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Canadians learn secrets of infiltrating the
Valley How to "elevator pitch" By JAMES BAGNALL - Ottawa Citizen |
| SAN JOSE, California - The morning fog has lifted in north San Jose and
shafts of sunlight dance across the ridges of the Diablo mountains to
the east. But, for 40 Canadian technology executives, the scene outside
their hotel in early December might as well be taking place on Mars. The
entrepreneurs are lined up, single file, along one side of a windowless
ballroom that could fill up half a football field. Some of these
high-tech leaders are talking quietly with those close by; others appear
to be hyperventilating. The rest are staring at the empty lectern that
occupies the centre of the stage at the head of the ballroom. To the
right of the lectern, half-a-dozen partners from some of California's
most influential venture-capital firms are seated at a long table,
chatting quietly, waiting for this strange Silicon Valley ritual to
begin. Handol Kim, Canada's energetic trade consul for San Jose, is explaining the rules of the game to the group of 40. "You have exactly 30 seconds to explain to these venture capitalists why they should invest in your company,'' he is telling them. He adds, joking, that if they talk beyond their allotted time, they'll be hauled off stage. This is Silicon Valley's "elevator pitch'' --- the sharp, finely crafted argument you would use if you are lucky enough to find yourself in an elevator with a prospective investor. Suddenly, the contest is under way. A couple of hundred entrepreneurs, lawyers, public relations officials and venture capitalists are grouped in front of the stage watching as each contestant in turn grasps the lectern and waits for the signal from the timer. The pitches are delivered in a blur of cliches and jargon. There is talk of "advanced peer-to-peer software'' and "huge, addressable markets.'' Many of the entrepreneurs have clearly not rehearsed. They stutter, they grope for lost words and stuff as many words as they can into their 30 seconds of unfettered access to California bankers. A strong minority exceeds the time limit and are rudely silenced. Paul Saunders, the chief executive and founder of Coast Software, is eighth in line. His Ottawa-based firm makes software that tests to see how well company Web sites are working. The soft-spoken former Cognos employee has been hunting for Coast's first major round of venture financing and has already talked with potential investors who seem interested in backing him. Even so, Saunders felt that taking part in the potentially humiliating elevator pitch would help him hone his message and give him needed practice. His senior managers at Coast all helped to craft the pitch -- five sentences to be precise. As the moment for delivery approaches, Saunders holds his arms across his chest and gently rocks back and forth on his feet. He is staring at the floor. Just before Saunders is Paul Slaby, chief executive of Kanata-based Atmos Corp., a specialist in memory technology. He rips through his presentation in 23 seconds, concluding, "In a few years, Atmos will be inside every digital chip.'' It's not a bad performance. Saunders climbs the stairs to the stage, and waits behind the podium for the timer's signal. Finally it comes. "This holiday season,'' he begins, "fully 43 per cent of all purchase attempts by businesses or consumers over the Internet will fail.'' He points out that this rate of failure is costly for the businesses that operate Internet shopping sites -- and notes that Coast's products can help. Saunders wraps up by declaring his company has solid customers, experienced management, and will dominate its market. Twenty-nine seconds have elapsed. It was a reasonably crisp oration but it wasn't enough to break through the noise. Neither Saunders nor Slaby were among the four finalists who won the right to give 10-minute presentations before the same judges. Two other Ottawa-area entrepreneurs -- Dale Gantous, the chief executive of SofTV.com and Eliot Burdett, the co-founder and president of Ventrada -- also gave it a shot. Gantous stunned the crowd by singing her presentation. She got a loud ovation for her over-the-top performance but, along with Burdett and the other Ottawa entrepreneurs, failed to make the cut. The panel of venture capitalists later made clear why -- they, and most other contestants, weren't specific enough about who their customers and investors are. "Only about three stood out,'' said Ronald Chwang, the president of Acer Technology Ventures, "other than the song." The eventual winner, Ken Mair, the chief financial officer of SynchroPoint, a Vancouver-based wireless networking company, got the formula right. He named Pricewaterhousecooper as his firm's first main customer and also revealed some key investors. Jim Orlando, a principal with Battery Ventures, was impressed by another aspect of the contestants. "Red Herring (magazine) sponsors conferences with elevator pitches but they're not quite as brutal,'' says Orlando. "The pitches last 60 seconds and usually the speakers ignore the timekeeper. Everyone here obeyed when told to stop. This is a really polite crowd.'' Well, yes. They're Canadians. And they were everywhere at this two-day conference, dubbed Next Level 2 and organized by Canada's California-based trade officials. Two years ago it would have been difficult to imagine several dozen Canadian entrepreneurs in one location in the Valley. The NL2 