“Invention is science. Innovation is economics. Entrepreneurship translates one into the other."

Golden Capital Network is thankful for the support during the past 10 years from the early stage angel and venture capital investment communities, and from the startup entrepreneurs we have had the pleasure to serve. As we enter 2010, we are pleased to present a new initiative that will elevate our ability to provide value and track metrics from innovation companies well beyond the startup phase.

GROWCalifornia is a project by Golden Capital Network to provide solutions for innovative growth businesses that drive the economy, service providers that serve them, and the public sector that supports them.

The purpose of GROWCalifornia is to identify, survey, report and make service referrals to 1000 high-performing, locally-based innovation companies in the state.

GROWCalifornia provides a unique value proposition by reaching out to locally-based high-growth companies and collecting primary data about their performance, their innovations, their job creation, their business needs, and their opinions on matters of business climate, talent and capital.

GROWCalifornia surveys and reports on businesses from various industry sectors and growth stages that meet unique criteria for potential expansion and positive economic impact. These data reports are valuable economic planning and rapid response tools for economic development, workforce training, elected officials and the business community at large.

The results of the reports are released at networking and press conference events to discuss the findings, offer innovation-focused business content, and to benefit companies, service providers and officials through visibility and networking.

Individual growth company referrals identified through the survey process go directly to the GROWCalifornia partner network, whose members pay an annual membership fee for the opportunity to offer operational value to the growth companies.

The GROWCalifornia partner network delivers critical support to growth companies. Members of the network represent multiple disciplines and are screened for quality and integrity. Direct referrals are made via email with links to online profiles of the companies and the providers.

The GROWCalifornia index divides the state into 20 different regions and tracks 1000 companies that represent high likelihood to generate new products, new revenue and new high wage job opportunities. Growth business criteria include:
• Growth focused management
• Locally owned or operated headquarters or base of operations
• Current or potential national and global markets
• Scaleable products or services
• Significant process or product innovations

GROWCalifornia is the first project of its kind to recognize, quantify, report and support innovation, entrepreneurship, risk capital and regional affinity as key drivers for jobs and regional economic growth.

If you are a growth company, a service provider or a workforce/economic development official interested in joining GROWCalifornia, find out more by calling 530-893-8828.

Venture Island - North State: The Trading Post

The Venture Island - North State entrepreneur competition launched its second annual competition with a special event called "The Whole Pina Colada" on June 23. The event showcased several successful innovative product companies in the North State. The Venture Island competition process includes a series of four challenges.

The first challenge, "The Trading Post," took place July 23 at the N.T. Enloe Conference Center. In this challenge each entrepreneur was given two minutes to pitch his or her company to a panel of esteemed judges from the investor and professional business communities. At the conclusion of the event, companies were stack ranked based on their presentations and the top companies earned the night's prize and bonus points for the next round.

The top ranked pitch from "the Trading Post" was Novasyte followed by, Save Our Skins, Telecom Lifters, Cable Master, and MyIndependentContractor.com. Other contestants included BAQ Enterprises, Bumblebee Transport, Clean Traks, HFB Enterprises, MendaComp, Organic Chico Wash, SafeHealthInsurance.com, Sauer Energy, You Gaming, and Wiredcat. All contestants will go on the the next challenge, "The Snake Pit," taking place September 10 also at the N.T. Enloe Conference Center.

The “Snake Pit” program challenges contestants to justify their business opportunity, their solution, and their execution strategy. This will be a five-minute Powerpoint presentation detailing the problem to be solved, their proposed solution, market size and segmentation, customer acquisition, revenue model, and competitive advantage and defensibility. The judges will ask questions and give feedback on each presentation and, along with the audience, narrow the group of contestants down to 8 companies who move on to “Make or Break Beach”, which will focus on execution plan, financial projections, capitalization requirements, and exit strategy.

The final challenge, “Climbing Kahuna Mountain”, will pit the top three finalists presenting to an elite panel of investors at CEPCO’s annual awards banquet, October 29th at CSU-Chico’s Bell Memorial Union auditorium.

Pandora Won

Looks like there's finally an agreement in place to permit internet radio stations to operate profitably. The New York Times reported this morning that SoundExchange has agreed to a royalty plan. Under the new arrangement, webcasters with revenues in excess of $1.25 million will pay a per-song fee ranging over time from .08 to .14, or 25% of revenue, whichever is greater.

Our old friend Tim Westergren said "This is definitely the agreement we've been waiting for."

Venture Island Starts With A Splash At the Whole Pina Colada

To kick off the Venture Island Northstate competition series this year, we hosted the Whole Pina Colada June 23 at Canyon Oaks Country Club in Chico, the home of many classic Golden Capital Network events over the years, (and also the site of a great many hacks on the golf course by GCN staffers).


It’s a pastoral canyon setting and perfect for this type of loose business networking affair. Unfortunately, the Canyon Oaks bar was out of Pina Colada mix, so Sierra Nevada Pale Ale was the able fallback for those wishing to imbibe. (In truth, Mai Tais are really a better rum drink anyway -- 2 parts light Bacardi, 1 part pineapple juice, 1 part orange juice, a dose of Cointreau, and a dark Myers floater on top…mmmm).

The evening began with intros from Stewart Knox, a great resource and advocate for Northstate business through his work with the esteemed Charlie Brown at NorTEC, our regional workforce investment board. Stewart and Charlie are two of the most innovative workforce guys in the business, which is interesting since they represent the most rural, underpopulated regions in the state. They are the local overseers of the Northstate WIRED program, an innovation catalyst initiative brainstormed by former U.S. Dept. of Labor assistant secretary Emily DeRocco, and apparently gaining some traction in the Obama administration.

Our own President and CEO Jon Gregory was next up with the outline of how the Venture Island competition series will work this year: Three events with business challenges and eliminations each time until we get the final three showdown.

