may be difficult a solution to a puzzle , which awards that blockchain is for the to realize in a blockchain without Bitcoin. participant the right to add a new block of It has proven to be a challenge to create a transactions to the blockchain. This cost also most part not well decentralized, permissionless and secure makes rewriting the history of the blockchain blockchain to transfer assets other than expensive, resulting in virtual immutability. a native cryptocurrency (for example, The network participants are rewarded for understood. There 25 bitcoins for the Bitcoin blockchain). their costly work with bitcoins. Without bitcoins (or other native cryptocurrency), the is no consensus on The first major challenge is the gateway network participants need to be motivated problem: the information about the underlying by incentives from outside of the blockchain. what benefits it may assets needs to enter the blockchain in the first place. For example, suppose we want to In most of the currently proposed applications, use a blockchain to record and transfer land- both challenges have been addressed by really bring, or on ownership titles. To initiate this process, a creating closed, permissioned blockchains. gateway needs to attest that a specific plot of This is because a blockchain without how it may fail land exists and to assign it to an initial owner. bitcoins is no longer virtually immutable Whether the gateway is an individual, an without a trusted third party. In many cases, institution or a consortium, it needs to be a permissioned blockchains are the right tools trusted third party for subsequent users of for their purpose. We need to recognize, the blockchain. Importantly, Bitcoin does not however, that they depart from Bitcoin’s need a gateway. Since the Bitcoin currency is innovation. They effectively go back to the native to its blockchain, all bitcoins are created traditional concept of distributed databases. on the blockchain automatically and can then Moreover, if permissionless is not the goal, be transferred as per the Bitcoin protocol.24 then we need to consider whether a blockchain, The second major challenge is assuring i.e., a distributed ledger of transactions, is the immutability of the ledger without a native optimal design choice for those permissioned currency. It is important to remember that distributed databases. Proof-of-work is a quite •

It is important to remember that Bitcoin’s virtual immutability comes not only from encryption but also from the incentives embedded in the system

40 COLLER VENTURE REVIEW 41 The future of the 1 For example, some pundits 11 Bitcoin’s blockchain is 19 2016 Cost of Cyber Crime point to “privacy” while immutable with very Study & the Risk of Business blockchain revolution others to “transparency” high probability, but does Innovation, Ponemon as a benefit of blockchain. not guarantee absolute Institute Research Report, immutability. October 2016. The numbers Blockchain technologies will likely have 2 As estimated by Markets and are steadily increasing. In 2015 12 a significant impact on many industries, Markets, a market research The Bitcoin system makes the average cost was US$15 not just finance. However, this may company (https://www. adding a block to the million in the United States marketsandmarkets.com/ blockchain artificially costly and US$8 million globally. not happen in the way envisioned. Market- Reports/blockchain- by making verification technology-market-90100890. nodes compete to solve 20 The Goldman Sachs solutions Computation and communication technologies html). Market size is a cryptographic puzzle. described in the Chavez quote About the Author measured by revenues This also makes changing do not rely on blockchain. have decreased the cost of experimentation from sale of blockchain- blockchain’s history 21 and digital entrepreneurship. This resulted in a related solutions. prohibitively costly. Changing Technically, distributed this feature, while leaving all databases also have other Hanna Halaburda is Associate Professor proliferation of start-ups, creating competitive 3 It is worth noting that among desirable properties, but this the cryptography in place, of Technology, Operations and Statistics pressure and exposing inefficiencies in existing all the media excitement, could jeopardize the safety one seems to be the focus the Financial Times’ voice is of a blockchain operating in the context of blockchain at the New York University Stern School (legacy) systems. Both new and existing players probably the most cautious without a trusted third party. technologies and fintech. of Business. in blockchain matters. are looking with interest at the properties 22 13 See www.ethereum.org The security of the ledger is 4 Much of Halaburda’s work focuses on of smart contracts and Bitcoin’s blockchain. J. Wild, “Blockchain believers not guaranteed. However, inefficient consensus mechanism, not only hold fast to a utopian vision,” 14 N. Szabo, “Formalizing and the probability of a failure competition between platforms, e.g. Apple’s But as they realize the benefits of different in terms of electricity, but also in terms of Financial Times, January 27, Securing Relationships is pushed so low that the iPhone vs. Android or eHarmony vs. Match. aspects of the system, it may turn out that new 2017. on Public Networks,” ledger is considered secure speed and resilience. And maintaining the First Monday, September for all practical purposes. The most current theme in her research is 5 entire history of transactions consumes more encryption tools and smart contracts have G. Meyer and N. Hume, 1997. Available at http:// Nonetheless, there are factors the development of digital currencies and large and clear benefits, while distributed “Trafigura tests blockchain firstmonday.org/ojs/index. that can affect this probability. memory than, for example, keeping balances. for settling US oil market php/fm/article/view/548 Some are well known and blockchain technologies. ledgers may have a more limited appeal. And deals,” Financial Times, discussed in the literature, 15 We accept these inefficiencies in Bitcoin’s March 27, 2017. See, e.g., A. Lielacher, “A such as the 51 per cent attack. Halaburda’s work has been published in for many applications, the most suitable will Cost-Benefit Analysis of 6 Management Science, RAND, American blockchain because they allow for a be the traditional distributed database rather P. Stafford, “Blockchain Using Smart Contracts in 23 There were earlier, less consortium raises record Economic Journal, Games and Economic permissionless distributed database. than one based on Bitcoin’s blockchain. Banking,” BTCManager. successful tries to establish $100m,” Financial Times, com, April 14, 2017. Available permissionless ledgers, Behavior and other academic journals. As we see, blockchain applied outside of May 23, 2017. at https://btcmanager. e.g., bit-gold. She also wrote a book (joint with Miklos Most of all, we need to realize that outside com/a-cost-benefit-analysis- Bitcoin (or other native cryptocurrency) 7 Additional expected benefits 24 of-using-smart-contracts-in- Note also that while Bitcoin Sarvary) on digital currencies, Beyond of Bitcoin (or other cryptocurrencies) include public data and time- loses its desired properties. It is no longer banking/ is decentralized in the stamping of transactions. Bitcoin: The Economics of Digital permissionless and immutable without the we do not have a technology that offers sense that verification and 16 settlement of transactions Currency (Palgrave, 2016). 8 Note that a “ledger of The security of Bitcoin’s need for trusted third parties. If we accept “permissionless distributed ledgers that occurs in a decentralized transactions” is different from blockchain comes from two ( ) way, the issuance of bitcoins Before her appointment at NYU, Halaburda permissioned systems, the three decades of cryptographically assure immutability a “ledger of balances.” The sources: i encryption tools, is very much centralized and former keeps the history of such as public-private key, was a Senior Economist at the Bank of extensive research on distributed databases without a need for trusted third parties.” controlled by the algorithm. transactions, as in the “chain using hash functions, etc; and (ii) incentives induced Canada and an Assistant Professor at the in computer science offer us more efficient of blocks of transactions.” 25 The blockchain revolution may give us by the mining scheme. We Recently, alternative Harvard Business School. A shorter version solutions: better consensus mechanisms A ledger of balances wouldn’t consensus mechanisms new tools and change the landscape of be a blockchain. focus here on encryption. of this article appeared in Communications As we discuss later, the have been proposed, such as and memory storage strategies. Maybe they proof-of-stake. So far, they do some industries. But since the benefits 9 Alternatively, one could insist incentives induced by mining of ACM. not offer immutability with as would do a better job than blockchain. on defining “blockchain” to are difficult to sustain in of encryption and smart contracts can be high probability as the proof- be a distributed ledger that is blockchains without native of-work as implemented in One of the indirect effects of the blockchain realized without a distributed ledger, the secure without any trusted cryptocurrency and without a the Bitcoin system. revolution may be the popularization of world after the blockchain revolution may third party. That is a more trusted third party (or parties). restrictive definition that 17 traditional distributed databases. Distributed well be a world without the blockchain. would exclude most currently For example, often, information is encrypted on databases have been a vibrant research field in proposed applications of blockchain technologies. specific drives in companies’ computer science for decades. Before Bitcoin, computer systems. 10 While there have been thefts 18 however, commercial and popular interest was of large sums of bitcoins, R. M. Chavez, “Data, mostly limited to back-office operations of large e.g., on Mt.Gox, none of them Computing, and occurred by falsifying the Transformation in the Internet companies, such as Facebook. The blockchain. The difference Financial Industry,” speech blockchain revolution has brought distributed is akin to the difference at the symposium “Data, between a bank robbery and Dollars and Algorithms: databases to the forefront and may result in counterfeiting in the realm of The Computational wider adoption and new ideas for their use. paper currency. While “bank Economy,” Harvard Institute robberies” have happened for Applied Computational However, the benefits of distributed databases in the world of Bitcoin, the Science, January 19, 2017. may be limited to very specific applications. system has proven to be Available at https:// And even in the context of these applications, resistant to “counterfeiting.” www.youtube.com/ watch?v=VF6DrX9H0Ug while valuable, it is not clear that distributed databases would bring substantial cost savings.

42 COLLER VENTURE REVIEW 43 The Darker Side of Blockchain

Nouriel Roubini Professor of Economics and International Business, Stern School of Business, New York University. Chairman, Roubini Macro Associates LLC

here is a good reason why every into a “liquidation fund” that is likely to be civilized country in the world many times larger than what is necessary tightly regulates its financial to avoid counter-party risk. It is little Tsystem. The 2008 global financial wonder that, according to one independent crisis, after all, was largely the result of researcher’s estimates, liquidations at times rolling back financial regulation. Crooks, account for up to half of BitMEX’s revenue. criminals, and grifters are a fact of life, and no BitMEX insiders revealed to me that this financial system can serve its proper purpose exchange is also used daily for money unless investors are protected from them. laundering on a massive scale by terrorists But the current regulatory regime does not and other criminals from Russia, Iran, and capture all financial activity. Cryptocurrencies elsewhere; the exchange does nothing to stop are routinely launched and traded outside the this, as it profits from these transactions. domain of official financial oversight, where As if that were not enough, BitMEX also has avoidance of compliance costs is advertised an internal for-profit trading desk (supposedly as a source of efficiency. The result is that for the purpose of market making) that has crypto land has become an unregulated casino, been accused of front running its own clients. where unchecked criminality runs riot. Hayes has denied this, but because BitMEX is This is not mere conjecture. Some of the totally unregulated, there are no independent biggest crypto players may be openly involved audits of its accounts, and thus no way of in systematic illegality. Consider BitMEX, an knowing what happens behind the scenes. unregulated trillion-dollar exchange of crypto At any rate, we do know that BitMEX skirts derivatives that is domiciled in the Seychelles AML/KYC regulations. Though it claims but active globally. Its CEO, Arthur Hayes, not to serve U.S. and UK investors who are boasted openly that the BitMEX business subject to such laws, its method of “verifying” model involves peddling to “degenerate their citizenship is to check their IP address, gamblers” (meaning clueless retail investors) which can easily be masked with a standard crypto derivatives with 100-to-one leverage). VPN application. This lack of due diligence To be clear, with 100-to-one leverage, even a constitutes a brazen violation of securities 1% change in the price of the underlying assets laws and regulations. Hayes even openly could trigger a margin call and wipe out all challenged anyone to try to sue him in the of one’s investment. Worse, BitMEX applies unregulated Seychelles, knowing he operates high fees whenever one buys or sells its toxic in the shadow of laws and regulations. • instruments, and then it takes another bite of the apple by siphoning customers’ savings

44 COLLER VENTURE REVIEW 45 99% 99% of all Blockchain transactions No serious institution would ever occur on centralized exchanges that are hacked on a regular basis allow its transactions to be verified by an anonymous cartel operating from the shadows of the world’s authoritarian kleptocracies

And yet, according to one study, up to 95% of Blockchain —­ Holy Grail In a Gini coefficient where1.0 means or Empty Vessel? that a single person controls 100% of all transactions in Bitcoin are fake, indicating a country’s income/wealth: that fraud is not the exception but the rule. With the above, boosters have fled to the last refuge of the crypto scoundrel: a defense of “blockchain,” the distributed-ledger software Blockchain Greed underpinning all cryptocurrencies. Blockchain One need only consider the massive has been heralded as a potential panacea centralization of power among for everything from poverty and famine to cryptocurrency “miners,” exchanges, cancer. In fact, it is the most overhyped – and developers, and wealth holders to see that least useful – technology in human history. blockchain is not about decentralization In practice, blockchain is nothing more than a and democracy; it is about greed. North Korea scores 0.86 glorified spreadsheet. But it has also become For example, a small group of companies – the byword for a libertarian ideology that treats mostly located in such bastions of democracy all governments, central banks, traditional as Russia, Georgia and China – control financial institutions, and real-world currencies between two-thirds and three-quarters of as evil concentrations of power that must all crypto-mining activity, and all routinely be destroyed. Blockchain fundamentalists’ jack up transaction costs to increase their ideal world is one in which all economic fat profit margins. Apparently, blockchain activity and human interactions are subject fanatics would have us put our faith in an to anarchist or libertarian decentralization. United States scores 0.41 anonymous cartel subject to no rule of They would like the entirety of social and law, rather than trust central banks and political life to end up on public ledgers that regulated financial intermediaries. are supposedly “permissionless” (accessible to everyone) and “trustless” (not reliant on A similar pattern has emerged in a credible intermediary such as a bank). cryptocurrency trading. Fully 99% of all transactions occur on centralized exchanges Yet far from ushering in a utopia, blockchain that are hacked on a regular basis. And, has given rise to a familiar form of economic unlike with real money, once your crypto hell. A few self-serving white men (there wealth is hacked, it is gone forever. • are hardly any women or minorities in the Bitcoin scores 0.88 blockchain universe) pretending to be messiahs for the world’s impoverished, marginalized, and unbanked masses, claim to have created billions of dollars of wealth out of nothing.

