Benjamin Kuo’s Blog

Marc Averitt, a venture capitalists at Okapi Ventures in Orange County, makes the case today that venture capital is a safe haven from the turmoil on Wall Street.

I am very excited about the prospects of venture capital as an asset class. More specifically, I think now is an ideal time to be in early-stage venture capital (especially in Southern California) and, in fact, I continue to put my money where my mouth is here and will post more on the specifics of the SoCal venture ecosystem in the months to come.

Marc also points out an upside of the economic turmoil (well, for VCs, but not for entrepreneurs):

One of the upsides of the current economic conditions (if there is such a thing), is that valuations for start-ups have come down and continue to decline for most sectors.

Those who went through the dot com bomb and subsequent “Internet nuclear winter”might be getting a feeling of deja vu right about now, from the latest hand wringing over how startups will fare and how the financial markets might affect the high tech business. It seems — at least based some of the folks I have contact with– the emotional swing has gone from “startups-Web2.0-socialnetworking-tech is all cool-and-peachy and we-rule-the-world” to “death, doom, and destruction! Oh my!” It’s not pretty, but it sure feels like we’ve been through this before. It’s not that folks haven’t been saying things have been feeling a bit bubbly for the last year or so, but there’s a whole generation of entrepreneurs and others in the high tech industry who didn’t go through the dot com bust and haven’t at all been concerned about how the overall economy affects technology (until now).

So, given that folks are trying to figure out where things are, I thought I’d post a quick list of things that matter (again) — a few things I think people have been forgetting given the exuberance of the high tech startup market in recent years.

1. Business model–and revenues–count. It’s recently been an environment where all of the focus has been on building up web traffic and web popularity — akin to the Dot Com years–where how and where you make money didn’t matter, just how popular you could make your web site. With a probable pullback in venture funding, and much more wary potential buyers for your company, actually making money from your Internet venture is important, simply from a survival standpoint. Acquirers are going to be looking for companies which can make money–good or bad economy–and looking less for cool and cutting edge. If you don’t have a business model, and a way to make revenues–you may be in trouble.

2. It’s dollars per-unique-visitor, not total-unique-visitors. We’ve all seen the PowerPoint slides with “we’ve got X bazillon unique visitors” showing the stats from Alexa, Compete.com, etc. for every pre-revenue Internet social networking video sharing widget software firm out there. The traffic stats are going through the roof! They’re growing visitors by the thousands! Uh, but they don’t actually make any money. The better number is how much money do you make per unique visitor? Or, if you indeed are getting more and more popular (that’s good) how is that making you more and more money? There’s plenty of “one hit wonder” sort of websites who suddenly see a spike in traffic, but unless that converts into something concrete–it’s just that, a spike in traffic.

3. It’s building a business that counts, not flipping your company. Yes, we all want to build a business, flip it to Google/Microsoft/Yahoo/whoever, and retire to Hawaii. But, the odds of that happening are frightfully small — just look at the list of Google’s acquisitions and benchmark that against the thousands of companies who wish they were acquired. Were you one of the (only) three companies Google acquired this year? Probably not. Is Google/Microsoft/etc. looking to buy companies obviously designed as a flip? Probably not. What’s important is building a real business–with real customers, building real value. Sure, you may get bought (and if you have a real business, you are more likely than others to see that opportunity)–but the important thing is to deliver value to your customers.

4. Being profitable is better than being popular. Most of the dot com survivors, who did so well in the nuclear winter, were very focused on being profitable and making money. For the most part, they were not the folks with the infinitely cool sock puppet commercials, trendy Superbowl advertising, celebrity-studded company launches at the Playboy mansion, or nifty free T-shirt giveaways. The ones who survived were the ones who built very profitable businesses, who were able to make money without spending every dollar on marketing, and who focused on building their businesses, not popularity.

5. Finally, efficiency and execution are critical. In an easy-money, easy-credit environment, efficiency and ability to execute were less critical. Need to accelerate things? Pour some money on it. Trying to get more market share? Spend a bunch on advertising and marketing. Need more developers? Just spend a chunk of money and hire some. In an environment where capital is harder to find, efficiency in operations and ability to execute with a tight team is what gets you to the finish line. Your company’s ability to develop your products, deliver services to customers, and build your business efficiently can make the difference between making it–or not. As many a dot-com survivor will tell you–when capital is hard to come by, it’s a game of attrition and survival, not buying market share.

