Monthly Archives: July 2002

Last night I showed up

Last night I showed up at an event called the “Venture Capital Task Force,” a mixer for the venture capital community topped off by a panel discussion starring several VCs, lawyers, and entrepreneurs (all women, interestingly enough); and held at the Palo Alto offices of the famous technology law firm Brobeck. Brobeck, which has had layoffs this year like its clients, has also just moved into spiffy new offices in one of those half-empty buildings all around Silicon Valley.

Although times are supposedly tough in the tech world right now, the room was full and the event cost $75.00 in advance, $85 at the door. The chicken was excellent, as were the brownies. The wine was abundant. Hardship is relative.

The panel, which included Lisa Buyer, who just left Technology Partners, Elaine Bailey of Novus Ventures, Kate Mitchell of BA Venture Partners, and Nancy Yee of NIF Ventures was very forthcoming. Women in venture capital seem not to be as pretentious as men, and they don’t posture as much; they cheerfully confess their limitations, and they share information.

No, they still don’t take business plans over the transom. Yes, they still see about 5,000 deals a year each and do about fifteen.. No, they have not stopped investing, although they have learned some lessons. How quickly can they do a deal they really like? Three weeks if the due diligence has been done for them by trusted advisors. The time is taken negotiating out the term sheet.

What was hot right now? Security. E-learning is out. But by the time you get to them, that will have changed. What do they look for? A good, protectable piece of IP (since if the company fails that may be all there is left of value) a good management team, and a market. Each firm has its specialties, and they seemed stunned that entrepreneurs didn’t do enough homework on the web to find out what those were.

Interestingly enough, they weren’t big fans of technology transfer from universities that merely license their patents. They want the entrepreneur to own the IP, not merely have a license to use it for a particular application.

Basically, they all said repeatedly that they had started as entrepreneurs themselves – people who had raised venture capital -and that they knew how entrepreneurs felt. Yet they still don’t fund a company until they have had dinner with the management team, and most of their deals are brought to them by trusted advisors (although almost never by brokers). It’s a very, very tight little network, they admitted. It is all in who you know.

Thus, if you are outside Silicon Valley, the chances that you will be funded by a Silicon Valley VC are slim to none, especially today. One of the lessons they all learned was that they had to stay very close to their portfolio companies in order to help them survive. This makes serving on the board of a company outside the Valley undesirable. “I’d never get on a plane for a one-hour meeting,” one of them said.

Their advice to someone with a company in another state: “get your state to start a seed fund with about $35 million.” Elaine Bailey did that in Michigan before moving to California, and the Michigan fund has been quite successful. She said there’s a five-year time horizon to growing a state-assisted seed fund. If you want to live in a place outside Silicon Valley that is not a technology center (and those are Austin, Boston, and Seattle), you pay the price, unless you have an active angel network.

Angels were viewed by the VC panel as easier to work with, “because they invest small amounts of money in relation to their net worths and they don’t do as much due diligence.” Everyone in the room seemed to be quite grateful to angels for taking the real business risk of innovation. The panel reminded us that venture capital was not a risk business; it was a money-making business. One of the
panelists, Lisa Conte, was a current entrepreneur — the founder and CEO of a natural pharmaceutical company, Shaman Pharmaceuticals. Although she looked awfully young, Lisa had raised over $200 million for Shaman, including: several private venture capital rounds; a $45 million IPO; several corporate alliances valued at tens of millions of dollars; debt financing; innovative structures during “down market” times; and a restructuring rights offering. Her career had gone in the opposite direction from the others: she started at a VC firm, analyzed their health care deals, and then started her company.

As the evening ended and I headed to my car, a woman roughly my age walked out with me. “Let’s get together and share contacts,” she said. “I’ve been here two months, but I have a great network in Denmark.”

Namaste,

Francine

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I have now been in California since July 3

I have now been in California since July 3, first in San Diego and then in the Bay Area. I�ve met with one client who used to be in San Francisco, but now offices in Santa Rosa, having shrunk his company to two people and an admin. I�ve seen another client whose offices are being remodeled around him � for the next tenant who can pay the rent. The landlord said our client can stay until the next tenant moves in.

I�ve met with a start-up company– funded by a large computer parts manufacturer–that is looking for a CEO to come in and find it a strategic marketing partner. They are hoping the CEO will work for �sweat equity.� I�ve been to a gorgeous, empty gym in a gorgeous, empty Redwood City industrial park that both Excite and Broadvision were supposed to move into. And that Broadvision is still paying the lease for. Excite�s former headquarters buildings, all glass, are empty. You can literally see through them.