46 COLLER VENTURE REVIEW 47 Of course, it is no surprise that an unregulated market would become the playground of con artists, criminals, and snake-oil salesmen

Moreover, the centralization of crypto is granted to qualified individuals. And, development – for example, fundamentalists perhaps most important, they are based on have named Ethereum creator Vitalik Buterin trusted authorities that have established a “benevolent dictator for life” – already has their credibility over time. All of which is to given lie to the claim that “code is law,” as say, these are “blockchains” in name only. if the software underpinning blockchain It is telling that all “decentralized” blockchains applications is immutable. The truth is that end up being centralized, permissioned the developers have absolute power to act databases when they are actually put into About the Author as judge and jury. When something goes use. As such, blockchain has not even wrong in one of their buggy “smart” pseudo- improved upon the standard electronic Nouriel Roubini is a professor at contracts and massive hacking occurs, they spreadsheet, which was invented in 1979. NYU’s Stern School of Business and simply change the code and “fork” a failing CEO of Roubini Macro Associates. coin into another one by arbitrary fiat, revealing the entire “trustless” enterprise to Recalibration Needed Roubini was Senior Economist for have been untrustworthy from the start. International Affairs in the White House’s No serious institution would ever allow its Council of Economic Advisers during the Lastly, wealth in the crypto universe is even transactions to be verified by an anonymous Clinton Administration. He has worked more concentrated than it is in North Korea. cartel operating from the shadows of the for the International Monetary Fund, the Whereas a Gini coefficient of 1.0 means that world’s authoritarian kleptocracies. So it is US Federal Reserve, and the World Bank. a single person controls 100% of a country’s no surprise that whenever “blockchain” has income/wealth, North Korea scores 0.86, been piloted in a traditional setting, it has the rather unequal United States scores 0.41, either been thrown in the trash bin or turned and Bitcoin scores an astonishing 0.88. into a private permissioned database that is nothing more than an Excel spreadsheet As should be clear, the claim of or a database with a misleading name. “decentralization” is a myth propagated by the pseudo-billionaires who control this Of course, it is no surprise that an unregulated market would become the playground of con pseudo-industry. As for blockchain itself, artists, criminals, and snake-oil salesmen. there is no institution under the sun – bank, Crypto trading has created a multi-billion- corporation, non-governmental organization, dollar industry, comprising not just the or government agency – that would put its The symbols of exchanges, but also propagandists posing balance sheet or register of transactions, Bitcoin and Ethereum as journalists, opportunists talking up their trades, and interactions with clients and cryptocurrencies sit own financial books to peddle “shitcoin,” and suppliers on public decentralized peer-to-peer displayed on a screen lobbyists seeking regulatory exemptions. permissionless ledgers. There is no good reason during the Crypto Investor Show in Behind it all is an emerging criminal racket why such proprietary and highly valuable London, U.K that would put the Cosa Nostra to shame. information should be recorded publicly. Moreover, in cases where distributed-ledger technologies – so-called enterprise DLT – are actually being used, they have nothing to do with blockchain. They are private, centralized, and recorded on just a few controlled ledgers. They require permission for access, which

48 COLLER VENTURE REVIEW 49 Each of the above kinds of attacks has Blockchain as a Solution different objectives and can often be the building blocks of more sophisticated attacks. to Cyber Threats in the This relates to blockchain in several ways: 1. Attacks on the Smart Grid will likely Smart Grid of the Future be more advanced than the traditional attacks on IT/OT infrastructures.

Jacob Mendel Head of the Cyber-Security Track, 2. Coller School of Management Additionally, for the offense to cause Tel Aviv University negative system impact, the attacker must also know how to control the cyber aspects to manipulate the physical system – including software vulnerabilities such as buffer overflows, integer overflows, and structured query language –injection.

he Smart Grid is one of the most The combination of porous devices and the 3. critical infrastructure services sensitive information flowing through the The fact that the Smart Grid does not of today’s developed nations, smart grid has left open an attractive target use reliable methods to authenticate Tproviding electrical service for malicious cyberattacks. To our collective users is also a unique part of the to consumers through two-way digital peril, this security risk is not receiving the problem/solution, and a place where communications. The system aims to improve treatment it deserves either by cybersecurity blockchain can be uniquely useful. supply efficiency and reliability while industry research or by consumers. Left unaddressed, such threats may self-healing glitches and reducing energy provide an attacker with the ability consumption and costs. Governments have Blockchain as a Solution to bypass the authentication and take been working to implement these systems to Cyber Threats control of the Smart Grid network. around the world as a step in combatting global warming and for their potential to Smart Grid cybersecurity threats in general The Smart Grid cybersecurity threats – build energy resilience and independence. can come from a myriad of sources, such as and the ways in which blockchain can be cybercrime, hacking, cyberwar, etc. To mitigate Alongside smart grids and the rise of IoT used to remediate a particularly challenging cybersecurity threats, utility companies will (Internet of Things) in general, smart meters situation – are summarized in the table need to share and coordinate the exchange of are becoming widespread as well – in overleaf. As illustrated, they revolve around cybersecurity information, like intelligence residential, business, and industrial buildings knowledge-based remediation (something and vulnerabilities, with governmental alike. The new smart metering is the gateway you know); possession-based remediation agencies and probably with other public and between the Smart Grid and our homes or (something you have); and biometric- private sector cyber research institutes. This businesses, enabling dynamic pricing and based remediation (something you are). is one of the first places blockchain comes in. information exchange with smart home As with other essential infrastructure, devices. In its most basic consumer application, Preventing potential cyberattacks on blockchain is particularly relevant given smart meters precisely track all energy Smart Grid communication can be done by that the number of attacks on critical consumption and send digital meter readings to identifying the number of attacks, of which infrastructure is continuously increasing. energy suppliers for more accurate energy bills. four have been identified. These include In this example, any deployment of a Smart a device attack (aims to compromise a But no matter how smart they are, smart Grid without suitable cybersecurity might grid device), a data attack (attempts to meters still represent a serious vulnerability result in severe consequences, such as grid maliciously insert, alter or delete data or to the greater Smart Grid, as they are mostly instability, utility fraud, and the loss of user control commands in the network traffic a kind of interconnected communications information and energy consumption data. • hub between the consumers and energy to misguide the Smart Grid, leading it to providers that comprise the Grid. Malware make wrong decisions/actions), a privacy in particular is a significant threat, attack (aims to learn/infer users’ private both for the harm it can cause and the information by analyzing electricity challenges in properly addressing it. usage data), and a network availability attack (i.e. a DoS Denial of Service).

50 COLLER VENTURE REVIEW 51 The Psychology of Cyberattacks

Threat How Blockchain Can Help The primary concern of companies and organizations are cyberattacks that are deliberate actions. Economic motivation (for example theft of intellectual property or users’ private information or credit card information) is – Anti Denial of Service (DoS) one of the most reliable motivations for attacks. By contrast, (on an individual device, a group of devices or an entire subnetwork) political and espionage motivations involve, for example, – Anti communication hijacking/MITM attacks Availability destroying essential web sites, DDOS (Distributed Denial – Anti-jamming Of Service) attacks, taking control of strategic or symbolic targets, blackouts or making political statements. – Anti device theft Given the range of the above, it is recommended that a new holistic approach be found that would automatically – Help against fraud, stealthy manipulation of critical data such as meter build a malware baseline and the corresponding readings, billing information, control commands detection of malicious activities, and that blockchain Integrity – Anti-tampering should be part of such a holistic approach.

– Privacy – Avoiding use of power usage data and customer account information Cyber-Attacker Actions – Smart meter aggregation of usage data for billing purposes and to support load-balancing and other monitoring functions

Personalization requires costly, – Avoiding backdoors and holes in the network perimeter potentially time-consuming tasks – Defending database attacks Inadvertent Deliberate Inaction – Protecting the smart meters’ data – Preventing spoofing system operators and SCADA devices – Avoiding leakage of sensitive data

Political Economic Socio-Cultural – Real-time needs of control systems and responsiveness aspects of the system Timeliness

– Fraudulent information about demand or supply which will create non-existing A New Holistic Approach power flows which may result in blackouts and heavy financial losses Human Machine Interface (HMI) Malware is a newly coined term for malicious software that is intentionally designed to disrupt availability, compromise confidentiality, alter integrity, and cause abusive behaviors. Research studies show that the – Buffer overflows impact of malware infection often not only leads to loss – Integer overflows of privacy and confidentiality of data but also allows – Code behavior analysis hackers to abuse the victim’s computational resources Software Vulnerabilities when conducting larger-scale cybercrime activities. – Avoiding changes to the software or modifications to the software configuration settings Genge, Rusu, and Haller suggested using anomaly detection techniques to identify malware attacks. Their – Changes in programmable logic in PLCs, RTUs, or other controllers approach automatically generates detection rules for the IDS (Intrusion Detection System), which relies on predictive behavior. Their anomaly detection depends – Password / authentication upon the deviation of communication patterns from regular communication. A significant improvement – Theft identification Authentication can be achieved by adding network traffic visualization – Access control and device identification. Because of malware disguise, multiple layers of defense are recommended, and all •

52 COLLER VENTURE REVIEW 53 The complexity and heterogeneity of the Smart Grid network – as with other infrastructures – mean there will not be one golden solution, which addresses all cybersecurity threats

anti-malware efforts should be fully managed protocols is essential to ensure authenticity Supplementary references About the Author and controlled, including continuous patching and integrity, but it will not solve the FF. Skopik, Z. Maa, T.

and updates. problem of advanced malware threats. For Bleiera, H. Grüneisb, The Smart Grid A Survey on Threats and Jacob Mendel is the Head of example, the unknown malicious codes, Vulnerabilities in Smart Metering Absent advance-detection, malware advanced Cyber-Security study at Coller School of is an upgrade on which are probably encrypted or use various Infrastructures, “International enough to attack a smart meter may disturb or Journal of Smart Grid and Management in Tel Aviv University, and programming obfuscation techniques, can CleanEnergy” 2012, pp. 22–28, former General Manager Cybersecurity the old electrical influence the smart meter’s essential rules such http://www.ijsgce.com/index. bypass signature-based detection techniques. COE at Intel. Mendel holds 16 approved as periodical power consumption registration; php?m=content&c=index power grid, and &a=show&catid=27&id=16, patents in the area of cybersecurity. private consumer activities, communication The complexity and heterogeneity of the Smart [12.12.2016]. Mendel’s current main research interest cybersecurity with the utility company, the turning of the Grid network – as with other infrastructures – T. Sato et al., Smart Grid power on or off to any electronic devices mean there will not be one golden solution, Standards: Specifications, is on the economic perspective of issues are a Requirements, and Technologies, which are connected to the local grid; real- which addresses all cybersecurity threats. cybersecurity attacks, Blockchain technology Wiley, 2015, http://dx.doi.org/10.1 with a special focus on cybersecurity attacks, real threat time interaction awareness and management Blockchain can be a dominant tool in 002/9781118653722 privacy issues and business continuation (e.g., load balancing); and automatic switching cybersecurity since it offers better methods T. Baars et al.,Cyber Security under cyber-attack. of protection, and more flexibility, which in Smart Grid Substations, to an alternative power source like a solar, Technical ReportUU- wind, or alternative-energy storage system. makes it a robust tool for the changing CS-2012-017, Department of environment. Blockchain’s built-in functions Information and Computing The malware may also eavesdrop on the Sciences, Utrecht University, (better encryption, reliability, and traceability) Utrecht 2012. home network traffic, which includes: pricing position it against attackers who try to bypass information, control structure, power usage, E.D. Knapp, J.T. Langill, the authentication and take control of the Industrial Network Security: location information, and private user data. Securing Critical Infrastructure Smart Grid network. Even though blockchain Networks for Smart Grid, may help to defend many treats, Smart Grid’s SCADA, and Other Industrial Control Systems, Elsevier, Conclusion architecture is complicated and no single tool Waltham 2015. will protect all potential threats. Therefore, The Smart Grid is an upgrade on the old A. Hahn, Cyber security of the cyber protection in general and smart metering smart grid: Attack exposure electrical power grid, and cybersecurity analysis, detection algorithms, in particular are prominent research challenges issues are a real threat. This has led to the and testbed evaluation, 2013. and very fruitful research fields for the future. proliferation of industrial and academic research aimed at identifying and mitigating For future research in the Smart Grid cybersecurity threats. This specifically cybersecurity context, future research should includes advanced malware, which becomes a also investigate the use of a machine learning- critical threat to the entire Smart Grid network, based malware detection system. In particular, including but not limited to ICS (Industrial it would be interesting to combine machine Control Systems) and critical infrastructures. learning with malware intrusion detection systems (IDS) specially built for Smart Grids. Adding encryption and cryptographic signatures to Smart Grid communication