Of course, this is all my personal opinions on things that mattered during the dot com bust, and may not apply to today’s environment. Maybe a bailout will miraculously revive the market and send high tech soaring to new heights. But, I get the awfully familiar feeling that the world we as knew it, again, has shifted below our feet, and where we were 777 Dow points ago is not where we are today.

A few people have recently asked me for some hints and tips on how to best use our database to find their next job. Whether they’re just looking for the next big thing, aren’t happy with their existing job, because they’re moving, or their startup is on shaky ground, we find there are quite a few job seekers using our services.

As most of you know, part of our site is a database of technology companies in Southern California. We believe we have the most comprehensive site listing technology firms from Santa Barbara to San Diego, including both venture funded and non-venture funded companies.

So, here’s a few tips on using our database for your job search:

1. Use it to uncover those “hidden gems” in your industry. Usually, people are aware of the big players in their industry, but aren’t aware of all the startups, mid-sized companies, and even large (quiet) companies who are in the area. You can search by industry, and keyword, for the many companies in the local area who could use your skills and knowledge.

2. Figure out who is likely to hire–or not. You can use or database to figure out some qualitative info about companies — stuff you can’t get out of a company’s web site or marketing materials. For example, it’s probably good (though not always) if a company has raised capital within the last 3 months, because that probably means they are hiring new employees or have the cash for new employees. It’s probably not so good, if a company hasn’t raised capital in awhile and you haven’t heard much news from them. On the other hand, if a company appears to be going strong (new products, people, partnerships) and hasn’t raised money in a couple of years, that could be a very, very good indicator that they’re profitable and doing well.

3. Gauge executive confidence at a firm. We track executive moves (new/moved/departed) CEOs, CFOs, VPs, etc. Good signs: new CEO, founder becomes CTO. Hires their first VP of Sales, and a sales team. Bad signs: third CFO this year. Founders have all left the company. Lost a string of VPs. You know the signs–you can use our database to track this easily.

4. Find contact names. Figure out who the right people might be to speak to at a firm. Smart job seekers tell me that they try to target the hiring managers or, at very least, the VP in the division they’re looking to join at a company. We provide a lot of this info in our database, which is particularly helpful for companies which are fairly quiet about who their executives are (lots of companies, believe it or not). Of course, jobs are best found by networking with employees at the companies, but it’s a useful place to start rather than in that big resume bucket in the sky.

5. Track down the good companies. One way to figure out who the good companies are, is to use the quality of the venture firms that are backing them as a proxy. Generally, top tier VCs are going to stand behind their companies in good times and bad, help drive companies forward to expand and grow, etc. It’s not always that easy to figure out who those companies are — but you can find that and more through our database.

Are web startups finally paying attention to the economy?

Jason Calacanis, CEO of Mahalo.com and oft-cited and followed technology pundit, just emailed out to his email list an email titled “(The) Startup Depression.” Calacanis says:

It’s my believe that the economic downturn will be much worse than it is today, and that 50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months.

Make a list of every Web 2.0 startup to raise an A or B round and cross 80% of them off the list, because they will not make it to their next round of funding or profitability.

Update: Willan Johnson (COO at SocialVibe, former VP at Yahoo) has a good perspective on this here.

I was recently talking with the CEO of a high tech startup here, and he asked me — why did I bother covering Southern California companies? Why not go big and focus on all startups, only cutting edge Web 2.0 startups/etc., Silicon Valley, etc? Why not write more articles about Google, Yahoo, Facebook, etc. Why care about Southern California as a place for high tech?

The reason socalTECH started (it used to be a side hobby I did as a software engineer, and has become it’s own business) was because of the misconception years ago that Southern California did not have any technology. I recall reading on one hand, that Southern California had no technology, but then on another hand that “Silicon Valley” companies like Broadcom and Qualcomm were doing very well and ruling the world. (note to those still uninitiated into basic geography: Broadcom is in Irvine, Qualcomm is in San Diego — not Silicon Valley).

