Benjamin Kuo’s Blog

Jerry Greenfield — co-founder (and the “Jerry”) of Ben and Jerry’s Ice Cream, was the lunch keynote at the Los Angeles Venture Association’s annual Investment Capital Conference Wednesday. He spoke about the whole story behind how Ben and Jerry’s started, gave out lots (lots!) of free ice cream, and also talked about social responsibility and business. In telling the story’s of Ben and Jerry’s, Jerry spoke about how both Ben and Jerry knew nothing about ice cream or about business–not a great way to get a loan from the bank to start their business–and how, despite that, they opened up the first Ben and Jerry’s in Vermont and grew to become one of the most celebrated names in ice cream. (Photo to right: Jerry Greenfield on Wednesday at LAVA’s Investment Capital Conference).

Interestingly enough, I find in my wanderings around the technology industry here there’s a huge gap between the typical, first-time (and even second-time) entrepreneurs, and the folks who finance, service, and otherwise enable startup ventures. Even those agencies and nonprofits whose only purpose in life is to enable entrepreneurs to get to the next step find it extremely hard to reach out to entrepreneurs–who, typically, don’t know a lot of people and circulate in different networks than a venture capitalist might, for example.

I have frequently run across entrepreneurs who tell me they don’t know any venture capitalists or how to find them; on the other hand, I will be at a local business event and capital providers will talk about how they’re trying to figure out where the engineers hang out. There’s a gap between the many groups of folks who might find it useful to know one another, but who just don’t hang out with the same crowd.

It’s not all that surprising. Having been on one side of the gap when I was an engineer, often the typical entrepreneur is someone who has a lot of technical ability or a great idea — but really only knows the technical folks they work with. You know other engineers, the folks who sit on either side of your cubicle, and if you’re particularly outgoing you might know some other folks in the industry–but about the last place you’d be is networking and hob nobbing with capital providers at conferences. In fact, the technical folks are often fairly introverted (A large number of the CTOs and vice presidents of engineering I know are) — making it all that harder to connect the dots.

So what to do? There’s lots of potential success stories in folks who — like Jerry Greenfield describes, know nothing about their version of making ice cream or business.  In some part, I think fairly democratic events — like Andrew Warner’s efforts at organizing Lunch 2.0 efforts here in Los Angeles — help to mix up the crowd. The Lunch 2.0 crowd tends to attract a lot more of the “rank and file” folks who wouldn’t normally be out evenings networking with folks, plus the location at major companies is a huge incentive for otherwise sheltered employees to mix with the high tech community at large. Also, I think the efforts of technical organizations to bring some of that knowledge to engineers and others is very useful. There’s also an enormous effort by local nonprofits — CONNECT, OCTANe, Entretech, the Los Angeles Business Technology Center, and the Tritech SBDC are among some of the many organizations here — to try to impart some of those knowledge and connections to entrepreneurs.

Although Tesla Motors–which launched its electric sports car Friday in Santa Monica–may get the attention of Silicon Valley, there seem to be a lot more, Southern California companies at the forefront of the green automobile industry. We have more than a handful of companies looking to tackle the auto industry. We had Tom Taulli look into the industry with his piece: Southern California: The New Detroit? this morning.

Among Southern California electric/hybrid car firms here: Miles Electric Vehicles; Phoenix Motorcars; Venture Vehicles; and Aptera Motors. Add to that a few auto technology firms — Fallbrook Technologies for transmissions and Transonic Combustion for fuel injection — plus many others, and it looks like there’s a substantial amount of automotive innovation going on in the region.

Part of the reason for this is a long involvement by Southern California in the automotive industry. Not too may people are aware that the Art Center College of Design in Pasadena is one of the leading schools for automotive designers in the word. The major auto firms all have design houses out here — BMW Group/Designworks USA, California Advanced Product Creation (Ford), Calty Design Research (Toyota), 5350 Industrial Concepts (General Motors), Mercedes Benz, DaimlerChrysler, and Volkswagen/Audi all have design operations in Southern California.

As Tom writes:

Of course, it’s all good news for a variety of companies in southern California, which are developing next generation car technologies. “Southern California is the home to a myriad of design studios for all the major car companies,” said Andre Peschong, who is a principal at Bridgewater Capital. “There is a talent pool of engineers, CAD design specialists and let’s face it, a car culture.”

There appears to be no shortage of technology related and events this week across Southern California, as it seems like conferences, meetings, meetups, and networking is reaching a new fevered peak. In fact–if you’re so inclined–you can spend breakfast, lunch, dinner, and late into the night at events these days. You almost never need to go home…

If you’re in Los Angeles, Digital Hollywood kicks off today at Hollywood & Highland; among the many evening events is Dealmaker’s LA networking event.