• July 23, Trading Post
  All the companies from the last event, plus any others that make the cut before then, engage in a 2-minute pitch off. Top contenders move on.
  
• Sept. 10, Snake Pit
  Role-play event to really get into the heads and hearts of the entrepreneurs and test not only their business savvy, but also their leadership, communication and decision-making skills
  
• Oct. 29, Make or Break Beach
  Five minute business presentation with q&a
  
• Oct. 29, Climbing Kahuna Mountain
  Secret challenge for the final three. This is the final showdown, and will take place at the Chico Economic Planning Corp. business awards dinner. We'll crown 1st, 2nd and 3rd, and all three will ascend to the California Business Ascent State Championships Nov. 17-18 in San Diego.
  

Sandy Baruah, former assistant secretary of the U.S. Economic Development Administration (EDA), was on next. Sandy is the Honorary Co-Chair of the California Business Ascent Challenge, as well as a Senior Fellow with the U.S. Council on Competitiveness. His remarks centered on recent conversations with colleagues at the Council, and it comes as no surprise here, but according to some of the smartest economists in the world, innovation and entrepreneurship are the keys to U.S. economic recovery and competitiveness into the future. How can we invent and produce more of the products and services the world needs and wants here on our own soil?

In this vein, Sandy indicated that during a conversation with high-level officials in the Obama White House there was continued support by the new administration for the WIRED innovation initiative started by Dept. of Labor about four years ago. The WIRED initiative funds Venture Island and other GCN business catalyst activities, along with many other important innovation efforts across the country, so this was good news for us, as our current grant expires the end of this year.

The first panel of the night was the one I was most looking forward to, and I wasn’t disappointed. Titled simply, “Business Success,” this panel featured five successful North State entrepreneurs telling their stories and imparting some gems of wisdom they’ve picked up along the way. The panelists included Rob Innes, from Innespace Productions, Matthew de Bord from Origami Foods, Kendall Bennett from A Main Hobbies, Todd Radke from ATC Hardware Systems and Andy Keller from Chico Bag.

Perseverance and passion are the words that come to mind when I try to generalize the session. Specific advice I recall included:

• Protect your intellectual property (get the international patents, too)
  
• Maintain customer satisfaction (you'll have a problem someday. You'll be judged by how you handle it)
• Be ready for challenges with manufacturing quality control (in China, esp. You'll have to take many trips to stay on top of it)
• Focus on the right market (identify what you really do best and avoid the temptation of the latest bright, shiny object)
• Find the right talent (there's a lot available cheap right now. Be cautious with stock incentives)
  

Each of these founders have experienced success and failure along the way and clearly love what they do. All of the company products were very cool. It was an inspiration, even if it did get a little long-winded.

The final session of the night had by far the most energy, and rightly so. Thirteen early stage entrepreneurs standing before the world (or at least the 200 people or so in attendance) making their two minute pitches for capital, talent, advisors or whatever it is they think they need to get to the next level. The top five are granted automatic pass through the first elimination round of Venture Island: The Trading Post.
The five winners were:

• Jim Philips, Inovius Software, Redding
• Jim Crummett, Telecom Lifters, Browns Valley
• Joe Andrew, Novasyte, Chico
• Julie Atlas, Bumblebee Transport, Paradise
• Steve Heumann, Cable Master, Paradise

There were a couple crash and burns, but almost all the competitors in the field showed well. You could tell which had availed themselves and actually listened to the coaching advice Jon gave them the week prior. Julie Atlas from Bumblebee Transport was the standout from the winners. Not so much because of her on-call large item moving service business model (which isn’t bad) but more because of her sheer energy, perseverance and authentic passion.

My two favorite picks from the also-rans were CleanTraks and the grill lid lifter – probably because I could use both of them yesterday.

CleanTraks has a product that incorporates a doggie bag holder into a retractable leash. It includes waterless hand soap, and no, this is not for leftovers from the restaurant, but for what the dogs themselves leave behind. The company is pretty much pre-product and pre-revenue, so they’ve got a long road to travel, but CleanTraks was a neat, innovative, well presented concept, and with something like 75 million dogs in the U.S. and a corresponding $500 million annual addressable market in dog accessories, they could have something big on their hands with the right marketing.

Grill lid lifter was yet another case of an intrepid inventor solving one of American’s most vexing problems: how do you keep a beverage in one hand, a basting brush in another, and get the grill open when you need to sauce the ribs? The answer, of course, is the grill lid lifter: Step on a button with your foot and the grill lid lifts. This one’s just on paper, but Jason Darrow from Yreka has some nice business chops and I wouldn’t bet against him to make a compelling case for this baby as the competition unfolds.

Our next Venture Island event is July 23 at the Enloe Conference Center, when all the companies from the Pina Colada, plus whoever else comes on board between now and then, face-off in the Trading Post.

As always, more information about our Business Ascent challenge events, our investor judges and panelists, and the company profiles and video of the elevator pitches are available for viewing on our web portal, in this case at VentureIsland-Northstate.Com

Liquidity Launches

June has seen the start of three new liquidity markets for private equity assets. The IPO market dried up very quickly after the turn-of-the-century dotcom market bust, and most exits since then have been in the form of mergers and acquisitions.

Indeed, it has been one of the biggest challenges for companies raising capital. An absence of a public market for shares has diminished the flow of private capital into technology startups. If the economy is to recover robustly, it is entrepreneurial companies, fueled by angel and venture investment, that will lead the way.

Now some of the leaders in the private equity industry are becoming

entrepreneurial themselves, creating new models for trading equity in privately-held concerns, as a mechanism for investors to take smaller positions in companies, and for employee shareholders to cash out some of their holdings.

Launched on June 1st, InsideVenture offers what it calls a "hybrid public-private offering", or HPPO (pronounced "hippo", lamentably). It works very much like a conventional IPO, with investment bank underwriters making a market, with the exception that InsideVenture member investors enjoy privileged early access to the shares before the public at large.

