Funding and Innovation: Is the Chain Broken? | AccountingWEB

Funding and Innovation: Is the Chain Broken?

I recently attended an event at the MIT Media Lab sponsored by, a social networking website geared toward CEOs and founders of start-up companies who want to share war stories of trying to get VC or angel seed funding. 150 CEOs and start-up founders were invited to attend. (I showed up because many of these companies use our product Equity Focus or their law firm uses our product Corporate Focus to track their capitalization after their first VC round or when they create an employee stock option plan.)

The first speaker was Adeo Ressi, the founding member of, and also a Board member of the X Prize Foundation. The other speaker was Steve Murray, a partner at the venture capital firm Softbank Capital.

It struck me as ironic that the presentation was being held at the MIT Media Lab—but while the speakers were talking, I looked down to check a website that was being discussed on my iPhone and saw that I had "No Service." No public WiFi service at an MIT auditorium? Scandalous.

The actual presentation felt a little like being in a Dr. Dolittle book and riding the famous "Pushmi-Pullyu." A group of start-up technology entrepreneurs looking for seed funding had been invited to the pinnacle of technology innovation, but the focus of most of the presentation was on "the death" of early-stage financing for technology companies.

Ressi explained that in the current economic environment, angels have become risk-averse and are spending their time watching their falling stock portfolios and stashing their money under their mattresses. Venture investors are raising less from their limited partners with little or no exit alternatives in the public or corporate markets and spending most of their time and money on saving the best of their existing portfolio investments.

The best sources of funding at the moment, according to Ressi, are the old-fashioned methods of bootstrapping, vendor financing and customer financing. The silver lining? It’s much cheaper these days to start a new technology venture (assuming it's not a capital-intensive biotech or chip design firm) with Open Source code, virtual development teams, and Web 2.0 marketing techniques.

Murray explained that Softbank is still funding great early-stage companies, but that unless every check box is checked, the deal will not go through. The risks they could afford to take in the past are no longer acceptable. Most of their money is going to add-on investments for the "already funded" or existing portfolio companies.

Ressi and Murray both agreed that the "the funding model is broken," since without liquidity, there is no sustainable funding model. To his credit, Ressi did try to boost the attendees’ spirits by offering free beer after the presentation, but it would have taken quite a few cold ones after this sobering presentation.

I was disappointed, having hoped there would be something new or different offered in this exciting venue. Then, after listening to these two pessimistic views from these seasoned veterans, we were invited to tour the projects that were on display at the MIT Media Lab. That experience alone was worth the price of admission. While they were all cutting-edge and pushing the limits of reality, I was most interested in the Cities Project where I ended up spending an hour talking to a doctoral student, Ryan Chin.

The Cities Project spans the vehicle spectrum from car to moped to bicycle. The CityCar is a stackable, electric-powered, two-passenger vehicle designed for shared one-way transportation in densely populated urban areas. Think SmartCar meets ZipCar. The power and steering mechanisms are built in to the four wheels so there is no engine block or drive train.

This efficient technology has been extended to the RoboScooter which is a lightweight, folding electric Vespa-like scooter. Finally, there is the GreenWheel which offers an electric rear wheel that can be added to any existing bicycle. It will go about 25 miles on electric power and is controlled by the wireless, Bluetooth handlebar throttle.

Being in the midst of some of the most exciting innovations on the planet, Chin was optimistic about the future and plans to have the GreenWheel in commercial production next year. He mentioned that the CEO of A123 Systems, a Watertown, MA-based company and another MIT nano-tech spin-off that is providing the battery to the Chevy Volt, would be stopping by the following day. All of these vehicles use batteries from A123 Systems which, in the context of this presentation, it should be noted has funding from 10 top-shelf investors and over 1,000 employees from 10 countries.

So, at its conclusion, this evening left me with many questions. Is technology innovation going to screech to a grinding halt since "the funding model is broken?" Will funding be dominated by prize money like the X Prize, which doesn't come close to funding real innovation? Will game-changing ingenuity continue to grow out of leading educational institutions, as did A123, the Internet, Lycos, and FedEx, as well as government agencies, the Defense Department, and NASA?

Or, will companies that foster incrementally groundbreaking products, such as Google (how we all search), Facebook (how we all connect) and Craigslist (how we find classified advertising), continue to be created in garages, home offices, and now increasingly online teams, bootstrapped once again by credit cards, family and friends, and severance pay?

Despite the stock market meltdown, risk-averse VCs, angels who gave their money to Madoff, and non-existent exit strategies, I am confident that innovation will press on unabated, simply because it's the natural evolution of “Capitalism meets the Geek Squad.” Lucky for us, it just happens.

Gary D. Levine, President and CEO
Two Step Software, Inc.

This blog

by Gary Levine - Gary Levine is the CEO and Founder of Two Step Software which provides market leading solutions for stock plan administration and corporate governance. His perspective is based on 20 years of experience.


More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.


Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.


Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.


Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".


William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.


Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (, a software development firm of high-volume, high-productivity accounting and payroll technology.


Eva Rosenberg, MBA, EA, is the publisher of, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.


Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website:
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.


The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.


FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.


Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.


Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of a website devoted to training for governmental auditors.


AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish share their ideas, insights, and perspectives from across the pond.