On Tuesday, you can start your day off with OCTANe’s Meet the VC event before driving up to another day of Digital Hollywood.

On Wednesday, a good portion of Southern California’s indigenous venture capitalists, investment bankers, and other capital providers with be at LAVA’s Investment Capital Conference where you can hear Jerry (of Ben & Jerry’s) talk about Ben & Jerry’s social mission; if you’re into cleantech, you might instead be in San Diego at CONNECT’s Clean Technology Venture Roundtable. In any case, West LA will be the place for (more) Digital Hollywood private parties and get togethers.

Thursday appears to be intellectual property day — with both an event in Los Angeles from TCVN, and one in San Diego from CONNECT.

Then, round out your week with either hanging out at Lunch 2.0 at Yahoo! in Pasadena, or go to the big entrepreneurship conference from UCLA Anderson, its 2008 Entrepreneurs Conference where you can hear from a ton of entrepreneurs, venture capitalists, startup CEOs, and more. If that’s not your kind of event, then sit back and relax at the opera with the San Diego MIT Enterprise Forum and their High-Tech Night At The Opera.

We’ve recently been chasing down a local company which has raised a Series D round of funding, but so far has refused to directly respond to questions about the round, who is included, and details of the funding (even after being presented with a complete list of facts and asking for a “yes” or “no”). In fact, it’s all too common now to be rebuffed by companies beyond their Series C funding rounds.

Why the hesitance of the firm? Quite simply, in today’s investment climate, it appears that a Series D can often be a black mark on a company. While early rounds (A, B, C) are almost always a very good thing, the Series D is much more ambivalent.  Sometimes–but not always–a company which has raised a Series D may have just had to recap the firm; may have had to take a serious down round, if it has raised a lot of capital in the past; usually, but not always, is looking for a buyer.  On the other hand, sometimes a Series D can indicate a company is doing very well — in particular, if that Series D was actually used to provide some liquidity to founders ahead of an IPO; if a company has pulled in a significant strategic and/or private equity firm; or if it’s honestly expanding so rapidly it just needs some additional capital.

How should potential employees, partners, and others view these? Some things we look at:

1. Did the company raise more in its Series D than earlier round, or was it a single digit round?
2. Has the company had significant executive turnover in recent months?
3. Did all of the prior investors re-up in the new round, or did some mysteriously disappear? And was there a new, high profile lead?
4. Was the round announced, or found out — ie, did they want the world to know or did it just leak out by accident?
5. How much has the company raised — i.e. has the company just raised so much as to preclude a decent return on the firm?

If a company which just raised a Series D just got a new CEO, lost a slew of VPs, only got a few of its prior investors to participate, and is now heading to around $100M in funding — watch out. If, on the other hand, the founder is still in charge, the firm has added some high profile execs (and in particular, a CFO with public experience), and signed up a brand new, high profile investor or investment bank — that’s good.

In recent conversations over the last few weeks about investment activity here in Southern California, I’m finding more and more entrepreneurs are looking to technology angels — that is, high profile folks from the technology industry with recent exits — rather than venture capitalists. In particular, in the consumer Internet and web space, the capital requirements that these entrepreneurs think they have — usually, in the $250K to $500K range — are fairly modest, versus traditional larger VC investments.

Although there are a number of very high profile, non-Southern California “super angels” that it seems everyone I talk to wants to get to — Jeff Bezos of Amazon.com, Ron Conway, Marc Cuban, and Elon Musk (plus, about everyone else from Paypal) come up in my conversations with entrepreneurs all the time — it seems Southern California individual angels get less attention. However, there seem to be a few people here — Michael Jones of Userplane/AOL comes to mind, as do Matt Coffin of LowerMyBills.com, Richard Wolpert of Realnetworks/Disney Online (now a VC), and Kamran Pourzanjani of PriceGrabber — who entrepreneurs are adding to their list as “go to” angels. It will be interesting to see how the trend towards looking to these “super angels” first goes here in Southern California.

Colin Stewart over at the OC Register has an amusing post this morning about D-Link (and OC firm) using booth babes at Interop. Having gone to more than my share of trade shows, I can tell you that (for journalists, and for real buyers) having a booth babe isn’t all that useful.

Typical conversation I have had at a trade show booth:

Me: “Hi, I’m trying to get information about your products. What can you tell me about what you do?”

Booth babe: “Uhh, I don’t really know anything about that. Do you want a pen?”

Me: “Actually, I’m really interested in writing an article about your company, I think you’ve got some interesting products. Do you have anyone here who does know something about your products?”

Booth babe: “Well, actually, I have no idea. I just got a call from my agency this morning who told me to show up to this trade show. I don’t actually know who is in charge here.”

Me: “Does anyone here know who I could talk to — maybe a marketing person or their PR folks?”