Our old friend Tim Draper also soft-launched XChange in early June, "The Private Stock Market. Done Right." This new firm offers four distinct service categories. XOM - Open Market is a trading platform for both new issues and aftermarket sales of privately-held shares. XPO - XChange Provate Offering is a private auction where valuations are defined and shares are allocated. XIQ - InQuest matches buyers with sellers, and XBP - Business Platform offers social networking capabilities for collaboration.

Rounding out the new private equity exchanges this month is Sharespost, "We make private equity liquid". This is a fairly straighforward trading post for buying and selling shares in private companies. It seems particularly targeting towards employees of companies that received stock in their companies as incentive compensation (and a "loyalty leash"), but that have no likely pending liquidity events. It lets founders and their early hires cash out some of their equity, and can enable a company to extend its runway before being acquired.

All three trading posts are a welcome addition to the venture ecosystem. Investors can diversify their holdings, shareholders can harvest appreciation, and companies can raise operating capital for growth.

The Sound of Web 3.0

We've long been fans of Tim Westergren and the Music Genome Project.  In 2003, at our East Bay Venture Capital Conference, Savage Beast Technologies (as his company was called then) was honored as the best presenting company at the event.

The business model was very different then.  The inference engine SBT built around their proprietary musical attribute database was furnished to music retailers, to recommend music to their customers based on their previous purchases.  It turned out that music retailers were going to need a lot more help than that.

So Westergren and his team repurposed the code to create the streaming internet service Pandora, which has become one of the most popular "personalized radio" sites on the web.

Meanwhile, there has been a lot of discussion about the next era of internet evolution, the so-called "Web 3.0", and what it will look like.  Observers professing expertise in the matter say it will be "semantic" and "distributed" and "mobile".  Indeed, it may be inaccurate to call it "web" anything.  The term of art in play lately is "stream".  The web is a network of sites using a shared protocol, whereas the stream is a constantly updated delivery of rich media content to a variety of user devices, not just the personal computer.

One indication of this evolution is the .tel top level domain.  It's a directory where users store and publish via granted privileges their personal, professional, and social contact information.  When this service was still in beta, we were informed that it was "beyond the browser".  It is accessible by mobile devices directly, and can be utilized by location-aware services.

We submit that Pandora is an early example of this new network paradigm.  It is semantic, inferring preferences from user behavior.  It's distributed, and can be used via internet appliances such as the Vudu set-top box.  And it's mobile, with clients available for the iPhone and other hand-held devices (although, lamentably, not for the Palm Treo, alas).

One other evolutionary dimension in the social media world is the "freemium" business model, and Pandora has been a pioneer in this, as well.  Pandora is free to use.  You just go to their site, start a station by citing a few artists or records, and it plays music that you will probably like -- and may never have heard before -- based on your selections.  Because Pandora pays royalties on these plays, it stops once per hour to confirm that you are still listening.  And, as with most free content services, it comes with display advertising on the site.

But you can upgrade to a premium subscription, which eliminates the ads and the interruptions.  We've had a premium subscription for awhile now, and at $36/year (less than a dime a day), it's one of the best deals you'll find.

Well, earlier this week, Pandora took it up a notch.  The premium subscription is now branded Pandora|One, and offers several improvements, the most immediately noticeable being a higher bitrate, up to 192Kbps, which is audibly superior if you have the broadband to support it.  But the coolest thing is the new desktop client, that runs on the Adobe AIR stack, a development platform that boasts that it is also "beyond the browser".  

It's an elegant looking utility, with an instantly comprehensible interface, especially if you're already quite familiar with the browser-based version.  Like a number of other Adobe AIR-based products (Seesmic Desktop, e.g.), it combines graphic, multimedia, text, and controls in a very compact package.  From the default view, you can play or pause, adjust volume, "like" or "unlike" a selection, or call a menu for more options, including help, bookmarking, station info, and the ability to email a station to someone, or purchase the content from iTunes or Amazon.  You can also set preferences, including display, notification, and quality parameters.

It is released as version 1.0.0, bucking the trend with many services soft-launching as "Preview" or "Beta" versions, with the implication of "unexpected results".  So far, we've been using it for several hours, and it appears to be quite stable and ready-to-ship.  Kudos to Westergren and the Pandora team for this excellent new product/service bundle.  They've weathered some rough times with the copyright and royalty battles, and like many companies had to reduce their workforce to remain viable.  With this latest development, they've taken a major step in the direction of a fee-for-service revenue stream (pun intended) that is affordable and sustainable.  Seriously, a dime a day.  You just can't beat that.

Cliffhanger

It's interesting how two different analysts can interpret the same data and come to very different conclusions.  For example, TechCrunch, with a flair for the dramatic, concludes that venture capital is "falling off a cliff".  Author Sarah Lacy rejects the conventional wisdom that: 

“Recessions are the best times to start companies! We always invest in downturns! There are fewer competitors, and you get a better caliber of entrepreneur! Dollars can stretch further because salaries and rents are lower! We’re not looking to take a company public for years, so why would we run our companies based on the public markets and macro economy?”

Her thesis is that because VC performance is evaluated on ten-year cycles, they never really corrected after the public market bust in 2001-2002.  With declining returns, VCs are reluctant to write checks without a resilient growth category defying the current conditions.  Certainly she is not alone in this opinion.

On the other hand, however, the respected ReadWriteWeb's COO Bernard Lunn takes the diametrically opposite view and declares in his headline "VC Investment in Internet Deals Did NOT Fall Off A Cliff".

How can that be?  Writes Lunn: 

What interests us at ReadWriteWeb is the small subset that is (a) seed- and early-stage, and (b) Internet-specific. So we drilled into those numbers. Q1 2009 saw 34 deals, with a total of $138 million invested. Is that good or bad? Well, 34 companies getting their first investment round is one helluva celebration for 34 entrepreneurs, their teams, and their investors.

