|what can dc netpreneurs learn
from the ways of silicon 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
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.
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.
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.
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
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.
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
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
Ms. Spangler: Absolutely. If you want your secrets kept safe,
you can lock them up over there.
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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