Feeds:
Posts
Comments

Archive for the ‘Capitalism’ Category

Flocking Angels Focus on Exits – by Lizette Chapmnan Venture Capital Dispatch

Posted in Angel Investing, Business Strategy, Capitalism, Investments, Venture Capital Dispatch, tagged , , on April 21, 2013| Leave a Comment »

By Lizette Chapman

With money in their pockets and change on their minds, some 700 angel investors flocked to the Angel Capital Association Summit in San Francisco this week.

Alexander Klein/Agence France-Presse/Getty Images

Along with macro issues like best practices for syndicating rounds and navigating the Series A crunch, attendees buzzed about the JOBS Act, new funding platforms and other recent changes to the $20 billion a year marketplace of private investing. One of the most popular panels however, focused on a topic that’s always been near and dear to investors: exits.

“We don’t know if we’re investors until the exit occurs–until then we’re merely donors,” said Ohio TechAngel Funds Founder John Huston, eliciting laughter and some wistful sighs in the packed conference room. The panel–“8 Steps to Lucrative Exits”–was one of five devoted to the topic, with Huston suggesting all angel investors set up a process for achieving an exit before they ever enter a deal.

Huston focused entirely on exits through acquisition–a topic worthy of tutelage given the sluggishness of late. According to a recent report by Dow Jones VentureSource, M&A activity declined 44% during the first quarter of 2013 compared with the previous quarter, with the most recent quarter being the lowest since the first quarter of 2009. Huston advised investors to set exit expectations with founders from the onset and build the company for acquisition–not shareholder value.

“If you are on the board then it’s incumbent upon you to drive the exit. All the other angels are counting on you,” he said, adding that if VCs are on the cap table “then you’re neutered unless you drove the VC selection process.”

He said simply growing revenue, although nice, was too slow a process to incite high bids.

To maximize buyer value he suggested compiling a hit list of the top five strategic acquirers based on their willingness and ability to do a deal. Determining which customers they’d like to secure [and then beating them to it] and mapping their organization chart to sell the deal should also be part of the process, he said.

“Your goal is to move the strategic acquirers from greed to fear mode which is ‘Wow, I sure hope my biggest competitors doesn’t acquire them first.’ We only hire bankers [to run the sale process] if we are convinced they can do this and run the process with multiple bids,” Huston said.

Greg Sitters, managing director of New Zealand-based Sparkbox Venture Group, said he began using a similar process about four years ago and has had four of his 40 companies exit so far. Striking a balance between growing each company with additional capital and securing a solid exit has been key.

He said: “If we can get companies to exit without VCs than that’s what we’re trying to do.”

Teresa Esser, managing director of Winsconsin-based angel group Silicon Pastures, said her group is constantly trying to bring more of a science to the exit process.

“This entire conference is really helpful with information and inspiration,” she said. “It’s motivational in reminding us that we are a $20 billion marketplace.”

Write to Lizette Chapman at lizette.chapman@dowjones.com. Follow her on Twitter at @zettewil

Read Full Post »

Silicon Valley Venture Capital Survey Fourth Quarter 2012 -Fenwick & West

Posted in Barry Kramer, Capital Formation, Capitalism, Fenwick & West, Michael Patrick, Uncategorized, Venture Capital on February 22, 2013| Leave a Comment »

Article from Fenwick and West Venture Capital Survey, by:

Barry Kramer
Michael Patrick

Background
We analyzed the terms of venture financings for 116 companies headquartered in Silicon Valley that reported raising
money in the fourth quarter of 2012.
Overview of Fenwick & West Results

  • Up rounds exceeded down rounds in 4Q12, 71% to 8%, with 21% of rounds flat.  This was an
  • improvement over 3Q12, when 61% of rounds were up, 17% were down and 22% flat, and was evidence
  • that those companies that are getting funded are receiving strong valuations.
  • The Fenwick & West Venture Capital Barometer™ showed an average price increase of 85% in 4Q12, a
  • slight increase from 78% in 3Q12.  Series B rounds continued to be the strongest rounds.
  • The median price increase of financings in 4Q12 was 41%, an increase over 23% in 3Q12.  There were four financings (three software, one hardware) that were up over 400% in 4Q12.
  • The results by industry are set forth below.  In general software, and to a lesser extent internet/ digital media, continued to be the strongest industries, with hardware solid and life science showing significant improvement, and cleantech lagging significantly.
  • The percentage of Series A rounds declined significantly, to 12% of all deals.
  • Further evidence of the strong valuation environment for those companies that are successful at raising
  • money is that the use of senior and multiple liquidation preferences have both declined significantly over the past year.