How about 15 deals worth $76 million in Q2 2003? That was actually the lowest in the 53 quarters tracked by MoneyTree.

If you want to be positive, then, our position now is twice as good as it was in Q2 2003. So here is an alternative headline:

"VC investment in Internet startups is up 100% from last downturn".

So this is sophistry, but there is a point to it. This most recent boom cycle, at its peak in 4Q07, recorded $454 million investment in early-stage internet deals, as contrast to $4.5 Billion in 1Q00. Less than 10% is in play this time around, so, as Lunn puts it, "we don't have as far to fall".

No one is denying that the trend is down, but we're inclined to the RWW view that while total number of deals and amount invested have both declined from the peak, there's far more reason to be optimistic than otherwise.

Monterey Bay Innovation Showcase Webcast

We had a great time in Watsonville last week with the launch of our live video webcast series showcasing great companies from communities throughout California.  As part of the California Business Ascent business competition, we will be presenting more than 300 of the greatest companies you never heard of.

Each company will have the opportunity to present to a panel of investors in a casual cafe setting, get feedback and advice, and perhaps have follow-on meetings.  The companies then go on to a regional final to determine who will be among more than 50 companies competing at the statewide final in San Diego November 17-18.

The next showcase webcast is April 23, from the Davis City Council Chambers, featuring some exciting companies from the Yolo County area.  Follow the excitement!

California Business Ascent: The Solution to Create Sustainable Jobs

News about the economy seems gloomier. Unemployment rates rising, small businesses and multi-national corporations failing, foreclosure numbers increasing, the banking industry in turmoil, and the stock market unstable. What is needed is sustainable job creation to stem the tide of this difficult economic cycle. Yet many economic think-tank leaders and policymakers talk at the 50,000-foot level about innovation and federal stimulus funding as the panacea for our woes but don’t provide much in terms of a practical solution to accelerate economic recovery at the grass roots level.  

It is important to point out that an economic recovery solution exists. The solution, as it always has been in this country, rests on the shoulders of innovative, locally owned businesses run by visionary entrepreneurs. They exist in every region and community in the United States, rural or urban, inland or coastal, northern or southern. Golden Capital Network has coined a term to describe these companies: GLOBIEs. GLOBIEs are businesses that provide products and services that create new industry categories, grow existing ones, or capture more of an industry’s market share, thereby growing their businesses, generating revenue, creating jobs and stimulating new tax revenue. GLOBIEs can be startup companies, emerging growth companies, or mature enterprises with existing international or global market presence. They all start small, but many of them grow big and become market leading companies in their industries.

Some historic examples of GLOBIEs include companies like Hewlett Packard, Intel and Computer Science Corporation. Hewlett Packard was founded by Stanford classmates Bill Hewlett and Dave Packard in a Palo Alto garage. The first product they built was an audio oscillator. They sold eight their first year to Walt Disney, generating $5,369 in revenue. Many know the story of Bob Noyce and Gordon Moore, who founded Intel after leaving Fairchild semi-conductors. They decided to write a business plan and asked Art Rock, who helped start Fairchild and became an early venture capitalist, for funding. In 2 days, they lined up $2.5M. Their first commercial product was a memory chip which was mildly successful. Soon after, Intel was approached by a Japanese calculator company, asking them to make 12 chips. Intel ended up making one chip, performing like 12, revolutionizing the computer industry forever. Computer Science Corporation was founded in 1959 by Roy Nutt and Fletcher Jones with $100. They wanted to make it easier to use computers. The company quickly became highly reputable amongst computer users, and in 1961, contracted with NASA, launching CSC in the space business. These three companies each had very humble beginnings that went on to become long-standing industry leaders, creating thousands of jobs in California and globally. It is the next wave of GLOBIEs who will bring California out of its current economic downturn.

Where do GLOBIEs belong in the discussion about economic recovery and growth? Very high! These are the companies that can transform the local economic landscape. But, there seems to be little or no talk about making these innovation-based entrepreneurial businesses the focal point of our economic development strategy at the local, state or national levels. That is disturbing, in that there are thousands of multi-billion dollar global markets these businesses penetrate every day with their goods and services. Every time a GLOBIE makes a sale in a national or global market, new revenue is brought back to the GLOBIE’s home community.

A recent survey of Golden Capital Network alumni GLOBIEs confirmed that they have had substsantial job creation impact in their communities over the past several years, and are still doing so today. Whether an economy is in an up or down cycle, there are four opportunities for GLOBIEs to emerge and excel, including:

1. Tapping into a geography that has a growing need for a GLOBIEs product or service 
   
2. Creating a new industry category, or capturing a larger share of an existing industry sector 
   
3. Providing a compelling solution for governments, businesses or consumers that either saves money, increases value, or makes things more efficient 
   
4. Creating a diversion from the day-to-day grind of life

For example, Santa Rosa-based Tri-Access Technologies demonstrates that GLOBIEs are tapping into new geographies when it recently opened an office in Opoh, Malaysia. This fabless semiconductor company is accelerating the rapid deployment of advanced digital video and high-speed data in CATV,Telco and Wireless networks. The company’s products enable economic and system design efficiencies through integration and higher performance. It opened its Malaysia office to facilitate its global operations and further strengthen its relationships with suppliers, packaging houses and customers located in the Asia-Pacific region. Many of the company’s supply partners and more than half of its customers are located in or have major operations in the Asia-Pacific. TriAccess' growth plans include key personnel additions at its headquarters in Santa Rosa, such as highly-specialized RF applications engineers, internal operations specialists, and customer-facing sales professionals.

