Friday, October 17, 2014
Center for Student Services 360 (Workshop Space) – Center for Student Services

TA Training: fall make-up session

The Risk and Reward of Venture Capital: An Interview with Michael Ewens

Michael J. Ewens recently joined the faculty at Caltech as associate professor of finance and entrepreneurship after four years at the Tepper School of Business at Carnegie Mellon University. A native of Wisconsin, Ewens attended Washington University in St. Louis, majoring in mathematics and economics before moving on to UC San Diego for graduate studies in economics.

Ewens explains how he discovered venture capital through a summer job in graduate school, and shares his ambitions for his future at Caltech.


What field do you specialize in?

Entrepreneurial finance. I study the financing and development of high-growth start-ups such as Twitter, biotech start-ups, or new clean-energy firms. I study how money and investors get matched to start-ups and what value is created after they are financed. What are the factors that lead to them receiving the right money at the right prices, or failing to? How is capital raised?

Entrepreneurship is a fascinating area because it is at the extreme of many problems that come up in economics. A classic issue in economics is what happens in a situation where one person knows a lot more than the other—information asymmetry—and can take advantage. This is often the case in entrepreneurship, where you have people who are new to the business world seeking venture capital from people who have expertise in finance and money.


Is your interest in what goes into making start-ups successful purely theoretical?

No, it's a very important issue in practical terms. For example, Caltech allocates a part of its endowment toward the private equity asset class, which includes venture capital. So understanding how investments in start-ups behave in terms of risk and return is fundamentally important.

And, of course, it's important for entrepreneurs and policy makers. Most government officials think it's good to have more start-ups, and they think they know how to set policy to lead to more start-ups. But every economist who studies entrepreneurship comes from the position that we really don't know how to encourage start-ups and make them more profitable. Take the example of health care. It is thought that one reason people don't leave large companies to start new ones is that they are locked into their health insurance plans. Now, with the introduction of the Affordable Care Act ("Obamacare"), we can begin to look at the data and see if this supposition is correct.


How did you get interested in venture capital?

It was happenstance. I was a graduate student in economics at UC San Diego, studying international trade. I wanted to live close to campus, near the beach, but not in graduate housing. To do that, I needed to earn more than my research-assistant salary. So I started consulting for a venture-capital firm called Correlation Ventures. They are a unique firm. They introduced a different kind of econometrics into venture capital, the sort of techniques used in Moneyball, which revolutionized the business of creating a winning baseball team. I fell in love with the idea.

I had initially planned to work for them just over the summer, but they offered me access to a wonderful set of data that I could use in my graduate studies, so I stayed on as their "data guy." I continue to work as a part-time advisor to the fund.

What inspires you to choose particular topics in venture capital for further research?

Venture capital is a very dynamic field, so new research topics are not hard to come by. The challenge is collecting rich data and using quality empirical strategies.  For example, changes on the legislative side over the last couple of years have provided unique research opportunities. The JOBS Act [Jumpstart Our Business Startups Act], passed by Congress in 2012, significantly alters the way start-ups are financed, who can invest in them, and how such firms can eventually go public. These policy changes provide what economists call natural experiments. For example, the legislative changes make it possible for us to test theories concerning the types and magnitudes of financing frictions facing start-ups.

The underlying assumption behind such policies is that having many new small businesses is great, because, as everyone says, they create the most jobs. But what people forget is that new small businesses also destroy the most jobs, because most small businesses fail. So that's part of my research: to shine a light on what makes start-ups succeed or fail.


Are there other important issues for venture capital that you study besides changes in legislation?

Yes. For example, I'm working on a paper now with some coauthors that investigates the impact of new cloud software that has grown rapidly in use since 2005. Think the Amazon cloud. This software has made it possible for individuals to start certain types of businesses with very little money: information technology businesses, say, but obviously not something like developing new drugs, for which you need laboratory space. Then we can ask how this changes the venture capital investment choice. For example, if an investor can give you ten thousand dollars rather than a million to get your company up and running, how does that affect the investor's selection of entrepreneurs and the fate of start-ups generally?

