Benjamin Kuo’s Blog

I am frequently asked by entrepreneurs on how to find the right angel or VC backers for their companies, and am finding there are three areas where I constantly get questions — but have few answers — are computer games, films, and content. It appears that here in the Southern California area, there are plenty of people looking to start up video game related companies, trying to find funding for their films, or want to create Internet content. However–at least, given my experience–there are very, very few traditional venture firms or even angels who fund any of those three sectors.

What’s common about those sectors, aside from having lots of folks in the Southern California area active in those industries, is they’ve traditionally been thought of as hits-driven businesses.
In the case of films, this is pretty obvious — there are lots of well funded films from studios which fail miserably at the box office. But it’s also fairly true of online content (which arguably even if it attracts viewers and might be considered a hit doesn’t yet have a feasible business model attached in the online world). It’s also true of the video game business, which currently takes millions of dollars and often hundreds of developers to develop, and is driven by a similar distribution model.

Because of that, the vast majority of financial folks do not invest in any of those areas. The exceptions tend to be technology platforms behind the video game and online distribution market, where the technology–not the games or content–is the primary focus. But even those are few and far between.
It’s just those opportunities tend to not match the ideal VC profile in terms of scalability and repeatability. Namely, investors are looking for something which scales out fairly well–i.e. something you can gain lots of additional business for without investing as much into a company–and which is also repeatable — i.e. it does not require a new team, retooling, or the same effort to get your next product out. In most of these cases, it misses the mark on both. Scalability is limited, because in order to create your next content title/game/etc. it takes the same, or more effort to create. Repeatability is limited, because usually you have to sell your customers all over again, and your next title is not necessarily going to be successful.

I’ll admit, there are a few areas where some of these are mitigated — I’d point to a number of well funded, online massively multiplayer game companies, where the attraction of both a monthly subscription and “virtual item” economies has attracted funding. Also, to some extent casual games, because of the low development costs involved. But “traditional” computer games companies almost never get venture funding. On the content side, you do see “platform” plays and studio plays — where either a technology platform, or a stable of project creators has scored funding. But, you’ll never see funding for just creating a single web series or show.  Finally, on the film side–despite inquiries I get every week–I have never, ever, ever, seen a VC fund a film, and have no idea why anyone would think a technology VC would have any interest in doing so.

I had some more mapping fun this afternoon, using our venture database data to draw a few informative maps: one, of Palo Alto, and in particular around Sand Hill Road (right off the Stanford campus); the other, of West Los Angeles. (Little known fact: we also have all recent Silicon Valley venture deals, and venture capital firms in our database, because it’s also linked to our sister site, silicontap.com, covering Silicon Valley venture deals).

First, a photo of Palo Alto, which is the heart of Silicon Valley’s venture community:

Next, we have a picture of West Los Angeles (todo: look at this for Orange County, San Diego, Santa Barbara, etc.)

Red dots are technology companies. Green dots are venture capital firms. Blue dots are service providers (lawyers, PR firms, real estate agents, focused on high tech).

Twitter is down much
Do not like the whale or bird
Why use it anymore?

Where oh are the tweets
I have so carefully typed
Lost forever now

What a company
Can get funding when broken
No business model?

Not a software whiz?
You can come and work for us
No need at Twitter

There’s no need for me
to twitter any more now
no one can read it
(Thanks to @mikeout for the inspiration…)

We’d like to welcome the newest sponsor of Rustic Canyon Partners, the newest sponsor of socalTECH.com. Rustic Canyon Partners is one of the largest venture capital firms based in Southern California, and also has offices in Silicon Valley and Seattle. The firm is an early stage venture capital firm that invests in what it describes as exceptional entrepreneurs building transformational companies.

Thanks to Rustic Canyon, and all of our sponsors, who make socalTECH.com possible!

Our anonymous commentator, “Uncle Saul” has contributed a new article to our Insights & Opinions section, entitled Roping In The Legal Eagles. “Uncle Saul” gives us the lowdown on working with an attorney with your startup.

