September 14, 1999

Show Me The Money!

Kamla Bhatt in Santa Clara

"I am actively looking for good people to invest in," declared B V Jagadeesh, an angel investor and co-founder and CTO of the enormously successful Exodus Communications.

Founded in 1994, Exodus is regarded as a pioneer in the Internet data space and is ranked as one of the Valley's top ten fastest growing companies.

"Not everybody gets a check from an angel since the interest in investing varies from angel to angel. If somebody turns you down, it is not the end of the road," he advised.

Jagadeesh was one of the four speakers for the first angel/VC networking session hosted by the Silicon Valley Indian Professionals Association on September 11 at the Mayuri Restaurant. Other speakers were G Arjavalingam (Ari), an angel investor and partner in the Galleon Group, a money management firm, and Rick Bolander, co-founder and managing director of Gabriel Venture Partners, an early-stage venture capital firm and Prabakar Sundarrajan, angel investor and VP of R&D at Exodus Communication.

Who are angels? As one analyst put it, angels are high net worth individuals who typically provide the seed-money for a start-up.

The buzz in the valley right now is the billions of dollars that poured in the last two quarters and every entrepreneur with a good idea wants a share of it. According to a study by PricewaterhousCoopers, Silicon Valley raised $ 2.7 billion in the second quarter, breaking $ 2 billion for the first time. Personal referrals are very important in talking to potential investors in the valley.

"We typically see about 100 business plans in a month," commented Bolander. Angels typically provide the seed-money for the start-ups and the successive rounds of funding comes from established venture capital firms.

According to Ari, "Eight to 10 years ago, doctors and lawyers pooled in about 25 to 30 K and invested in companies like angels."

But there has been a shift and instead there has been a surge in the number of technical people who have turned angle investors. Consequently, angels are increasingly "sophisticated and have domain experience". Ari was a research engineer at IBM's Thomas Watson Research Center for 10 years.

"You have to think about who you want as an investor. You should go to investors who know about your space or else they don't bring any value," he said. Some of the most crucial and important help and advice in the early stages of a start-up comes from angels.

According to him the hierarchy of preferences for angel investors when they look at businesses is -- size of the market segment, quality of the team and if the team has the relevant domain knowledge and the specific manifestation of an idea. He cautioned the audience and said, "Don't get hung up on a specific idea. Lot of people do, and stumble as a result. Instead, think of the space you want to be in."

He pointed out that some of the common and predictable mistakes that entrepreneurs make in not listening to the advice that angels give when they start their venture.

"I have stopped giving advise and instead tell them to watch the movie Get Shorty since it tells you what not to do when you start your company."

What are the key elements to market your business idea and raise money was the focus of Jagadeesh's talk. He stressed the importance of knowing your competition, market size, partnership, valuation and above all the importance of building a team.

"Without a team, you cannot execute. Chemistry is very important to work with each other," he said. "There is no cookie cutter to win. If you have the right concept, energy and passion, you get the funding," he added. It is this "can do" attitude that sets Silicon Valley entrepreneurs apart from other.

According to Jagadeesh there appears to be a lot of difference in the way investors operate on the east and the west coast. He recounted how investors from the valley don't agree to the non-disclosure agreements when entrepreneurs make their business presentation.

"I see so many presentations that I see some of the same ideas repeated." For this reason he pointed out that it does make sense to sign the NDA.

Prabakar focused on the role of technology and advisors. "Technology should be a means to an end," he pointed out. "Technology by itself is not enough, you have to build a complete solution around it," he added. He too emphasized the importance of building a good team. To build a successful company it is essential to 'surround yourself with people who can help-angels, advisory board, board of directors' etc," he said. "You cannot do everything yourself. And that is why you need other people to help you," he said.

Picking partners and crafting a healthy relationship was the focus of Bolander's speech. He pointed out building a proper framework for crafting a relationship was essential for many start-ups. How to manage the stresses and strains in the relationship while building their company is often overlooked by entrepreneurs. "Partnerships," according to Bolander, "build success and winning is a team sport."

After the speeches many of the would-be entrepreneurs got to spend time on a one-on-one basis with the angel investors. "This was great. I finally got to speak to an angel investor and get an appointment," commented one of the attendees.

"I got a roadmap for entrepreneurs from an angel's perspective," is how one attendee put it.

Plans are underway to hold more Angel/VC networking sessions, according to a SIPA official. On October 23, SIPA will hold an annual event focussing on e-commerce at Santa Clara Marriott. The panel of speakers includes Dr Pehong Chen, Chairman, President, CEO of BroadVision; Pavan Nigam, EVP, CTO and co-founder, Healtheon; and Jennifer Scott Fonstad, Director, Draper, Fisher and Jurveston. Draper, Fisher and Jurveston is the company that funded Sabeer Bhatia's Hotmail.

For more information please visit their website at www.sipa.org.