Benjamin Kuo’s Blog

Just a quick reminder, we’re coming up to LAVA’s “Meet the VC” event next week on November 17th — an excellent opportunity to get to meet all of the venture capitalists in Southern California–and a few from outside the area–in one place. More information on the event is on LAVA’s web site. (socalTECH is a media sponsor of the event).  It really is a great opportunity to connect with the investment opportunity here.

Earlier this month, Tech Coast Angels founder Luis Villalobos passed away. His memorial has now been set (info below):

You are cordially invited to attend the
Luis Villalobos Celebration of Life

November 11th, 2009
5:00pm – 8:00pm

In case anyone was wondering, yes, our blog site (but not the rest of our service) was off in the Ether today. (The ISP we use for our blog site–completely separate from our main services–moved our IP address, and it took awhile for DNS to propagate). We’re back…

Tuesday’s quick link roundup:

• Twiistup sets next conference date: January 28, 2010
• Where to find Social Media folks in Los Angeles? (Tony Karrer)
• And now, some smoking guns (Jason Calacanis)

For any entrepreneurs lurking here, I’ve got some tickets to VentureNet I am giving away. Just email or otherwise contact me, particularly if you’re an early stage startup who wished they were presenting but didn’t make the cut, etc. It’s a great opportunity to meet others in the community, see some pitches, and do some networking.

On a related note,  a good story on RingRevenue and how they got funding from the warmup session for VentureNet was recently posted on Entrepreneur Magazine. (disclaimer: I was on the selection committee for VentureNet last year. My picture of Jason Spievak of RingRevenue, at the VentureNet warmup/screening event is actually posted on Flickr). I tell entrepreneurs every year to go ahead an apply–not to pitch, but because the judges really have (in the past, at least) done their best to read through applications and see what companies are up to.

Not too many people I talk to realize that online e-commerce firm NewEgg is one of Southern California’s own, based in the City of Industry. Well, NewEgg is now also the latest IPO filing in Southern California, saying today in a filing with the SEC that it is looking to raise up to $175M in an IPO.  The firm hasn’t yet selected an exchange. The firm has some minor amount of investment from Insight Venture Partners, but otherwise is owned by its co-founder, Fred Chang, and current CEO Tally Liu. (full SEC filing here).

Hello everyone — just a quick note, our main site was offline for about 15 minutes around 12:45am Thursday, due to some power issues at our colocation provider.  We’re back up now.

Having lived both here in Southern California as well as in Palo Alto and the heart of Silicon Valley, I have a story I like to tell people about what I sometimes think of as the “Starbucks Effect” and how it exists in places like Palo Alto (and I’d argue, places like Boulder and Seattle) — but hasn’t really existed much in Southern California. It’s been both a strength and weakness of Southern California companies.

The “Starbucks Effect” is what happens in a place like Palo Alto–which is so dense in startups and venture capital, you can’t help running into partners/employees/competitors/customers/venture capitalists/service providers/etc. in any public place. Going to your local coffee shop, deli, child care center, soccer game, library, etc. you invariably run into someone — or many people — you know in your industry, who are competing against you, who could help fund you (or who funded your competitor), etc.

The advantage of the “Starbucks Effect” is that if you are trying to get your startup funded, find employees, figure out what your competitors are doing, know what kinds of companies are being created, and need to get a sense of what is going on in your industry, you can often do so just hanging out at Starbucks, trading chitchat on the soccer field, listening in at your workout club, etc.

The disadvantage of the effect is that if you have to be really, really careful about what you talk about, you can’t conduct business meetings in Starbucks without potentially giving away the farm to your competitor also in the shop, it’s very tough to work on something without everyone in town knowing about it, and it’s really, really easy to fall into the “echo chamber” of Silicon Valley and not listen to your customers and the market.

This doesn’t–usually–happen in Southern California, because it’s a really, really big place geographically (ie, we have big pockets here and there of tech companies, not one single city with a big presence); we have millions of people NOT in the tech industry hanging out even in high density cities like Santa Monica; and there’s such a broad range of industries that even if you’re in the same place it’s not as likely you’d connect.

However, it’s interesting to hear that the “Starbucks Effect” has been happening here, albeit on a limited basis. In particular, I’ve heard about Starbucks where there are enough executives/service providers/etc. all living in the same neighborhood that it could be considered an industry hangout; soccer teams in the OC made up of the children of executives from all the notable public tech firms there; and other similar stories elsewhere in SoCal.Heck, there are a few folks I know in the industry who I run into more at Trader Joe’s than anywhere else.

Have you seen the “Starbucks Effect” in your neighborhood?

Mark Suster, a venture capitalist at GRP, has been (very) busy providing useful information and advice to entrepreneurs in his blog, Both Sides of the Table recently, and comments today on how to best gain the interest of an angel.

Among the many tidbits of advice he gives, is that a company needs to not only have a good idea and a plan, but they need a team, a product, and market validation (or what I think of as proof). Mark has hit the nail on the head with that advice.

One of the dynamics of the Southern California startup market is you run across quite a few wanna-be entrepreneurs who–I think–get bogged down in step one of the process, finding a good idea and writing a business plan–but never go on to the rest before looking for funding. This might also be true in other markets, but the case here is often that there is experience on the business development/sales side, but not on the technical side.  The problem is,  I have yet to meet an angel or VC that funds an idea without at least a prototype (with one notable exception, which is funding an entrepreneur who just sold their last company for a huge pricetag, and has already proven that they can build a successfull exit and products).

Regardless of what you’ve heard from your MBA class, the latest best selling entrepreneurship book, or late night infomercial, no one funds just an idea and a PowerPoint nowadays. Yes, you need a PowerPoint, but given the importance of funding not the “great idea” but the “team with a great idea” bringing some proof to the table is really the only way to go. There seems to be a false belief in the marketplace that a business plan and enthusiasm is the way to a VC’s heart. It’s just like that (often exploited on late-night TV) belief that if you develop the next big mousetrap/automotive widget/kitchen gadget/etc. the big corporation is going to give you a million dollars and make you rich. Neither is going to happen. In this business, execution is the key to success, with or without venture funding. Angels and VCs are not looking to provide you funding so you can go try out an idea; they’re going to give you funding so you can take that prototype/product, improve it and ultimately scale out your product/service/offering to hopefully conquer a market.

One of the interesting things about Inc. Magazine’s “Inc 500″ list is it helps to identify all of those big, private companies — who, in another world, might have been public. It’s interesting to note the large number of Southern California firms with very big revenue numbers who are private — in fact, if you sort the Inc. 5000 California firms by revenue, it’s striking to see how much of the first page is almost entirely Southern California firms. Is there a tendency for So Cal companies to stay private longer (or, forever) instead of going IPO like their Northern California brethren?

Looking at the list of somewhat tech-related firms with greater than $100M in revenues, you see: