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... by Matt Noah Published: Wednesday,
September 20, 2000
Minnesota entrepreneurs chase Silicon Valley dollars
50 to make pitches for venture capital
SHERYL JEAN STAFF WRITER
A planeload of Minnesota entrepreneurs is landing in the Golden State's Silicon Valley this morning in hopes that some of the gold will rub off on them.
On Thursday, more than 50 Minnesota entrepreneurs -- plus about 50 others from across the country -- will parade their ideas before dozens of Silicon Valley venture capitalists at a two-day conference in Santa Clara, Calif. sponsed by the Twin Cities-based firm NetSuds.
Each company paid an average of $5,000 for the trip -- a hefty sum for a start-up that may have no revenue and only a handful of employees -- to get achance to attract big money. They flew to the money: Silicon Valley is home to about one-third of the 620 U.S. venture capital firms, and companies there capture more than one-third of all venture capital dollars.
But what's in it for the venture capitalists? Sought after by entrepreneurs, many Silicon Valley venture firms have their pick of the best ideas in the world.
Venture capitalists say forums like this give them a chance to find the next Yahoo or Sun Microsystems, both based in Silicon Valley, that's not right under their noses. One venture capitalist calls them ``hidden treasures.'' Plus, gathering a passel of entrepreneurs from all over the country in one room saves busy venture capitalists a lot of time.
Many of the 30 investors at the conference seek young companies that may have only an idea or are in the early stages of development. The entrepreneurs look for money, guidance and industry expertise to help them get their business going. In return, the venture capitalists receive equity in the business.
``You have a lot of entrepreneurs still learning how to bring it all together,'' said Matt Murphy, an associate partner of influential Kleiner Perkins Caufield & Buyers, a Silicon valley venture capital firm famous for financing high-profile, high-tech companies such as Amazon.com, America Online, Netscape Communications and Sun Microsystems. ``It can be a good environment to find a really early-stage company. I'll just get a lay of the land and let my nose take me where it wants to go.''
It doesn't matter if the company has no revenue. Several venture capitalists said they'll look for impressive technology, profitable business plans, large market opportunities and good management teams. While venture capitalists say no company is too small to start, there's no question that they think big in the long term.
``We look for opportunities that have a potential to be very large companies,'' said Jennifer Fonstad, a managing director of Draper Fisher Jurvetson, a Redwood City, Calif.-based venture capital firm with $600 million to invest in start-ups. ``We look for really ground-breaking ideas,'' not just a better mousetrap.
Fonstad and other investors at the conference will participate in panel discussions and will listen to one-minute ``elevator pitches'' by the entrepreneurs. Later in the day, the entrepreneurs get to elaborate in 15-minute presentations. These marathonlike events, organized by NetSuds' Matt Noah of Spring Lake, typically are festive with music such as the theme song from ``Rawhide'' and a giant stopwatch to emphasize the speed required of the contenders.
Group pitches have been done before, but this is the first time a bunch of Minnesota companies have traveled to Silicon Valley en masse in pursuit of dollars. In the past few years, Minnesota has not kept pace in attracting its share of venture capital dollars, some say because the state is not creating enough New Economy companies.
More money could start flowing into Minnesota and other places not typically considered hot tech spots, said Dan Pawliw of Silicon Valley's CMGI@Ventures, who will attend the conference.
``We've now crossed the chasm of early adopters of technology, and it's now hitting the middle class and Middle America and the bulk of companies in the Fortune 2000,'' he said. ``A lot of the good investment ideas will come out of the Fortune 2000, which are not based in the Bay Area.''
Several of the venture capital firms have invested in Minnesota companies before. For example, Telos Venture Partners of Santa Clara, which has a $100 million investment fund, invested in nQuire Software of Minnetonka in 1998 and 1999. Telos typically makes investments of $5 million to $10 million.
One of the drawbacks of distant companies is that it's not as easy to check on them or be an active board member, Silicon Valley investors say. In those cases, Paul Asel, a general partner of Telos, said he will look for a more experienced chief executive who can run the company without a lot of interaction from outside investors and may team up with a local venture capital firm that can occasionally visit the company.
While venture capital investing is risky -- about one-third of investments fail -- one giant home run can offset other losses. For example, St. Paul Venture Capital turned its $2 million investment in Auxilium of Mendota Heights into $32 million when the company was sold last year to Parametric Technology of Waltham, Mass., for $79 million.
If venture capitalists find a company they like, it could take one week to a few months before financing is committed.
``Really, this is just a catalyst,'' said Fonstad of Draper Fisher, which has invested in companies such as GoTo.com and Hotmail. ``It's really after the conference when you go through the business plan and can talk to the companies that's important.''
Sheryl Jean can be reached at sjean@pioneerpress.com or (651) 228-5576.
