can dc netpreneurs learn from the ways of silicon valley?
a view from the valley
Silicon Valley may be the undisputed Mecca of
high-tech entrepreneurship, but Greater Washington's netpreneur
community is growing and becoming more sophisticated. What lessons can
we learn from examining where the Valley has been before? That was the
subject of this Netpreneur.org Coffee & DoughNets meeting, held
May 17, 2000, in which a panel of an entrepreneur, a venture
capitalist and an attorney, all of whom have spent time in the
entrepreneurial communities of both coasts, took an objective look at
the strengths, weaknesses and unique characters of each.
made at Netpreneur events and recorded here reflect solely the views
of the speakers and have not been reviewed or researched for
accuracy or truthfulness. These statements in no way reflect the
opinions or beliefs of the Morino Institute, Netpreneur.org or any
of their affiliates, agents, officers or directors. The archive
pages are provided "as is" and your use is at your own
2000, Morino Institute. All rights reserved. Edited for length and
Ginger Lew, CEO, The Telecommunications Fund
David Sylvester, Partner in Charge, Hale and Dorr, LLP
Nancy Spangler, Partner in Charge, Piper Marbury
Rudnick & Wolfe, LLP
fran witzel: introductions
Good morning. I'm Fran Witzel, Vice President of the Morino
Institute's Netpreneur.org, the .org community for .com startups.
Today, we'll be taking a "view from the valley," and the
Valley we are referring to is Silicon Valley in northern California.
Quoting Gregory Gomov of Internet Valley, Inc., "The term Silicon
Valley was used mostly by Easterners who would mention making
a trip to Silicon Valley, until 1971 when it was popularized in a
series of articles, 'SiliconValley USA,' written by
Don Hoefler for Electronic News. Quite likely it was the first
time the term was used in print."
Since 1971, the term "Silicon Valley" has been used in
print ad nauseam. Not because they came up with a cool name, but
because of the success of their high-tech companies. Demonstrating
that success is the PricewaterhouseCoopers MoneyTree
Survey, which reported Silicon Valley receiving $6.1 billion of
venture capital invested in the first quarter of this year—that's
more than seven times the amount invested in our region.
I want to share with you stories from two netpreneurs from our
region who decided to go out to the Valley within the past year. The
first is from Joel Brodie who worked at Simutronics
in Maryland. Here's what Joel says based on his experience in trying
to start companies in both regions:
There are two main differences between DC and
California. One is raising cash. It is much easier to raise cash
in California than DC. It is not only that there is more money in
California than DC, it is more of a culture thing. With a few
exceptions, investors in DC are risk averse. They want to see a
management team, a built technology, revenues, the works—never
mind that you can't build a strong team and technology without the
money in the first place. In California, all you need is a killer
idea and a good first impression. It took one week in California
to raise $1 million, whereas it took four months in DC just to get
a second meeting.
The second difference is that is easier to
build a company in DC than California. It seems to be impossible
to attract good tech workers in the Valley. With the higher cost
of living in the Valley, good tech talent is worth more than gold.
In California, a good worker has 10 different job options at one
time. Compared to the Valley, DC seems to have an abundance of
smart tech workers to choose from and there are fewer startups to
Combine the money culture of California with
the tech talent of DC and you’ve got the Garden of Eden of the
The reason I moved to California is because you
can't hire the tech workers without the money, so you have to be
where the money is. Also, there are more startups where you can
strike it rich in California. DC may be a better environment to
work and live, but California is still the Major Leagues.
In order for DC to take the next step, all
those who earned millions at AOL have to invest in angel funds and
VC firms that will actually offer money based on a good idea on a
napkin. If this doesn't happen, DC will always be a step behind
That's the perspective of Joel Brodie, who is now the Vice
President of Business Development at SmoothSale out in the Valley, a
well-funded eCommerce startup.
