Copyright 2000, Morino Institute. All rights reserved. Edited for length and clarity.

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 compete with.

Combine the money culture of California with the tech talent of DC and you’ve got the Garden of Eden of the Internet world.

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 California.

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 Sunnyvale, California.

- 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?

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, Morrison & 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. Ginger?

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