It's also becoming easier and easier to collect disparate sources of economic data from the web. So questions that economists have studied in the past using small datasets can now be checked against much larger datasets of hundreds of thousands of observations.


What will you be teaching at Caltech?

Next January I'm going to teach a graduate course in applied econometrics, and in the spring I will be teaching a class in venture capital finance [BEM 110] that mirrors a class I taught to MBA students at Carnegie Mellon. I'm not worried about the undergrads at Caltech handling the course though. In fact, I'm looking forward to being able to throw more mathematics into the course. This course will give students background on how investors and entrepreneurs behave through the lens of economics and finance.


What attracted you to Caltech?

I liked my time at Carnegie Mellon, because in a business school you have a very close connection to industry and the "real world." But Caltech is "research first" in a way that a business school cannot be. Writing as many quality papers as possible and teaching the kind of things I was taught as a PhD student is what I'm best suited for, I think, and Caltech is the perfect place for that. In 15 years, I want to look back and say that I took on some risk and made a small but significant impact, changing the way people think about economics. Caltech shares that interest.

Exclude from News Hub: 
News Type: 
In Our Community
Tuesday, October 7, 2014
Red Door Cafe – Winnett Student Center

Samba and Salsa Exhibition

Tuesday, October 7, 2014
Center for Student Services 360 (Workshop Space) – Center for Student Services

Thirty Meter Telescope Groundbreaking and Blessing

Finessing Finance: An Interview with Richard Roll

"Everything has a price," the saying goes, and though that might sound cynical, taking the adage seriously can lead to a lifetime of fascinating inquiry. Just ask Richard W. Roll, who recently joined Caltech as the Linde Institute Professor of Finance. After spending nearly 40 years at the UCLA Anderson School of Management exploring everything from interest rates to asset portfolios, Roll has moved slightly eastward to help Caltech expand its offerings in finance.

In addition to his role as professor, Roll has consulted widely over the course of his career for agencies and corporations that are commonplace in the American lexicon: AT&T, Freddie Mac, J.P. Morgan, AARP, and the Securities and Exchange Commission, among others. Roll recently spoke with us about his research, his career, and his new position at Caltech.


What excites you about finance?

It's just enjoyable work, and very practical too. For example, mergers and acquisitions, a topic of a recent paper of mine, is a gigantic business. About 15 percent, by market value, of firms in this country are involved in mergers every year. If you can make these deals more profitable and fair for everyone involved, you've had a real impact.

I wrote a paper back in the 1980s titled "The Hubris Hypothesis of Corporate Takeovers." It was a theoretical paper arguing that when companies bid in an auction to acquire another firm, they almost always pay more than anyone else is willing to, and they often pay a penalty for that. It's known as "the winner's curse." If you win the auction, you bid more than anyone else would bid. As a result, the price of your stock often drops, because the market is saying you probably made a mistake.

In this recent paper ["The Hubris Hypothesis: Empirical Evidence"] we were able to test this hypothesis—to actually see how much overbidding goes on in mergers and acquisitions by looking at a large dataset of 4,299 mergers from 1986 to 2008. We found that indeed there is a lot of overbidding. It's pretty prevalent.


Is mergers and acquisitions your major research focus?

No, no. There are two main areas of finance: corporate finance, which is what corporations do, and capital markets—the stock market, the bond market, things like that. I do work in both. Another of my recent papers ["Resolving the Errors-in-Variables Bias in Risk Premium Estimation"] gives a new angle on old questions, proposing a technique for making more accurate predictions about stock market behavior.


What will you be teaching at Caltech?

This fall I'm teaching the beginning finance course, BEM 103. Seventy students have registered for the course, most of them undergrads.


Do you have any sense of how teaching here might compare with your experience at UCLA?

At UCLA there are no undergrads in the business school—all the students are MBA or PhD students. But I hear that the students here are very smart, and I'm looking forward to working with them.