All along the 101, the Yellow Brick Road of Silicon Valley, are signs offering space for lease. Journalists are writing about the doom and gloom in the Bay Area, as people are forced to give up their second homes and their fancy cars.

Me, I never was part of the upturn, because I chose to live and work in Arizona. We missed most of it.

Every day I watch CNBC while I work. Every day the government (Bush, Greenspan, Harvey Pitt, any Senator or Representative) says something. And every day the stock market goes down.

The SEC has until August 15 to look at the books of public companies and see if there is misstatement of revenues or earnings. I�ll bet more bad news is on the horizon from the re-stating that will inevitably occur even in companies who didn�t commit accounting fraud. Better safe than sorry, will be the thinking, already articulated by Intel�s Andy Bryant as he announced 4000 layoffs by attrition. Look for the stock market to go down more.

The tech community and its economy are still bleeding. If Broadvision is still paying a lease on a building it no longer needs and didn�t even move into, how much more of that is happening? How many other companies are stuck with overhead they can�t legally get out of, while their sales are still flat or diminished? In Excite�s case, the lease outlives the company.

What do we learn here about overhead? These companies, flush with cash from their IPOs, run by young people with no experience of a downturn, rushed to expand to fill orders from customers, many of whom themselves do not exist anymore. How can there be a comeback. Who will be the customer?

The government can�t help us here. Everyone in Bush�s cabinet, seemingly, has been a corporate officer at one time or another. But they�ve all done exactly what is now being investigated � which is why Dick Cheney, being sued for his activities running Halliburton, has not spoken out more forcefully about corporate governance.

We just have to wait it out. We can do that in California, Arizona, or anywhere else we happen to be. We live in a global universe, and when America sneezes, other countries get pneumonia complicated by epilepsy.

Me, I�ve gotten myself a tmobile account so I can wirelessly connect at 11 mbs from any Starbucks. I�ve taken a few yoga classes in Pacifica, not far from Montara, the beach town where Chelsea lives.

In her town, the people are mostly farmers and fishermen. All day long there are men working on things around the neighborhood. They hammer, saw, plant and mow. I guarantee they are not knowledge workers. They catch salmon and sell it to knowledge workers. One family has an alpaca farm. When I walk the dogs, the alpacas come out to greet us. They look like characters in a Spielberg movie. The alpaca farmer sheers his pets and sells the sweaters to knowledge workers.

In the Pacifica Starbucks, I met a man who is seriously studying yoga from books and does not appear to work at all. I also met a man who brings his dog there every day. The dog is trained to jump into a chair outside the store and wait while the man gets coffee. Amidst all this, I�m seriously thinking of becoming a barista. Now, *that�s* a knowledge worker.

Namaste,

Francine

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Arizona just got lucky.

Arizona just got lucky. Not only because of the Translational Genomics Center and the attention and economic development that will bring to the state, but because our state�s business model just became hip and trendy, an asset rather than a liability. Large corporations are out; small business is in.

Economic development officials have long pursued big corporate out-of-town elephants, begging them to set up their corporate headquarters here. Perhaps fortunately, they�ve all declined. Arts organizations have long bemoaned the lack of major business sponsors for the museums, symphony and ballet. Perhaps fortunately, we have been forced to built modest cultural attractions around the sponsorship of small local companies. Look at the Science Museum.

As a result of our previous shortcomings, we do not have the a large concentration of Fortune 500 corporate headquarters. We don�t have the Metropolitan Opera, the Philadelphia Orchestra, or the Boston Pops. But we also do not have Lucent, Tyco, Adelphia, Enron, or Worldcom in Arizona. We will not have 17,000 layoffs in one week, or a stadium that must be re-named overnight. We do not have arrogant CEOs who make millions whether their companies are profitable or not, and who get paid more millions to leave when they fail.

For better or for worse, Arizona is still the frontier. We have land barons, we have pioneers, and we have entrepreneurs. Now, we have the opportunity to bring those three elements together to forge a new, more ethical, more realistic business model for the 21st century.

The land barons have developed communities that bring ordinary people to Arizona in droves, to raise families, to retire, to play golf, to start businesses. They have been successful because people love to live in Arizona. They endure pay cuts, hot summers and inferior schools to live here.

The pioneers have come here and built a culture of independence and meritocracy: if you�re talented in Arizona, you can rise to the top of the pile, undeterred by entrenched interests and hereditary aristocracy. Look at Jerry Colangelo.

The entrepreneurs have a vision of how to make the world a better place through innovation � information technology, biotechnology, space technology, nanotechnology.

Rarely have I seen representatives of all these three groups in a room at the same time. They don�t know each other, and they don�t talk to each other. But they have much to offer each other.