The second netpreneur has some similar perspectives, but his story
has a different twist. Peter Mechlin, a netpreneur with strong
marketing experience and a passionate vision, worked the networking
circuit here for over a year trying to meet people and advance his
business idea. Toward the end of that time, we connected him with
another netpreneur, Open Systems
Associates, as a potential technology advisor or partner. Then
Peter moved to Silicon Valley and, at our suggestion, became a member
of the Software Development Forum and the Churchill
Club. He experienced what he calls a different, more open climate,
nonetheless, the same primary impediment existed—it's a matter of
who you know.
On a return visit to Washington, some of the earlier connections
began to unfold. After his West Coast experience, his prior Washington
area contacts were much more willing to participate in his concept, YardsaleS.com.
Here, at a local networking function, Peter met Bill Schrader, the
founder of PSINet and began
discussions about his business. When Bill and PSINet Ventures agreed
to invest in the concept, YardsaleS.com finally became a reality.
On April 12 of this year, Peter and his team launched their site
with a successful test market in the Atlanta metropolitan area. It was
so noticeable that the Atlanta
Journal Constitution reacted to defend their prized classified
advertising business. YardsaleS.com is getting noticed here as well.
They have been featured on DC's ABC affiliate WJLA-TV's
5:00 news, the Washington
Post and the Washington
Times. According to Peter, it isn't as easy in Washington, but
YardsaleS.com has done it with assistance from our community—including
Netpreneur.org—and his personal, intensive, targeted networking in
the local business community.
There are many other opinions in our region about Silicon Valley.
For instance, an issue that seems to come up frequently when
contrasting our regions is that we lack a university with the assets
or caliber of a Stanford University.
Well, now that I have gotten you all really riled up, I want to
emphasize that this is not a "my daddy can beat up your
daddy" program, nor is it an "everything sucks here so I
can't possibly succeed" session. Success does happen here,
so let's focus today on understanding the differences between the
regions and what netpreneurs in Greater Washington can learn. Let's
start with a few popular Silicon
Valley Rules of Thumb for you to ponder from Hank Magnuski of
- In Silicon Valley, any time three programmers get together
for lunch, a new company is formed.
- There are actually only 200 programmers in Silicon Valley.
They just change jobs a lot.
- The fastest thing in Silicon Valley is a rumor. The next
fastest thing is a trade secret.
What do our speakers have to say about all this? First our,
moderator, Nancy Spangler, will share some thoughts about differences
between the regions before introducing our panel. After our panelists
speak, Nancy will pose some questions for them to respond to, then
we'll open it up to questions from the floor.
We are most fortunate to have Nancy
Spangler as our moderator. She is Partner in Charge of the Reston
office of Piper Marbury Rudnick
& Wolfe, LLP. Quoting from the Legal
Times, Nancy "is regarded as one of the leading high-tech
transactional and corporate lawyers in the DC area. She has
represented dozens of stock issuers, investors and companies launching
initial public offerings. She is one of the astute observers of a
practice that has been blossoming in the DC area for several years and
shows no signs of slowing up." Born and raised in Iowa, Nancy
came to Washington and worked in a technical area at the CIA
before getting her law degree as a Dillard fellow from the University
of Virginia. Please help me welcome Nancy Spangler.
nancy spangler: not your
father's silicon valley
Thanks. I didn't know that my Iowa roots were visible. I
congratulate you on finding that out.
Our panel is going to have fun this morning. This will be very
casual and hopefully informative for you.
I want to lay a background for our speakers to think about as they
go through their remarks, then to address some questions at the end.
One of the things that I think is important for us to recognize is,
for many reasons, we are not Silicon Valley, either from a geographic
standpoint or a demographic one. That's important to figuring out who
we are and where we are going.
Most importantly, we have in our midst something called "Uncle
Sam" that looms large and employs many, many people in the
region. We are also the base for many international governmental
operations, such as the World Bank
and the International Monetary Fund,
and so forth.
One of the other things we have is a challenge. We have three very
distinct jurisdictions that we have to deal with—some would say
four, if you count West Virginia—unlike California, where you just
have one. The District of Columbia has a very strong burgeoning tech
community, Northern Virginia certainly gets a lot of press and
Maryland has a tremendous tech presence.
In figuring out what we were going to talk about this morning, one
of the things I looked at and talked with some of my colleagues about
is an article that appeared in The
Washington Post a couple of weeks ago about the aging
government worker population here in the region. If you look at the
charts, a tremendous amount of that worker population is in their late
40's, 50's and early 60's. One of the things we ought to think about
as a region is what that means for us in the next 5-15 years. With a
massive turnover among the government workers, you have people who are
probably going to be retiring who bought $200,000 homes back in the
early '80s that now are probably $600,000-$700,000 homes. You have an
ever-escalating salary battle going on in private industry, both in
the technology companies and the service community, and you are going
to see a big gap among the government workers. One challenge is going
to be how the government attracts and retains workers now that we have
our technology community here as well.
So, speakers, as you go through your comments this morning, please
think about those sorts of issues—how they differentiate us from
Silicon Valley and how they present some tremendous challenges for us.
Also, look at the base upon which we are operating. Fran pointed out
that in Silicon Valley you can get a million bucks in a week, while
here it takes four months to get a meeting. Well, that wasn't always
true in Silicon Valley. They are probably in their sixth generation of
entrepreneurship, while we are in our second and, hopefully, moving to
our third shortly.
Silicon Valley does have Stanford.
They also have Cal Tech and Fairchild,
which is thought of as the company that is the grandfather of the
technology community in Silicon Valley. The Valley has been heavily
focused on what I would call "deep" technology—the
semiconductor industry, and a lot of the successful companies out
there in the '70s and early '80s were hardware-oriented.
Here, in contrast, we have a very rich service-based community and
the telecom industry is alive and doing quite nicely as well. Our
grandfathers are companies like MCI
and Legent and BDM. We also have a very heavy and very successful
biotechnology industry which you don't see in the Valley. Johns
Hopkins University, the University
of Maryland and the National
Institutes of Health have all been very helpful at spinning
technologies out to create biotechnology companies.
We are probably three to four generations behind the Valley, but we
are coming on pretty strong. We are also in a variety of other
industries that the Valley has just been getting into within the last
three to five years, such as the more service-oriented companies. If
you think about it, we are really into technology applications, such
as the eCommerce and IT services sides.
Fran said that when three people have lunch together in the Valley,
they create new companies. Well, some of us around here do that, too,
but I also think we have a tradition of a much more stable work force.
We can thank Uncle Sam for that as well. We have people who are used
to being in jobs for long periods of time, and that's another thing we
have going for us that perhaps is not true in the Valley. One of my
clients acquired a company in Sunnyvale where the engineering attitude
out there is, "I can get a meal ticket punched once a year at
four different companies. One of them has got to hit." I don't
think we quite have that attitude here, although we are starting to
look for home runs sooner rather than later. We have a lot of
challenges ahead of us, and it's very exciting to be part of the
technology community here.
With that, I will introduce our first speaker. Dave
Sylvester is an old friend of mine. He is a Partner in Charge,
too, and we were trying to figure out what we are in charge of. We are
not quite sure. He is a leading high-tech deal-maker with the
Washington office of Hale and Dorr
and a member of their antitrust, biotechnology, computer law,
international, venture capital, and mergers and acquisitions groups.
Mr. Sylvester: Everything. I'm in charge of everything.
Ms. Spangler: He has represented several Netpreneurs in the
region. Most recently he did the OTG
Software offering where he was company counsel and my firm was
underwriter's counsel. He also represented CareerBuilder.com
in their IPO and on the underwriter's side. He has been involved with Proxicom
and Visual Networks.
david sylvester: the
valley has changed
Thank you very much. I'm going to keep my insights very brief—as
the service provider here, I'm sure I'm the person you least want to
hear—but let me give you some thoughts about my experiences in the
Valley and compare them to what I see here, now.
