Yes, Henk Rogers referred to “everyone at the top” of Hawaii’s investment community–the exact people he wants to invest in local startups–as “chickenshit.” But let’s start at the beginning…
A recent article in PBN pulled together a few “leaders” of Hawaii’s startup scene. The headline of the article was, “Plenty of Talent. Not Enough Money.” That second sentence has me perplexed, especially since I frequently hear some of these same “leaders” saying that there’s plenty of investment money in Hawaii, but no “deal flow.” That’s a fancy way of saying that, for investors, there have been few quality startups worth investing in.
So while I’ve written about the need for a realistic, critical look at Hawaii’s startup scene, and Rogers has generously invested plenty of his own time and effort and money, his comments have only served to undermine our collective efforts and hurt our ability to get additional tech-focused money from the state.
See Henk Alienate Everyone with Money
Here’s what Rogers, founder of Blue Startups, had to say regarding local investors:
“There’s a lot of money in Hawaii. There’s a lot of retired people. There’s a lot of rich people from Asia, there’s a lot of people who ran away from the tech sector and are in Hawaii that should be feeding our economy and taking our startups to the next level. The venture capital sector, I think, is severely lacking in Hawaii. We see most of our startups that are really good ending up on the Mainland and I don’t know what we can do about that. I’d like some of our pension funds to say, we’re in. We’re actually going to spend some of that money we’re sitting on in Hawaii rather than sending it to Wall Street.”
Wow. Where to begin.
First, I agree that there appears to be a lot of money in Hawaii, especially if you count the number of Bentleys driving around. In fact, according to a Civil Beat article, there are “32,829 authentic millionaires — 7 percent of all households in the islands.”
But of those thirty-odd-thousand millionaires in Hawaii, how many of those people (A) have extra money to invest, (B) want high-risk investment vehicles, and (C) know anything about tech? Very few, I would imagine. Probably in the dozens. And, if they check all of those boxes and did want to invest in startups (not donate, but invest with the desire for a return), would Hawaii startups–at this point–be their first choice? Would it be yours?
Our ecosystem still has a lot of room to grow before it’s a viable, self-sustaining entity, so we shouldn’t bite the hand of potential investors. Sure, we’ve had some recent bright spots, like Volta Industries’ $7.5 million investment round, but we’re far from a thriving startup investment scene. Implying that we are makes us look foolish.
Second, regarding the pension funds, would the teachers’ or government workers’ or other unions be happy if their pension funds began investing in local startups? No they wouldn’t, and here’s why: Wall Street is a more prudent investment than one in startups (even Silicon Valley startups) and pension funds aren’t looking to take on VC-level risk (nor are they philanthropies that want to lose money just to support a new industry). A Harvard Business Review article cites a study which found, “that venture capital continues to underperform the S&P 500, NASDAQ and Russell 2000.” And, Inc. Magazine reported on a 2014 study that found, “the average 10-year return for a venture capital fund was 7.4 percent–exactly the same as the Dow Jones Industrial Average and the Standard & Poor’s 500 indexes, which both carry much less risk than an investment in a venture fund. Not to mention the fact that an index fund doesn’t tie up an investor’s money for 10 years.”
Venture investing just isn’t very lucrative or flexible given the risk, especially for a pension fund, but really for any investor other than the small number with an appetite for it. But I won’t speculate on the investment strategies of our local pension funds.
See Henk Insult Local Investors
Rogers agrees with PBN’s statement of, “there’s a lot of money here.” His response to that statement is, “It’s not being deployed. Because everyone at the top is chickenshit.”
Instead of bashing local investors, we should be helping them realize the potential of Hawaii’s budding startups, selling the dream, explaining how Hawaii can actually become–is becoming–a startup paradise.
So, fourth, we have Rogers calling people names, as if that will spur them to act. Attempting to be brash and controversial is great, but really he’s just reinforcing the view that Hawaii’s tech scene is a joke. Yes, it’s getting better, but it has a ways to go and these types of comments are less than helpful. Instead, maybe we should point to success stories that show the growth our ecosystem has made over the past few years.
See Henk (and Chenoa) Insult the Legislature
In the article, the group bemoans the lack of additional funding from the state, but then goes on to admit that they don’t get involved in the legislative process. Chenoa Farnsworth, Blue Startups’ managing director, when asked by PBN if she spends time at the Legislature, says, “We try not to, but we should.”
Rogers adds that the Legislature is “in la-la land” with respect to tech, and that “there’s this secret society at the top of the Legislature.” Again, is slamming the people who have been helping, and who we should be encouraging to continue their assistance, the best approach?
Farnsworth goes on to say that, regarding the Legislature, “I did go down there. I hate doing it, but I’ll do it.”
As for the outcome of her visits, she adds, “Everybody says yes, yes, we’re so supportive. And they zeroed out that (HI Growth) budget. Zero. Zero dollars for high growth this year. So that was the result of my lobbying effort.”
Well then, job
It’s not surprising to see that a team (Blue Startups) with so much public disdain for the Legislature and the legislative process had trouble gaining their support.
Not Enough Money?
In an interview for a recent Civil Beat column, Karl Fooks told me that HSDC has contributed roughly $20 million in government money to Hawaii’s startup ecosystem, which was used to successfully pull in an additional $30 million in private matching funds. That’s $50 million allocated, at least in part, towards Hawaii, and that’s great!
Mbloom, the Maui-based fund which was allotted $5 million of HSDC’s money and found $5 million more in matching money, recently added an additional $10 million from “a private investor in China,” although that money isn’t necessarily aimed at Hawaii opportunities. Rogers’ own Blue Startups was selected to receive $2.2 million from HSDC. And there’s Startup Capital Ventures, who got $4.5 million from HSDC to include in their $50 million fund, which is focused on “Silicon Valley along with selective investments in Hawaiʻi and elsewhere.” And there’s the UPSIDE Fund, and HI TIP, and many others who’ve received their share of this state money.
With HSDC’s $50 million plus mbloom’s new investor, that’s $60 million mobilized at least in part by HSDC–and I’m sure I’m miscalculating and/or missing others. Then there’s Energy Excelerator, which has nearly $40 million (much already deployed) from the DOE and Navy’s Office of Naval Research. Oh, and let’s not forget the investment power of Hawaii Angels.
Now we’re at $100 million. Yes, much of that money has already been invested, and not all of it is aimed at Hawaii, but it’s clear that millions of dollars are available for Hawaii startups. What we should be asking, and working to solve, is why aren’t these Hawaii-focused funds investing at a more rapid pace in Hawaii-based startups?
See Me Be Positive
Many people involved in our tech sector go out of their way to put a positive spin on things. They point to how much is going on versus a few years ago, how many startups are being churned out of our accelerators, how much “follow on funding” is being invested in those startups. They back big, new initiatives that aim to raise the quality of life for tens of thousands of residents.
I’m a vocal critic of much that goes on here, and I frequently disagree with the use of our public funds or misrepresenting the quality of our startups or our misguided ability to be the next Silicon Valley, but I’m also willing to point out the amazing progress that’s been made.
We now have a few so-called “leaders” of the tech sector come across as, well, crabby, complaining about the exact people who’ve already given them millions of dollars and who we would like to chip in millions more. And they say it in a local publication that is surely read by many of our Legislators and high-net-worth residents. It’s not the best way to promote our progress and give people a reason to be bullish on Hawaii’s tech sector.
The bottom line here is that, in this one interview, Rogers did more to hurt Hawaii’s tech scene than help it by biting the hands that have already fed him.
It can all be summed up with one phrase: no one likes to be called chickenshit.
(Feature photo credit: Sultan Ventures’ Facebook stream)