I imagine that most of my students at Caltech will be in engineering or physics or something like that, but they might want to change to economics at some point, or they might just want to learn something about the business side of the world as they begin their scientific careers. A lot of Caltech faculty members are also interested in financial matters. Some have patents and want to start companies, but they don't know anything about finance. I've talked to a few already.


Did you always know you wanted to study finance?

No, initially I was an engineer. I studied aeronautical engineering at Auburn University and then went to work for Boeing. It was only when Boeing decided to prepare me for engineering management and sent me to the University of Washington to get an MBA that I learned anything about business. I found I liked it better than engineering, so I quit my job with Boeing and went to the University of Chicago to get a PhD in finance, statistics, and economics.


Do you have any collaborations planned at Caltech?

Michael Ewens also just started here, and we might do something together. In fact, he and I are planning to run a finance seminar series. We have already invited Steve Ross, a Caltech alum [BS '65], professor of financial economics at MIT, and a member of the Caltech board of trustees. Ross, who studied physics at Caltech, isn't the only Caltech alum who has gone into economics. Nobel Prize winner Bob Merton [MS '67] is also an economist on the faculty at MIT.

Listing Title: 
Finessing Finance
Exclude from News Hub: 
News Type: 
In Our Community
Tuesday, October 7, 2014
Center for Student Services 360 (Workshop Space) – Center for Student Services

Caltech Peer Tutor Training

Emotions in the Brain: An Interview with David Anderson

This year has been a busy one for biologist David Anderson, Caltech's Seymour Benzer Professor of Biology. In 2014 alone, Anderson's lab has reported finding neurons in the male fly brain that promote fighting and, in the mouse brain, identified a "seesaw" circuit that controls the transition between social and asocial behaviors, neurons that control aggressive behavior, a neural circuit that controls anxiety, and a network of cells that switches appetite on and off.

The flurry of discoveries, made possible using state-of-the-art neurobiology techniques such as optogenetics (a technique that uses light to control neural activity), is the result of years of research by the lab to understand emotions and how they are encoded in the brain. We recently spoke to Anderson about this work, his goals, and how the interdisciplinary collaborations he is building at Caltech are helping to spur a revolution in neuroscience.


How would you define an "emotion"?

There has been ongoing debate for decades about what "emotion" means, and there is no generally accepted definition. In an article that Ralph Adolphs [Bren Professor of Psychology and Neuroscience and Professor of Biology] and I recently wrote, we put forth the view that emotions are a type of internal brain state with certain general properties that can exist independently of subjective, conscious experience. That means we can study such brain states in animal models like flies or mice without worrying about whether they are consciously aware or not. We use the behaviors that express those states as a readout. For example, behaviors that express the emotion state we call "fear" are freezing and flight. Behaviors that express "anger" include various forms of aggression.


So you study these behaviors to get at the underlying emotion and its neural circuitry?

Ultimately, yes. We use genetically based techniques that have been developed over the last 10 years or so—including but not limited to optogenetics, imaging of brain activity, and mapping of neuronal connections—to try to identify specific populations of neurons in the brain that control these "emotional" behaviors. Are there specific populations of neurons in the brain that control aggression, for example? If so, where are those neurons located in the brain? How do they function? Do they only control behaviors, or do they encode internal states as well?


Do you know any of these answers yet?

We have identified, in fruit flies and in mice, small populations of neurons that control aggression. In flies, we have identified a population of as few as three to five neurons that, when activated, are sufficient to make a fly fight.

In the mouse, we have identified an analogous population in a deep brain structure called the hypothalamus. There are about 2,000 of those neurons. Activating these neurons is sufficient to promote aggression, and inhibiting these neurons can stop a fight dead in it tracks.


Do you think similar populations of "aggression" neurons are found in humans? Could they be related to problems with violence in people?

We're studying these problems because they are fundamental to understanding how the brain works, but certainly it doesn't escape our attention that violence is a pervasive public health problem. My feeling is that we need to understand the basic brain circuitry that controls aggression if we are ever going to understand abnormal forms of aggression, such as sexual violence.