Overview of Other Industry Data

In 2012, we generally saw a weaker venture environment than 2011, especially during the last half of the year.
Venture investing and acquisitions of venture backed companies both declined compared to 2011, and while
IPOs and fundraising were both up, this was primarily a result of a strong first half of the year.  Some other
trends were:

  • Venture fundraising continues to trail venture investing, although the gap closed fairly significantly in
  • 2012.
  • The amount of money raised by venture funds continues to be concentrated in a relatively small number
  • of large funds.
  • Enterprise facing IT businesses appear to have attracted increased interest in 2012, while consumer
  • facing IT businesses (e.g., internet/digital media) appear to be a bit less attractive.
  • Cleantech and to a lesser extent life science continue to be weak, although they appear to be attracting
  • more corporate interest.trends in terms of venture financings in silicon valley—fourth quarter 2012 2
  • Accelerators and seed financings continue to be strong, but Series A (post seed) financings were often
    difficult to obtain.

Although venture capitalists believe that liquidity events will improve in 2013, they believe that
obtaining venture financing will be more difficult than in 2012, and that venture fundraising will
continue to be concentrated in fewer funds.

With Nasdaq up 16% in 2012 and continuing to increase in 2013, providing public companies more valuable
“currency” to make acquisitions, and with many corporations holding substantial cash reserves and public
company investors appearing to be more amenable to taking risk, there is good reason to believe that liquidity
options for venture backed companies will improve in 2013.

Venture Capital Investment.

Dow Jones VentureSource (“VentureSource”) reported that venture capitalists (including corporation
affiliated venture groups) invested $6.6 billion in 733 deals in the U.S. in 4Q12, a 4.6% decrease in dollars
and a 10.6% decrease in deals from the $6.9 billion invested in 820 deals in 3Q12 (as reported in October
2012).  For all of 2012 venture capitalists invested $29.7 billion in 3363 deals, a 9% decrease in dollars but
a 5% increase in deals compared to 2011, when venture capitalists invested $32.6 billion in 3209 deals (as
reported in January 2012).  In 4Q12 51% of U.S. venture investment went to companies based in California.
The PWC/NVCA MoneyTree™ Report based on data from Thomson Reuters (the “MoneyTree Report”)
reported similar results.  Venture investment in 4Q12 decreased 2% in dollars from 3Q12, with investment
of $6.4 billion in 968 deals compared to investment of $6.5 billion in 890 deals in 3Q12 (as reported in
October 2012).  For all of 2012 venture capitalists invested $26.5 billion in 3698 deals, a 7% decrease in
dollars from 2011, when $28.4 billion was invested in 3673 deals (as reported in January 2012).

The MoneyTree Report also reported that the strongest industry segment was software, where investment
increased by 10% in 2012 over 2011.  Life science was weak, with biotech investing down 15% and medical
device investing down 13%, and with life science first time financings at their lowest level since 1995.
Cleantech was down 28% and even internet investing was down 5% when compared to 2011, although
2012 was the second best year for internet investing since 2001.
Despite the weakness in life science generally, digital health investing is strong, with Rock Health reporting
a 45% increase from 2011 to 2012.

IPO Activity.

Dow Jones reported that 8 U.S. venture-backed companies went public in 4Q12 and raised $1.2 billion, a
decrease from the 10 IPOs in 3Q12, but an increase from the $0.8 billion raised in the 3Q12 IPOs.  In all of
2012, 50 U.S. venture-backed companies went public, a 10% increase from the 45 IPOs in 2011, thanks to a
strong first half of 2012.  The 2012 IPOs raised a total of $11.2 billion, the most since 2000, primarily due to
the $6.6 billion Facebook IPO, compared to $5.4 billion raised in 2011 IPOs.

