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what can dc netpreneurs learn from the ways of silicon valley?
a view from the valley

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Ms. Lew: There is a limit, however, only in the sense that I just met an entrepreneur whose greatest claim to fame is that he was the CEO of six failed companies.

Mr. Haley: One good failure. Being a serial failure is not as good as being a serial entrepreneur. You are absolutely right.

Ms. Spangler: Ginger, you mentioned that you had funded two West Coast deals. Since TDF doesn't have an office out in that market, how do you get comfortable with being so far away from your investments? Don't VCs want to be physically close to the management teams?

Ms. Lew: We co-invest, and we have a group of people who we are comfortable co-investing with on the West Coast in the Valley. Second, we have an office in Chicago, so we are looking at some deals there, now. That's another opportunity for us to expand, and that's how we get close. Frankly, I'm on the plane a lot.

Ms. Spangler: Aside from networking, what are some good resources for getting smart about the process, such as finding examples of term sheets, details on VC firms, specialties, etc?

Mr. Sylvester: It depends on how you mean networking. Obviously, there is a certain amount that you can learn by coming to events like this. I also think there is a certain amount that you learn, and need to learn, by just taking a person like Nancy or Matt or Ginger out to lunch. One thing that you will find in almost any of the various tech communities is a huge willingness among the people who have knowledge to share it, so get a bunch of business cards and ask, "Can I buy you lunch?" They may not be able to go with you at 7:00 in the morning, but they will find the time. The best way to get that information is just to ask for it. I spend a lot of my time telling people what investors and other people are doing.

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Ms. Lew: If you want some information on the background of various VC funds, go to the Mid-Atlantic Venture Association (MAVA). All of the VCs that are members of MAVA are listed, and it gives you a brief profile of the types of industries and companies they invest in.

Ms. Spangler: Matt, you said that the Valley is a well-oiled machine and that the Greater Washington area is just getting geared up. That sounds like a business opportunity. Where is the greatest gap and how would you fill it?

Mr. Sylvester: Without bashing lawyers again.

Mr. Haley: I said to reset expectations. A lot of it, I think, is expectations. In each of the cases in which I started a company or helped a company get started, our expectations of the law firm was that they would know not only what is hot, that's pretty easy to read in the Mercury Snooze, but that they would know, right now, this particular person at this firm is going to be able to help. Maybe you don't get an investment, but maybe you do. There are still skilled investors who are doing million dollar investments. That's a huge difference between here and what we have in the Valley. You don't hire Hale and Dorr; you hire a particular lawyer at Hale and Dorr, and the expectation is that the person will be able to help you because they know things.

What I see quite often is that people go to their lawyer and ask legal questions and to their CFO to ask CFO questions instead of realizing that you have a band of advisors whom you need to use as advisors. It's the expectations of who can help you do what that needs to be changed.

Ms. Spangler: From our perspective, that's the fun. That's really being part of the team, not, as somebody once said, "You lawyers are a bunch of frustrated business people." Well, we are not. You have to look at it from a holistic approach rather than as departments. A question from the audience . . .

Mr. Bickel: Good morning, I'm Keith Bickel with OneGlobalMarket.com. One constraint we are starting to see in talking to a lot of VCs is a certain "lemming-like" approach to models. Let's say it's in the B2B industry. There are only certain types of B2B models that they understand. Is there a difference between Greater Washington and Silicon Valley or Boston in that respect? Is there more tolerance for different models, and would you recommend going out to Silicon Valley to try to find funding to build companies back here?

Mr. Haley: I have gone to VCs too early when we didn't have a 20-page business plan, but the plan was the result of our thoughts. Quite often, it took us months of thinking before we could get it clearer on a napkin.

Mr. Bickel: Oh, they get it.

Mr. Sylvester: I think he is asking whether the lemming effect is universal. I think it is.

Ms. Lew: Frankly, I think it is, too. When someone finds a model that seems to be working, everyone goes for that model.