Another company, Sentilla Corporation, a provider of demand-side energy management solutions for commercial and industrial facilities, recently announced that it has opened its first European office in London, UK. The move strengthens Sentilla’s global presence and gives enterprises in the UK and Europe direct access to the company’s innovative technology, which can dramatically cut carbon footprint and energy costs. Sentilla, backed by Wavepoint Ventures and others, recently secured $7.5 million in Series B financing, after launching its patent-pending energy management technology in May 2008. Its platform can be embedded into virtually any system to provide insight into real world conditions at the source of power consumption.

Brammo Motorsports of Oregon is part of a group of innovative GLOBIEs that are creating a whole new industry category: electric motorcycles. Brammo is gearing up to begin production on its Enertia electric motorcycle. The Enertia is a carbon fiber-intensive two-wheeler that stores its power in large format, lithium-phosphate battery packs from Valence. The company has doubled its workforce to 28 and will build up to 50 or more employees soon as its gets ready to begin assembly. Starting in May, five Best Buy stores near the west coast will begin stocking the Enertia.

In Anderson, California, a rural community located 2 and ½ hours north of Sacramento, a high tech start-up company called Shasta Crystals estimates it will create up to 80 jobs in the near future. The company has created a revolutionary approach to making crystals that are used to create “visible lasers”, used as light sources for miniature projectors in products like cell phones, laptops and game consoles, and saves its customers significant time and money on manufacturing crystals.

These alumni companies provide just a few examples of how GLOBIEs are positively impacting the economy by reaching new geographic markets; creating new industry categories; saving businesses, consumers or governments money; or by enhancing our quality of life. Now consider that at GCN we deal with just a small number of GLOBIE companies, almost exclusively in California. Imagine if there was a focus on adding value to these companies in communities, regions and states across the entire U.S.! The impact would be phenomenal. Local, state and federal job creation efforts should focus on GLOBIEs because they represent by far the greatest opportunity for accelerating economic recovery and growth and creating sustainable jobs.

GLOBIEs have very clear needs: 

1. access to all forms of risk capital
   
2. access to talent, from skilled technicians and labor workers, to executive management, to boards of directors and informal advisors with specialized industry or functional expertise
   
3. access to professional services such as those associated with intellectual property, finance and accounting, risk management, marketing and sales, executive search, web development, and many others
   
4. access to business development whether it be through channel partners, VARs and other strategic partners all the way up to customers themselves
   
5. access to peers to share war stories, offer strategic advice, and form new alliances. 
   

The common denominator is people. Businesses successfully start, and successfully grow, when the right combination of people with complimentary skill sets come together with a shared vision to capitalize on a market opportunity.
The challenge for GLOBIEs is four-fold. This is where economic development efforts can step in and add value. First, the GLOBIE “ecosystem” does not naturally self-align in a community or region. GLOBIEs frequently operate in isolation without access to the critical resources they need.

Second, GLOBIEs require access to very specific domain expertise and talent. The essential critical mass of expertise and resources does not exist within specific industry sectors in most communities.

Third, most of a GLOBIE’s customers exist outside of their community, as well as the strategic resources and investment capital necessary to get to the customers.

Finally, most GLOBIEs are hard to find. Press releases posted on their websites and issued to the media rarely reach their intended audience. GLOBIEs almost never appear in their own local media. In most cases, individuals, organizations and businesses who could add value to these companies don’t even know they exist, even though they are located right in their own back yard.

A mindset shift about economic development approaches and a repositioning of energy and resources to focus on this sector of the economy is required. A city, county, local economic development organization, chamber of commerce or other community-based organization can enable GLOBIEs to become more visible. Find your established GLOBIEs; create methods to draw out the new ones; segment GLOBIEs by industry sector; use events to bring GLOBIEs together with capital sources, professional services, and executive talent; create local media partnerships to generate visibility for them; establish a web portal through which GLOBIE profiles and information can easily be accessed; create a system to track the connections that emerge through your efforts along with basic economic data on the GLOBIEs so you can measure progress; and align with a broader statewide effort to provide critical non-local connections and visibility. You can have a major impact on your local economy by helping GLOBIEs in this manner.

Golden Capital Network has spent years serving as a virtual bridge between policymakers and private sector ingenuity. Through this unique relationship, GCN is able to deliver a solution for local policymakers, civic and business leaders: The California Business Ascent.

Golden Capital Network, in partnership with the California Business Transportation and Housing Agency and CALED, has launched the California Business Ascent initiative as an easy-to-implement, cost effective solution that enables community leaders to help GLOBIEs in their community. We strongly believe that a community’s path to economic recovery and sustainable job creation will accelerate through the Business Ascent initiative. To find out more about how to become a California Business Ascent community, visit www.goldencapital.net

Lights, Camera, Action!

We’re very happy to announce the public launch of the California Business Ascent video webcast series, showcasing the most exciting startups you’ve never heard of. For ten years we’ve introduced more than a thousand early stage ventures to our network of active investors at dozens of Golden Capital Venture Capital conferences throughout California and Nevada, and more than $1.6 Billion has been invested in our alumni.

Now we're taking it to the web, live and direct. We are planning an ambitious program of 50 entrepreneur showcase webcasts in 2009 from locations throughout California, culminating in a final competition in San Diego this November with 50 regional finalists vying for cash awards, investor traction, and the title of the Most Innovative Startup in California.

“We’ve been showing recorded elevator pitches on our Business Ascent social network, and some other sites have followed suit,” said Jim Mikles, Executive Producer of the webcast series, “but this is the first program that presents entrepreneurs pitching their companies in a real-time, competitive format to potentially hundreds of investors screening the deal flow online.”

Our first live program is this Thursday, April 2, starting at 4PM PDT, from the Monterey Bay Innovation Showcase in Watsonville, in the heart of the Monterey Bay region. A panel of six leading angel and venture investors will discuss “Raising Capital in Challenging Times”, followed by ten-minute presentations by seven sensational startups.