Thomson/NVCA reported similar results for 4Q12 and 2012.  Five of the eight 4Q12 IPOs were in the IT
sector, and seven of the eight were based in the U.S., with the eighth from China.trends in terms of venture financings in silicon valley—fourth quarter 2012 3

Merger & Acquisition Activity.

Dow Jones reported that acquisitions (including buyouts) of U.S. venture-backed companies in 4Q12 totaled
$9.3 billion in 113 transactions, a 28% decline in dollars but a 14% increase in deals from the $13 billion
paid in 99 transactions in 3Q12 (as reported in October 2012).  For all of 2012 there were 433 acquisitions
for $40.3 billion, a 9% decrease in transactions and a 16% decrease in dollars from the 477 acquisitions for
$47.8 billion in 2011 (as reported in January 2012).

Thomson Reuters and the NVCA (“Thomson/NVCA”) reported 95 venture-backed acquisitions in 4Q12, a
1% decrease from the 96 reported in 3Q12, and 435 acquisitions in all of 2012, a 1% increase from the 429
reported in 2011 (as reported in January 2011).

Venture Capital Fundraising.

Dow Jones reported that 154 U.S. venture capital funds raised $20.3 billion in 2012, a 14% increase in funds
and a 25% increase in dollars from the 135 funds that raised $16.2 billion in 2011 (as reported in January
2012).  Eleven funds accounted for $11.3 billion of the $20.3 billion raised.  (Russ Garland, Venture Wire,
January 7, 2013)

Thomson/NVCA reported that 42 U.S. venture funds raised $3.3 billion in 4Q12, a 20% decrease in funds
and a 34% decrease in dollars from the 53 funds that raised $5.0 billion in 3Q12 (as reported in October
2012).  For all of 2012, 182 funds raised $20.6 billion, an 8% increase in funds and a 13% increase in
dollars from the 169 funds that raised $18.2 billion in 2011 (as reported in January 2012).
The number of members of the NVCA has declined from 470 in 2008 to 401 currently, a likely indication of
the shrinking number of venture firms.  (Russ Garland, VentureWire, January 28, 2013)

Corporate Investing.

As investments and fundraising by venture capitalists has had difficulties, corporate venture investing has
fared better.  According to the MoneyTree Report, the percentage of financings that included a corporate
investor increased to 15.2% in 2012, the third straight year of increase and the highest percentage since
the 2008 recession.

Notably, corporate investors tended to focus more on the industries that are currently least favored by
venture capitalists, participating in 20.5% of cleantech financings and 19.5% of biotech financings.
And corporate investors did not limit themselves to traditional venture investments.  For example, GE
(Healthymagination), Nike and Samsung have each announced the creation of, or other significant
involvement in, a start up accelerator, Rock Health has reported that Merck is a leading funder of digital
health startups and GlaxoSmithKline and Monsanto have each taken actions to increase their focus on
venture capital.

Angels and Accelerators.

There continues to be concern that the angel/accelerator environment has become frothy.  CB Insights
reported 1749 seed financing rounds in 2012, compared with just 472 in 2009, while Series A rounds grew
much more slowly, from 418 in 2009 to 692 in 2012, indicating that there will likely be a lot of seed funded trends in terms of venture financings in silicon valley—fourth quarter 2012 4 companies that won’t obtain Series A investment.  While this is not necessarily bad, as there is value to
making small bets on a lot of high risk opportunities, at some point the odds get too high.
Notably, Y Combinator announced in 4Q12 that the amount of money loaned to each of its companies
would be reduced from $150,000 to $80,000, and that the size of its class would also be reduced.  And
Polaris Venture Partners has indicated that it is significantly scaling back its “Dogpatch Labs” incubator.
However we do not see a trend yet here, as accelerators like TechStars and 500 Startups are not reducing
their size.  (Lizette Chapman, VentureWire, December 20, 2012).

Venture Capital Returns.