In that respect, it's interesting that we have discovered, in both flies and mice, small populations of neurons that control both aggression and mating (reproductive) behavior. So in a male mouse, for example, if you optogenetically stimulate these neurons at a lower light intensity, the animal will try to mate instead of fight. At a higher stimulation intensity, the animal switches from mounting to attack. It's amazing to watch.

A really important objective over the next several years is to try to figure out how the brain can keep sex and violence separated if the neurons are so intimately related to each other, starting with the question of whether they are the same or different neurons. Obviously that could have implications for sexual violence, for example. It could be that there are people who, as it were, have their wires crossed in these regions of the brain, and that causes them to express violent behavior inappropriately.


With regard to your recent study that identified neurons that function as a "brake" on appetite, could that same kind of mis-wiring contribute to eating disorders?

It could. I think the field as a whole—meaning the field of psychiatry—is moving away from the popular idea that psychiatric disorders are due to chemical imbalances in the brain, as if the brain were a bag of soup flavored with dopamine and serotonin, to the idea that psychiatric disorders are due to dysfunctions of brain circuitry as well as chemistry.


You've found a "seesaw circuit" in the amygdala that tips between social behavior and self-directed behavior depending on which of two populations of neurons is active. Did you expect the brain to be wired this way?

No. It was also completely unexpected that these two populations segregate according to the most basic distinction between neurons in the brain: inhibitory neurons and excitatory neurons. Inhibitory neurons control the social behaviors. Excitatory neurons control the self-grooming behaviors. It did not have to be that way.


Could the proportion of these neurons explain something like personality—whether a person is introverted or extroverted?

That is a fascinating question—whether differences in the behavior of individuals might reflect differences in the relative numbers of different types of neurons. We're trying to see if that is true in different strains of laboratory mice that show different levels of aggression. It is a new direction of research in my lab.


Does the discovery of these kinds of circuits suggest possible treatments for human disorders? Could you alter a circuit to change behavior?

It might be possible that, if you found the right population of neurons, you could override the effect of a gene mutation to promote autism or some other psychiatric disorder by pushing the activity of the circuits in a different direction.


Tip the balance of the seesaw . . .

Tip the balance of the seesaw in the other direction.

However, this is very far in the future.

But to take a step back to the 35,000-foot level: All of this is happening in the context of a field-wide revolution in neuroscience, a revolution in technology for understanding the brain at the neural circuit level. When I was on the advisory committee for the Obama BRAIN project, we decided that it should focus on supporting the development of this kind of technology.

The technology—in optics and nanotechnology and molecular biology and genetics—allows us to identify populations of neurons that control behaviors, map their connections, measure their activity during behaviors, and manipulate their function, turning them on and off, with a laser-like precision that we could never do before.

If you think of specific populations as a needle in a haystack, these technologies allow us to see and touch and manipulate the needle separately from the haystack. That doesn't mean it won't affect the haystack, but at least we know what we're doing.


Your lab's focus changed as a result of the advent of these new methods. Can you tell us about that?

Around the early 2000s, I decided that this area of neuroscience was going to be ripe for new discoveries, although much of this new technology didn't exist then. Caltech helped me to completely retool my laboratory, to move from the study of brain development and stem cell biology to the study of neural circuits and behavior—a major transition from both the intellectual and technical standpoint. It was sort of like turning a sailboat into a motorboat without stopping moving.


Do you have a vision of how the field will develop in the future?

This work is increasingly interdisciplinary. It needs molecular biology. It needs optical physics. It needs nanotechnology. It needs modeling, theory, computer science, and electrical engineering. No one laboratory can be competent in all of these different areas.

What has kept me here at Caltech is the ability to collaborate with people from different disciplinary backgrounds. What I am excited about, going forward, is to try to develop a new style of research here in which several laboratories devote their collective energies toward solving a challenging problem in a collaborative way, that they couldn't do if they just stayed in their silos and did their own thing.


Have you already set up some of these kinds of collaborations?