54 COLLER VENTURE REVIEW 55 Overview

iii ntrepreneurs, social innovators, venture 59 capitalists, and investors often take the lead in Virtual Roundtable generating the new entrepreneurship vocabulary that allows academicians to ask new questions University-led E and develop a variety of contemporary approaches to Entrepreneurship entrepreneurship education. To contribute to the literature and the advancement of the world of entrepreneurship, Freddy Boey among our goals at the Coller Institute of Venture is to Deputy President, develop new ways to bring theory into practice as well National University of Singapore as support the translation from practice to theory. Anjani Jain With that, we welcome you to our first Virtual Roundtable Virtual Roundtable Deputy Dean, Yale School of Management on University-led Entrepreneurship. Together with leading university presidents and business school deans, Jonathan Levin we explore university and department-led efforts that Dean, Graduate School of Business, focus on entrepreneurship education. We talk about University-led Stanford University internal institutional changes, student-driven initiatives, Stephen Spinelli and the changes that are inspired by the external President, Babson College entrepreneurial, cultural and social milieus our institutions find themselves in. Kar Yan Tam Entrepreneurship Dean, The Hong Kong University Our participants, listed on the left, share their personal of Science and Technology perspectives as well as the institutional perspectives of their universities. Together, we hope to promote the Moshe Zviran Dean, Coller School of Management, beginning of a provocative new way to think about Tel Aviv University entrepreneurship education at the intersection of theory and practice. 74 Bringing Entrepreneurial Theory to Practice in the Classroom Michellana Jester Lecturer and Course Faculty Lead, MIT Sloan School of Management

56 COLLER VENTURE REVIEW 57 Leslie Broudo-Mitts — Welcome everyone to this extraordinary roundtable we are fortunate to hold. Today’s topic is two-part: One is the transformation that business schools and MBA programs are undergoing, and one the context and the ecosystems within which we, the leaders of these programs, find ourselves.

Let’s start with the first. These days, a lot and we are thinking about a new academic of people are talking about combining model based, again, on the intersection business with engineering and computer of engineering, science, and business. science. Thinking about this but extending Boey — more broadly, what are your thoughts That is impressive. I’d say that the push for in terms of how collaborations within entrepreneurship in Singapore is slightly the university context has changed, and different. There has been a very substantial how it might change going forward? amount of funding from the government Tam — to the University, a lot of emphasis on Allow me to begin. We started to bring translating money from research to in the entrepreneurship element into our impact. So, really a question of translating teaching and also into our research mission investments to achieve economic and social about twenty years ago. We received a impact. That’s the question that we are lot of initial attention. About six or seven working on for the last couple of years. years ago, some of our student startups We are sending undergraduate students turned out to be very successful and they around the world; today, there are 300 invested in us. So, at this point, we have a of them: from Stockholm to Munich, Tel university-wide entrepreneurship minor, so Aviv, Haifa, Beijing, Shanghai, Shenzhen, any student from any school, if he or she is Vietnam, Indonesia, Silicon Valley. interested in entrepreneurship, can enroll Over the last two decades, the way the in this entrepreneurship minor program. students learned about entrepreneurship There are a lot of experiential learning was rather more selective. It was not opportunities for those students taking across the whole university but students the minor. We also have a master’s degree who desire and apply to a specialized program. So, this is again a program that program. We call this program NOC: joins engineering, science and business. NUS Overseas Colleges (NOC). To support them we created an incubator, Results have been very positive: The allowing students to spend six months or likelihood of a NOC graduate being in a even nine months working full time to turn start-up is higher than you see on average. their ideas into something more tangible. The other thing that we have started to We are also going to build a new campus in promote is incubation facilities, not just in China later this month, expanding out our Singapore, but in a few key places around footprint from Hong Kong. The new campus the world. Silicon Valley is one, Indonesia is is twice the size of the Hong Kong campus, one. Moving ahead, we will be developing •

58 COLLER VENTURE REVIEW 59 an important role. And how do I put together problem is, of course, the natural expertise Babson College a business model that can effectively and lies in different places: On the frontiers with economic benefit solve the problem? of the science, it lies in engineering, and If we think about this, then I think we have maybe in neuroscience; on the policy a chance to do something really special. The and social front, it lies in business, in fact is that knowledge is also being obtained law and in social sciences. And so, it’s in smaller quantities and more just in time. about bringing together lots of different faculty and students, and that’s what we Here is what I think. The just-enough, just- strive to excel at in our business school. in-time, just-for-me model is a millennial education philosophy. And we have to We’ve been running events on the future understand that and understand how to of work that bring together technologists, deliver it in a more flexible way. There are but also humanists. We come at a in fact very few colleges and universities problem from all different angles and our in the world that can array the competency aspiration is to really make a difference. required to do just-in-time, just-enough, For the students and the faculty as well. I just-for-me education. So, colleges and arrived here 20 years ago; all these years universities have to begin to see themselves we’ve been really focused on trying as having defining competencies. to lower barriers between schools and disciplines. It’s with the students that take I would ask the people to look at the future the most chances that change happens of education as an educational ecosystem most of the time. When students take that looks to you for special competitive chances, that’s when change happens. our graduate students. For example, the get down to the regional environments, advantage competencies that can create Brady Research Innovation Program if you look for five or six years out in the problem solvers over a long period of time. Jain — generates applications from graduate Northeast of the United States, you see a The just-enough, This ultimately enables a much longer I think that the entire intellectual fabric students and postdocs and the University dramatic decline in 18 to 22 year-olds. income stream, at a less painful point, of the university is a sort of canvas upon invests the first hundred thousand dollars Colleges and universities are saying that just-in-time, just- delivering the kind of value proposition which students and faculty develop their in Singapore. We started 41 startups in we have to look elsewhere and there’s this that serves a student’s needs on time. ideas. It is often helpful in entrepreneurial the last 10 months. We are really focusing for-me model is a great fear. But there need not be. Instead, So, we said okay, let’s put a curriculum pursuits that students be exposed to a wide on people who are very zealous, and then I ask, “Is there a greater need for learning millennial education together that solves that problem. range of ideas and perspectives. We place move them really fast. My sense is that and knowledge and synthesis of information no limits on how many elective courses if you come here from anywhere, you philosophy. And we Levin — today than there was yesterday? And I in the MBA program the students can have a good shot at creating a start-up That’s what we strive to do here at Stanford almost mean that literally — today versus have to understand take outside the business school. If they company immersed in deep technology. as well. About 20% of our MBAs are dual yesterday. And the answer is “yes.” Talk wish, they can take all of their courses in that and understand degree students while at Stanford. And I Of course, when you are moving so fast, to me about change, and knowledgeable other faculties. The way we enable access think that’s a great thing for the students you need several pieces — the right team, a individuals will say invariably there how to deliver it in a to specialized pursuits is through a great themselves. But it also turned out to be a good financial model, whether the ability to is an increasing pace of change in the deal of flexibility. This flexibility also more flexible way. great thing for the school because those harness the technology. But the idea is that marketplace that equals an increased need makes it attractive for many students to we can move them to bring those elements for education. At the same time, we’ve seen I’m not jumping students then become the glue that brings go beyond taking courses and pursue joint together faster. And sometimes it’s not us, that colleges and universities have failed. on the bandwagon. the campus together. The business students degree programs, which we offer with it’s outside investors. We had a company, It tells me that the delivery system is failing, meet students who are engineers, in medical essentially every other graduate program in just a few months, that achieved a pre- not that the market has less demand. I want to redesign school, law school and humanities and at Yale. Typically, up to 15–16% of our money valuation of more than five million sciences, and education and introduce them students are in joint degree programs with As an entrepreneur, I always start by the the vehicle dollars. But we didn’t see it – the investors to colleagues in the business school. They other programs in our University. It is not nature of opportunity as market driven. saw it, they were Japanese investors. are the connective tissue. Students going surprising that many of the most successful If market demand is increasing and I’m back and forth have turned out to be the key entrepreneurial ventures have emerged Spinelli — having a difficult time surviving, I’ve got in getting the campus more connected. from partnerships between our students I’d say ours is a highly dynamic to look at myself in the mirror. And higher President Stephen Spinelli and faculty and their counterparts in other environment. There are a couple of initial education needs to take a look at itself in Babson College I’ll give you an example from our long- disciplines and schools of the university. questions that I’ve asked myself and my the mirror. If I can say anything to higher range plan. The first initiative that we colleagues. The first is, “What is the nature educational leaders and higher educational launched from our planning processes was It is also important that we give our students of the stress in higher education today”? students, it is to stop thinking about an Institute on human-centered artificial a deep appreciation of the irreducible Is it that we have oversupply? There are a transferring information and data and intelligence. We asked ourselves, how can interconnection of ideas across the various lot of people who believe that. And if you to start creating better problem solvers. machine learning data be used in different subdisciplines of management and impart look at the trajectory of demographics, Now, traditional college and university areas: medicine, education, business and an integrated approach to management especially in the United States, you systems – are they capable of that change? so forth? It’s also about thinking through problem solving. This has been a long- see that the traditional-aged student That is a really interesting question but what the societal effects on the future of standing quest at business schools. In population is diminishing. And if you can that’s where entrepreneurship really plays work are. And depending on what the exact the early 90s, I was involved in a very •

60 COLLER VENTURE REVIEW 61 earnest quest at my previous institution to Ninety-five percent of new ventures fail, integrate across management disciplines. and a common reason is not a lack of My experience was that it was difficult to spirit, but a lack of management skills – sustain it because faculty are ultimately a lack of understanding how to turn an idea specialists in their own disciplines and their into a product, a lack of knowledge about proclivity is to view management issues how to actually take a product to market. from their disciplinary lens. And it was So, this is where we decided to focus – only after coming to Yale that I realized that to take entrepreneurs and give them the an integrated curriculum requires both a knowledge as well as practical tools to substantial, ongoing commitment of faculty succeed. We worked very hard to establish to the quest for integration, and a much this connection in our internal ecosystem, larger allocation of faculty resources than between natural capability and tools in delivering a conventional curriculum. which translate from vision to execution. In Yale’s MBA core curriculum, many It’s also worth noting of course that courses are designed from the perspective our ecosystem of entrepreneurship of an important stakeholder or entity, and innovation includes a sizeable such as the customer, the investor, the and hugely connected network of innovator, the competitor, or even the state successful entrepreneurs, accelerators, and the wider society (to mention a few incubators, VCs . These entrepreneurs examples), and specific topics covered in partner nimbly and fluidly with our these courses draw upon various functional students. We are also connected to or disciplinary domains of knowledge. Tel Aviv’s hundreds of incubators and These courses, accordingly, draw upon VCs where most successful ideas get multiple faculty in the teaching of each seed money and start to materialize. course and thus this ‘orthogonal’ design requires a greater commitment of faculty For us, our larger plan, at the University resources than a conventional curriculum level, is to combine together and harmonize would. We believe that this approach serves all entrepreneurship initiatives across all MBA students well, but it is especially all disciplines on campus into one solid ecosystem of entrepreneurship, innovation, important in my view for entrepreneurs Broudo-Mitts — and new venture creation. We have already National University who need to make decisions from the This is all very interesting. I remember perspective of the whole organization brought together our MBA program of Singapore together with our engineering and biomed when I did my studies, finishing in 1990, … I think the ultimate and the competitive context in which the we learned through silos and almost organization takes ideas to the marketplace. programs, with the technology transfer office, with TAU Ventures – Tel Aviv always in the classroom. But it’s different mode of learning will Zviran — University’s incubator and VC, and we now. How do you or your staff look at be experiential … in the As with most leading business schools over strive to create new such collaborations curriculum differently today? How the last 50 years, we centered on the core constantly. We think this is where the future are we institutionalizing new forms of curriculum for our NOC functional areas such as finance, marketing, is and, consequently, we are working hard learning, not just in the classrooms? college students, there accounting and the like. We did this to to bring previously siloed disciplines into Boey — address the market needs of the time, with are no exams. There is no multi and inter-disciplinary new ventures, I think of it as teaching yesterday, learning the addition of course that we had a very prepared together to lead new markets. today, and innovating tomorrow. Today grading. They come back strong track of Management of Information technology makes learning a lot more Technology. About twelve years ago, we Spinelli — with a business plan. We For university-centric collaborations, all powerful than the teachers can teach. But I took stock and conducted a comprehensive of our operations faculties tell us that a key think the ultimate mode of learning will be are focused on helping strategic planning process that examined to increasing efficiency and impact is to experiential. Even for that I feel that sooner our historical strengths and looked ahead them to get moving eliminate redundancy. At least partially than later examinations will have to move to anticipate new opportunities. One as a result of this insight, we are likely aside. It’s one thing to get a lecture and then of the major recommendations was to to see continued consolidation among examine the alternatives. It’s quite another focus on the management of venture, business schools globally, and among to actually get down to it. For example, innovation, and entrepreneurship. Deputy President Freddy Boey business schools seeking to merge and in the curriculum for our NOC college National University of Singapore A core underlying assumption – which integrate with other faculties to gain students, there are no exams. There is no remains to this day – is that you cannot teach differentiation. These will likely bring new grading. They come back with a business someone to become an entrepreneur. Either collaborations to market, new students plan. We are focused on helping them to you have the appropriate instincts and the and, eventually, fundamentally change get moving. In a nutshell, this is how I see character of an entrepreneur, or you do not. the traditional business school landscape. things moving. More hands-on experience But, at the same time, we know that having than anything else. We let the students an entrepreneurial spirit is not enough. explore. I would call it innovative learning. •