Cambridge Associates reported that the value of its venture capital index increased by 0.64% in 3Q12
(4Q12 information has not been publicly released) compared to a 6.17% increase for Nasdaq.  The venture
capital index substantially lagged Nasdaq for the 12-month period ended September 30, 2012, 7.69% to
29%, and for the ten-year period 6.07% to 10.27%.  The Cambridge Associates venture index is net of fees,
expenses and carried interest.  These type of results are, of course, a significant part of the reason why
venture fundraising has been difficult.

Venture Capital Sentiment.

The Silicon Valley Venture Capitalists Confidence Index® by Professor Mark Cannice at the University of
San Francisco reported that the confidence level of Silicon Valley venture capitalists was 3.63 on a 5 point
scale in 4Q12, a slight increase from the 3.53 reported for 3Q12.

Read Full Post »

IVP’s Steve Harrick is looking for a few good B2B startups

Posted in Angel Investing, Apple, Blog of Intellectual Capital, Board Of Intellectual Capital, boic, Business models, Business Strategy, Capitalism, Date Certain M&A, Distressed IP, Entrepreneurship, FaceBook, Gerbsman Partners, Intellectual capital, Investments, IPO news, Market research, tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , on February 15, 2013| Leave a Comment »

Article from Silicon Valley Business Journal.

Institutional Venture Partners’ Steve Harrick sees a lot of opportunity in the enterprise and B2B startup space and has a $1 billion fund that was raised last year to work with.

His Menlo Park firm focuses on later-stage venture and growth equity investments, so it’s not the small fry they have their eyes on.

IVP is looking for startups that already have $20 million to $30 million in revenue and the potential to grow that by tenfold or more.

The firm had several big exits last year, including the $223 million IPO of CafePress and the $745 million sale of Buddy Media to Salesforce.

Harrick took some time to speak to me this week about the startups that are exciting him today and why IVP often remains an investor long after a startup has gone public.

Here are excerpts from that conversation:

There has been a lot said about a shift away from social and consumer-focused startups since Facebook’s IPO last year. What does that mean at Instiutional Venture Partners?

IVP has always invested in enterprise companies and we’ve been investing since 1980. We’re on our 14th fund, IVP-14. It’s a billion-dollar fund and we’re just beginning to invest that.

But enterprise has always been a mainstay of our investment effort. It ebbs and flows with budgets and where we see growth. But right now we’re seeing a lot of good activity in the enterprise space, a lot of innovation being brought to bear and the opportunity for new high-growth companies. So we’re actively investing there.

Can you tell me a little bit about the companies that are exciting to you right now from your portfolio?

There are a number of them. The most recent investment was AppDynamics. AppDynamics does application performance management. It’s really a very exciting area. The company allows anybody that’s creating an application to bug test it, to test it for security, to see if it can support high volume loads, all while they are designing the application.

The reason that this is such an interesting space is that every enterprise has applications that reach out to customers that they use internally and that they connect to partners with. It’s a real competitive edge for companies that do it correctly.

All the old stuff doesn’t support mobile. It doesn’t support the latest programming techniques. It’s long in the tooth. The market has been desperate for a more modern solution and AppDynamics really delivers that. We were really impressed with the growth the company has shown and just the massive demand for the product offering.

A lot of our portfolio companies were already using AppDynamics. That’s how we found out about the company and it’s a space that right now is at about $ 2 billion market size. It’s growing and it’s a very good management team. So we’re excited to be part of it.

Another one I understand you invested in last year is Aerohive.

Oh, yeah. David Flynn is the CEO over there. It’s a great company to watch in Sunnyvale. It’s a next generation Wi-Fi company. What Aerohive did very early on is it realized that a controller can be costly and also is a choke point for an enterprise deployment. If your controller goes down, you can’t change configurations. A lot of the old vendors had built a lot of cost around the controllers, which increased the cost of deployment for a customer.

Aerohive took that controller and put it in the cloud. You can manage your Wi-Fi deployments remotely from any computer. It doesn’t go down and their Wi-Fi deployments are enormously successful at scale. They’ve got a lot of enterprise and education and government customers. It’s a business that more than doubled last year and really one to watch going forward.

Are you finding a lot more company these days looking at the enterprise and B2B space than there were a couple of years ago?

Enterprise budgets have come back. People are recognizing that they have to refresh their technologies. They’ve got a lot of new demands in terms of supporting new trends in the enterprise.