Johnnie Cochran was an effective, albeit smarmy, defense lawyer who would say or do anything to defend his clients (anyone up for a glass of OJ?). He was a master at encouraging jurors to disregard facts and base their legal verdicts on emotions and conjecture. Yet, despite his exceptional courtroom theatrics, you would be foolhardy to hire good old Johnnie to review your software cross-licensing agreement.

In more proof the Internet is collapsing the world, here’s an interesting item on the Orange County Register outsourcing layout/editing to a New Delhi, India company. Add that to the list of easily outsourced professions: software engineers, Hollywood writers, radiologists, and investment bankers.

The AeA, the high tech industry association formerly known as the American Electronics Association, released their annual Cybercities numbers today, which tries to count the number of high tech workers in different cities. The report is always interesting as a look at how big an area is or isn’t in the high tech industry. However, I wonder — given the limitations of government statistics and other sources of information like this — how accurate they can be.

In particular, looking at what the government usually defines as high tech employment — ie. engineering or related positions, at companies which classify themselves as high tech companies — most likely skips a great chunk of Southern California’s companies which identify themselves as “high tech.” A good example might be MySpace — which is arguably a media company, and is owned by Fox– although it uses the Internet as a basis of its operations. In addition, there are a slew of Internet content, Internet advertising, ecommerce, and other companies here which might be better classified as media, advertising, retailers, etc. — and mostly likely wouldn’t be put in the category of “high tech employer.” I haven’t seen the actual criteria behind these particular numbers, but I know if I were given the task of picking the correct SIC codes to try to define what is or isn’t a high tech company here, it would be fairly difficult.

It’s a much easier task when you’re talking traditional, hardware and software. It’s much harder when you’re talking about Internet companies. The report seems to reflect this — areas which actually have a lot of “IT” workers — New York (lots of IT developers working for financial services firms), Washington, DC.  (fed. government and its contractors), and Dallas Fort-Worth (home of many, many IT consulting firms employing many bodies) rank in the top of this year’s list.

The Technology Council of Southern California has just kicked off a blogging effort, the latest in the number of organizations who have launched their own blog site, with their Technology Council of Southern California Blog. Scott Fox, author of “Internet Riches” and a board member of the council, is heading up the blog effort.  The idea behind the blog is to brings some focus to the council’s members and the Southern California technology industry.

The new blog follows recently launched blogs from the Pasadena Angels and OCTANe, two other organizations fairly involved with the technology industry here.

(disclaimer: I’m on the board of the Technology Council, along with a number of other organizations in the area…)

It seems like at trendy day to add mapping features to find startups. We’ve been mapping out all the recent venture funding in Southern California since almost the advent of open Internet map services, but, we thought it would be fund to go ahead and extend that a bit to find neighboring companies in our subscription database. Simply go to any company, click on “Map” next to a company’s name, and we’ll show a map of all of that firm’s neighbors.

Use this to:

• Find other possible employers in the neighborhood
• Figure out potential companies to make a sales call to when you visit a neighborhood
• See how many startups are in your area

We’ll be enhancing this as we get requests. This mapping feature is only available to premium subscribers to our database of high tech companies, venture capital, and service providers in Southern California (and beyond), who pay just $24.95 a month to access what one of our subscribers told me recently was “the most useful Internet service out there, period.”

We’ve just posted an article in our Insights & Opinions section from Brian Ring, from Ernst & Young, about Seven secrets to entrepreneurial success. Our Insights & Opinions section is where we feature voices from the community about some aspect of the high tech industry. If you’re interested in contributing, please send me an email.

1. Stay alive during the bad times – Dogged determination is what Hal Washburn, BreitBurn Energy Partners and EOY finalist, says is the key to being a successful entrepreneur and weathering what can be a vicious cycle. There are good times and very bad times, and you’ve got to be creative to stay alive during the bad times.

2. Don’t hire your best friend – Brad Jones, Redpoint Ventures and EOY judge, warns the most common mistake is not insisting on having the highest-quality people on the managerial team. Too often entrepreneurs hope that someone who’s a nice person or whom they’ve known a long time can do a job that they haven’t done before, instead of finding the most qualified person who understands the pitfalls. If the team is really good, the business usually works, he says. (continued…)