62 COLLER VENTURE REVIEW 63 Then there are the skills that are complementary to technology — skills that can’t be automated like leadership skills, communication skills, collaboration skills. These are the ones that will probably have the highest return

Dean Jonathan Levin Graduate School of Business, Stanford University

Tam — we will probably have a unique value I would say this type of experiential proposition, based on our own unique learning will become even more and more sources of competitive differentiation. important. It’s a tremendous experience Spinelli — for a student. And they learn a lot during We will add curriculum, we will add the period, and we can tell the difference instruction, we will add knowledge before and after. The student needs to know at each point where we get stuck. But how to apply the techniques, the efforts, we are considering the idea that, with The technology out there and also in and the theory that they are learning in Graduate School certain students we are instructing, education has developed in such a way that of Business, the classroom in real life. We will continue they almost never have to stop, and as educators we have to be really adaptive. Stanford University to scale up our initiatives in this area. they almost never have to keep going. Levin — Zviran — They get to make decisions as long as You can’t do everything, you have to pick. I think that innovative or experiential there are problems to solve. And they And in that sense, we are focused on learning is almost mandatory in today’s take the problems to a different level, preparing people for what they’ll need environment. The way we are using the and then it is incredibly dynamic. in the longterm, not just what’s the latest board is gone now, especially when we At some level, as long as I’m willing to, thing. That means we want to strengthen talk about entrepreneurship. If we want as long as I have the stomach lining and the way we educate students to be data- to establish a worldwide reputation on the fortitude and the organizational literate; how to use it; and how to interact the one hand, and make sure that our will, I will continue as long as it takes with people who are technologists. graduates succeed, on the other, we need to get the business models that really a combination of several building blocks. Then there are the skills that are work. This includes adjusting along the One is the collaboration with industries. complementary to technology — skills way but also giving more of the choice The other one is experiential learning. that can’t be automated like leadership, and responsibility to the learner. We’re Another one is collaboration with other communication, and collaboration. These taking student-centric to the most absurd schools around campus, especially with are the skills that will probably have the level I can figure out because I want to those with a special focus on engineering highest return. So, in a sense, the need have a real impact. I’m so excited I can and computer sciences. We are expanding to prioritize can lead you to double down barely stand it. I’m not jumping on the our international collaborations as well. on some things that aren’t the latest bandwagon. I want to redesign the vehicle. Because at the end of the day our students thing, but which have renewed value because of what’s going on in the world. understand that, with all due respect Tam — to Israel, we are basically an island, not The MBA degree that we have right now We have picked out a set of topics that we necessarily geographically, but in terms is very different from the MBA degree think are going to be very important for of where the markets are. So, we must we had 24 years ago. The content, the the world and in the University over the understand the ecosystems in other curriculum, the learning experience, next 10 to 20 years: data science, artificial nations. If we can take all of these together, the technology, are all very different. intelligence, the biomedical revolution, •

64 COLLER VENTURE REVIEW 65 the same crucible or cauldron of research- Boey — based scholarship that has shaped American I think of myself as a hatchery. I need higher education for the last several Equally important lots of little fish. I know only some of decades. This has led to the creation of them will hatch. And that’s ok. path-breaking ideas and knowledge that is the culture of the Zviran — have shaped business practice in a profound Even if students fail, they are already way. This influence has given rise to the institution. What familiar with building the team. Maybe American business schools’ extraordinary students pick up in they found the team for the next idea. global prominence, and in turn continues to be a magnet for bright students and terms of ideas and Boey — scholars from every part of the world. The sensibilities both The difference today is that there are needs intellectual predispositions and knowledge that we don’t know. I don’t know when creation of the faculty are reflected in the in and outside the Society 5.0 will come but I have this thought. subject matter we teach in our courses. classroom It can be the right technology at the wrong time, or the right technology at the right Boey — time but with the wrong team. Anything There are also the outside influences. can happen. But I do know one thing. If I Ups and downs. There is always initially don’t encourage them in number, I won’t a lot of hype followed by a period of time, Deputy Dean Anjani Jain eventually get the big fish. So, the last couple that all around the world can be called Yale School of Management, of years in Singapore we strive to produce an “entrepreneurship winter.” And then Yale University good and meaningful numbers; that’s how it comes back in a big way. We’ve seen we try to measure the fruits of our work. this happen more than once already. sustainability and social problem-solving, Yale School of Tam — Broudo-Mitts — Management, bringing people together to solve social I think that success is in bringing research Not many people would say that we were Yale University problems. We selected those topics by from the lab into the real world. And another ever in any kind of entrepreneurship winter. addressing the biggest problems and thing that I would be proud if we can Are we doing something at the student level challenges and opportunities in the accomplish, is if our students go from start- to help them build the resilience that it takes world, and then asking: Where can we up to scale-up. So, these are two dimensions to get through such winters? What are your bring people together from different that we are currently playing with. backgrounds and with different expertise thoughts on that in terms of giving them to really do things that are meaningful? the grit and the resilience to keep going? Broudo-Mitts — Looking forward, how do you Tam — Jain — think your unique ecosystems will Resilience, and building resilience in I find myself resonating quite a lot influence your institution? with what Jon just said and let me offer our students, is always critical. I think we encourage the students to try ideas. Spinelli — perhaps a slightly broader perspective Give them opportunities, provide some We have folks in Boston who are actively based on my pathway into American guidance, and let them know that it is engaged. And we are saying, you can institutions of higher education okay to fail. I think this is a very important be scrambling for grants the rest of from a distant part of the world. mindset for the students. We have to help your life because you are really really I think what makes American schools of them understand that we provide a lot smart or you can create real wealth by management intellectually vibrant and of experience, opportunities for them to understanding what ownership means. tremendously influential around the world try things out. It takes some time but it’s The marketplace needs really smart is that their academic culture is shaped in working out so far, I think for us and them. scientists to be more fully integrated •

66 COLLER VENTURE REVIEW 67 It is not by accident that 400 multinationals have offices in Israel and are looking for new technologies. The question is what we as a university need to do in order to encourage our students to build larger companies, unicorns that will create more jobs in Israel

Dean Moshe Zviran into the capitalist ecosystem. We should be business education. And then, as a nation Coller School of Management, playing a role in that. It’s insanity not to. of only 8 million, an extraordinary culture Tel Aviv University of innovation that is described as a Start- Levin — up Nation – there is a lot of justification This is a very interesting discussion. for the label. It is quite extraordinary. How the world is changing in terms of the expectations for businesses Zviran — and businesspeople, these changes Thank you. So what we are trying to do have significant consequences for now is expand the ecosystem, where all business schools. We have to be out the critical components respond to each in front because we are shaping the other. We must continue to cultivate and next generation of business leaders. sustain this culture. Say five years down the road, let’s see what more can happen if as a Boey — university we act much more proactively. I think two things are unique to us in Singapore. First is that we already have a Jain — whole reservoir of IT and hi-tech. In our We, in the U.S., especially at this time, Coller School region, Vietnam has an incredible number can’t take anything for granted going of Management, of young entrepreneurs. Some of them are forward. What’s going to sustain this sort Tel Aviv University amazing, high-energy people but they are of magnetism of the university to attract limited in technology whereas we have a talent from all parts of the world will whole reservoir. Our problem is that our be how creative and innovative we will market is thin. At the end of the day we go be, how much new knowledge we will to China or to the U.S., they don’t come create within our institutions, and how here. So, I would say that we train our congenial the broader climate will be for entrepreneurs in managing technology and our graduates to create new enterprises. accessing new markets. And the market Levin — has to be overseas, not in Singapore. Fifty, sixty years ago, we were a regional Zviran — university. When I applied to college One of the major issues in Israel is that we 30 years ago, and came to Stanford, it was have tons of startups looking for an exit. And unusual coming from the East Coast of it is not by accident that 400 multinationals the United States and study on the West have offices in Israel and are looking for new Coast. So much has changed since then. technologies. But the question is, and we are I think about organizational renewal, definitely struggling with it, what do we as a actually, and personal renewal as well. university need to do in order to encourage The point is, if you have things that our students to build larger companies, you’re great at doing, of course you unicorns that will create more jobs in Israel. want to continue to be great at doing Jain — those things, but you should not be Moshe, I should mention that that’s a afraid to try some new things. • tremendous process. I have great admiration for what you have created in Israel – a world- class system of higher education including

68 COLLER VENTURE REVIEW 69 society at large. So, manufacturers must social problems? That’s now a huge part understand deeply the full environmental of the student experience and the school. impact of their supply chains, investment And I think that’s where we are right now. managers must understand their fiduciary Jain — and ethical obligations to stakeholders, Perhaps MIT is the other role model financial institutions and regulatory for many of us. It is such an engine of agencies must know how to manage innovation. And I was thinking that because financial crises when they erupt. of the larger, cultural milieu that you The second aspect of the sensibility is referred to, a lot of our innovative students that the effectiveness of social enterprises and innovators are actually working with the and public sector organizations derives socially more impactful ideas and ventures. from many of the same principles and And, and it’s not surprising that Stanford’s conceptual ideas that make businesses students too gravitated to those ideas. effective. Similarly, profit-driven business Levin — enterprises can and should be a force We’re moving in a direction based on of social good. So leaders in social and what’s going on in the world, which is of governmental sectors also need to acquire course a continuing process. The role the the same rigorous understanding of students can play is not just in starting social both competitive markets and effective ventures, but in guiding large organizations organizations. The work of our faculty or industries or in public leadership. I’m and the research centers of the school, I very excited about this positive evolution. think, reflects both facets of this mission. Broudo-Mitts — Levin — Thank you everyone for your contribution One thing that’s just terrific is that we’re to our first virtual roundtable. We opening up all these really fundamental look forward to further discussions, questions about corporate governance. and thank you for your time. What is the purpose of the corporation? Who should have control in corporations? To have the institution moving in The Hong Kong University Those are questions, of course that of Science and Technology different directions, experimenting, we’ve argued about for a long time, but and taking some risks, is a big weapon. sometimes you see the conversation It’s one of our advantages being in Silicon going dormant for a while and then, for Valley. The mentality here is that it’s whatever reason, with different triggers okay to try some things and maybe not and different circumstances the same have them work out. Because some of questions come back. I think that’s exactly them might really work out and that what students want us to be doing. They can become a really big game changer. want to be able to be successful in their own Broudo-Mitts — lives and feel they’re going to be making We encourage These are all great insights. Any thoughts on important contributions to the world. your business schools’ relationship to social So, how do you do that through a career in the students to try responsibility before we end our roundtable? business? How do you think about issues ideas. Give them Jain — like corporate responsibility, the purpose opportunities, This lies at the very core of our school’s of corporation and, so forth? What are the mission, which is to educate students opportunities for students? We started with provide some for business and society. The mission a very focused purpose of trying to educate guidance, and let reflects both a broader sense of purpose Californians, so that they would stay in for business and the recognition that California and create businesses. And then, them know that the most vexing problems we face on over time, because of Silicon Valley and the it is okay to fail the planet will require the best ideas rise of it in terms of innovation ecosystem from both for-profit and not-for-profit here, the school became very focused on the organizations, from governments as well broad innovation lens and started thinking a lot from the entrepreneurial perspective. as entrepreneurs. First, perhaps obviously, Dean Kar Yan Tam both businesses and policy makers have to How do you do social innovation, social The Hong Kong University think in very careful, comprehensive ways entrepreneurship, or new ventures that of Science and Technology about how a company or institution affects are socially minded or focused on solving