event -- aimed at providing insights into Silicon Valley's high-stakes culture -- attracted more than 200, in addition to dozens of consultants, lawyers and other high-tech service specialists. Most of the attendees were from Canada; many of the others were Canadians who work in California. They are part of a group of roughly 600,000 ex-pats who are finally organizing into a community of sorts. A focal point is an online community known as the Digital Moose Lounge, created a year ago by Handol Kim and Jeane Weaver, two members of Canada's consulate in San Jose. "We were kind of surprised there was no Canadian community in the Valley despite the huge numbers of Canadians here,'' says Kim who arrived at the consulate in September, 1999. The inaugural meeting of the Lounge was held over beer and Canadian rye whiskey. Kim sent out 10 e-mails and 42 ex-pats showed up, including Robert Antoniades, the California-based director of CIBC Capital Partners. Since then, the Lounge has attracted more than 1,000 members and has transformed itself into a non-profit organization which holds special events for ex-pats and keeps tabs on who's doing what. The number of members is increasing at the rate of roughly 10 per cent per month. There's a serious side to the DML. It turns out a lot of the Canadian engineers who fled to the Valley years ago now occupy fairly prominent positions throughout the industry. Aside from stars like Jeff Skoll, the co-founder of eBay and Don Listwin, the chief executive of California-based Openwave Systems and the former No. 2 executive at Cisco Systems, the list includes a host of partners at venture-capital outfits and law firms. The Canadian consulate in San Jose views these personalities as key assets. They wield enough authority in many cases to steer business to Canadian firms or finance them directly. Which explains why NL2 was studded with dozens of U.S.-based ex-pats. Consider the background of some of the judges for the elevator pitch contest. Ron Chwang used to work in Ottawa for Nortel Networks. He now makes venture-capital investments on behalf of Acer Technology Ventures, a U.S. unit of the Singapore-based computer manufacturer. Jim Orlando, a native of Saskatchewan, worked at Nortel earlier this year before joining Battery Ventures. The San Mateo, California-based company manages $1.8 billion U.S. worth of investments. Colleen Salo, a third member of the judges' panel, is a Toronto native and former Newbridge Networks manager who works for Newbury Ventures, a San Francisco-based financier which has made more than 100 high-tech investments since 1992. Of course, just being Canadian doesn't guarantee access. After he listened to the 40 pitches, Orlando says he was tempted to approach no more than three. Nevertheless, he was surprised at the enthusiasm of NL2's contingent of Canadian entrepreneurs. The conference featured three panels of venture-capital partners and on each occasion, the panelists were physically prevented from moving by a crush of startup artists wielding business cards. "I ran out of business cards," laughs Orlando. "That almost never happens." It's one thing to win some access to the right people. It's quite another to know how to use this time to extract financing or new customers. The underlying message of NL2 is that there is a peculiar way of doing business in the Valley. The corollary is that if Canadian startups don't learn it, they'll rarely break through the clutter to become a recognized name. Scale is key. "Canadians tend to think local and smaller," says Vancouver native Rick Wysocki, the chief executive of Again Technologies, a Pleasanton, California-based firm specializing in software that helps firms manage variable pay schemes such as those awarded to sales people working on commission. Wysocki, a 10-year veteran of U.S.-based firms, quickly discovered the trick to winning the confidence of venture capitalists is to present them with raw ambition. "You take something that's a niche business and make it bigger," he says. It sounds almost facile but what he means is that any startup's target can be broadened to include related markets. For example, Wysocki decided he could market Again's software not just to individual companies -- Again's original niche -- but also to their partners, suppliers and other outside organizations. By redefining his market, he added 50 per cent to his potential sales. The payoff last August was a $9.5-million U.S. financing for Again, a sharp rise from the $1 million U.S. the firm raised in the previous round. Of course, it's possible to be too ambitious in reshaping a niche. Guy Kawasaki, the charismatic chief executive and founder of Garage.com -- the California-based investment bank which provides funding services for startups -- warned the NL2 crowd not to take investors for idiots. "We've heard it all," he said, noting only somewhat tongue-in-cheek that whenever he hears estimates of the value of future markets he automatically adds three years and multiples by 0.1 to arrive at the true total. He added that the Valley is a tightly connected community that can easily check out any of the claims made by entrepreneurs. Kawasaki noted that when someone claims to be close to signing a deal -- involving financing, products or whatever -- it turns out often to be a misreading of the language. "No one says 'no' in the new economy," said Kawasaki, in part because it's impossible to know which firms or individuals will suddenly break away from the pack to