Take another one of our companies for example, MobileIron. It is a software company that solves the bring-your-own-device problem for businesses. People are bringing iPhones and Android phones into the enterprise and they’re viewing enterprise information. They’re putting things in a Dropbox account and they’re leaving with it.

IT can’t control that and that is a big problem, particularly when you want to maintain rights and provisioning and state-of-the-art security and be able to track confidential information.

So MobileIron’s products allow you to do all that. It allows you to push out patches, security, rules and provisioning. It allows you to take control of a mobile environment in the enterprise.

Five, six, seven years ago, this wasn’t a problem. It just wasn’t happening. Now, it is and it is being driven by consumer behavior that has flown over to the enterprise.

So people are saying, I have a budget for this. I have to spend. We have to be on top of these issues or it’s going to be a big problem for us.

You know those kinds of trends are really unstoppable.

Are there other trends you are watching?

Another is Wi-Fi, which is being kind of taken for granted, how to be able to connect if I’m visiting your company or I’m in your auditorium or I’m having lunch in your corporate cafeteria. These are all things you need to have infrastructure for. You need to do it cost effectively. So these fund-smart entrepreneurs are seeing an opportunity and people are spending for it.

As a venture capitalist, we look for those tailwinds in terms of budget because that allows you to grow. It accelerates the sale cycle. It becomes less of a missionary sale and that’s how you have rapid growth in businesses. It is different from five or six years ago. There are a lot of people paying attention to it.

There is a lot said about the consumerization of IT, the trend where shifts in consumer technology is requiring IT departments and enterprises to change how they do things.

It’s a massive change in behavior. Enterprises are organizations that are comprised of employees that have jobs to do. Their behaviors change and the enterprises have to change with them.

There is also a lot of talks about what is being described as Network 2.0, involving things like software-controlled networking and flash storage. Are you guys involved in that at all?

On the network side, a lot of that is cloud computing and services around the data center. We are involved in that.

We invest in a company called Eucalyptus Systems, which is the leader in hybrid cloud deployment. They allow you to manage and test software on your own premises and switch seamlessly back and forth between Eucalyptus and the Amazon Cloud.

Cloud computing is still an area where people are trying to figure out exactly what their needs and specs are. It’s still early in the market. But there have been some large successes that have kind of changed behavior.

Salesforce is one of those. Salesforce is widely deployed. It really took customer relationship management and managing your sales force to the cloud. They’ve offered additional cloud applications and people have gotten used to paying by subscription.

That’s also a change from seven or eight years ago, when everything was license dominated. The old world was you paid for licensing and maintenance, 80-20. That was what you paid.

Those are perpetual licenses and they were often expensive. Sometimes, they were underutilized or never deployed and the world gradually shifted to paying on subscription.

Customers like it because they say, hey, if I’m not using it, I can turn it off. I don’t have to renew.

The vendors like it because it’s a more predictable revenue stream. You’re no longer biting your nails at the end of each quarter to figure out if you’re going to get those two or three deals that are going to make or break your quarter.

You get a lot of smaller deals that recognize revenue monthly and that provide a more predictable business and that have been a reward in the public markets. Networking and application functionality is being delivered that way now. The economics have changed and I think that is a very exciting trend. I think it leads to more sane management for software businesses.

How about the security? Are you into that at all?

We are. We were investors in ArcSight, which Hewlett-Packard bought. That was an example of a dashboard for enterprise security.

We’ve been involved with a number of other security companies. I think two to watch are Palo Alto Networks and FireEye. We aren’t investors in either of those, but they’re both very good companies. We’re looking at a lot of security companies currently.

The challenge with security is that it can often be a point solution and a small market. To be a standalone security company, you really have to have a differentiated broad horizontal functionality that could stand on its own.

You can’t have customers saying, I want that, but it’s a feature and should be delivered with a bunch of other things. A lot of small companies fall into that trap in security.

So we’re on the lookout for the broader security places that you know really can get the $50 million, $75 million or $100 million revenue.

Have there been any companies that you passed on that you wished maybe in retrospect you hadn’t? The ones that got away?