70 COLLER VENTURE REVIEW 71 Biographies

Freddy Boey Anjani Jain Jonathan Levin Stephen Spinelli Kar Yan Tam Moshe Zviran

Deputy President, Deputy Dean, Yale School of Dean, Graduate School of Business, President, Babson College Dean, The Hong Kong University Dean, Coller School of Management, National University of Singapore Management, Yale University Stanford University of Science and Technology Tel Aviv University

Freddy Boey is Deputy President Anjani Jain is Deputy Dean for Jonathan Levin is the Philip H. Stephen Spinelli Jr. is the 14th Kar Yan Tam is Dean of the Hong Moshe Zviran is Dean of the (Innovation & Enterprise) and Academic Programs and Professor Knight Professor and Dean at the President of Babson College. Kong University of Science and Coller School of Management oversees the University’s initiatives in the Practice of Management at Stanford Graduate School of Business. Spinelli spent 14 years at Babson Technology (HKUST) Business at Tel Aviv University and a and activities in innovation, the Yale School of Management. Levin joined Stanford as an Assistant as a faculty member, vice provost School and Chair Professor of Professor of Information Systems. entrepreneurship and research He joined the faculty of the Professor in 2000. He was the for entrepreneurship and global Information Systems, Business He is the Isaac Gilinsky Chair of translation at the National Wharton School of the University Holbrook Working Professor of Price management, and director of the Statistics, and Operations Entrepreneurship, Technology, University of Singapore. of Pennsylvania in 1986 and served Theory and served as Department of Blank Center. Management. He joined HKUST Innovation and Management, and for 26 years before joining Yale. Economics Chair from 2011 to 2014. Business School in 1992 as a founding serves as the Academic Director of An alumnus of NUS, Boey In 2007, Spinelli became president member and served as the dean of the Coller Institute of Venture and was Deputy President and In 1993, Jain became Director of Levin received the American of Philadelphia University. He led the students and associate provost. the Eli Hurvitz Institute for Strategic Provost at Nanyang Technological Wharton’s MBA Program. He Economic Association’s John merger of Philadelphia University Management. Zviran held academic University (NTU) from January served as Vice Dean and Director Bates Clark Medal. He is a fellow and Thomas Jefferson University, Tam is the chairman of the positions at the Naval Postgraduate 2011 to September 2017. From 2004 of Wharton’s Graduate Division of the American Academy of Arts and was named chancellor of the Curriculum Development Council School, California, the Claremont to 2010, he was the Chair of NTU’s and as Vice Dean of Wharton’s and Sciences, a fellow of the new Jefferson in 2017. and the AACSB Asia Pacific Graduate University, California, School of Materials Science and MBA Program for Executives. Econometric Society, a former Advisory Council. He serves on Spinelli co-founded Jiffy Lube and Ben-Gurion University, Israel. Engineering (MSE), during which it Guggenheim Fellow, and the the boards of AACSB and EFMD. Jain has won teaching awards and International and was Chairman became known as one of the world’s winner of several teaching awards. His research interests include taught courses at Hebrew University and CEO of American Oil Change Tam is a member of the Hong foremost and largest MSE schools. entrepreneurship and innovation, in Jerusalem, the Interdisciplinary Levin has consulted widely in Corporation. He has served as a Kong Productivity Council, the information and cyber security, Boey has filed 118 patents. Center in Herzliya, and the Indian the private and public sectors. consultant for several corporations Banking Review Tribunal of the and information systems planning He was conferred Singapore’s School of Business in Hyderabad He was part of the expert group as well as a member of board of Financial Services, the Anti-Money and policy. Zviran has published highest scientific award, the and Mohali. He has served on the that designed the first vaccine advisors. He has co-authored Laundering and Counter-terrorist numerous articles and authored two President’s Science & Technology International Advisory Council of Advanced Market Commitment eight books. Financing Review Tribunal of books in information systems. He Medal, in 2013. He was also awarded the ISB and as its co-area leader in and helped to design the FCC’s the HKSAR, and the Certified Spinelli earned his Ph.D. in has consulted widely for public and Singapore’s Public Administration operations management. broadcast incentive auction. Banker Steering Committee of the economics from The Management private organizations in Israel and Medal (Gold) in 2016. HKIB. He was the President of the Jain holds a B.A. in Physics Levin earned a B.A. in English School, Imperial College, University serves as a board member in several Association of Asia Pacific Business Boey received an honorary and Mathematics from Indore and B.S. in Math from Stanford of London, his MBA from Babson companies and organizations. Schools in 2018. doctorate from Loughborough University in India, an MBA from University, an M.Phil. in Economics College, and his B.A. in economics Prof. Zviran received his B.Sc. University and holds honorary the Indian Institute of Management, from Oxford University, and a from McDaniel College. In 2016, Tam is an information system degree in Mathematics and professorships from the University and a Ph.D. in Operations Research Ph.D. in Economics from M.I.T. he received the honorary degree scholar specializing in fintech Computer Science and his M.Sc. of Indonesia, the Nanjing Postal from UCLA. of Doctor of Letters from Ulster and data analytics. He plays an and Ph.D. degrees in Information and Telecommunication University, University in Northern Ireland. active role in promoting academia- Systems, all from Tel Aviv University, and the Nanjing Technological business collaborations. Israel, in 1979, 1982 and 1988, University. respectively.

72 COLLER VENTURE REVIEW 73 The Evolution of Entrepreneurial Through this Instruction: Action process, students Learning at MIT Sloan develop skills in critical thinking and

Michellana Jester problem-solving; Lecturer and Course Faculty Lead, MIT Sloan School of Management integrated problem framing; assessment and integration US Business Schools: reconsider their approach to management previous professional, education and personal Seeking a New Approach to education. To address an increasingly dynamic experiences, as well as their Sloan classroom using incomplete Instruction and Learning and globalized business environment, work, to help real organizations address real business schools have adopted an approach business management challenges. Students information Starting as early as the 1950s, business schools to assist students in managing and leading draw profound insights from these real-world have faced numerous criticisms, the most within a dynamic globalized environment experiences, enhancing their academic notable leveled within two reports funded by incorporating experiential learning experience and further preparing them for by the Ford and Carnegie foundations, opportunities such as project-based learning their professional life after graduation. respectively entitled Higher Education for into their MBA program design.

Business (Gordon and Howell, 1959) and The Education of American Businessmen: Action Learning in A Shift Towards A Study of University-College Programs in Management Education Experiential Learning Business (Pierson, 1959). The reports noted Management education scholars, as well that while the field of business yielded the new Experiential learning, a philosophy of as industry executives, recognize Action practice of management science, there was education based on what John Dewey (1938) Learning as an effective method for developing no consistency or standard curricula across called a “theory of experience”, draws on the an individual’s willingness, ability and capacity programs. In response to these reports and work of prominent 20th century scholars who to manage real-world organizational issues. other external pressures, business schools place experience at the center of theories This is accomplished through the challenge moved to gain greater legitimacy within the regarding human learning and development. of addressing complex managerial issues broader university context by hiring faculty These thought leaders included John Dewey, with a focus on crafting concrete, practical from the arts and sciences and increasing Kurt Lewin, Jean Piaget, William James, Carl solutions. The classical (or original) Action their emphasis on rigor and theory. While Jung, Paulo Freire, Ed Schein and David Kolb. Learning design involved a small group of the shift was initially viewed as productive in Over time, business schools have synthesized employees within an organization, called an elevating the scholarship of business schools their insights from experiential learning action learning set, who work together on a and introducing important management to frame an approach for incorporating work-related problem. Their collaboration, theories, after various programming and project-based learning into their curricula. it was believed, would generate novel and curriculum redesigns, scholars noted that over MIT Sloan has sought to enact their innovative ideas through an open dialogue and the years the gap between the skills acquired interpretation of project-based learning trust, building on their prior knowledge and within MBA programs and those managerial with a model it calls Action Learning, one of experiences. Creating an environment where competencies linked to job performance its primary methodologies for learning and assumptions and beliefs could be challenged, persisted, despite various curriculum instruction. A significant investment of faculty it was felt, would stimulate ideas for action, redesigns by business school leaders. and staff time and attention, MIT Sloan has which could be tested in practice. Key to the As the critiques of business schools have utilized this approach to develop a portfolio of design was that individuals would also be grown more intense, scholars and industry learning opportunities that challenges students able to identify personal challenges while leaders have pushed business schools to to draw from and apply their learnings from drawing on the experience of others •

74 COLLER VENTURE REVIEW 75 MIT Sloan School of Management

to create viable solutions to the presenting education begins with the notion of the The course was designed to provide teams issues. Thus, action learning was designed learner at the center of learning. Student work of management, science, and engineering 482 to support individual learning about the is supported by an instructor whose role is students with an intensive, on-site experience business challenge as well as about oneself. more like that of a facilitator than an expert working with metro Boston area high tech Over the past twenty-years, G-Lab providing prescriptive solutions. In addition, start-ups on critical business challenges. has worked with 482 companies Over the past few decades, Action Learning the model utilizes the power of small peer has been adopted, modified and expanded E-Lab laid the groundwork for the launch of groups, where self-directed learning and by business schools to fit the needs of their Global Entrepreneurship Lab (G-Lab) in 2000, reflection are key components relevant stakeholders, most notably the which has become MIT Sloan’s largest Action to acquiring new knowledge. Learning is students. However, the key elements of Learning offering, with class sizes that have 643 thus structured around real-world complex the approach remain the same: to advance ranged from 120 to 180 primarily second year and ambiguous business challenges. G-Lab has worked on approximately managerial learning and development. MBA students. MIT Sloan’s “labs” (the school’s 643 projects MIT Sloan’s interpretation of the classical Through this process, students develop skills shorthand for its project-based learning action learning approach draws from its in critical thinking and problem-solving; courses) have grown to include a portfolio of engineering roots of “learning by doing”, integrated problem framing; assessment and more than fifteen different opportunities for using engagement with external organizations integration using incomplete information. students who seek to explore different regions and their real-world business challenges as a Students also gain a greater global of the world (e.g., China Lab, Israel Lab, USA 54 vehicle for learning that challenges students’ perspective; creative and innovation skills; Lab) or specific disciplines( e.g., Healthcare assumptions and transforms their mind-set. advanced written and oral communication Lab, Operations Lab, Analytics Lab). G-Lab has been in 54 countries skills; a stronger ability to assess risk; an Most Sloan labs have used G-Lab as the appreciation of ethical and moral boundaries; model for their own course design. On the Ground at MIT and an understanding of the complexity MIT’s motto “Mens et Manus,” Latin for of business roles and responsibilities. MIT Sloan’s Flagship Action “Mind and Hand,” reflects the education 2,437 principles of MIT’s founders who espoused The Launch of Entrepreneurial Learning Offering: Global a belief in the practical application of Instruction – The Evolution of Entrepreneurship Lab In that time 2,437 students education. Drawing from its motto, MIT has have participated ( ) emphasized “learning by doing,” including, Action Learning at MIT Sloan The Global Entrepreneurship Lab G-Lab was launched in 2000, when Professors Simon since its founding in 1865, the blending of While there are no formal records of the Johnson and Richard Locke sought to design a applied science and engineering. Starting first Action Learning course at MIT Sloan, course that would draw attention to emerging in 1914, the first business training – Course it is notable that as early as 1964, Professor market economies. Johnson and Locke XV – was Engineering Administration. The Ed Roberts created an elective course on believed emerging markets were largely being Sloan School, conceived and funded by MIT the Applications and Implementation of ignored by economists and business schools, alumnus Alfred P. Sloan, Jr. in 1952, (Class Industrial Dynamics, in which student as their focus tended to be on multinational of 1895), was specifically designed to solve teams worked with local companies to organizations based in Western countries. the complex problems of modern industry build System Dynamics models of company They surmised that by working directly and management through the application problems for senior business leaders. with entrepreneurs in emerging markets, of a scientific and technical approach. The modern MIT Sloan Action Learning students could gain first-hand insights about MIT Sloan Action Learning blends the key model first emerged in 1992 with the launch the structural characteristics that support constructs of educational institutions (such as of Entrepreneurship Lab (E-Lab), an elective business development, those constructs that scholarship and research) to provide a more course offered in partnership with MIT’s make doing business challenging, and the robust and relevant learning experience for Entrepreneurship Center (now known as the innovation designs that help bridge the gap students. Action learning in management Martin Trust Center for Entrepreneurship). of bringing sellers and buyers together. •

76 COLLER VENTURE REVIEW 77 Through collaborative and highly interactive project engagement, entrepreneurs in emerging markets gain access to the most current and evidence-based scholarship via the students’ research

