The Future of Venture Capital | Chris DiGiorgio

About Chris DiGiorgio

Christopher DiGiorgio is an Executive Research Fellow (emeritus) at the Accenture Institute for High Performance. Before joining the Institute he had responsibility for Accenture’s overall practice in the Bay Area as the Managing Director with over 2300 professionals. Chris also previously led our High Tech practice in the Silicon Valley and lead Accenture’s office of Emerging Technology.

Chris is based in the San Jose office. During his 32 year tenure with Accenture, Chris worked with nearly 100 clients across a wide range of industries in more than 15 countries around the world. His expertise is in working directly with CEO’s on strategy development and implementation of large technology driven change programs. His past clients include Hewlett-Packard, GE Capital, Levi Strauss, FedEx, Lucky Stores, and Boeing.

Chris is Co-Chair of Joint Venture Silicon Valley Network and is Board Chair of The Tech Museum of Innovation. He is also the Vice Chair of the Bay Area Council Economic Institute. Chris is a Distinguished Alumni from California State University where he holds a B.S. in Computer Science and a B.S. in Business Administration.

 

Interview Transcript:

Alan
Welcome back. I’m here with Chris DiGiorgio. He is an independent strategic advisor and formerly with the company Accenture, and has a particular specialty in the venture capital community. So Chris, welcome to today’s show.

Chris
Very pleased to be here.

Alan
So Chris shares some background with us, you know, the pathway that you walked in life and how you got to where you are today?

Chris
Oh, great. Well, sure. It’s a pleasure to be here. And you my story, I could go off for a while. But I’ll give you the short version of that. I born and raised in East Coast, but came out here to California, and I’m one of those public school kids from, you know, K through 12, through college, Junior College at Solano College, and Fairfield and all the way up to Cal State University at Chico in the computer science department there. So public school all the way to California. And then I graduated in the early 80s. It was a combined degree in computer science and business, which was a bit unusual at the time. Most computer science degrees at the time were engineering related, and took a lark and an interview with an accounting firm. And so they were just starting to add computer science type people to the accounting practice, and both for audits but also for consulting work. And so I came in the door at what was then Anderson Consulting, when we had about 3000 people worldwide in 1981. And then, when I retired just a few months ago, we had about 280,000 people in Accenture. So I enjoyed that wild ride the whole time, it was always thought they would be changing jobs every two years. And it turned out I was changing roles every couple of years, but always stay with the same job.

Alan
And you were what position were you at Accenture.

Chris
At the end I was for the last six or seven years, I’ve been the managing director for centers business here in Northern California.

Alan
So, you know, how do you know when you’re managing director? What was your relationship to the client? So were you working with little clients, big clients? What was your?

Chris
Yeah, thanks. We’ve worked with a lot of clients, our most of our market is for the large global companies the details, and as we would say, but around the valley here, you know, that can always tell who’s the small company who’s gonna be the big company in a couple years. So part of my job was what I would call strategic account development. You know, when we have clients, we have them for many years. But we trigger when we try and get new ones, it takes a while to do that. So in the last five or six years, my job was to work with new clients clients. So we had been pursuing for many years. And to try and essentially, open those accounts up for Accenture.

Alan
You know, Accenture has played a major role in helping little companies to become big. And, you know, when you’re when you’re right here in the heart of Silicon Valley, 50% of the venture money in the world is right here. So you played a key component. So if we talk about if we talk about the evolution of companies, you know, is there is there a set formula that you’ve been able to identify why companies, some companies succeed? And why others don’t?

Chris
Well, it’s a great question. I don’t sure I have the exact answer to that. Otherwise, it will be out making some bets on some future companies. But we can certainly look back over several decades and see some patterns. And really, what we see is venture backed companies tend to do better than ones that aren’t venture backed, which is fine. If you get the expertise of a venture capitalist, we can talk more about that later. Companies that have a mission to remain independent and on their own, tend to do better. Otherwise, their assets get acquired by another company. And the entrepreneur gets recycled into the next venture. One of the interesting statistics we did on our research on venture capital is that a full 92% of the jobs in a company are created after the IPO. 92%.