I was in the Valley from 1981 to 1984, and one of the things I want
to emphasize first is something that Nancy said—the Valley has
changed. It is much easier to get money in the Valley now, but I
remember in 1981 when Fenwick &
West represented and incorporated Apple
Computer, Electronic Arts and
other companies. It was a struggle. There weren't many people doing
it. The risk tolerance in the Valley, which is very high, now, didn't
exist then. People were debating whether or not this whole concept of
new technology was going to work and how long it was going to last. I
remember the days when Fenwick &
West and Wilson Sonsini were
the only two service providers in the Valley. All the big California
firms—the Brobecks, Cooleys,
Foersters—were debating whether or not it was worth going down
to the Valley to open a mail drop.
So, when you look at the Valley and compare it to where we are now,
we are quite far along in our development compared to where the Valley
was in their early development. Remember that the Valley has changed;
it's an evolutionary process.
The second thing I want to talk about is what I perceive to be the
biggest difference between the two regions—risk tolerance. One of
the things the Valley has developed is a high tolerance for risk.
There is a perception in the Valley that the more things you throw
money at, the more chances you have to get a home run. As long as you
get one or two home runs out of 10, you are doing quite well. The risk
tolerance is great, and it's not just from the VC standpoint. It's a
risk tolerance all across the board. Entrepreneurs in the Valley—and
I think this is growing out here but still not quite as developed—have
no problems saying, "I'm going to do this. If it doesn't work,
I'll just keep doing it again." In the Valley, and to some degree
here, people are rewarded for taking those risks.
The thing I can address more directly is the risk tolerance in the
infrastructure industries. People like Nancy, myself and others have
been doing this for a while, and we have the perception that we must
take risks along with our clients. It's not just the financial risk;
it's being able to give people advice in a timely manner. That's
something the Valley has over us. We are still developing it. We are
not a community that, like the Valley, started from a totally clean
slate. We are, as Nancy said, a community that has grown out of other
industries. We are getting a feel for this, and it's going to take us
a little longer than it took them. They had just orange groves before
people decided to go there. They do have Stanford and Fairchild, but
we now have America Online, Proxicom and others. So, be patient. We
are going to catch up with them quite well.
One of the things I noticed early in the Valley is that even though
a lot of the entrepreneurs may be going into this to make a lot of
money—hopefully an enormous amount of money—the first sentence of
their business plans say something like, "We are going to change
something." Maybe they say they are going to change some way
people do business, or the quality of somebody's life, but that still
seems to be a goal. I wish that we focused a little bit more on that
here. It's still very prevalent in the Valley.
The last thing I'll talk about is something else that Nancy touched
on, the networks of people here and in the Valley. We have done a
tremendous job of creating networks from a demographic base that's
very different from the Valley's. The Valley has the luxury of having
everything concentrated, as Nancy said, in one jurisdiction and
basically one location. We have done a fabulous job of taking
disparate interests, industries and backgrounds, and melding them all
together. Netpreneur.org has done a wonderful job at that, and we are
doing a much better job than the Valley at making this work in a
concerted, unified effort.
Things have changed in the Valley. They are going on to different
stages, and we are going on to different stages. Don't judge us by
where the Valley is now; look at the Valley's whole history. If you do
that, you'll pat us on the back more than has been done so far.
Ms. Spangler: Next, we have Ginger
Lew. Ginger is the CEO of The
Telecommunications Development Fund (TDF), a private corporation
based in Washington that finances early stage companies in the
telecommunications industry which have innovative concepts and
outstanding management. TDF has $25 million in capital under
management and offers financing in the form of equity investments
ranging from about $375,000 to $1 million per investment. Prior to
joining TDF, Ginger was the Chief Operating Officer of the Small
Business Administration, where she provided day-to-day management
and oversight of the agency's $42 billion loan program. Before that,
she was general counsel at the US
Department of Commerce, and, from 1991 to 1993, she was a member
of a start-up software firm based in San Francisco, California.
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