The Structure of G-Lab and spreadsheet templates, pitchbooks, HR manuals, potential customer or investor The experiential design of G-Lab means pipelines and screening filters, and M&A that the course is constantly evolving. and valuation toolkits. Surveys of sponsoring host companies, students, participating faculty and other stakeholders contribute to a The Benefits and Challenges reassessment each year to understand of Action Learning in what works and areas for improvement. Management Education During the months before the course begins, The perceived benefits of incorporating students are asked about their expectations action learning instruction into management and learning objectives. This information education curriculum extends to students, assists the faculty in understanding how participating institutions, and the companies to best support the students when the that work with the student teams. For the course officially begins in September. Furthermore, Johnson and Locke felt business trends, such as mobile apps, fintech, students, they have the opportunity to test Students are also supported in forming that connecting students and emerging cryptocurrency, edtech, agribusiness, ride- their knowledge in a real-world situation. diverse teams of four, where different market entrepreneurs would result in hailing, and clean energy. Projects tend to In addition, they develop leadership skills professional and personal experiences lead mutually beneficial learning, as the fall into one of the following categories: New as issues of ethics, project management, to stronger teams that are more equipped entrepreneurs would, through the students, Market Entry, Strategic Growth, Fundraising/ negotiation and team building are prominent to tackle the ambiguity of project-based have access to the broader burgeoning Venture Capital, Marketing, Pricing, Financial features of project work with external host learning and provide deep insights during MIT entrepreneurial ecosystem. Modeling or Human Resource. The diversity of companies, particularly where institutional inevitable peer learning interactions. company types and business challenges allows structures that support businesses are Over the past twenty years, G-Lab has worked for a wide range of learning opportunities Submitted host company questionnaires emergent or under-developed. Working with 482 companies, on approximately 643 for MIT Sloan students, as well as for the are viewed by students when classes begin. with an external host naturally lends itself projects in 54 countries. More than 2437 faculty that support their project work. Faculty meet with each student team to offer to ambiguity; therefore, students must students have participated in G-Lab since guidance as they work to develop a list of be self-directed, willing to learn through its inception, significant given the size of Through this collaborative and highly projects they feel best meets their teams’ and with others, and focus on developing the business school. Over this time, one of interactive project engagement, entrepreneurs interest and skill strengths. In mid-September, their problem definition and scoping skills the key goals of the course has remained the in emerging markets gain access to the most G-Lab faculty will review the host company in order to help the organizations with same: Provide concrete, realistic, actionable current and evidence-based scholarship via questionnaires and student team application whom they are working move to action. recommendations to address a company’s the students’ research. The students provide project request, to match host companies with most significant business challenge. their sponsoring entrepreneurial hosts access For participating companies, they are able to the best qualified teams. At Sloan, student to MIT’s extensive library resources, as well as forge direct and indirect relationships with G-Lab targets start-ups and fast-growing scale teams conduct research, interviews, and faculty research. This makes the students’ final the university and participating faculty and up companies in emerging markets as hosts in analysis, and connect with other MIT faculty deliverable- which is fully defined by the host- learn the newest business practices. They order for students to be able to connect with not associated with G-Lab to assist with their extraordinarily valuable. After almost a decade have the opportunity to work with talented key decision makers during their project work. project work. While strategic thinking and of tracking project outcomes, between 92 and students who provide usable recommendations Most hosts are approximately five to seven analysis is the foundation of G-Lab, teams 96 percent of host companies indicate they and other deliverables. Hosts also build a years old, at a strategic or operational inflection are tasked to place a strong focus on creating have implemented student recommendations network of (or access to) potential employees point or poised for significant growth, looking tangible “leave-behinds” so host companies or plan to do so within four to six months. or, as in the case of several of our former to scale, have approximately $1 to $15M USD in can put the team’s concrete recommendations G-Lab hosts, invite former students to revenue, and 5–8 people in senior management. to work immediately. Teams deliver tools such serve as company board members. • Many G-Lab hosts are on the cutting edge of as go-to-market roadmaps, financial models

78 COLLER VENTURE REVIEW 79 Preparing Business School Students for the Future Through its design, Students come into these project-based G-Lab looks to place learning course primed to advance their knowledge of key management the student at the center tools and analytics. Learning is then of the learning process focused on particular content areas (e.g., entrepreneurship) during the classroom component of the lab courses. Learning is amplified when students put their knowledge into action by taking on experiences working with organizations to solve real- world management challenges. Students reflect on their experience throughout the The challenges presented by action learning variability, make some institutions resistant project process, gaining greater insight of adoption in management education tend to be to offering this type of programming to management theory and practice as well as linked to programmatic objectives, staffing, their students. Many business schools may understanding their own leadership skills. and sponsoring host company engagement. have a limited action learning initiative to In short, this approach to learning is integral minimize costs, while others have developed Unlike traditional classroom lectures, using to providing students with the theoretical creative funding streams that charge host a project as a vehicle for learning can make and practical skills they need to be companies fees to cover overhead. articulating course learning objectives with successful management and industry leaders. specificity and intentionality difficult since Most business schools identify resourcing While the traditional lecture and case study About the Author faculty must work with the issues each unique projects as their biggest challenge. While method can offer an opportunity to discuss project brings. Even finding the right faculty many rely on word of mouth, alumni, previous and reflect on the practical application of Michellana Jester is a lecturer and course to work with students from managing the sponsors, personal networks, and more management theory, MIT Sloan’s Action faculty lead at MIT Sloan School of entire course to supporting specific teams, recently, vendors that identify companies Learning approach extends this idea to provide Management. Jester came to MIT Sloan is subject to this uncertainty. It is working for schools, the real issue is not necessarily a forum for students to actively link their with more than fifteen years of management with the unknown, and by extension finding companies to participate but finding classroom learning and prior experience with consulting, human resource, and organizational development experience. the work involved with developing new the right companies that will develop a the knowledge gained through their project. material in real time to meet students’ project that meets the needs of the school, the At MIT Sloan, Jester draws from her private

needs, that makes faculty hesitant to take course or initiative, and the student teams. and non-profit sector experience to assist What’s Next? on this work. The traditional model for In finding the right fit, business schools must students link theoretical management instruction in higher education is for the find companies that understand the project We continue to evolve as we recognize concepts to real world business challenges. She leads the design and delivery of MIT faculty to be the expert; having a course is part of the students’ learning; the students the increase in complexity and ambiguity Sloan’s largest project-based course, as well that asks faculty to be a vulnerable and are, in fact, still students with many other facing leaders in our business world. We as recruiting host company partnerships engaged learner along with the students, is demands on their time and attention. From continue to emphasize integrating knowledge the host company’s perspective, the work that align with the program’s goals and not a position that most want to take on. between disciplines, faculties, theory Sloan’s mission. with student teams can feel like a traditional and practice. Through its design, G-Lab Project work generates many variable projects, consultancy engagement in terminology, looks to place students at the center of the Jester has been featured in Financial Times, location, sponsoring host, team dynamics, design and expected impact. Students learning process, to assist them in critically Fast Company, The Smart Manager and the faculty engagement which must balance many Boston Globe. She has a Master’s Degree working on these types of projects take on a examining their insights, becoming more from Harvard University and Doctorate different interests and desired outcomes, significant role as they are often welcomed self-aware and enhancing their academic from Columbia University. which are not always aligned. Further into these companies as trusted partners and experience as they prepare for their complicating matters are the hurdles that given access to confidential information. professional life and a life of impact. emerge when faculty try to develop academic They walk a fine line between one setting content in advance, since the progression where they are fully known as a student; and of each project is situated in the real world, in another, working closely with a company impacted by real world events. When working decision maker, expected to manage this with entrepreneurs, this can be particularly relationship and make decisions regarding challenging as their companies lack the their work that can have a significant impact stability and infrastructure to withstand on the business. Faculty, students and even small shocks to their businesses. host companies must resist the temptation Institutional resistance generally comes in the to frame the project work experience as form of challenges to the resources needed purely a consultancy engagement as this to execute this type of program. Intense may marginalize the impetus of the course staffing demands and the high outcome or initiative to support student learning.

80 COLLER VENTURE REVIEW 81 Overview

iv ur Trends in Venture section addresses change 85 in a new venture creation over the last twenty- Democratizing the five years. This issue considers a visionary’s practical perspective on leading change and World of Venture Capital O sharing wealth. Jonathan Medved Jonathan Medved, Founder and CEO of OurCrowd, Founder and CEO, OurCrowd considers not global risk but ways to reduce risk for individual investors. Medved’s democratization of the venture capital investment process helps us to consider how private and traditionally hard-to-access financial Trends in Venture markets can be made accessible equitably, and how even small investors can participate in a future of Opportunities in the transformative and profitable new venture creation. Investment Future

82 COLLER VENTURE REVIEW 83 Democratizing the World of Venture Capital

Jonathan Medved Founder and CEO, OurCrowd

ince its inception in 2013, OurCrowd has been committed to democratize access to venture If growth opportunities S capital while maintaining best venture practices for a new class of investors. have shifted — not all the The opportunity and time for OurCrowd’s way, but to a substantial innovations are driven by a number of extent — into private factors. These include consistent high returns in the asset class, which nevertheless have markets and ordinary benefitted only a small subset of investors; investors don’t have increasing difficulty in accessing the best deals, as top deals stay private longer and access to them, that’s not then IPO at extraordinary valuations. On top good… It’s hard to give of the above, all but the most sophisticated investors have not been granted standard individuals access to private economic preferences, which are critical markets. Can we have a to offset risk and preserve upside. fund structure to ensure Opportunity and Differentiation that ordinary investors are Compared to other seemingly similar getting the same deal? “crowdfunding” platforms, the OurCrowd platform is distinguished in a number of ways. Testimony to its vision and success in education, it currently has 40,000 accredited investors Jay Clayton from over 180 countries who access highly Chairman US Securities curated individual venture deals and venture and Exchange Commission capital fund. The emphasis is on investing September 19, 2019 relatively large amounts from aggregated individuals and institutions via an LP/ GP structure. Median check size is $3.5M per portfolio deal, with many companies raising amounts beyond $10M. •

84 COLLER VENTURE REVIEW 85 OurCrowd has already invested in over 200 Democratizing Access to Venture JUMP Bikes – aquired portfolio companies and 19 funds, and has had Investing – and Offsetting Risk by Uber in April 2018 36 portfolio exits to date, including leading Increased companies such as Beyond Meat (BYND), Venture capital as an asset class has performed JUMP Bikes (sold to Uber), Wave (sold to well for its investors over the decades, in commitments to H&R Block), and Argus (sold to Continental). fact generally outperforming all other asset classes. And yet, it has been the most esoteric, venture capital OurCrowd often leads its deals; invests most inaccessible asset class even for many and the formation alongside leading venture funds; gets large institutional investors. The number of Board seat representation in a majority institutions that have significant commitments of mega funds – of its deals; purchases preferred stock; to venture is actually rather limited; accredited like the $100B and receives anti-dilution protection, and ordinary investors can only dream. Yet, pre-emptive rights and liquidation particularly as fast-growing companies stay Softbank Vision preferences – just like traditional private longer and seem to take forever to Fund – have venture investors. go public, it is clear that the need to open up The model has proven successful thus access to this closed club of venture investing driven dramatic far. OurCrowd has been recognized by is becoming imperative. The question is growth in venture Pitchbook since 2014 as the most active how to execute on this “democratization” venture investor in the highly competitive in a way that will both benefit the venture capital investments Israeli venture market, achieving this ecosystem and the companies it serves, globally status only one year after its launch. as well as provide compelling returns and protections for a broad range of new investors. OurCrowd – and the idea behind it – might Yale University Endowment, a leading These increased commitments to Venture have reached the market at the right time. Jay Clayton’s galvanizing call to democratize institutional investor led by the legendary Capital and the formation of mega funds – access to venture is understandable David Swensen, over the years has “captured like the $100B Softbank Vision Fund – have given the history. As the table below great value from the illiquidity premium driven dramatic growth in Venture Capital shows, the 25-year IRR for Venture top- of alternative assets” and made outsize investments globally, rising from $175B in quartile performance averages 31%, commitments to Venture Capital as part of 2017 to over $255B in 2018. In Israel, one of far exceeding Private Equity’s 13%. a fundamental core of its asset-allocation the world’s Venture Capital hotbeds, the strategy. In fact, Yale has announced that it growth rate in venture investments has is upping its commitment to Venture Capital been even more impressive, rising from to a whopping 21.5% as target for 2020. $2.4B in 2013 to $6.4B in 2018, with more than $8B projected to be invested in 2019. This funding bonanza has led companies to stay private longer and put off their eventual Yale’s endowment allocation to public offerings until they have long crossed venture capital continues to grow over into “Unicorn” status (start-ups with a valuation of at least $1B). This extended 2018 2020 Unicorn runway reduces the eventual Comparative Returns by Asset Class Actual Target returns offered to investors who buy the Absolute return 26.1% 23.0% Asset 5-Year 10-Year 15-Year 20-Year 25-Year IPOs when they ultimately go public. Venture capital 19.0% 21.5% Venture Capital 13% 13% 11% 21% 31% As an example, the number of Unicorns Leveraged buyouts (Incl. PE) 14.1% 16.5% significantly increased in just 14 months, Private Equity 12% 14% 13% 12% 13% from 279 in February 2018 to 452 in May 2019, Foreign equity 15.3% 13.8% Real Estate 11% 8% 7% 7% 8% and had a combined valuation of $1.6T. This Real estate 10.3% 10.0% was demonstrated in a striking manner by Large-cap Equity 10% 13% 8% 7% 10% renowned venture investor Mark Andreesen Bonds and cash 10.3% 7.0% Bonds 3% 3% 4% 5% 5% when he compared the returns offered to Natural resources 7.0% 5.5% public investors in the “good old days” when — Venture capital (VC) involves investment in start-ups, often with new business they invested in the IPOs of Microsoft, Apple, models and products, which have potential for significant growth Domestic equity 3.5% 2.8% — Average returns (IRR) for venture capital have historically exceeded those for other asset classes Amazon, and Oracle vs. today when IPOs such Total 100% 100% as Uber already had an $82B offering value Source: Pitchbook. Notes: 1. Cambridge Associates Global Venture Capital, Global Private Equity, and Global Real Estate Benchmarks (since down over 30%) and investors refuse Yale’s Endowment Allocation, considered one of the Return Report. Private equity asset class excludes venture capital, 5-,10-, 15-, 20-, and 25-year returns representative of average pooled IRR to support the prices of over-inflated IPOS, for vintages dating back from 2014. Top quartile returns for all asset classes shown. Large-cap equity proxy is Lipper aggregated US large- premier endowment models, continues to maintain cap equity fund performance. High yield bond proxy is Lipper aggregated high yield bond fund performance. Aggregate core bond proxy is a well-diversified, equity-oriented portfolio with famously tanking the planned public debut of Lipper aggregated core bond fund performance. Returns as of Dec. 31, 2015. Sample size for each asset listed is as follows: venture capital: a growing share allocated to Venture Capital. WeWork at $47B. Frustrated investors, both 91–440; private equity: 174–630; real estate; 71–207; large-cap equity; 62–674; high yield bonds: 30–421; and aggregate core bond: 22–385. Surpassed $30B mark as of June 30th 2019 individual and institutional, are asking why •