Alan
So that’s a fixed number. Yeah, right.

Chris
So when you look at the across the valley at all the biggest companies that came out, they were one small companies like Cisco was a small company. At one point, Oracle was even a small company at one point. The IPO was the seminal event that helps them be a sustainable long term enterprise and really create the 1000s of jobs that we see in the valley. So the IPO is important. A venture back counselor and coach along the way, it’s important. And it helps to have a good idea, of course.

Alan
Do you have some tips said to foster for aspiring entrepreneurs?

Chris
There are like tips I could say, right now there’s a big buzz around consumer it all the stuff that with Apple apps on the iPhone and Android and things that are quick to market. Those are very good. You can certainly make some money in the short run. The thing I look at is what’s important for Silicon Valley overall. And then we tend to see things that are much more enterprise related and have lasting value. Beyond just the Isn’t this neat app type thing. So look for the big idea that has a lasting enterprise to it not just a nifty and a lot of people talking about disruption. There’s many, many industries that can are ripe for disruption. And find those where there’s a big gap and a big discontinuity and fill that gap.

Alan
And visit here today with Chris DiGiorgio. He’s formerly the head of the Northern California Division for Accenture consulting. And now he’s an independent strategic advisor. Chris, we need to take a quick break. And I like to come back and talk more about venture capital growth and your experience that you’ve gained over the years with your role and Accenture. We’ll be right back after these messages.

Alan
Welcome back and visiting with Chris DiGiorgio. He is formerly with Accenture consulting over the Northern California area. And now a strategic advisor. And Chris, were talking about venture capital before. Why why did Accenture choose to focus in the venture capital world?

Chris
Yeah, that’s a good question. I was partially planned and partially serendipity. So the plan part was we were looking into a number of research areas. So we have a group called the Accenture Institute for high performance, which is a bunch of researchers doing work for business periodicals, as you would expect Harvard Business Review and other types. And we were studying the culture of Silicon Valley, the unique culture of Silicon Valley. And we got into it, we were primarily looking at the differences of tech workers here versus the rest of the country. But what became apparent was in the middle of that, that there’s something else that goes through the valley, that’s very different. And that is the impact that venture capital really drives in these companies and create some of the the behaviors of the tech workers. So at the same time, I was sitting my office one day, and it pays to answer the phone, a random phone call from someone I didn’t know. And it was a fellow parents at my kids school, who happen to be a venture capitalist, and also the head of the National Venture Capital Association that year. So he was the chair of NVCA. And he said, you know, we think the venture capital is at a crossroads. And we’d like to do some focus groups around the country on the state of the venture capital industry, with all the leading venture capitalists and some academics and some others. So he said, Do you know anybody who would want to come help facilitate that program? So I raised my own hand, I said, that sounds interesting. I’ll do it. And so out of that became, I spent the next few months embedded with the venture capital community, and really learning what was going on and feeling the pressures that they feel, but also got a much better appreciation for what they’ve already done, and what the impact of venture capital has done for Silicon Valley. And that sort of wrap the whole thing up into the study we recently released.

Alan
If venture capital falters, will job creation declined?

Chris
Yeah. That was the that’s the thesis. And what we were noticing was two points. One is that over the last three decades, venture capital is a very efficient investment model for creating lasting enterprises. So the it’s a half a percent of GDP or something like that. And yet, they’re 12, or 13%, of private sector jobs. So think about that, half a percent of the investment, and a huge percentage of the success rate. So even though many of their ventures fail, the ones that go really are big generators. The second thing we found out was that not only are they great wealth returners, to those who are investing what we normally think of venture capital as you make a big 20 times your money back, but they also bring the innovations that we all like the all the consumer products, we have a lot of the health products that we have, a lot of the communications tools we use are all came from venture backed companies. And then the third big piece of it is they create jobs for the rest of us. So even though these venture jobs, great tech workers, highly skilled tech worker jobs by the 1000s, one of the recent studies that we looked at from the Bay Area Council Economic Institute says that a tech job generates four and a half other jobs in the local community for each tech job created. That compares to about one and a half for a manufacturing job. So a tech worker employs about three other three, three more people than a manufacturing job. So you put that all together and you say, Okay, now I get it all the venture capitals here, half of it, they generate the biggest Enterprises for tech workers. And those tech workers generate 1000s and 1000s of jobs for everybody else who live in this community. Pretty important.