If you want a ringside seat to learn more about the next wave of entrepreneurs emerging from the nation’s most innovative state, join the webcast by visiting http://businessascent.com/go/webcast

88X ROI

We've been watching some talks from the recent TED conference.  For those who may be unfamiliar with this program, it is an annual colloquium of the brightest and most imaginative thinkers, thought leaders, and overachievers from the worlds of Technology, Entertainment, and Design, discussing "Ideas worth spreading".

Juan Enriquez, Managing Director with Excel Medical Ventures and the CEO and Chairman of Biotechonomy, gave a fascinating presentation examining the economic meltdown, specifying strategies for recovery, and concluding with a look at some emerging innovations in life science technology presaging the emergence of "homo evolutis"; a humankind that takes an active role in its own evolution.

In the course of his talk, about seven minutes in, he made a remarkable observation about the impact of venture investment in the economy.  He said that investment in startups represented about .02% of GDP, whereas venture-backed companies produced 17% of GDP.  He mentioned it in passing as he transitioned from a laundry list of necessary cuts to public expenditure to areas where spending must be increased, but it certainly caught our attention.

Then we saw a similar observation in the Economist special report on entrepreneurship we discussed last week, and we tracked down the source.  As it happens, it comes from VentureImpact, a research paper commissioned by the National Venture Capital Association, and prepared by Global Insight with data provided by Content First.  The actual proportion of GDP invested in early stage companies in 2006 was .2%, and the output was 17.6%, which translates to a staggering 88x return on investment.

The study also documents

 that these companies

 produced more than

 10 million jobs, and over 2 trillion dollars in revenue that year, and the trend over the previous 6 years was consistently increasing.  Venture-backed firms also significantly outperformed the economy as a whole, producing more than three times the compound annual growth of jobs (3.6% vs. 1.4%) and nearly twice the growth in revenues (11.8% vs. 6.5%).

We've been on the lookout for solid evidence of our central thesis -- that the most effective strategy for economic development is innovation and entrepreneurship -- and this research certainly provides meaningful support for it.  The study was published in 2007, and analyzed more than 23,000 venture-backed companies.  An update to the study is in process, and is expected this June.  We look forward to it with eager anticipation.

Required Reading

When I was in college, guys usually pretended they were in a band. Now they pretend they are in a start-up.

In the March 14th edition of The Economist, a special report on entrepreneurship offers a comprehensive analysis of our favorite subject.  Authored by Washington bureau chief Adrian Wooldridge, the report is a collection of nine articles examining virtually every facet of innovation-driven new enterprise.  Wooldridge cites our friends at the Kauffman Foundation in defining entrepreneurial companies as specifically innovative, as contrasted to replicative, businesses.

The leading article, Global Heroes, explodes the "five myths" about entrepreneurialism.  These include:

• Entrepreneurs are "orphans and outcasts"; solitary, antisocial nerds making widgets in isolation
  

Entrepreneurs may be more independent than the usual suits who merely follow the rules, but they almost always need business partners and social networks to succeed.

• Entrepreneurs are young.
  

The Kauffman Foundation examined 652 American-born bosses of technology companies set up in 1995-2005 and found that the average boss was 39 when he or she started. The number of founders over 50 was twice as large as that under 25.

• Entrepreneurship is driven by venture capital

Monitor, a management consultancy that has recently conducted an extensive survey of entrepreneurs, emphasises the importance of “angel” investors, who operate somewhere in the middle ground between venture capitalists and family and friends. They usually have some personal connection with their chosen entrepreneur and are more likely than venture capitalists to invest in a business when it is little more than a budding idea.

• Entrepreneurs must create world-changing new technology

Sir Ronald Cohen, the founder of Apax Partners, one of Europe’s most successful venture-capital companies, points out that some of the most successful entrepreneurs concentrate on processes rather than products. Richard Branson made flying less tedious by providing his customers with entertainment. Fred Smith built a billion-dollar business by improving the delivery of packages. Oprah Winfrey has become America’s richest self-made woman through successful brand management.

• Entrepreneurship cannot occur in large companies

Many big companies work hard to keep their people on their entrepreneurial toes. Johnson & Johnson operates like a holding company that provides financial muscle and marketing skills to internal entrepreneurs. Jack Welch tried to transform General Electric from a Goliath into a collection of entrepreneurial Davids. Jorma Ollila transformed Nokia, a long-established Finnish firm, from a maker of rubber boots and cables into a mobile-phone giant; his successor as boss of the company, Olli-Pekka Kallasvuo, is now talking about turning it into an internet company.

Just as importantly, big firms often provide start-ups with their bread and butter. In many industries, especially pharmaceuticals and telecoms, the giants contract out innovation to smaller companies. Procter & Gamble tries to get half of its innovations from outside its own labs. Microsoft works closely with a network of 750,000 small companies around the world. Some 3,500 companies have grown up in Nokia’s shadow.

As we've pointed out before, an economic downturn is a good time to start businesses.  Wooldridge notes that it is also an opportune time for growing entrepreneurial businesses.  Citing a study from Endeavor, entrepreneurs surveyed forecast that "their businesses would grow by 31% and their workforces by 12% this year. Half of them thought they would be able to hire better people and 39% said there would be less competition."

In addition to this overview, additional articles in the report include:

• Managing entrepreneurship
  
• Time for entrepreneurship
  
• The United States of Entrepreneurs
  
• Entrepreneurs in India and China
  
• Lands of opportunity
  
• The formula for entrepreneurship
  
• Entrepreneurs doing good
  
• The entrepreneurial society

Anyone professing an interest in innovation and entrepreneurship will be significantly better informed after reading this authoritative analysis.

Tom Hayes Stimulus Package

Our old friend Tom Hayes is at it again.  In an op-ed piece in yesterday's Wall Street Journal, he and Michael S. Malone critique the new administration's stimulus strategy, and offer suggestions for an innovation-based approach that certainly sounds more promising than propping up failed industries.