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Mr. Haley: One thing you can do, however, if you can find the person—not the firm—who would really understand the idea because they have a certain background that would have made them a buyer back when they had an operations job. That's how you break the lemming effect. The problem is that it takes a lot of work. It's not going to happen because you spent two weeks looking at the PwC Money Tree site in the evening. It's because you bought me and a lot of other people a lot of lunches, and they said, "You really ought to go talk to Dave because I remember that when he was running a sales group, he used to complain about that." Then Dave isn't a lemming anymore. Just like any other firm, Kleiner Perkins seems identical until you break it down to the individuals, and that takes hard work.

Ms. Lew: Matt's point is absolutely correct. Even with a big firm like New Enterprise Associates (NEA), there are certain individuals who may be much more receptive to hearing an innovative approach. I recently had an entrepreneur come in who was very deeply steeped in technology. This guy was way out there someplace, and he had developed some very interesting technology, but he didn't have a clue about how to monetize it, commercialize it and create a revenue model around it. I spent two hours just listening to his very convoluted discussion about the technology. Most of my colleagues would have said good-bye to him after 10 minutes, but he was just intriguing enough and there was just something about him that was interesting enough, so I said, "Look, go away and think about A, B and C, then come back in 30 days or whenever and let's talk some more." We are going to sit down and continue to work with this guy to see how far we can take it.

Mr. Bickel: What about the idea of going out to Silicon Valley to find your funding and bring it back here?

Ms. Lew: There is a local or regional preference for investing in companies that you can touch and feel on a day-to-day basis. There have been stories of some companies that were successful raising a million here or two million there, but when it comes to the serious money and the serious rounds of financing, you really do need to be local. Frankly, you want to be local.

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Mr. Sylvester: Let me disagree just a little bit. You will find that most of the venture funding will be local, but I think you get great insights going to the Valley or up to Boston or even someplace else. You get a chance to break out of the lemming mold because they will listen to see what's going on over here, and they may listen a little bit more attentively. As Matt said, each of the various areas has things to offer, and you can learn a lot, perhaps about a person who is willing to move to your location to be your new CFO. You might get some insights and some leads that way, so I would suggest that you do it.

Ms. Spangler: When entrepreneurs meet with venture capitalists, entrepreneurs like to talk a lot. I think what Dave's pointing out is to sit back and listen once in a while. The VC who is saying no to you will give you a lot of ways to style and revamp your business plan and maybe make it a sellable idea.

Mr. Heuer: Good morning, I'm Chris Heuer with InfoApps. Matt, you really kind of did provoke me, so I'm going to continue in that vein. I find the defensiveness up there for the region to be very interesting because what it really shows me is the lack of pain that we feel about what we need to do next. It shows a level of denial that, although we may have been doing good things already, we are not really ready to change the region and take those next steps to be number one or number two versus where we sit today. We don't only want to compete, we want to lead. No disrespect to the other serial entrepreneurs who are in this area, but if it weren't for Mario Morino's vision we would not be here and we would not have the community that we have. It was the Potomac Knowledge Way Project that brought me here as an entrepreneur after trying to do this in south Florida back in 1994. I'm very familiar with what it takes to change, and I would suggest that the difference between the Valley and here is that they have the desire to lead and innovate whereas we follow. My question to you is, what do we need to do to lead and innovate as a culture, versus following what other people are doing?

Ms. Spangler: That's a good question, and I have a thought on that. One of the things I go back to is that we have the US government here. Lots and lots of people who came into these companies first worked for Uncle Sam—not risk takers. Success breeds success, and we need to get more people in the region who are willing to stand up and fail. Not, as Matt said, the serial failures. You don't want six of them in a row, but you must be willing to take the risk. Part of being a real leader is to be able to stand up and say, "Let's go try this." Get a bunch of people behind you, and, if you fall flat on your face, get up, dust your knees off and go at it again.

There needs to be more of a fostering in this region for failure. We live in a world of successes. Looking back at the government, everyday we watch very successful politicians on TV, and we see what happens to them when they are not so successful. It's kind of a black and white. Either you did well or you didn't, and if you are in the group that didn't, you are a has-been, a left behind never to be seen again. In the entrepreneurial world, it's almost like a badge of honor if you fail, and, the Valley is much more tolerant of that than we are. That just needs to be a sea change that we go through.

