Benjamin Kuo’s Blog

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.

I’ve been quite interested to speak to a number of entrepreneurs recently, who have either recently raised some angel or venture capital, or are in the process of raising some money. They’ve all told me something — which (given the number of people looking for funding, and the correspondingly smaller number of sources of capital) isn’t very surprising: it takes time. A lot of time. A lot more time than you’d think, or want.

One startup I spoke to — whose principals, although they had lots of experience in their own industry but hadn’t had any experience raising money, and had just started fundraising — asked me if I thought they could get an investor signed next week. The vast majority of (funded) entrepreneurs I talk to had been looking for capital for at least six months to a year, if not more, before they scored their first funding round. I have seldom heard of anyone instantly getting a venture round — if nothing else, because of the time involved in pitching, arranging meetings, followup meetings, due diligence, getting all the legal ducks in a row, etc. etc. etc. Even after you’ve got a term sheet in hand, it may still be a few months until you actually have a check in hand.

Surprisingly, the idea that suddenly a rich investor with a fat checkbook can write you a check, today, is a very common misperception I hear from early entrepreneurs. Too many of them are — frankly — in somewhat desperate situations where they need capital NOW to pay their employees or vendors.

So, what’s my unsolicited advice to entrepreneurs, as it pertains to funding?

1. Assume it’s going to take some time to get funding–if it happens at all — and make sure you structure your business so you’re not desperate if there’s a delay. That means, you probably shouldn’t be hiring that employee before you can afford it, and you should forgo those cool Aeron chairs you saw the other day.
2. Look early, look often — if you are going to have some significant capital needs, you should be looking well before you need it — not the day before. And, make sure you’re constantly networking with sources of capital (angels, venture capitalists, others) before you need it.
3. Get your ducks in a row — especially for those early entrepreneurs, make sure you’ve already engaged with an attorney, have the proper legal structure for your firm, and have an adviser who has helped other companies through funding.  It also means you have to absolutely have the stuff that a venture capitalists or angel will want to see–ie, PowerPoint, financials, etc. –ready in your pocket. Not having all of that in order will just delay (if not kill) your funding.
4. Don’t rely on the timing of your first venture round — if you’ve never done this before, you have to assume that you will have to fund your business out of pocket, from family or friends, or another source until at some time you actually might have something venture fundable.
5. Keep moving forward – if you can, given your business, keep moving forward no matter what. The farther you go with your business — in developing your product, service, or market — the more likely it is you’ll actually get funding. A huge number of companies never get beyond the idea stage because the entrepreneur gets stuck in idea stage, where a company is least likely to find funding.

We live in a world where people are constantly bombarded by a constant barrage of information — and always have been. However, in this day and age there seems to be an increase in the sheer amount of information fed to us through electronic means. Everyone is familiar with the idea of “information overload” — being presented with too much information and just being completely overwhelmed. Usually, “information overload” is triggered by the huge amount of daily business which is conducted through email (so much, in fact, that you are seeing large companies declare “email free” days to actually get work done). Nowadays, that information overload can often be triggered by all of the other electronic ways of getting information — SMS, RSS feeds, twitter, instant messaging, social networking sites, and more.

Sometime, more information can be good, if you can turn that information into something more useful– knowledge. In my book, information becomes knowledge if it someone contributes to something concrete — allows me to make a better decision, improves my understanding of the world, changes my perception of the market, or otherwise helps me through the day. Conversely, information can be bad, if it really is just noise. Noise is just information–for information’s sake–and whether I’ve seen that information or not really makes no impact on my life.

Unfortunately, it seems like there’s been an increase in pure information–and with it, noise–with a lot of the trendy new Web-based services in the world. Probably emblematic of this are two services — Facebook and twitter. Twitter — which, at its best, gives you a heads up on what is going on in the world and some personal perspectives — but, at its worst, can inundate you with trivial information like what your buddy ate for lunch or blow-by-blow details on their commute across town every morning. Facebook has a similar problem — on one hand, it might be useful to know someone at a company has left to a new startup, but on the other hand, knowing they’ve just taken a random trivia quiz can’t be all that useful.

As it is, with only a few hundred contacts in Facebook, there are too many updates on my network to keep track without devoting hours a day to updates. In LinkedIn, where I have thousands of connections, a single hour of updates might take me days to plow through.

The question — for users, and also for the creators of these services — is are they helping to contribute to the knowledge of their users — or are they just creating more noise that people have to wade through in this world of information overload?

Some of the latest positions posted to socalTECH’s Job Board:

• VP International, eHarmony.com (Pasadena)
  
• VP, Internet Content and Community, eHarmony.com (Pasadena)
• Marketing Director, Paragon Software (Irvine)
• E-Commerce Account Executive, New Age Electronics (Long Beach)
• Product Manager, Ixia (Calabasas)
• Senior User Interface Designer, Fandango (Los Angeles)
• Content Curator/Editor, LOUD3R (Anywhere)
• Linux System Administrator (Irvine)
• SEO Project Manager, Search Engine Optimization Inc. (Carlsbad)
• SQL Server DBA (San Diego)

EETimes is reporting today that Westlake Village-based Inphi is eyeing both acquisitions, and an IPO in 2009 on the Nasdaq. Inphi develops high speed semiconductors for the communications market.  Inphi is venture backed by Cadence Design Systems, Dali-Hook Partners, Flextronics, Mayfield, Tallwood Venture Capital, and Walden International.