Readers of this page know that we have long argued that the best and most valuable jobs are created by entrepreneurs and the private investors who fund them.  And we've certainly celebrated the occasions when the public sector has recognized and supported entrepreneurial efforts, even while noting our disappointment in how little of that is evident.

Hayes and Malone rehearse the same catechism of entrepreneurship, innovation, private investment, and economic vitality, and go one to make some specific recommendations for policy makers to give serious attention.  Some highlights:

- First, kill Sarbanes-Oxley or make it voluntary. Right now.

- Allow entrepreneurs to more easily tap tax-free retirement accounts -- or better yet, let them create tax-free accounts specifically to fund themselves.

- Eliminate payroll taxes, which unnecessarily burden young companies. 

- Make the tax system more forgiving for Angel investors -- or allow the creation of tax-free investment vehicles similar to what we now see with nonprofit foundations or 529 college savings funds.

- Lower capital gains taxes on investments in early stage companies and higher taxes on later stage deals. 

- Help big business think small. 

- Convene a presidential summit on entrepreneurship and small business. The last president to do so was Ronald Reagan in 1982.

Hayes and Malone elaborate on these points, and we highly recommend their article as "required reading".  

In the "Q"

As long-time subscribers to McKinsey Quarterly's email newsletter, we enjoy the in-depth analyses featured on their website.  We'll continue to alert readers to useful and relevant content we encounter through this channel (links back to the Quarterly site require free registration for access to the entire article.)  We cited a report from the "Q" earlier this month, and now we are delighted that today's inbox brings credible third-party validation of one of our central theses: invention is science, innovation is economics.  

Excerpted from his recent book, Amar Bhidé makes a compelling case that despite falling behind rapidly emerging BRIC economies in secondary and higher education in STEM competencies and pure research generally, the United States enjoys a competitive advantage in applying discoveries from the laboratory to real-world uses.

Technological innovations, especially high-level ones, usually have limited economic or commercial importance unless complemented by lower-level innovations. Breakthroughs in solid-state physics, for example, have value for the semiconductor industry only if accompanied by new microprocessor designs, which themselves may be largely useless without plant-level tweaks that make it possible to produce these components in large quantities. A new microprocessor’s value may be impossible to realize without new motherboards and computers, as well.

New know-how and products also require interconnected, nontechnological innovations on a number of levels. A new diskless (thin-client) computer, for instance, generates revenue for its producer and value for its users only if it is marketed effectively and deployed properly. Marketing and organizational innovations are usually needed; for example, such a computer may force its manufacturer to develop a new sales pitch and materials and its users to reorganize their IT departments.

Bhidé makes these observations in the context of anxieties in the policy and media communities about America losing it's "edge", and his concerns about resorting to protectionism or diverting scarce resources to pure research activities, or "what the economists Sylvia Ostry and Richard Nelson call techno-nationalism and techno-fetishism".

Techno-nationalists and techno-fetishists oversimplify innovation by equating it with discoveries announced in scientific journals and with patents for cutting-edge technologies developed in university or commercial research labs. Since they rarely distinguish between the different levels and kinds of know-how, they ignore the contributions of the other players—contributions that don’t generate publications or patents.

They oversimplify globalization as well—for example, by assuming that high-level ideas and know-how rarely if ever cross national borders and that only the final products made with it are traded. Actually, ideas and technologies move from country to country quite easily, but much final output, especially in the service sector, does not. The findings of science are available—for the price of learned books and journals—to any country that can use them. Advanced technology, by contrast, does have commercial value because it can be patented, but patent owners generally don’t charge higher fees to foreigners. In the early 1950s, what was then a tiny Japanese company called Sony was among the first licensors of Bell Labs’ transistor patent, for $50,000.

In the current economic climate, it is critical that resources and regulations be more closely aligned with the successful commercialization of new science, rather than deep, long-range investments in adding to the store of human knowledge.  As we have seen, the economies that benefit most from commercial application of new technology are not necessarily the ones in which it was patented.  License revenue and royalties create few new jobs.

Since innovation is not a zero-sum game among nations, and high-level science and engineering are no more important than the ability to use them in mid- and ground-level innovations, the United States should reverse policies that favor the one over the other, and it should cease to worry that the forward march of the rest of the human race will reduce it to ruin.

Immigration policies that favor high-level research by preferring highly trained engineers and scientists to people who hold only bachelor’s degrees are misguided too. By working in, say, the IT departments of retailers and banks, immigrants who don’t have advanced degrees probably make as great a contribution to the US economy as those who do. Likewise, the US patent system is excessively attuned to the needs of R&D labs and not enough to those of innovators developing mid- and ground-level products, which often don’t generate patentable intellectual property under current rules and are often threatened by easily obtained high-level patents.

Even factoring in outsourced manufacturing and back-office services, the most (and best) net new jobs are created by innovators who find a crying need and fill it with creative solutions fashioned from new discoveries and existing technologies alike.  As we've pointed out elsewhere, an innovative company isn't necessarily introducing widgets, but is also applying novel thinking and imagination to improving established business processes for greater effectiveness or efficiency.  Cloud computing, for example, offers familiar software capabilities, but in a new form factor and delivery model.  That's not the sort of thing you invent in a lab.

Silver Lining Dept.

We wrote last week about the ComputerWorld item discussing big corporations acquiring smaller companies.  Cesar Rojas with ANTs Software commented on that item, pointing out that smaller companies aren't always looking to get bought out.

I think there are exceptions to the rule when it comes to small tech companies. In this down economy there are real needed innovations that are very critical to significantly reduce IT costs. That empowers smaller companies to negotiate with the big guys because the technologies they develop can really jeopardize critical revenue streams of these firms while providing huge OPEX reductions for customers.