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Mr. Sylvester: Right. We also have got to look to the Valley for lessons and learn from them, but we have to stop saying that we want to be the next Valley. We have to say that we are going to be something different. We are getting close to that, and some of the defensiveness is that we continue to compare ourselves to Boston or to the Valley or to Research Triangle. We have to stop that and say, "We are different; they are different. Let's go out and do what we are going to do."

Ms. Lew: I think we tend to overlook the mother of all R&D and that's the DARPA and SBIR programs and those sorts of things. It means transforming that culture and working with the people who are doing some of that innovative research. It's saying, "Let us work with you and transform you into entrepreneurs. Let us provide the resources to make that transformation happen, including investing in you and working with you to develop the business acumen to grow a successful business."

Mr. Haley: You folks read The Washington Post, here. When you read about government, the only way to succeed is to compromise, right? You can hold a position and know that we are not going to compromise and therefore we'll make this an election issue. We are constantly reading about that.

We didn't compromise. In the Valley, it's a badge of honor not to compromise. You may do minor changes to your plan, but it's either, We are going to go do this or we are not." You don't hear about the 95% that didn't even get their plans read. Here, if 95% of the entrepreneurs don't get their plan read, there is no DC area entrepreneur at all, just the mass of bodies. The level of compromise is just vastly different, and it's a cultural thing.

Here's something I haven't seen anyone doing. Why aren't people here raping National Security Agency (NSA) for smart people? The networking here is cool, but go up the road and you have this huge mass of not very public people who are brilliant. They have math, they have engineering, they have computer science. Why there aren't a bunch of people networking like mad outside the Fort Meade gates and hanging out at the local pizzeria, I don't know. The NSA has a research organization; they even have a VC fund now. There is an awful lot of work that can be done to steal people. We took people out of Lockheed and had to change their mindset. You would have to change the mindset of an NSA person, quite likely, but you've got to take the risk to do it. How hard can it be to change somebody who's worked for the government for 30 years or at Lockheed for 30 years to make him think that family is unimportant and risk is the only goal in life? It might take all morning. That's the kind of thing you have to be doing here. Ask yourself, "Where is the skill set I want? How do I steal it and let the government go train somebody else to be a GS-11?"

Ms. Spangler: Seventeen years ago next week I started working for the CIA. I don't work for them any more (of course, that's what we all say). One thing they have done is to create a venture capital fund. I talked to one of my friends about that, a fairly high level person at the agency. They have a two-pronged approach, and one of them is that there are a lot of smart people in the agency and elsewhere in the government who have neat ideas or who can comment on the neat ideas in the private sector. They want to be part of making some money with it. It was amazing to me that this very secret agency—NSA is far more secretive than the CIA—would do such a thing. How would you like one of these guys on your board?

Mr. Sylvester: At least you won't have to worry about the confidentiality provision.

Ms. Spangler: Absolutely. If you want your secrets kept safe, you can lock them up over there.

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Let me ask one last question We have several different models of incubators in the region, both virtual incubators, where you have people gathering together to provide services, and physical incubators, where you share space and fax machines and conference rooms. What are your views, pro or con?

Mr. Haley: Anything that helps you take the risk or helps you meet the goal faster is obviously a good thing. If all they provide is access to a copier, well, copies are cheap, so make sure that the incubator is providing some value beyond a phone and a copier. If they help you get there faster with a higher value, that's fine. I'm separating value from valuation, by the way. If you lock on valuation, you have already lost the debate, but if they can get you there faster at a higher value, then I think it has to be a good thing.

Ms. Lew: I'm a big fan of incubators. They can be very, very helpful, but I would throw some caution in there. Be careful about those incubators who want to grab something like 50% of your company before you even walk in the door. There are some incubators which don't follow that model and which provide a lot of added value. I would encourage you to explore those.

Mr. Sylvester: We represent CMGI, so incubators are good.

Ms. Lew: One last thing. The latest issue of Forbes ASAP just came out, and there is a section on entitled "The Best VCs" which you might want to read.

Mr. Witzel: Well, I'm absolutely in awe of the experience in this panel. I wish we could go all day long. I'm glad that you were here this morning and had an opportunity to talk about these issues. We hope it was thought provoking and helpful. Please give a hand to all of our panelists—Matt, Ginger, David and Nancy. Thank you so much. You are terrific.

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Statements 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 risk.

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