Yeah, you know, there always are. That would be the anti-portfolio. You run into those things and you try to see what you learn from it. Sometimes, they’re very hard to anticipate.

We passed on Fusion-io, the Salt Lake, Utah, flash drive memory company. They have done well, but I think they have fallen off recently in the public markets. That one would be in the anti-portfolio.

We also looked at Meraki. Cisco bought them for $1.2 billion, more than 10 times revenue. It’s hard to predict when somebody’s going to buy a company at that kind of multiple. We believe Aerohive is the superior company. That’s why we invested in Aerohive instead of Meraki. You can’t really invest in both. They’re competitors.

Then there was Yammer, which was acquired for $1.2 billion. That was also a company we were familiar with, good technology acquired for huge multiple of sales and it was hard to predict that happening, too. So I wish all those guys well. Sometimes you miss on big returns like thoses, but we like the investments that we have made.

What is it that you’re looking for at the top of your list when you’re considering a company that you might invest in?

Well, you know, the old adages in venture capital have some merit in them. But things change and you can’t rely too much on just pattern recognition. There’s always seismic shifts in technology where old assumptions have been disproven. You have to adapt to those.

But the adages that do hold are quality of management. We really look for companies and management teams that can take a company to $50 million to $500 million in revenue.

That’s a very mature skill set. They have to show the ability to hire, the ability to supplement the businesses, to attract great board members and to build a company that can be public.

There are a lot of demands on being public today. The industry is still dominated by mergers and acquisitions, as it always has been, for exits. Probably about 80 percent of the exits happen from M&A.

But we really look to exceptional management teams that we can be in business with for many, many years.

How does being a later stage investor change what you are looking for?

We have a long-time horizon for investment. We often hold after a company goes public and even invest in the company after it’s gone public. That’s in our charter.

So we really look for these management teams that are really exceptional and deep.

As a late stage investor, you can’t really invest in small market opportunities. The early stage can do that, and they can exit nicely. You know they can invest $10 million valuation, the company sells for $60 million and they do great.

When you’re investing at a later stage, you know looking for companies that have $20 million or $30 million of revenue so the valuation is higher and you have to get these companies to a higher exit value to get a great return.

So you have to able to identify large market opportunities and AppDynamics, Aerohive, MobileIron, Spiceworks, all have really large market opportunities. That’s why we’re excited about them.

Interviewer: Tell me a little bit more about the philosophy of holding on to companies after they’ve gone public.

Our perspective is that going public is a financing event. It’s also a branding event for a company. It raises awareness. It creates liquidity in the stock.

But valuations fluctuate with market conditions. We say this is just the beginning of growth. That valuation that it’s at now may not be the right place to exit .

If you look back historically, venture capitalism left a lot of money on the table by exiting companies prematurely. You know if you exited when Microsoft or Apple or Cisco went public, you probably left a 10X, 20X, or 50X return on the table by doing so.

Obviously, that requires a lot of judgment. Not every company is going to be an Apple or a Cisco.

So that’s a judgment call and when we make the judgment that there’s a lot of growth ahead and the current valuation doesn’t reflect that, we’re happy holders. We establish price targets for exit and when it reaches that price target, we make a new assessment.

We do have to exit eventually, but we raise 10-year funds and our holding period is typically 3 to 5 years and then oftentimes its 5, 7, 8 years.

Is there a specific example to illustrate this from your portfolio?

Sure. One would be HomeAway. HomeAway is a remarkable business. People list homes on the website. If you’re traveling with your two kids, you get a home for 800 bucks for the week and you would’ve paid 500 bucks a night for a hotel. It’s a great service. It’s public. We invested, my gosh, about five years ago and we’re still holding that stock.

Read more here.

Read Full Post »

‘Conscious Capitalism’: A business primer for doing well — and doing good, too By Lanny J. Davis – 01/28/13

Posted in Business Strategy, Capitalism, Lanny J. Davis, thehill.com, Uncategorized on January 29, 2013| Leave a Comment »

‘Conscious Capitalism’: A business primer for doing well — and doing good, too
By Lanny J. Davis –  Read more: http://thehill.com/opinion/columnists/lanny-davis/279707-conscious-capitalism-a-business-primer-for-doing-well-and-doing-good-too#ixzz2JPVnIcib

Once in a while, a book about business theory and philosophy transcends the usual audience that reads “how to” business books — with lessons to be learned by everyone, business people and consumers alike. Such a book is Conscious Capitalism, recently published by the Harvard Business Review Press.

