Benjamin Kuo’s Blog

Helio’s Sky Dayton pans Apple’s iPhone in an interview with the New York Times yesterday, because it only has a touch screen.

I dropped back again to Digital Hollywood in Santa Monica for a few hours Tuesday to sit into a few sessions. Despite the sign below (and a clear lack of parking anywhere within walking distance of the two hotels), I did get a chance to sit in on both a pitch session for companies looking for venture capital, and session on advertising strategy.

Repeating a mantra I have been hearing from many early stage (non-funded) startups, one of the companies in the pitch session very clearly stated: “our competitive barrier to entry is the ‘network effect’ we have” — “not the technology”. I’m constantly amazed by the extremely early startups who claim they will be the “next MySpace”, that their site are “Web 2.0, AJAX, and social networking” compliant and that their competitive barrier to entry is the fact that “we’re first with this idea.” I had posted earlier on what you might look for to determine if you’re in a bubble; unfortunately this looked  a lot like the “idea and an MBA” plans I saw so much of during the last Internet boom.

However, on a different note, it was interesting to hear a panel of ad agencies speak on Advertising Strategies (with speakers from Deutsch, Nielsen Media Research, The Media Group, Universal McCann, Starcom, MindShare Interaction, and Bond Art and Science). The consensus seemed to be that we’re only at the beginning of the shift to including digital and online in the advertising spending mix; one of the speakers, John Montgomery of Mindshare Interaction mentioned a rapid acceleration of movement of advertising to digital; and a transformation taking place with the industry. However, it sounds like there’s still an inordinate amount of attention (and dollars) paid to television and cable advertising. It seems to me that we’re still at the tip of the digital advertising iceberg, and that there’s a lot of money still shifting into the online space.

I spent some time today at Digital Hollywood, which is being held today through Thursday at the Loews Santa Monica and Le Merigot hotel. It’s interesting, as much as there has been talk about a convergence between technology, venture capital, and Hollywood, how different the industries operate; as often as there are conferencing covering the entertainment industry and technology, there’s still a divide in how entertainment and technology are funded.

I sat through one of the first sessions, Mainstream Hollywood Meets The VC, which featured several venture capitalists (Mark Mangiola, managing Director of Canaan Venture Capital; Virginia Turezyn , Managing Director of American Capital Stratgies, and Greg Martin, Partner at Redpoint Ventures), and a couple of people from Hollywood (Temple Williams, Senior Vice President at Comedy Central, and Conrad Riggs, of Mark Burnett Productions), along with Roy Salter from The Salter Group and Mark Kapczynski, CEO of Kontrol Media.

Listening to the panel, it was quite clear that there’s still a divide between where venture capital ends and entertainment starts–which entrepreneurs who are looking to start companies in the entertainment and technology convergence should pay close attention to. Asked by Mark Kapcyzinski if venture capitlists invests in content, Mark Mangiola was quite clear: “No.”

Kapczyzinski cited that venture capitalists are not comfortable with the industry, they don’t know the metrics, and traditional media is not their sweet spot. Greg Martin of Redpoint concurred, saying they don’t invest in traditional media content. Virginia Turezyn of American Capital Strategies said that the media industry is still hits driven, which doesn’t lend itself to visibility. Virginia’s assessment: “If you don’t pick your investments right, you have a hole in the ground”

So where does venture capital apply to the entertainment industry? According to Temple Williams, the place that makes the mose sense is opportunities in tangential support — where investments have traditionally been made — in technology that helps bring content to market. The overall consensus of the panel seemed to be that the studios have a lot more money and are much more willing to invest in placing bets on content, with the exception that venture capitalists are looking for things that “flip the model” — as Martin described, that change the costs of distribution, lowering the cost of production, and lower costs of marketing that content. However, content itself is seen, for the most part, as too risky, though the panelists did point to Will Ferrell’s “Funny or Die” as an example of an exception.

Despite the lack of venture capital, both of the panelists from Hollywood - Conrad Riggs and Temple Williams — felt that the future is in new media. Temple said it directly: “New media is the space you want to be in. It’s the place in the future… Growth is in the digital space.”