It was very clear — and it often seems, it continues — that the media (and even many bloggers) think of technology only as being a “Silicon Valley” thing. socalTECH was started to focus on and highlight the innovation and technology being grown here in Southern California. There are a lot of very successful companies located here who people seem to think are based in Silicon Valley, for whatever reason. The raison d’etre behind socalTECH has been as a place to see what’s going on, get the latest news, connect with the technology community HERE, not in Silicon Valley.

People are still surprised when I tell them the very lengthy list of companies which were started in Southern California — MySpace, Overture, Lowermybills, Pricegrabber, Rent.com, JAMDAT, Geocities, Earthlink, NetZero, QLogic, Broadcom, etc. — all of which have spawned out startups and helped create the community that exists here today. Companies here are innovating in thousands of different ways in an in different industries. Our goal is to cover that innovation — because almost no one else does.

Everyone covers Google, everyone covers Facebook, everyone writes articles on the latest micro-second-of-uptime at Twitter. There’s enough of that from not only Silicon Valley itself but from all the mainstream newspapers who think only Silicon Valley has technology companies. That’s fine — let them cover that. We’re here to serve and deliver news to Southern California, about Southern California’s great high tech industry.

Add our widget to your web page by going here and following the instructions.

Some examples:

Southern California venture deals:

San Diego Technology events:

Los Angeles (only) technology news:

Orange county news:

I’ve recently been pondering the myth of “the Big Idea” — the belief that if you come up with an earth-shattering idea, you can rule the world. It’s the idea of a better mousetrap, an idea for a widget, the idea for a better startup. Unfortunately, it’s just that, a myth.

I used to have a coworker who collected ideas, swearing that he had all these great ideas, and that he should be a millionaire for having come up with those ideas (but never actually having done anything about those ideas). If that were true, there would be a lot more millionaries in the world, because — if you spend enough time in the technology and startup world — you soon find out that not only do lots of other people have your idea, lots of other people are executing on that idea.

You run into this a lot with very early, first time entrepreneurs, who — when asked what they are working on — tell you that you have to sign an NDA before they can talk to you about it. They use the same line of the venture capital investors and angels, as well. Consistently, the successful entrepreneurs I talk to tell me it’s not the idea, it’s the execution.

Sure, you have to have a great idea, but the difference between the successful and not-so-successful entrepreneurs are those that are able to turn those ideas into reality. It’s a common myth of entrepreneurs — think up of an idea, sell that idea to Proctor and Gamble/Microsoft/Google/whoever, and have it made. So, my advice for aspiring entrepreneurs: great, you have an idea — now go make it happen!

John Greathouse, a partner at Rincon Venture Partners, and also an experienced executive with lots of experience dealing with corporate investors, shares his tips on dealing with corporate investors in a piece in our Insights and Opinions section today. In How Entrepreneurs Can Get The Love Without A Bear Hug, John goes into great detail on the pluses and minuses of corporate investors, and how best to deal with them.

In the 1960s cop show “The Mod Squad,” Linc played a vital role as the tough, street-savvy member of the hip, made-for-TV crime-fighting team. When you shake down a drug-addled informant, Lincs are a great asset. However, when you are negotiating with a Big Dumb Corporate Investor (BDCI), links between the strategic aspect of your partnership and the investment terms can be fatal to your venture.

John has served as SVP of Sales and Business Development at CallWave, CFO and SVP of Strategic Development at Expertcity/Citrix Online, and also served as CFO and VP of Business Development at Computer Motion. Having been involved in Expertcity’s sale to Citrix, and Computer Motion’s IPO, he has a wealth of experience dealing with corporate investors.

Marc Averitt, over at OCVC, just posted the National Venture Capital Association (NVCA’s) video on venture capital innovation — the group’s 11 minute-long promo for the venture capital industry and innovation. I suspect (given the wealth of production talent here in Southern California) that there are many reading this would could create a much more compelling video–particularly if they are targeting entrepreneurs–but it’s interesting nonetheless.

As many of you might know, we have had a LinkedIn group for socalTECH premium members for some time. We’ve recently decided to open up the group to anyone who is a fan or a part of the Southern California technology community. So if you’re interested, click in over to our LinkedIn Group for socalTECH. LinkedIn not your network? Then maybe check our our Facebook Group instead.