Start-Up Your Engines!

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Everyone in Japan uses their cell phone for data; in China, about 70%. Cell phones are fashion statements, and people buy new ones every six to nine months. Shanda Interactive, which operates online games, went public last week in New York. It generates $33 million a year in profit just three and a half years into its existence. The funniest example of a niche market is Neowiz, which sells virtual clothing for the virtual person you steer through cyberspace. That's a $100 million-a-year market. Profit margins are pretty good on virtual clothes. Ring tones for cell phones is now a billion-dollar business. Technology is fashion.

We talk about how great it will be to have high-speed-Internet connections across the U.S. For the moment, the average connection for broadband here is under 300 kilobits per second. Compare that with average connection speeds in Korea of 4 megabits per second and up to 8 megabits per second in Japan. Those speeds are driving innovations that we can't compete with here. So when you begin to fund an information-technology start-up here — and you won't know if you're successful or not for four or five years — it is incumbent on us to understand what is happening in China.

TIME: Wi-fi [wireless Internet] is big and getting bigger in the U.S. But have mobile devices just rendered it totally irrelevant outside the U.S.?

RIESCHEL: Yes.

TIME: What doesn't get as much venture attention as it should?

PRESTON: I sort of lament the fact that less than 1% of all the VC investments go into energy.

HEESEN: It has tripled in the last year.

PRESTON: It's gone from zero to three times zero. [Laughter.] There are barriers to entry there. It costs a lot of money to get started. The big energy companies have made those barriers pretty severe.

HEESEN: Talk about wasting energy. More energy is lost in buildings than anything else — cars, you name it. "Smart buildings"energy-efficient buildingsis a hot area.

TIME: Average investors — who by the way shouldn't try any of this high-risk investing at home — watch their portfolios quarterly, daily, even hourly. How long does it take you to know if you have made a good investment?

WOODWARD: You can get a read on it in two or three years. Life sciences is definitely longer. But almost every year the most successful successes are the first comers. That seems to be the case because the best ideas are also the most obvious from early on. When we look at the life cycle from birth to the exit of the venture investors, first comers have the shortest run to making a public stock offering.

TIME: Nanotechnology — the science of building molecular-scale materials — is enjoying a wave of popularity. How do you read the sector?

WOODWARD: Has it made a difference in your life?

TIME: I can buy nanoenhanced tennis balls.

GAVIN: I am taking the cheap seats. In other words, I am sitting on the sideline because I don't want to fund basic research. I think that is where it is right now, even in the medical area, which may be one of the earlier applications.

PRESTON: Much of nanotechnology is an example of overinflated pricing. Having said that, I have seen some wonderful nanotech companies. Nanotech in sensors can be used very intelligently. I think those will win. If there's a product, a customer and money to be made, that's a different story.

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