86 COLLER VENTURE REVIEW 87 Crowdfunding Platforms Given the influx of capital into private companies, companies are now delaying their IPO until much later in their lifecycle – significantly limiting returns once they are public. Platform Curation Stock type Board seats Follow on Fees

AngelList By Angel Generally Generally not Generally not 20% carried common interest If you invested at IPO

$100.0 2500.0x Regulation Little or none Common None since None Slotting/broker

2102.3x $81.8 Crowdfunding regulations fees from $75.5 prohibit companies 2000.0x $75.0 OurCrowd Standard Preferred In majority of In most cases 2% 1299.9x 1500.0x Venture cases where management, $50.0 Diligence available 20% carry

$Billion 1000.0x 744.4x 694.4x $28.3 $29.5 $23.0 $24.5 $25.0 500.0x $8.2 $1.2 $0.8 $0.3 $0.4 32.9x 6.2x 1.1x 0.7x 1.2x 1.2x $1.4 5.9x 1.0x The stock purchased is generally common and the LPs that is different in kind and $0.0 0.0x shares, without anti-dilution or pre-emptive intensity from the traditional Company-VC- AAPL MSFT ORCL AMZN GOGGL FB TWTR SNAP DB SPOT BYND UBER (1980) (1986) (1986) (1987) (2004) (2012) (2013) (2017) (2018) (2018) (2019) (2019) rights, no platform supervision, no board seat, LP relationship. This differentiated approach nor follow-on investments. These Reg CF becomes a force multiplier factor for portfolio IPO Value ($B) Return post IPO investors are the first investors to be hurt if companies because the global investor there is a “down round” (financing at a lower network can be leveraged to provide strategic valuation) and the first to be left out if there is introductions, hiring, local distribution and joint ventures, and assistance with follow- Source: OurCrowd, as at June 13, 2019 they were not able to invest together with the an “up round” (financing at a higher valuation). Increasing the Investment on funding. The OurCrowd global network lucky few in Uber’s $1.3M angel funding round. Given that companies must pay the Reg Public’s Access to Venture Capital is engaged in real partnership with the CF to be listed and upon success, and that Net net, the problem is that unless one is lucky There have been a number of initiatives Even the wealthiest companies and thus, paradoxically, OurCrowd and well connected enough to be “invited” to sponsors do not invest their own capital in the is perceived by many of its portfolio CEOs as launched over the past several years to individuals or family portfolio companies, the companies selected join such a round, getting into quality Venture address this limited access to venture the company’s most active venture investor. Capital deals and funds is very difficult. As are subject to a negative selection bias, with capital. AngelList is a popular site that allows offices... have a very One of the key challenges faced by platforms an individual, participation in angel funding Reg CF generally choosing companies that individual accredited angel investors to join that raise funds for individual venture deals is totally dependent on who one knows, and tough time getting can’t raise money from recognized Venture with other angels in syndicates formed to the way OurCrowd does, is the general is very localized. If you live in Silicon Valley Capital investors. Clearly, an alternative back deals listed online. AngelList splits an allocation. The inability to give a firm and hard commitment and are a VC or senior member of a Google for individual investors, which rewards a carried interest (typically 20%) with the on the amount of capital to be invested in the or Facebook team, you may get shown angel waiting list to invest rather than penalizes their participation, lead angel (syndicate leader) and, generally, company. This, of course, is subject to the deals. But if you are a wealthy dentist in Peoria, is necessary. OurCrowd seeks to provide no ongoing management fees are charged. in Benchmark, First success of the funding effort and campaign. Illinois, your chances are pretty much non- such an alternative. (See table opposite) While some of the angels and their deals Round Capital and However, given overall performance and existent. Even the wealthiest individuals OurCrowd’s financial model employs the are of good quality, there is no overall transparency in the process, this obstacle or family offices who are willing to pay the standard 2/20 Venture manager profit share supervision or curation of deals, and the others is akin to an has been largely overcome (though not yet usual minimum $5M LP entry ticket and get (2% management, 20% carried interest), thus quality of some listed deals is often spotty. infinite loop completely). OurCrowd is hard at work on into quality Venture funds have a very tough aligning interests between investors and the Moreover, the angels are not necessarily several new methods to bridge these gaps. time getting allocation. The waiting list to platform. However, minimum investment sizes taking board seats, nor always buying One positive surprise with the OurCrowd invest in Benchmark, First Round Capital are modest: $10,000 for individual companies preferred stock, nor focused on providing funding approach has been the general and others is akin to an infinite loop. and $50,000 for venture funds. Aggregated LP added value to the company, or even allowing success of providing follow-on funding to checks for funds already exceed on average Institutions also have to build teams of for follow-on investment opportunities. those companies making steady progress, and $10M per fund. investors to hunt these funds and fight for even in some cases where down rounds occur Several sites that were promulgated in allocation often only to settle for a $5M–10M and trouble needs to be worked out. While response to the JOBS Act of 2012 (Regulation LP piece in an untested fund, which needs OurCrowd and Funded this was not at all assured in early plans and Crowdfunding sites, or Reg CF, according to be multiplied by 20 other different Companies: Challenges and discussions, it turns out that in many cases fund commitments in order to invest a to the SEC regulations), allow for even non- Further Opportunities OurCrowd has built its position in subsequent $100M–$200M amount representing only accredited investors to join in online venture investment rounds, growing from an initial 1%–2% of a $10B corpus. The need to rinse deals. However, the amount of capital that OurCrowd deviates from regular venture investment of only $1M–$2M in some cases and repeat this allocation hunt every three- Reg CF sites can invest is limited to $1M per practice in several key areas. First, the to over $10M as a result of participation in four years according to each fund’s launch company and the sponsors of the sites make companies must help with the fundraising by several follow-on rounds. Moreover, since and funding schedule proves daunting to their money as a kind of junior broker dealer, appearing at face-to-face investor events and investments are not limited to a single, hard all but the most committed asset allocators, being paid by the companies a percentage of roadshows, online webinars and participation limited fund with issues of reserves and fund thus leaving many wannabe institutional capital raised. Stock is directly owned by the in personal calls and meetings with significant lifetime, the potential for follow-on is actually venture investors left out in the cold. individual investor so, potentially, hundreds investors, family offices and institutions. This quite significant, especially if the global LP of investors are added to a company’s cap table. creates a linkage between the companies network is engaged with the company. •

88 COLLER VENTURE REVIEW 89 Looking into a More OurCrowd’s Returns based on 51 concluded Democratized Future investments (i.e.: Exits & Write-offs) – IRR The key factor that will ultimately make or break democratization of Venture Capital Net IRR Gross IRR is performance. Can the new platforms 285.0% bringing new investors to the asset class 365.0% 280.0% deliver the results needed to justify the inherent risk and illiquidity of venture 275.0% 355.0%

270.0% investments? While it is still early and much work and analysis need to be done, 20.0% OurCrowd’s initial results are promising. 10.0% Net IRR 5.0% GrossIRR 10.0% Overall performance in certain key ( 0.0% performance criteria such as DPI distributions 2015–2016 2017 onwards Grand total 0.0% 2015–2016 2017 onwards Grand total as a function of paid-in capital) are already -5.0% Vintage Vintage -10.0% exceeding top-quartile benchmarks from -10.0% Cambridge Associates. For the sake of -15.0% analysis, we looked at all investments in company SPVs in aggregate as three-

Returns have been calculated internally by OurCrowd, based on IPO prices as at 6.30.19, and have not been independently audited. year funds (2013 and 2016 funds) and both exceed the DPI measurement needed to enter the coveted top-quartile cohort. OurCrowd is also different in its approach Year Net IRR Gross IRR The deal includes an investment in OurCrowd The OurCrowd Global About the Author to Corporate Venture partners that are Vintage: 12.9% 22.2% Moreover, performance is improving over time and a decision to distribute OurCrowd 2015–2016 Investor Summit 2019 registered on the platform in order to engage as the model continues to prove it can deliver products to its over 1 million clients through Vintage: 282.8% 355.2% Jonathan Medved is a serial entrepreneur, 2017–2018 for companies and investors. Earlier company with portfolio companies; perform Proof-of- the firm’s 2,200 financial advisors. This is the one of Israel’s leading high tech venture Grand total 32.6% 42.5% cohorts in the 2013/2014 time frame were not Concept testing (POCs); and even contract for first time a major U.S. financial institution capitalists, and was named one of the world’s the best performers, but the quality of deal paid scouting and other innovation services, has announced an intent to broadly distribute “50 most influential Jews” by Jerusalem Post. including Corporate VC as a service. Over flow has improved markedly as value is added Venture Capital products and will have major Medved is the founder and CEO of 1,000 multinationals are registered on the consistently to the portfolio and performance ramifications on both OurCrowd’s business and OurCrowd. He was the co-founder and platform, thus providing additional value is delivered for investors. Analysis of the reach, as well as the broader financial markets. former CEO of Vringo; the founder and to the portfolio companies and funds. performance of “completed investments,” general partner of Israel Seed Partners; including all exits and write-offs, shows It seems that the democratization of access to OurCrowd is both a direct investor in a founder and executive VP of dramatic improvements since inception. Venture Capital is already taking shape. Let companies and in funds and, therefore, us hope that these are the first of many moves marketing and sales at MERET Optical Communications, Inc.; executive VP of also has a different scale than most Venture OurCrowd has launched a fund called OC that will allow broader and successful access marketing and sales at Accent Software. organizations. These funds are either built 50, which is a kind of Venture Index fund to Venture Capital among both institutions by teams hired by OurCrowd, or as theme- or consisting of a portfolio of 50 different and the individual investor. The advantages Medved has served on the Boards of Ma’aleh strategy-driven portfolios selected from among companies. For each $50,000 fund to these investors, as well as to the companies Film School, Michael Levin Lone Soldier its direct investments, or as partnerships built increment, an equal amount of $1,000 per they invest in, will be a game changer. Center, Artists and Musicians for Israel, with other venture funds that allow OurCrowd company was invested in a multi-vector Bnai David Eli, and served on the Board of to invest as an LP in their funds. Leading diversification strategy. The 2017 vintage Governors of the Jewish Agency and the funds such as USVP, Maniv, Proof, OXX, and portfolio was invested across sectors, stages Jerusalem College of Technology. others have received significant LP funding (from early to late), and geographies. The Medved is a frequent guest and commentator from OurCrowd. The ability to choose from a performance to date has been striking on television and was featured in several menu of leading Venture Capital funds, which with five exits( two from Israel, two from documentary movies. His writing has at any given time includes five or more that the U.S., and one from Canada) and top appeared in the Wall Street Journal, are currently funding, is a unique offering to performance across several key metrics. Looking forward, I think USA Today, The Jerusalem Post, and both individual and institutional investors who Townhall.com. This kind of performance is bringing attention are writing checks and making commitments you’re going to see a whole from institutions that now wish to broadly ranging from $50,000 to many millions of distribute these products to their clients who bunch of initiatives to bring dollars. The fact that there is no “fund of funds otherwise have no access to the Venture overage” (a standard additional 1% management more and more people into Capital asset class. On Oct 16, 2019, Stifel, a fee and 10% carried interest fees tacked onto leading U.S. diversified financial group that is the asset class. the 2/20 model in most fund of funds) is unique the 7th largest U.S. broker dealer and has the and allows OurCrowd investors to build their country’s largest equity research platform, own diversified venture fund portfolios. announced a strategic deal with OurCrowd.