It looks like the space business is seeing a rebirth here in Southern California, with the latest a funding of XCOR Aerospace from a group of Boston angels that includes Esther Dyson; here’s an interesting front page article from Wired on Elon Musk’s El Segundo-based SpaceX. Also, Walt Disney’s CFO says the firm is going to triple what it spends developing video games — the firm spent $130M last year on its video game development efforts. Finally, if you haven’t gotten enough of Jason Calacanis blogging about his startup Maholo, you can read the Wired interview.

We just posted an interview I did with Bill Gross of Idealab
this morning. There are a surprising number of clean technology and energy related companies hiding here in Southern California: Altra Biofuels, Clipper Windpower, Earthanol, Energy Innovations, eSolar, Fallbrook Technologies, Oryxe Energy, Transonic Combusion, Soliant Energy, Stirling Cycles, Sunpower Systems, Vycon, Gevo, NanoH2O and Zinc Matrix Power, just to mention a few. Vinod Khosla (via Khosla Ventures) is fairly active in investing in firms in the clean energy space here, having funded NanoH2O, Transonic Combusion, Gevo, and Altra Biofuels; so is Rustic Canyon, with investments in Transonic and US Renewables (headed by Jim McDermott of Stamps.com)–itself an investor in biofuel and clean energy projects. Idealab’s companies are Energy Innovations, Stirling Cycles, eSolar and Aptera Motors. NGEN Partners, a major investor in the space nationwide, is located in Santa Barbara.

Welcome to the folks at Clearstone Ventures, who have generously signed on to sponsor this blog. Clearstone has been a sponsor of socalTECH since last year, and is one of the more active, top tier venture capital firms here in Southern California. Some of Clearstone’s more notable investments have included Overture Services (acquired by Yahoo), PayPal (acquired by eBay), and United Online (IPO). The firm now manages around $650M in capital.

Google just posted an interesting article to the company’s blog on the company’s stance on H-1B visas, the visa that allows highly skilled, foreign born workers to enter the U.S. The company argues for an increase in the currently 65,000 H-1B slots (which were filled in the first two days they were open this year), due to difficulty in getting highly qualified candidates.

There’s an ongoing, and often contentious debate about H-1B visas, which some contend takes away highly paid jobs from U.S. born workers, and which some also say that IT outsourcing companies abuse to bring in people willing to work for less (against H-1B rules). However, what’s often ignored is that highly skilled, technical workers who eventually stay here in the U.S. and become citizens are behind much of the technology and startup activity here. In my personal experience, most H-1B workers are not here as cheap replacements for citizens, they’re here because it’s very difficult to find qualified workers for technical positions, and because they want to become part of the great opportunities here in the U.S.

As much as technical professionals face concerns over outsourcing of jobs overseas, it seems like shutting out the best and brightest from working here in the U.S. isn’t the best policy. To continue the lead the U.S. has had so far in innovation and technology, it’s important to attract highly skilled workers here instead of shipping that work overseas.

BusinessWeek recently ran an interview with the Tech Coast Angel’s Richard Koffler on pitching your firm to investors. It’s worth reading–the Tech Coast Angels gets lots of pitches every year, and also runs two Fast Pitch competitions (one in Los Angeles, the other in Orange County) every year which are well worth watching.

The big news this morning is that Amp’d Mobile has just filed for bankruptcy, despite having raised more than $375M in venture capital. The Wall Street Journal reports that the company owes more than $100M in debt, and has assets of less than $100M. The debt is owed to Verizon Wireless, which is owed $33M; Motorola, which supplies the firm’s handhelds, with $16M, along with its investors and retailer Best Buy.

Dan Primack reports that San Diego music service Slacker has just raised $40M; plus, Google just confirmed its purchase of Feedburner, which means that Google now owns (almost) everyone’s RSS feed. Plus, the city of Carson loses $45,000 to hackers– and needs to hire a decent IT team — their Treasurer says she “doubts (her computer) had the latest security software patch protections”. Finally, eHarmony gets sued for not offering its services to gays, lesbians and bisexuals..