Alan
So what needs to change to basically keep job creation flowing?

Chris
Yeah, that’s a good question. And I think it’s a complex one, but I’ll try and take a short stab at it. The Venture Capital has been the main game in town if you wanted to start an enterprise and don’t Remember, if you’re too Two Guys and a dog, as we say, in a coffee shop with an idea, and you go go to a bank and try and get money for that, you’re not likely to be successful, you may find some friends who back you in the beginning, but once you need real money, the really the only place in the past to go to was the venture capitalists. But today, there’s some new options out there, angels have become much more impactful. So their angel funds are quite large. And in fact, many companies will start with angel funding before they go to the venture capitalist. And then most recently, we’ve seen with the Jobs Act, the crowd funding model has allowed the average American citizen to put some money into a, a startup enterprise. So those are all on the front end, those are all competing with a venture capitalist who likes to get in early with a smaller investment, let’s say $2 million to get 20% of the company. Now they’re being delayed in that cycle. And they’re coming in having to pay more money for a lower position in the company. And that makes changes the economics of the whole picture of epic that’s on the front end. There’s a whole nother story of the backend.

Alan
And basically here today with Chris DiGiorgio, he was formerly head of Accenture consulting over the Northern California Division. And, Chris, we need to take a quick break. And we’ll be right back after these messages.

Alan
Welcome back and visiting with Chris DiGiorgio. He is the formerly with Accenture consulting over the Northern California offices. And now as independent strategic consultant. We were talking about the venture capital industry before the break, is it is that the right size too big too small.

Chris
Yeah, that’s interesting question. Hit has vary greatly over the last, you know, 30 or 40 years from where the industry really started. It was pretty small for a long time with just 100 or so firms until the 80s and the mid 90s. And then of course, the internet boom really got everybody going and more than doubled the size of it. So whether with the past, it would be maybe five or 8 billion a year going into venture capital. By the height of the.com, boom $100 billion was being invested in venture capital. Now that is way too much money to be wisely spent a million or two at a time. And on top of that it spawned about 1000 Total venture firms, that’s also too many, there just isn’t that much talent and that ideas. So over the last 10 years, 12 years since the end of the.com era, we’ve seen that number come back down to about 500 or so registered firms these days and about a $20 billion a year. Investment size. So that’s the size we’re at today. But the reality is, it’s not just proportionate. So a small number of those venture firms really do most of the new investing back last year of those 500 firms, about 100 of them made a new investment 400 basically 20 20% 20%. That’s it made new investments in new AI rounds last year, the others were managing what they already invested in and saving their money for down rounds. Or the other big challenges, they still got a hangover or an overhang depends on how you look at it from the.com era where they’ve got investments now that were 10 1215 years out that they can’t they can’t IPO. They haven’t found a valid buyer yet, but they’re viable enterprises, so they want to shut them down. So they’ve got the average funds. Now 70% of funds are more than 13 years old. These are funds that were planned to be eight years old. So we’ve got a number of dynamics going on here. That would tell us that a smaller, focused skilled venture industry is probably the best thing going some people call it a guild guild of the size around $20 billion in new investment, you know, probably a few 100 firms with the right skill set has the right idea for that’s about what we can handle and be viable. So that’s I think that’s where we’re headed.

Alan
Does innovation promote venture capital? Or does venture capital promote innovation?