The two co-authors are John Mackey, co-CEO and co-founder of Whole Foods Market, a Nasdaq-listed public company based in Austin, Texas, which has become one of the most successful and premier supermarket chains and brands in the world; and Dr. Rajendra (Raj) Sisodia, professor of marketing at Bentley University, who in 2006 wrote, along with two other management specialists, Firms of Endearment, identifying 35 such firms, including Whole Foods, that have been successful as businesses and followed progressive, socially responsible policies.

Conscious Capitalism describes four specific tenets to teach companies how to implement policies and practices of this approach to business leadership and success.

The visual graphic in an early chapter of the book depicts both the interrelatedness and interdependence of these four tenets, as well as their prioritization. The three white, smaller triangles around the outer three sides of the large triangle describe three of the tenets: “stakeholder integration” (on top) and “conscious leadership” and “conscious culture and management” as the bottom two.

In the center — obviously, the most important, because of its central location and because it is highlighted in shaded gray — is a triangle with the first tenet of the book: “higher purpose and core values.” As Mackey once stated in a 2005 debate with conservative economist Milton Friedman, who argued that a company’s purpose must be almost entirely to make a profit, not to do good deeds:

“Making profits is the means to the end of fulfilling Whole Foods’s core business mission. We want to improve the health and well-being of everyone on the planet through high-quality foods and better nutrition, and we can’t fulfill this mission unless we are highly profitable. Just as people cannot live without eating, so a business cannot live without profits. But most people don’t live to eat, and neither must businesses live just to make profits.”

Whole Foods’s remarkable record is a case in point. In late 2008 and early 2009, at the time when the Federal Trade Commission appeared to have successfully blocked Whole Foods’s already completed acquisition of Wild Oats Department Stores, the company’s share price on the Nasdaq exchange plunged from $40 per share to $10. Whole Foods fought back against the FTC’s legal action, and the result was a compromise settlement that allowed the company to move on. On Friday, Jan. 25, the stock closed at $95.65/share — an increase of more than 900 percent in just four years.

Aside from shareholders, Whole Foods and its management team are proud of the way they have treated all others whom they regard as stakeholders — suppliers, employees, citizens of communities where stores are located and philanthropic causes — consistent with the fourth tenet of conscious capitalism, “higher purpose and core values.” For example, Whole Foods gives a minimum of 5 percent and closer to 10 percent of its profits to nonprofit organizations each year; allows all employees — called “team members” — to participate and vote on important working condition and company policy issues; puts a ceiling on the maximum ratio between the highest-paid executive and lowest-paid team member; and provides all full-time team members with virtually all their premium costs for health insurance, and part-time workers some healthcare benefits as well.

As readers of this column know, while I am a liberal Democrat (clearly on the opposite end of the ideological spectrum from Mackey on some issues), I also search for “purple” areas where there are common values and subjects about which constructive, solutions-oriented conversation can occur between left and right. And I find many such places articulated in this book.

The fact is, Conscious Capitalism is an important book for exactly that reason. I believe it should be a must-read, with a message especially appropriate for these times of dysfunctional political polarization, with “red-state” Republicans over-simplistically depicted as conservative and pro-business and “blue-state” Democrats as liberal and anti-business.

This book teaches that there is nothing inconsistent between doing well and doing good. Indeed, both not only can co-exist, but each is dependent on the other. That is a crucial lesson with meaning both in the business community as well as the larger divisive political, cultural and social arena in which the country finds itself after the 2012 elections.

Davis, a Washington attorney and principal in the firm of Lanny J. Davis & Associates, specializing in legal crisis management and dispute resolution, served as President Clinton’s special counsel from 1996-98 and as a member of President Bush’s Privacy and Civil Liberties Oversight Board. He represented Whole Foods during its legal challenges with the Federal Trade Commission in 2008-09 and on various matters since then, but does not do so at this time.

 

Read Full Post »