90 COLLER VENTURE REVIEW 91 Overview

v ur Industry Analysis section draws on one 102 of the most essential tools for analyzing The Impact of Technology a commercial ecosystem. The tool, conceptualized and then refined over decades, on the Global Fashion O facilitates an understanding not just of what is, but of Supply Chain future transformation within an industry and, often, across industries. Jacqueline M. Jenkins Executive Director of Strategic In this issue, Jacqueline Jenkins, the executive director Planning and Innovation, of Strategic Planning and Innovation at the Fashion Fashion Institute of Technology Institute of Technology (New York), presents fashion Industry Analysis technology as an industry at the cross currents of technology-driven change. Drawing on her work with world-leading manufacturers and technologists, Jenkins guides us to understand how fashion is being transformed by innovations in fields ranging Fashion Technology from blockchain, supply chain management, and big data analysis. While the change is perhaps stealthier than what is occurring in financial services and healthcare, it is clearly no less profound. Looking forward, the Industry Analysis section in future issues will similarly be written by industry leaders addressing the transformation within and across once-disparate industries, including technology-driven innovation in the industry chain from distribution to end-user analytics.

92 COLLER VENTURE REVIEW 93 The Impact of Technology on the Global Fashion Supply Chain

Jacqueline M. Jenkins Executive Director of Strategic Planning and Innovation, Fashion Institute of Technology

As consumers continue to expect shorter with fashion. Less than twenty years later, production cycles and personalized 58% of the global online population has made products with an elevated consciousness for an online purchase in the last twelve months, sustainable and price-sensitive fashions, with approximately half of the items falling being on trend is no longer enough. Fashion into the fashion (clothes or footwear) category. brands must harness the power of technology

to innovate the global fashion supply chain.” What has changed, and where The concept of a supply chain, an ecosystem is this changing leading us? of suppliers and business processes working toward the creation, production, and It is impossible to truly address this question distribution of goods or services, appeared without unpacking the individual technology in publication form as early as the Art of War, drivers. And it is interesting to note that written in 1838 by Baron Antoine-Henri fashion is one of the industries that is being Jomini. While the idea was referred to as transformed, with significant impact on society, and yet without deep exploration “procurer logistics” and applied to a single such as exists in Healthcare, Education, and market, the concept is the same today and can Environmental Sustainability. How in fact be generalized. Among the critical changes is fashion changing the use of technology? is a good or service that evolves today from And conversely, how are 3D Printing, the design phase to being a consumable Artificial Intelligence, Blockchain, and good or service has been dramatically Advanced Materials changing fashion, transformed by the power of technology. including the way we live and work? Technological advancements have always played a major role in the evolution of fashion and related industries. This includes the 3D Printing revolutionary 1850 invention of the sewing This process utilizes 3D modeling data and machine that extended garment production rapid prototyping to produce objects by beyond the capabilities of handsewn items layering polymers, a flexible and durable to the 1956 innovation of consistently-sized plastic material. Since the introduction crates eventually leading to standard steel of 3D printing into the supply chain, the shipping containers for price-efficient polymers have advanced to enable the global distribution. As we fast forward, it is creation of garments that are able to be undeniable that Microsoft’s release of Internet worn. These garments resemble properties Explorer 1.0 in 1995 laid the foundation for the of actual material, and can be produced e-commerce fashion boom that has forever within a vastly compressed time period changed the way in which consumers engage (hours rather than days or weeks). •

94 COLLER VENTURE REVIEW 95 Additive Manufacturing: Traditional Garment Construction 3D Printing

Scraps and waste left at the Zero waste end of the process suggests that nearly 2/3 of millennials – 67% – prefer to purchase from that brands that use chatbots. This is but one indicator of Able to achieve complex garment Limited construction capabilities a transformative trend in terms of labor and construction impending shifts in the labor force, consumer behavior linked to consumption patterns, and the implications for rising demand in the face Personalization requires costly, potentially Personalization achieved with the of more accessible and “authentic” supply. time-consuming tasks ease of programming

Blockchain Due to the fragmented nature of the logistics industry, the existence of numerous supply chain-related legacy systems that are often incompatible, coupled with the complexities of managing multiple relationships, there are a ton of inhibitors that work against an efficient flow of supply chain information. Among the areas of potential change is the counterfeit fashion market. And yet, blockchain provides a reasonable The impact has been abetted by the fact that Artificial Intelligence sweaters. The trend information came from means to address this problem in a cost- the price of 3D printers has also dramatically 15,000 the Tommy Hilfiger product library of 15,000 efficient and highly accurate manner. decreased, enabling increased reach and As we think about the effects of AI on images, some 600,000 publicly available Blockchain’s value is its ability to increase the sophistication, including new forms of the global fashion supply chain, there are A product library runway clips, and close to 100,000 pattern speed, accuracy, and access to the complexity specialization and sub-specialization on the revolutionary implications to critical areas of 15,000 images samples. Imagine the volume of data. And of managing information throughout a global supply side. On the demand side, we notice of fashion, such as inventory management, yet, from this data – accessible for among the supply chain that includes factory labor, that the “zero waste” that is a hallmark of design selection, merchandise planning, first times – FIT students were able to develop logistics providers, insurance agents, trade 3D printing is attracting new consumers, and the consumer experience. Based on AI-generated insights to create sweater designs attorneys, and brokers. For example, the as is the personalization of customization of research from McKinsey & Co., for example, that were reflective of the brand’s heritage 600,000 shipment of a refrigerated good from East size, fit, and design. From this perspective, an AI-based forecasting approach could brought down to the level of the individual. the addition of 3D Printing to clothing can reduce planning errors by up to 50 percent, Africa to Europe potentially encounters 600,000 publicly In addition to inventory management almost be thought about as an external while overall inventory reduction of 20 to available runway clips approximately 30 people or entities, capabilities, AI also is being used by brands to signal of identity, not too different from 50 percent is feasible. Analyzing key data with more than 200 unique interactions support customer service functions based on 1 the tattoos used by some people to signal points which reveals heretofore invisible and communications. Each touch by an planning and learning from previous mistakes their interests, affiliations, and values. data as to what a consumer buys, how, and intermediary is an added cost, a period of and selections concerning an individual’s likes where, the use of AI enables brands to IBM’s Watson time, and a possible point of handling error. Meeting the social change that is both cause and dislikes. A level deeper, chatbots enable develop customer profiles and inventory computer 100,000 brands to deliver a cost-efficient, white-glove Given its collaborative nature, a blockchain’s and effect of the personalization phenomenon, management parameters that support a Close to 100,000 service instead of the disappointment often felt value is of course highly dependent upon commercial drivers include brands such as brand’s ability to get the right product to the pattern samples when speaking with a call center that is relying the adoption of other industry players to Adidas AG, ECCO Sko AS, New Balance, right consumer at the right price and time. Nike Inc, and Under Armour Inc., who are on customer data with a time and information the platform. The world’s largest diamond incorporating 3D printing design elements As a practical level, the Fashion Institute of lag. For example, H&M uses chatbots as a producer by value, De Beers, has launched into their production as a way to differentiate Technology (FIT) in 2018 partnered with concierge service that helps shoppers with Tracr, a diamond industry blockchain (in this case, based on fit). Nike, for example, IBM Watson and Tommy Hilfiger to produce styling selections, remembering previous that has the potential to bring onto the produced its Vapor Ultimate Cleat American a sweater of the future. The project utilized purchases, and sharing their favorite looks platform 60% of India’s informal diamond football boot using 3D printing to meet the the analytical capabilities of IBM Watson, on social media. Of course, the chatbot is industry. Tracr will have the ability to specific needs of the individual athlete. including computer vision, natural language available to service a shopper’s need on a manage the entire diamond product understanding, and deep learning techniques 24-hour basis without the requirement of process for the precious stones with to evaluate consumer preference trends for a break. As of 2018, industry data drawn weights between 5 and 10.8 carats.2 •

96 COLLER VENTURE REVIEW 97 blue jackets that included electroluminescent Three Examples of panels. While this is just a first step, Advanced Materials: without much societal, health, or lasting social significance, the jacket represented Sustainable — textiles that Ralph Lauren’s continued commitment 1 reduce the negative environmental to being trailblazers in fashion by means impact of fashion products of design and innovation. And innovation by means of using recycled continues – by the 2018 Winter Olympics, materials or materials that Ralph Lauren had dressed the USA flag- are easily biodegradable. bearers with adaptable heat technology that Novel Technical — materials could be controlled by a smartphone app. with benefits such as being 2 The Fashion Institute of Technology is actively stretchable, moisture wicking, and temperature controlled. driving research and working to commercialize products in this area. The school is a member Embedded with Sensors — of the Advanced Functional Fabrics of America 3 capable of connecting with (AAFOA), a non-profit institute located near other devices, collects body its host organization, the Massachusetts and environmental information, Institute of Technology. By partnering with and able to change color US member organizations that design, model, and/or appearance. measure, supply, or integrate fibers, yarns, fabrics, and textile products, AAFOA lives out its mission to transform fiber materials and MIT where design and engineering 1  McKendrick, Joe, “5 Reasons About the Author to Blockchain Your Supply and manufacturing processes that have students collaborated on the creation of Chain,” Forbes. advanced material products to solve the March 19, 2018 barely changed in over a thousand years. Jacqueline M. Jenkins is the Executive performance issue of sneaker design while 2  Sharma, Manoj, “De Beers Director of Strategic Planning and Most recently, as part of the educational to Launch the First Diamond also designing an environmentally friendly Innovation for the Fashion Institute of focus of the organization, AAFOA supported Blockchain; Here’s How it Tracr’s model for sneaker made out of a disposable material Will Work,” Business Today. Technology (FIT). In this role, Jenkins a student immersion program between FIT tracing diamonds for the sole. Initiatives such as the MIT and August 3, 2018 oversees the development of the school’s Applications range from tracing (and ideally FIT student project are training the future strategic plan and the fulfillment of preventing) human labor violations workforce on the benefits and capabilities FIT’s commitment towards innovation. of the application of advanced materials. to eliminating counterfeits as the diamond Provenance Prior to joining FIT, Jenkins was the former is tracked, beginning with the mining phase. The origin of a diamond is essential in Dean of Graduate Studies at LIM College. She was the founding Dean of the Global understanding it has been sustainably Looking Forward produced and its quality guaranteed Fashion Supply Chain Management degree. Advanced Materials A consistent theme, in fashion as in other Jenkins earned her B.A. in Economics from The research lab is not limited to fields like leading industries, is that successful supply Spelman College and her MBA in Finance neuroscience and computer science. Due chains can get the right product to the right from the Wharton School of the University to advancements in textiles that include consumer at the right price and time. As we of Pennsylvania. wearables, also known as smart textiles, look at the growing demands of consumers, material sourcing is being transformed Authenticity such as the trend for customization over through the control of external stimuli such Verifying a natural diamond’s mass-production, the concept of a seasonless as stress, moisture, electric or magnetic authenticity is assurance of its value selling cycle that replaces the traditional fields, light, temperature, pH, or chemical windows of production with an ongoing compounds. This growth is being spurred design process, and the continuous focus by the adoption of these textiles in sectors on sustainable goods, it is clear that fashion such as healthcare, sports and fitness, the and the fashion supply chain will continue to military, and automotive. As consumers evolve to meet the ongoing demands of the continue to gravitate to garments and consumer. On the supply side, technologies products that go beyond traditional usage such as 3D printing, artificial intelligence, of fashion, the smart textiles market is Traceability blockchain, and advanced materials are expected to reach $4.72 billion by 2020. Each step in a diamond’s life adds to supporting a more sustainable manufacturing its uniqueness and gives insight into and distribution process. They are creating a At a practical level, wearable garments made a the rarity of a diamond gemstone change and an opportunity that are – unlike big introduction into the commercial market by healthcare and education – uniquely global. Ralph Lauren during the Opening Ceremony of the Rio 2016 Olympic Games. The Team USA flag-bearers wore classic Polo styled

98 COLLER VENTURE REVIEW 99 In theory, theory and practice are the same. In practice, they are not.

Albert Einstein

The Editorial Board

Editor-in-Chief Prof. Moshe Zviran Dean, Coller School of Management Tel Aviv University

Managing Editor Dr. Leslie Broudo-Mitts Head, Coller Institute of Venture Coller School of Management Tel Aviv University

Editorial Advisor Prof. Josh Lerner Jacob H. Schiff Professor of Investment Banking Harvard Business School Harvard University

Editorial Offices Coller Institute of Venture Coller School of Management Tel Aviv University Tel Aviv 6997801, Israel

Email: [email protected]

ISSN 1241-5542