Lights, Big Money
By Adam Lashinsky
February 22, 2006
At the Demo conference--American Idol for entrepreneurs--showmanship
and gamesmanship can make you rich.
You're among the 70 contestants chosen from more than 700 hopefuls
who tried to get onto this stage. For months you've prepared for
this moment. You've shelled out tens of thousands of dollars to
bring yourself and your posse to this darkened ballroom on a sun-splashed
desert morning in mid-February.
Now you've been allotted precisely six minutes to show what you've
got. The lights are on you, and you're talking fast, demonstrating
your new gizmo, trying your level best to impress a roomful of smiling,
Treo-toting venture capitalists. If you're a smash, the VCs will
want to offer you bushels of cash for control of your fledgling
company. You crave their approval, you fear their rejection. Your
only comfort is that Google (Research) and Yahoo (Research) are
in the room too, and the VCs fear them even more than you fear the
VCs. You're at Demo, and the clock is ticking.
The annual ritual known as Demo is part Sundance Film Festival,
part American Idol, and part speed dating for entrepreneurs and
backers. Each year in Phoenix a select group of inventors, visions
of riches dancing in their heads, get the chance to debase themselves
quickly before a group of financiers, who in turn are prepared to
stab one another in the back to capture the choicest opportunities.
"It's a great event, especially if you understand the dance
that's going on: entrepreneurs acting like they don't need capital,
and venture capitalists acting like they don't need entrepreneurs,"
says venture capitalist Guy Kawasaki. Participants' behavior at
Demo, he says, is a bit like "acting prudish in a brothel."
"I'm not raising money, but I've probably been approached
by ten VCs today," says Hans Peter Brondmo, who heads a San
Francisco startup called Plum.com that allows users to organize
personal content according to their interests and then lets advertisers
target them accordingly. "It's like dating," he says.
"Who's most desirable? The least available girl."
Name dropping works too. One of the buzzier startups at Demo this
year is VSee Lab, a San Jose provider of an ultrafast web-based
video-conferencing service. Founder Milton Chen manages to note
in his short pitch that Intel CEO Paul Otellini broadcasts his speeches
via VSee. Chen tells me he isn't after venture money right now,
though "about 30 VCs have come over." (For Peter Lewis's
picks of the best products from the show, see the Gadgets column).
Patrick Cummings, chief executive of iGuitar in Poughkeepsie, N.Y.,
owns up to being in the market for $2.5 million in venture funding.
His company makes an electric guitar that plugs into a computer
using an ordinary USB connection, turning the guitar into a keyboard-like
learning or song-writing tool. "I met Bob Weir in January at
Macworld," he says, as if Apple's annual conference were the
most natural place to hobnob with the Grateful Dead guitarist. "He's
joining the executive team." "In what capacity?"
I ask. "As an advisor."
The surest way to a VC's pocketbook other than outright indifference
is to let it be known that other VCs are circling. Ugobe, which
plans to market a delightful robotic dinosaur named Pleo designed
by Furby creator Caleb Chung, came to Demo having already raised
$2.5 million. It's eager for more. Gordon Radley, a Ugobe board
member and former president of Lucasfilm, hovers near Ugobe's booth
after the company's demo. Radley allows that heavyweight VCs Battery
Ventures and Draper Fisher Jurvetson, among others, have been sniffing
around. "In so many words, one said, 'We have the money, what
do you want to do with it?'"
Demo didn't start as an entrepreneur-VC meat market. Stewart Alsop,
a former journalist (and, for years after he became a VC, a FORTUNE
columnist), noticed that geeks often stood in the hallway of Alsop's
first conference, Agenda, showing off their latest toys. He started
Demo in 1991 as a venue for more structured show-and-tell. In 1998,
Demo's current organizer, Chris Shipley, decided to award almost
all the event's slots to startups that would launch their companies
or products at the conference. It was a "happy accident,"
she says, that the new format attracted an audience heavy on VCs.
Demo seedlings that sprouted beyond the startup phase include Palm,
TiVo, and Skype. Yahoo has bought two e-mail companies that made
their debuts at Demo.
Corporate shoppers like Yahoo and Google, each of which sent representatives
to Phoenix, loom large. The worry among VCs is that a corporate
acquirer spending easy-to-sell stock can swoop in and ruin giant
future payouts for VCs. "A lot of these companies could get
picked up by Yahoo for $30 million, a huge success for the entrepreneur,"
says Tom Shields of Woodside Fund. Selling a company for only $30
million, says Shields, "would be a huge failure for me."
VCs have one another to worry about as well. Michael Skok of North
Bridge Venture Partners is wooing Steven Lavine, CEO of search-technology
company Transparansee. Lavine already is in deep discussions with
other firms, so Skok plays the trust card. The average startup remains
private for 6.7 years, says Skok. "I told Steve, 'If you're
going to spend 6.7 years working with someone, you better be sure
there's a good level of trust.'" David Hornik, a partner with
August Capital, meets at the end of a long day at Demo with Manish
Chandra, CEO of Kaboodle. It's Hornik and Chandra's third meeting,
and Hornik talks about how his family is using Kaboodle's shopping-oriented
site. He mentions some hot companies he has funded whose experiences
are relevant to Kaboodle. As for Chandra, he lets on that in addition
to August he's talking seriously to a couple of other VCs, one of
whom also is at Demo. Hornik is philosophical. "There's a cadence
to all of these deals," he says, clearly hoping he's still
in the running at Kaboodle.
As Demo draws to a close, conference organizer Shipley anoints
ten of the companies as Demo "gods" on the strength of
their presentations. Howard Thaw, co-founder of one winner, Iotum,
which has developed ingenious software to screen incoming phone
calls, e-mails me shortly before 11 P.M., just after the conference
has concluded. "Some VCs are already sending congratulatory
notes, with requests for confirmations of follow-up meetings,"
he writes. "One of them has summoned us to an all-partners
meeting on Tuesday." Thaw, in a moment of exuberance, has revealed
what Demo is all about. Producing nifty technology and nailing your
demo, after all, are nice. Collecting the cash is what makes you
a true Demo god.