Chris
You know, I think the history would say the chicken and the egg here starts with the innovation. The one of the seminal moments in history of the valley was the list of Stanford after World War Two, really changing the model for innovation at the research level. So the Fred Terman and his other professors really pushed students out with ideas to start enterprises versus staying in school and being academic. So Hewlett Packard left obviously changed history. And so that innovation cycle started what followed after that was people really wanting to back that early on, in a venture capital model to We both help ensure the success of that company, but also to share with the success of it financially. So I would say innovation leads. But venture capital makes that happen.

Alan
You know, in the world today, you see the emergence of the angel funders, or the crowdfunding becoming more prevalent out there, and what impact are they playing into the venture capital community?

Chris
Yeah, that’s a big impact I mentioned a little bit earlier, but let me take a little more deep dive into it. Angels have been around for a long time. Laurance Rockefeller, and the Rockefeller Fund was an angel back in the 60s and start help start Eastern Airlines and things like that. So it’s not new, what is new is the number of them and the amount of money they have, and, and they’re really more people who have made their money in their first big shot. So alumni from places like Google, Facebook, and other major investors that have made their money are now becoming angels themselves. So that is an impact. It’s helpful, because a lot of good ideas get started, you know, 20,000, new ideas get funded at the very Angel level every year 20,000. That’s a lot. But the reality is, two years later, only 10% of them are gonna able to get industrial funding, meaning funding from a venture capitalist or a corporate fund or someone serious. So 90% cycle back. So angels help get a lot of new ideas to the table, but it’s still just as hard to start climbing that mountain. Now crowdfunding is brand new, it’s, it just came for the job Act has just started, we’ll have to see how this plays out. It allows anybody qualified, qualified investor, we’re not to make an investment up to a million dollars in a startup, the unknown is how the rank and file public is going to take the fact that almost guaranteed you’re gonna lose your money. On a rare occasion, you’ll make your money back, most likely, you’re going to lose all your money. And so as we said in a seminar recently, it’s hard to see how this ends well. Because the the eventualities that most of these investors who invest in these companies are gonna lose what they invested.

Alan
You know, there seems to be a pattern, though, with the whole industry that 80% of the the money is coming from, you know, or 80% of the deals come from 20% of the venture firms, right? And then likewise, these guys are able to consistently do deal after deal after deal. And, you know, that find the success there? What is it what differentiates us those who are making it versus those who are not?

Chris
Excellent question. And I would say, a recent expert in venture capital, as I look back at the history, you know, 10 firms last year got half of all new money invested in venture capitalist, that’s pretty good. Considering, you know, almost 200 firms took in new money, half of that money went to just 10. What’s interesting is that some of those 10 are the same ones you see for the last 1020 years, but some of them are new. Yeah, they’re not the ones that were there five or eight years ago. So there is a little bit of churn at the top 10. And it’s not obvious who the biggest ones are, but they know where they are today. But they may not be the ones who were there seven years ago or seven years from now, in these kinds of cycles. So what’s what’s really though has come up is that there is a the firm’s that are successful today are taking a broader view of the funding cycle from working with very small companies, but also being what’s called growth equity coming in mid cycle in round B or C of an entity and then bringing their venture capital talent and funds in at that late level. That was not a model that was common a few years ago. And then there’s other areas that can other services. One of the biggest challenges startups have, believe it or not, is hiring. You know, there’s a if you go to the NBC website at the bottom, there’s a ticker that says there’s 10,000 open jobs now, at venture firms. What can we do to close the gap? So the biggest venture firms are now talent agencies, they can help source engineers, salespeople, executives have the right levels to help these companies grow because there’s a tremendous shortage of that talent in the area. So combination of looking at the whole funding cycle, but also being a talent agency and a coach for the long term has made for a successful model today.

Alan
Chris, we need to take a quick break. And this is all fascinating, met the whole industry of venture capital and visiting here today with Chris Christie Giorgio, and he’s as strategic advisor in the venture capital area. It’s been a very long career at Accenture and we’ll be right back after these messages.

Alan
Welcome back and visit here today with Chris DiGiorgio. He is a strategic adviser formerly with Accenture over the Northern California. area. And we’ve been talking about venture capital with today. Chris, with the changes in the landscape says some people may feel that the venture capital are the victim of their own doing. What what’s your, what’s your opinion on that?