Booth babe: (calling over to her equally bubbly and well endowed friend): “Jill, do you have any idea who is in charge of the booth?”

(other booth babe pauses from fending off sex-starved IT geek hitting on her) “Umm, I don’t have any idea.”

Me: “Do you actually have any idea what this company’s equipment does?”

Booth babe (laughs): “I don’t even have a computer, or even know how to turn one on!”

Me: “Uh, thanks…”

I spent last night at a private technology/venture capital networking event in West LA last night, and in speaking with more than a few entrepreneurs have been pleasantly surprised to find that Southern California (and in particular, West Los Angeles) has become — as I think of it — a startup destination. What I mean by a “startup destination” is there are an increasing number of companies who are choosing to locate in Southern California for their startup — not because they live here, or because of personal reasons, or because of being a spinoff from a company or university research — but because it’s seen as a beneficial place to make your company succeed.

For a long time, the only startup destination was Silicon Valley — usually, Palo Alto or surrounding cities– but often San Francisco and other cities in the Bay Area. But, now, it appears, Southern California (and in particular, West Los Angeles) is seen as being an area where there are lots of quality startups, where early stage companies can be with both other startups and possible partners, and where there is a supportive environment for growing and funding a company. I’ve mentioned this before, but I’m seeing this more and more.

I talked to a number of entrepreneurs (who, as an aside, had to do their pitch to VCs while being sniffed by bulldogs owned by Mahalo’s Jason Calacanis) all either recently located to the area, looking at locating to here, or very keen on moving into the area. For some, it was the proximity to consumer Internet firms like Fox Interactive Media/MySpace; for others, because of the studio/Hollywood influence, and for others, just because of the “technology scene.”

Provided these are startups who can either can gain funding, or bootstrap, into a profitable and sustainable business, this is good because it increases the interesting opportunities–for employees, venture firms, service providers, and the economy–and spawns more startup success and activity.

(below: Jason Calacanis and his bulldogs — who have more twitter followers than most startups — and who were busy distracting entrepreneurs from their pitches).

At a recent Orange County Venture Group event, focused on the experience of Entropic on the IPO market, one of the panelists, investment banker Ernie Ruehl of Credit Suisse, made the comment that when you file a registration statement, “you’re putting a ‘for-sale’ sign on the company.” In fact–in my own discussions with CFOs, investment bankers, auditing firms, and others recently, I’ve heard the same comment–that an IPO filing today is a signal to the market for buyers–something people have told me is referred to as the “dual path.”

To be sure, any company filing an IPO is likely to try to get to the market. But, increasingly–due to Sarbanes-Oxley, and the current market climate–companies are more often than not also hoping that a strategic buyer will step up to the plate and purchase the firm, avoiding the hassle of having to deal with quarterly filings, regulatory scrutiny, analysts, and the hassles of a roadshow.  The service providers I’ve talked to tell me that simply, if you’re able to file for an IPO, you can show companies that your books are clean–are disclosing full financials–and essentially are ripe for an acquisition.

The Financial Times just ran an article today commenting on Southern California’s increasing presence in the technology world. From Silicon Valley investors discover LA’s star appeal:

After two decades watching their neighbours in Silicon Valley attract more venture capital investment than anywhere else in the US, companies in southern California are making a comeback.

Successive technology booms have made the northern California technology corridor the undisputed leader when it comes to start-up investment.

But a new generation of internet companies specialising in content management, online advertising and search optimisation has established headquarters in Los Angeles, which is acting as a magnet for investors.

The good and bad of all of this attention Southern California has been getting: the good — is there’s a lot more, deserving companies being funded here in Southern California, and it’s much less of a struggle for companies started here to get past the initial hurdle in funding. The bad: the cutthroat, ego-driven, and (frankly) elitist culture of Silicon Valley is threatening to creep into what has been more of a supportive, honest atmosphere for startups and entrepreneurs here. There’s was a recent, relevant post by 37Signals talking about the problems with Silicon Valley thinking and culture, which is worth reading.

We’ve just posted a new article to our Insights and Opinions section, about The Rookie Advantage. This article comes from a well regarded, local executive (who has been involved in a couple of successful IPOs and a number of mergers & acquisitions here in SoCal)–but who wants to remain anonymous.

How Rookies and Startups Can Maintain Their Unfair Advantage

Late in the 1936 baseball season, a 17-year-old Iowa farm boy struck out
15 St. Louis Browns batters in his first Major League game. Shortly
thereafter, that same pitcher went on to strike out 17 Philadelphia
Athletics batters, an unprecedented feat for anyone, let alone a youth
with no professional sports experience.

How could such a young, inexperienced athlete baffle so many major league
veterans? The answer is simple: the Browns and the Athletics had the
misfortune of facing Bob Feller before anyone wrote The Book on him.