The only reason I know them all is that I�ve lived here for over thirty years, and I remember some of the land barons before they were land barons. I was a pioneer myself, leaving New York to find the freedom of owning a business in Arizona long before women were accepted as business owners back east. And I know the entrepreneurs because I cherish their energy and initiative, their vision and talent.

I propose that we take advantage of the unique spirit of Arizona to do something different. Let�s not ask the government to give us venture capital from state retirement funds, which they will not do. Let�s not create false profits through questionable financing mechanisms like reverse mergers into public shells. Let�s not doom Arizona to an economy of low-paying service jobs.

Instead, let�s ask the land barons, who possess a good deal of the wealth in the state, to come together with the pioneers and entrepreneurs and start a foundation to give grants to entrepreneurs with innovative technology, grants that will help new companies form to occupy the office space the land barons have developed. Let�s not even think of this as �investment� in the normal sense. Let�s think of it as civic entrepreneurship or social entrepreneurship: building the state through philanthropy.

Perhaps the Arizona Community Foundation will lead this effort, establishing a special entrepreneurial �seed� grant fund, reaching out to wealthy Arizonans who are already engaged in philanthropy. Perhaps it�s the universities, through their tech transfer or entrepreneurship programs. Perhaps it�s a spin-off of Social Venture Partners Arizona, the highly successful venture philanthropy organization started by Jerry Hirsch.

Who would like to step forward and help in this effort? Who would like to ensure that we do not get left behind economically, and that we don�t make the mistakes of the last century, confusing easy money with easy business morality? Who will be Arizona�s 21st century pioneers, setting us firmly in the forefront of innovation and independence?

Namaste,

Francine

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Independence Day

From: francine@stealthmode.com
Subject: Independence Day

Yesterday I watched more TV than I ever anticipated. July 4th, usually a slow news day, is not one on which I sit at either the computer or the TV, especially when I have crossed the desert to get to La Jolla and am within walking distance of the ocean.
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I was just getting ready to go to the beach when the TV in the hotel lobby broke into its regular programming to tell us about the shootings at LAX. It was pretty soon after the incident had occurred, and details were scant. Scant details are the most efficient marketing tactic a news channel could use; you can be sure we’ll all be glued to our sets until we find out the names of the dead, the details of the shootings, and the terrorist cell that claims responsibility.

Later in the evening, I reconnoitered with the TV set in my room to listen to the Israeli consul general. The question was whether the shootings could truly be called a terrorist act, and the parsing of the words “terrorist act” reminded me of the days of Bill Clinton. The American news sources said they did not ascribe the incident to terrorism, but rather thought it might be the act of an individual, or a hate crime. The Israeli official, however, confessed to a broader definition of terrorist act: “when a man comes into an airport and shoots people in a ticket counter line, Israel defines this as an act of terrorism — whether or not it is part of a broader series of planned events.”

Right. Terrorism is the act of making people afraid. It doesn’t matter whether it is done by Al Qaeda, Hamas, or a disgruntled El Al employee: the net effect is that people will be more afraid than ever to fly.

Today the pundits came on the TV. Ex-pilots and aviators, they were questioned about airport security. It seems we made a little mistake of the kind people make when they lock the barn door after the horse has fled. Rather than consider the broad scope of possible terrorist acts, we decided only to beef up our security to prevent another episode in which airplanes are hijacked and used as missiles. Our security is thus much tighter aboard the planes themselves, and once we have passed through the security checkpoints. But it is non-existent between the entrance to the airport as a whole and the magnetron on the way to the gate.

We now know that someone could come in the glass door and cause havoc in the terminal by carrying a gun *outside* the secure areas. Airports are usually crowded; every untoward event results in evacuations and delays; and it’s a much shorter walk if you’re a suicide bomber and you do your deed at the ticket counter.

Now we will take delayed action again. Yesterday, someone suggested aggregating all airline passengers at a central location away from the airport, checking luggage and screening them there, and then bussing them to the gates. By my calculation, that will lengthen every trip by a potential two hours. I’m sure that will help the airline industry, already struggling with the inconvenience of making passengers take off their shoes in security lines and empty their pockets into plastic trays.

People are already making the decision to drive short distances rather than fly; it’s probably a toss up whether it’s faster to drive or fly to San Diego from Phoenix, for example, and this year I drove for the first time. Making more stringent security measures will eventually make air travel so onerous that few people will undertake to fly, and an entire sector of the economy will collapse.

Soon we will reach a point of diminishing returns on all our security efforts. No matter what we do, we are always fighting the last war, and the terrorists will always find some new way to threaten us. We will never be able to protect ourselves from those who want to have their fifteen minutes of fame. Suicide bombings, like rap music and basketball, now represent a way out of the ghetto.

Namaste,

Francine

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