Chris
Yeah, that’s a good question. I think there’s certain extent that is true. I mean, the they had the industry, they defined their own practice, they’re the they’re a bit of a guild they act together. But the reality is, they’ve gone to a more concentrated model now that in a number of ways that has somewhat caused some issues. As you may know, you know, worldwide venture capital is worldwide, but 80% of it is still in the US. And in the US, some 60% of it is still in Silicon Valley, tremendous concentration of it here. And it doesn’t mean it isn’t good ideas here. But this is not the only place where there are good ideas and good entrepreneurs, so diversity will help. The other diversity angle is the segment’s are choosing to invest in, you’re feeling the pressure of return. So they’re drifting more towards short term, tactical, consumer tech and some other areas and falling off the list of investments are biotech and green tech energies and these things that take longer and more capital intensive, so they’re getting less attention than they used to, that’s probably not very good. So what can really help with the VC is to help think of things more broadly and more diverse and look for entrepreneurs the way they used to, some would call it a return to actual venturing, versus investment management we see today. Back when we interviewed a number of entrepreneurs, they could tell you that the best venture capitalists are the ones that are the coaches for the life of the company. The worst ones are the ones that invest the money and just manage that as if they were an investment banker. That’s not what venture capital is about.

Alan
Yeah. Chris, when we look at the venture capitalists in their impact on society today, I appreciate your thoughts. And you know, where you know, where this is brightest? And what do you think it’s going?

Chris
Yeah, that got my attention. I would say if there’s one issue that came out of the project we did, I’m pretty actively involved in the community. I’m the chair of the Tech Museum in San Jose, very involved in science and STEM. I’m also the chair of joint venture Silicon Valley with Mayor Reed of San Jose as well. So I spent a lot of time looking at the bigger picture of Silicon Valley. And what’s, you know, what became obvious to me was, as I looked at the private sector employment in the valley, man, a large portion of that came from what were at one time venture backed companies. And if we’re seeing a decline in those types of investments, what does that mean for the valley overall, five and 1015 years down the road? Will there be the next Cisco coming down the pike? Or will they just be a number of consumer apps that come and go and generate wealth, but they don’t generate sustainability? So I think what’s been most interest to me is to see how we can help change influence, venture capital and entrepreneurs to think about the long term enterprise, which not only benefits them, but it benefits. The rest of Silicon Valley with those four and a half extra jobs per person that I talked about last time.

Alan
In venture capital is smaller, better?

Chris
At this point, it looks like it is I would say smaller is better, you have what we would call patient, limited partners, or investors who are willing to wait the 10 or 12 years it takes to get a payout. And when you get larger than you get impatient investors who force near term actions, which are not, not not the best. And I think the evidence is that the number of entrepreneurs is held at about 1000 a year. And that’s it, there’s a for the last 25 years, there’s been 1000 to 1200 new entrepreneurs, startups that are quality every year. So if that’s constant, it helps to have a constant flow of dollars attached to that.

Alan
Because if someone wants to contact you for more information, how would they go about that?

Chris
Yeah, that’s great. Happy to chat my available on LinkedIn. And under Christopher DiGiorgio, you can find myself there. And that’s probably the best way to contact me.

Alan
And visiting here today with Chris DiGiorgio. He’s a strategic afdvisor, and formerly with Accenture consulting and, you know, great expertise in the venture world. And so we appreciate all that there. Are that you present days. Are there any final thoughts to bring up?

Chris
Yeah, sure. We’ve talked about a number of things today the report we did is available at accenture.com/silicon Valley, all one word accenture.com/look. And these reports are available for you to look at if you’re interested.

Alan
Thanks for joining us today here on America dreams. Join us right here on AM 1220 KDOW next week.

 

We hope you enjoyed this interview; “The Future of Venture Capital | Chris DiGiorgio”.

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This transcript was generated by software and may not accurately reflect exactly what was said.

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