We thought this was an interesting perspective, and when we inquired with Mr. Rojas, we got a call back from Ken Ruotolo, ANTs' CFO, who explained a little more about why ANTs is sanguine about remaining independent.

For one thing, the company is publicly traded (OTC:ANTS), and has gone through several episodes of repurposing.  They sold their high-performance database line of business in 2005, and are now delivering a middleware solution for migrating databases to new platforms without having to modify applications.

Having some experience in data migration (we worked on the team at SynOptics that migrated from Oracle Financials to SAP R3 in 9 months, and led the team at Bay Networks that implemented a Scopus-based call center database on top of Informix in 11 weeks), we were particularly interested in this solution.  As Mr. Rojas continued in his comment:

We recently moved a 3,000 user call center app for Wyndham Hotels from Sybase to Oracle where the customer didn’t need to change a single line of application code. The whole migration lasted one week compared to the multi-month/multi-year application migration process that Wyhdham might have embarked without deploying our product.

Very cool stuff, indeed.  So why wouldn't ANTs want to be acquired by a giant like Oracle, say?  Because they have the potential to become a big player in their own right.  Mr. Rojas again:

I truly believe that smaller/innovative companies that can significantly reduce IT costs in this economy are the exception to the rule and we will be in the driver seat when negotiating alliances with big IT vendors.

As Mr. Ruotolo explained to me, ANTs Compatibility Server product enables a company to migrate large enterprise-wide databases from costly proprietary platforms such as Oracle or Sybase to an open source platform like MySQL, reducing cost of ownership to a fraction of current operating expense.

As data center managers increasingly try to squeeze more efficiencies from operations through consolidation of hardware and software solutions, ANTs Compatibility Server bids fair to be enormously disruptive.  By employing platform companies as channel partners, they have every reason to expect that the potential for growth to be substantial.

California Business Ascent Announced

MEDIA CONTACTS:

Josh Morgan for Golden Capital

(916) 941-0901

josh@morgandorado.com

FOR IMMEDIATE RELEASE

Golden Capital Network, California Business, Transportation and Housing Agency, California’s Small Business Advocate, and California Association for Local Economic Development Announce Statewide Initiative to Help Growth Oriented Businesses Climb Out of Economic Doldrums

Private and State Groups Coming Together for California Business Ascent Statewide Business Mentoring and Competition

Sacramento and Chico, California - Feb. 18, 2009— Golden Capital Network (www.goldencapital.net), along with the California Business, Transportation and Housing Agency, California’s Small Business Advocate, and the California Association for Local Economic Development today announced the California Business Ascent (www.businessascent.com), a statewide competition and mentoring program to identify, assist and encourage innovation-based, locally-owned companies throughout California.

“Local-businesses focused on growth are the key for California to lead the way out of this economic downturn,” said Dave Sanders, chairman of Golden Capital Network and managing partner of WorldBridge Partners. “The Business Ascent is all about identifying the companies with the best chance of success and giving them as much help as we can, to try and make them successful, for the benefit of the companies, the employees and the people of California.”

The California Business Ascent will include regional competitions in up to 25 communities throughout California, culminating with the top two companies from each community competing in the California Business Ascent Finals to be held in San Diego at the Catamaran Resort on November 17-18, 2009.

"California has a long history of innovative entrepreneurs creating jobs and unparalleled prosperity driving new industries to global leadership, with entrepreneurs working in collaboration with government," said Secretary Dale E. Bonner, of California's Business, Transportation and Housing Agency. "It's going to take the collective effort of everyone in the state to rise out of our current economic situation and we can do it together by proactively supporting our next wave of innovative entrepreneurs."

The initiative is a unique new type of public/private partnership that includes both State government and local government leaders, and new types of private sector partners including entrepreneurs, angel investors, and venture capitalists. Through this process contestants will make important connections with investors, bankers, professional services providers, executives, policymakers and other entrepreneurs on a statewide basis. In-kind professional expertise and a substantial cash prize (amount TBD) will be provided to the winner of the competition.

“The California Business Ascent provides a new economic development tool for cities, counties and local economic development corporations to add value to their locally-owned growth companies,” said Wayne Schell, president and CEO of the California Association for Local Economic Development, ”These companies represent a critical and growing part of California’s local and regional economies, and until now have been difficult to assist with more traditional types of economic development activities.”

Wavepoint Ventures (www.wavepointventures.com) is participating in the California Business Ascent by helping to engage California's venture capital and angel investment community in the effort to accelerate economic recovery.

Cities and regions throughout the state including the Yolo region, Greater Stockton and San Joaquin County region, Greater Chico and surrounding counties, and Greater Redding and surrounding counties, have already begun scheduling events as part of the California Business Ascent.

Other cities and regions interested in participating should contact the California Business Ascent initiative organizers at Golden Capital Network, 530-893-8828.

For more information about the California Business Ascent, please visit www.businessscent.com.

ABOUT GOLDEN CAPITAL NETWORK

Golden Capital Network is a non-profit networking, training and consulting group that fosters growth entrepreneurship and early-stage investing as an engine for economic growth.

Since 1999, GCN has coached and showcased more than 1,000 companies to more than 500 active angel and venture capital investors. GCN’s venture capital showcases are the largest and most robust events of their type. The GCN event formula has resulted in more than $1.3 billion raised by presenting companies. More information on Golden Capital is available at www.goldencapital.net.

ABOUT THE BUSINESS, TRANSPORTATION AND HOUSING AGENCY

Led by Secretary Dale E. Bonner, the Business, Transportation and Housing Agency includes 13 departments and several economic development programs and commissions consisting of more than 44,000 employees and a budget of $20 billion, a budget larger than that of almost half the states in the nation. The Agency's portfolio is one of the largest and most diverse in the State of California. Its operations address myriad issues that directly impact the state's economic vitality and quality of life including transportation, public safety, affordable housing, international trade, financial services, tourism, and managed health care.