Yes. For example, I've been working since 2009 with Pietro Perona [Allen E. Puckett Professor of Electrical Engineering], who has applied his skills in machine vision and machine learning to figure out how to automatically measure aggressive behaviors in flies. We are trying to develop similar technology for the mouse as well. It is not only enormously labor-saving but opens a new, more quantitative approach to describing behavior. And there is also my collaboration on emotion theory with Ralph Adolphs in the Division of the Humanities and Social Sciences.

One of the strong recommendations of the BRAIN committee was to promote these kinds of interdisciplinary, cross-laboratory projects. I think it is important for Caltech to recognize that because of its strength in computer science, applied physics and engineering, and its strength in neuroscience, psychology and social sciences, it is ideally poised to promote and facilitate collaborations between physical scientists and neuroscientists.


Interdisciplinary work is something that Caltech does very well.

It is. But in this area of interdisciplinary neuroscience, we have particularly exciting opportunities to engage faculty in multiple divisions across campus. I think this is an ideal moment for us to seize the opportunities identified by the BRAIN initiative, and take advantage of what we do best.


When you say "what we do best," what do you mean?

Nimble, interdisciplinary and creative collaborations between labs, which would be harder to implement at larger institutions. Caltech is perfectly positioned to exploit the revolution in neuroscience, in its own unique and interdisciplinary way—exploiting our growing strength in neuroscience and our traditional strengths in genetics, the physical sciences, and engineering—to solve the enormous challenge of how the brain works.


Exclude from News Hub: 

New Master of Student Houses Appointed

Erik Snowberg, professor of economics and political science, has been appointed as Caltech's new master of student houses, or "MOSH."

Following Caltech tradition, the MOSH is a professorial faculty member who focuses on promoting a positive overall experience for Caltech undergraduates and acts as a liaison between students and faculty. To that end, the MOSH invites students over for meals and movies, hosts events throughout the year designed to foster interactions between faculty and students outside the classroom, and organizes trips to the opera, theater, and symphony, among other activities.

"My goal is to increase student-faculty interaction, but more on the students' terms," says Snowberg. "I hope to get more faculty into the houses, and more students into the faculty's homes."

Snowberg has been at Caltech since he received his PhD in business administration from Stanford in 2008. He holds bachelor's degrees in physics and mathematics (with a minor in economics) from MIT. "I am where I am in part thanks to my undergraduate professors," he says. "I can't really pay them back—they're all rich and famous—so I have to pay it forward."

Snowberg is taking over from Geoff Blake, professor of cosmochemistry and planetary sciences and professor of chemistry, who has served as MOSH since 2009. "Erik's experience as Faculty in Residence in Avery House over the last few years will be an enormous asset as he takes on the responsibilities of MOSH," says Anneila Sargent, vice president for student affairs and Ira S. Bowen Professor of Astronomy. "He has a strong sense of the challenges as well as the opportunities that lie ahead, coupled with infectious enthusiasm."

Snowberg and his family are already living among the undergraduates, so the new position won't require a physical move. "We've been in Avery for four years, and it is awesome," he says. "Our son was born a year and a half ago and he has known no other home. It was something I wanted to do from the get-go, but my wife was skeptical. I thought my job would just be to tell students that if they were going to light something on fire, they should make sure to have an extinguisher handy. My wife was worried she would never sleep well again. We were both wrong."

Because the MOSH position is a half-time administrative appointment, it can impact a faculty member's research. This holds true for Snowberg in a somewhat surprising way. He explains: "Part of my research is understanding how economic traits and behaviors evolve over time. I'm particularly interested in the Caltech Cohort Study, which aims to follow at least two classes through their entire time at Caltech and figure out how their experience affects their economic traits and behaviors. I believe more frequent interaction with the students will help me to come up with interesting and novel hypotheses to test."

Exclude from News Hub: 
News Type: 
In Our Community
Wednesday, September 24, 2014

A chance to meet Pasadena Unified School District Leadership

Wednesday, September 10, 2014
Avery Dining Hall – Avery House

RESCHEDULED to Sept 24th: A chance to meet Pasadena Unified School District Leadership