the Money Trail"
November 29, 2000
By George Avalos
The East Bay is beginning
to see an influx of venture capitalists as the tech industry in
this region prospers
More private investors
want to put their gold in them thar East Bay startups.
A growing number of venture
capital companies have begun to open head offices in the East Bay.
Collectively, they are ready to bet millions of dollars that Alameda
and Contra Costa counties will prove fertile nesting grounds for
strong companies of the future.
Here's the reasoning
behind the recent uptick in interest in the region. PeopleSoft Inc.,
Commerce One, Sybase Inc., Documentum Inc., Tut Systems Inc., Ask
Jeeves Inc. and Intraware Inc. are just some of the home-grown companies
with their original roots and current headquarters in the East Bay.
These companies all started
out as corporate nobodies. Over the years, though, they have blossomed
into important players in their respective arenas.
Mindful of some of the
high-tech and biotech companies in Alameda and Contra Costa counties,
private financiers hope to find the next dynamo-in-waiting.
"We have decided to hang
our hat in this area and build a portfolio," said Michael Lee, managing
general partner with Dominion Ventures, a venture capitalist that
opened its head offices in Walnut Creek in April. "We are looking
to really step into this area and make a pretty good financial commitment
and time commitment to the East Bay."
The center of gravity
for the venture capital community is Silicon Valley, specifically
the Sand Hill Road district of Menlo Park, not far from Stanford
University. A smaller nexus exists in San Francisco, catering to
the multimedia and dot-com startups in the Bay Area.
Yet as any map will verify,
the East Bay is dozens of miles from Sand Hill Road, the world's
center for private financing. But that distance, along with the
hills and bridges that intervene, doesn't cause investment executives
such as Todd Walchek, managing general partner with Danville-based
Integrity Partners, to fret.
"We have a great network
of contacts, and it really doesn't matter where you are," Walchek
said. "It doesn't hurt us not to be on Sand Hill." Venture capitalists
that make the right call on an emerging company can harvest a bumper
crop of profits when the company goes public through an initial
stock sale, or is sold.
By opening offices in
the area, they figure they might be able to prospect for corporate
nuggets that other venture capitalists located in Silicon Valley
or other financing hubs have overlooked.
"The money is following
the opportunity," said Roger Strauch, chairman of the Roda Group,
a Berkeley-based VC company. "People used to be pretty snobby about
Silicon Valley being a better place to work. That's changing."
Although Walchek says
location isn't essential, the venture capital companies that have
planted stakes in the East Bay nevertheless believe there are advantages
to the location.
"If money is being attracted
to the East Bay, those investors clearly have the intention of funding
companies that would be located out there," said Tim Bajarin, president
of Creative Strategies, a Silicon Valley market researcher.
Besides Dominion, Roda
and Integrity, other venture capital firms in the area include Stewart
Schuster's company in Walnut Creek and Whitestone & Bluerock
Ventures in San Ramon.
Some VC executives also
believe the East Bay is an easier place for recruiting management
and engineers for the startups they are attempting to bankroll
Here's why this is important,
according to some venture capitalists: No people, no company.
"It's one thing to have
a really good business plan and a really good technology idea, but
that's just the beginning of the journey," Lee said. "It takes people
to execute those plans. Real estate talks about location, location,
location. In the venture world, it's people, people, people."
VC executives believe
finding the right people is becoming steadily tougher in Silicon
Valley, especially for startup companies.
"Our portfolio companies
were having an incredibly hard time finding space to grow into,"
Lee said. "The ability to recruit people to work in the East Bay
is unbelievably easier compared with Silicon Valley. There's room
to grow here, and home prices are less."
With high-tech competition
among companies in constant flux, and with the high-tech world moving
at what's called "Internet speed," time is a crucial factor in getting
a fledgling firm ready to hit the ground running.
"We can add 30 or 40
programmers to a company here in the East Bay much more quickly
than in Silicon Valley," Lee said.
One venture capitalist
in Silicon Valley agrees that the South Bay is being seen as a less
attractive area for launching startup companies, especially because
home prices have skyrocketed and traffic has swelled.
"The infrastructure in
Silicon Valley is being pushed to the max," said Doug Barry, a general
partner with Selby Venture Partners in Menlo Park.
"Anybody who can foster
the growth of venture capital in the East Bay could be making a
At first glance, it might
seem that the East Bay isn't much of a hotbed for technology executives
and engineers. But the mega-boom of companies that started small
and are now high-tech landmarks in the region has created a group
of workers who can prosper as the core team to launch a startup.
The next PeopleSoft or future Commerce One might be seeded by employees
from those big companies.
There's tons of talent
over here," Walchek said. "We have as much talent here as they have
in Silicon Valley. Plus, people love living over here."
Executives with some
East Bay startups like the increased attention. They believe the
presence of more private financiers who have committed resources
directly to the region definitely has the potential to enrich the
coffers of fledgling companies with a great idea but a shortage
"It absolutely helps,"
said Tom Glassanos, president and chief executive officer at Pleasanton-based
Xign Corp., an Internet electronic-payments company. "This proves
the viability and the growth of the entrepreneurs on this side of
the Bay. The venture community is beginning to realize the East
Bay has critical mass today."
The appearance of more
venture capitalists in the area can also be an important convenience
for the entrepreneurs locally, said Matthew Leek, president and
founder of Thin Disc Media Inc., a Pleasanton-based high-tech firm.
"Rather than have to
toddle off to Silicon Valley or Sand Hill Road, companies here could
make contact with venture capitalists here," Leek said. "With VC
companies over here, they will want to keep an eye on their investments
here. It's a recognition that the technology business is swinging
over to this corridor."
The VC expansion in the
region received a boost in late October with a meeting in Concord
of the Golden State Capital Network. A number of venture capitalists,
along with officials from private companies, attended the two-day
event, which had as its motto, "Blazing trails to the 21st Century
But the gathering also
may have served as a bit of an eye-opener for VC officials who might
not have been aware of the area's potential. The conference was
presented by the Forum for Women Entrepreneurs, Bay Area Regional
Technology Alliance, Greenhouse for Startups, Software Development
Forum, Berkeley Entrepreneurs Forum and National Venture Capital
At the conference, private
companies were able to hear from venture capitalists about what
it takes to get funded. The entrepreneurs also had the opportunity
to meet potential financiers face-to-face.
"The East Bay is an under-served
market," said Matt Bolton, an analyst with Woodside Fund, a Redwood
Shores-based venture capitalist. "The quality of investment opportunities
out here is fantastic."
Bolton speaks from experience.
He's a board member with the Contra Costa Software Incubator, a
Concord organization that has nurtured the early stages of some
high-tech companies. "That's been a very good relationship for us,"
Without question, Silicon
Valley has emerged as the world's principal nexus for technology
and venture investing.
Silicon Valley has Stanford
University and San Jose State University as the technology-oriented
educational drivers for the area, and it has the NASA Ames Research
Center as a scientific and government impetus.
Technology leaders such
as Intel Corp. and Cisco Systems Inc. provide a pool of executives
who could provide the cadre for a startup.
Yet some of those elements
exist in the East Bay.
UC Berkeley is a leader
in technology breakthroughs, including some crucial research related
to how the Internet works. Cal State Hayward has increased its technology-education
offerings. And the Lawrence Livermore Laboratory and Sandia National
Laboratories have supplemented their nuclear weapons development
with research into a number of crucial high-tech sectors, including
computer chips, software and super-computers.
"Silicon Valley doesn't
have to be the only place where this sort of mix can be created,"
George Avalos covers
technology, telecommunications and the Internet. Reach him at 925-977-8477