accumulate massive wealth and influence. The only hedge against this mistake is to be part of the Valley network. Fortunately, it's never been easier for Ottawa entrepreneurs. In part, this is because U.S. tech firms and financiers have recently discovered Ottawa. Battery Ventures, Greylock, Menlo Ventures and Morgenthaler are among some of the more prominent venture firms that have already invested in Ottawa startups -- all without the benefit of direct, non-stop air service between Ottawa and Silicon Valley. With the inauguration of a direct air link slated for next March by Air Canada, such networking should become even easier. "If we can get to a client with a single flight, we'll look at a proposed investment," says Orlando. That hasn't prevented his firm from investing in Ottawa startups -- Battery's main office is in Boston. Earlier this year Battery combined with another U.S. venture capital firm, Greylock, to invest $13 million U.S. in Akara, a Kanata-based firm that makes optical networking software. Indeed, the linkages between these firms and Nortel -- the main sponsor of NL2 -- provide a perfect illustration of the networking that drives most technology deals in the U.S. Solomon Wong, the 39 year-old founder of Akara, is a former Nortel engineer who had most recently worked at Cambrian and Sedona Networks, a pair of Kanata-based communications technology firms. Wong, who is reasonably well known within the fibre-optic industry, was job hunting early this year in Boston. He had also mapped out some preliminary ideas for a startup of his own. A colleague in Boston suggested Wong ought to get in touch with David Aronoff, a partner with Greylock. Thanks to a cancelled breakfast meeting, Aronoff made time for Wong and they discussed his business plan. Aronoff later called potential customers for Akara and came away convinced that Wong had a good concept -- software that gives service providers like Bell Canada more flexibility in handling streams of optical traffic. Within weeks of their initial meeting, Aronoff made an offer to invest in Akara. Wong had also been talking to other venture firms including Battery, which also agreed to invest. Greylock and Battery have something important in common. Both firms had earlier invested in fibre-optic companies -- Xros and Qtera respectively -- that had recently been purchased by Nortel at very rich valuations. This experience made both venture firms comfortable dealing with anyone with Nortel pedigree. More than comfortable, in fact: Battery early this year hired Jim Orlando, who had been Nortel's director of business development, a job that meant he played a role in his firm's purchases of Xros and Qtera. So it should have surprised no one to discover Orlando, Wong and Charles Chi, Greylock's west coast partner, among the panelists at NL2. (Chi happens to be a former Bell Canada manager with a computer engineering degree from Carleton.) For Wong, nothing hammered home NL2's Canadians-in-California theme more than his chance meeting in the hotel lobby with Jeff Popoff, a Nortel executive, based in San Jose. "We went to school together in Regina," says Wong, "but it was the first time we'd seen each other in two decades." They had worked for years in the same firm, travelled a similar industry circuit and lobbied many of the same customers. The fact that they finally met again courtesy of the Digital Moose Lounge suggests the Canadian community in California is for real. Guy Kawasaki's Top Tens Aside from his role as chief executive and founder of Garage.com -- a California-based investment bank -- Guy Kawasaki has two other claims to fame. He's a former executive with Apple Computer and a compelling speaker. He proved as much in a highly entertaining keynote speech to more than 300 Canadian entrepreneurs, lawyers and consultants at last week's Next Level 2 conference in San Jose. "I've heard chief executives speak and most of them suck," was his succinct way of telling the crowd they were about to get something more than a lengthy company commercial -- which is what most keynote addresses are all about. Instead, Kawasaki provided some useful insight into doing business in the Valley. His vehicle: a series of top 10 lies told by one group of players to another. For what it's worth, here are the two lists that struck the loudest chord. The top 10 lies told to Kawasaki by entrepreneurs seeking investments: 1. Our projections are conservative. 2. IDC, Yankee Group or other research firms say our market will be $50 billion U.S. by 2003. 3. Big names are about to sign up with us. 4. Key employees will join as soon as we're funded. 5. We have ''first mover'' advantage. 6. No one else can do what we do. 7. Several venture firms are already interested in us. 8. Oracle or Microsoft is too slow to be a threat. 9. All we have to do is get one per cent of the market. 10. We're glad the Internet bubble has burst. The top 10 lies venture capitalists tell entrepreneurs: 1. I like your company but my partners didn't. 2. If you find a lead investor, we'll invest in you. 3. I'm just a phone call away whenever you need me. 4. None of the companies in our portfolio competes with you. 5. We don't want to run your company. 6. Other companies in our portfolio will use your product. 7. We didn't invest in e-commerce or B2C (business to consumer software firms). 8. We successfully co-invest with company x all the time. 9. We'll help you recruit managers. 10. I look young for my age but I have lots of experience. |