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MORNING SESSION: IN THE STARTING BLOCKS...HOW TO BUILD TO FUND AND BUILD TO LAST

8:30 - 9:00
BUILDING AND FUNDING COMPANIES IN THE AFTERMATH OF THE NEW YORK TRAGEDY
Mark White, White & Lee LLP, Menlo Park, CA

Mark White provided a brief review of how the September 11 World Trade Center tragedy has affected the business environment for the emerging growth and scaling technology enterprise. Mark observed that the primary effect of the event was to make the word "recession" no longer taboo. We are facing a rough economic ride for the foreseeable future, which will have a crushing effect on the market, directly hurting the scaling venture. Travel and travel related companies will be the most notable losers, while cellular and security companies will likely benefit in the long run. Technology will be not be affected as much as one would think. Venture capital firms will begin to diversify their investments among different companies and across different regions, which suggests that companies should begin to look outside of their local region for funding. Syndication will become the standard for future venture capital deals.

Mark then highlighted 7 rules for survival in today's market:

· Build the business before you fund it. Build the team, build the core technology, verify the market and KNOW YOUR NUMBERS.

· Build a real team, not the dream team. Focus on developing an experienced, committed Board and hiring a good CEO and director of sales. Both business and technology expertise is needed. Look for VC's with good experience in your sector.

· Be market centric, not technology centric. Broadband, enterprise solutions, storage, health care, and data management are all hot right now.

· Choose proven business models that work. Simple is good.

· Partnerships are key. Focus on indirect sales channel partnerships. Look for partners that can fill your weaknesses.

· First Round capital must last 7-12 months. Plan to use cash bonus pools for management bonuses, as equity incentives are not going to attract the best managerial talent.

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9:00 - 9:30
POSITIONING YOUR TECHNOLOGY AND YOUR COMPANY FOR SUCCESS
John Zagula, Ignition Partners, Seattle, WA

John Zagula walked the audience through a framework of analytical tools that entrepreneurs and industry professionals can use to optimally position their companies for a successful rollout. In a dizzying series of mnemonics, Mr. Zagula explained (1) how to thoroughly analyze your customers, your competitors, and your own competencies; (2) how to clearly identify and explain the problem you are seeking to solve, the unique solution you seek to provide, the technology behind your solution, and your ability to launch your solution quickly; and (3) how to effectively communicate the preceding information to your target audience.

Among the highlights of Mr. Zagula’s discussion are the following tips:

· Before you begin, you must do your homework by talking to friends, associates and target customers. Ask tough questions in order to develop a comprehensive understanding of who your customer really is and what their needs and concerns might be.

· Understand that when pitching your solution, your audience may not appreciate a list of mere technological features. How your solution benefits the customer is much more important. Sales to the customer are what ultimately prove a solution’s success.

· The Rule of Three: your audience is incapable of remembering more than three points about any one subject. You must force yourself to follow this rule or risk losing your audience’s interest or comprehension.

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9:30 – 10:45
First Panel Discussion: BUILDING THE TEAM IN THE EARLY STAGES

DEVELOPING START UP TEAMS
Richard G. Strayer, Strayer Consulting Group, Los Gatos, CA

Richard Strayer discussed the phases and transitions that a managing team will encounter over the life of a start-up and what a company must do in order to successfully navigate this turbulent growth period. Almost every company will need to transition to long-term leadership as it matures, largely abandoning it’s founder-based culture along the way. This transition can be extremely painful unless the team is thoroughly prepared early on.

In providing technology team development and executive coaching to over 300 high tech companies, Mr. Strayer has learned the following lessons:

· Hire for next year’s company.

· Prophecy the future/ prepare your executives for the inevitable change in roles/structure.

· Actively grow your executives.

· Consciously develop bench strength.

· Establish your team norms early and underscore them constantly.

· Define your executives’ personal score card as – Learning, growth and options – NOT role/status and number of direct reports.

· Make tough decisions as soon as your instincts tell you – don’t wait!

· Actively plan transitions individually and with the team – involve them!

FINDING FIRST TIER MANAGEMENT TALENT THE OLD-FASHIONED WAY
Frank Moscow, Brentwood Group, Portland, OR

Frank Moscow reviewed the trends in executive recruiting and how the dot.com bubble has affected the market for top managerial talent. Title inflation of the dot.com era has led to a market flooded with titles lacking real experience. Companies must look for proven track records of success and for people who can make tough decisions in challenging economic circumstances and know how to close a sale. Now, more than ever, a director of sales with a proven track record is required for building a successful business, and is absolutely critical to achieving a high valuation. In order to attract top talent, a company should have a business model that makes sense, a successful management team, an understanding of real-world business issues and good customer references.

Mr. Moscow then discussed what a company should do when hiring an executive search partner, including making sure that the search firm is experienced in the specific functional area and industry, as well as making sure that the individual search agents can provide the time and expertise needed for a successful search. In closing, Mr. Moscow addressed how strategic board composition and good board governance are imperative in building a great company. Companies should look for active, engaged board members who ask tough questions and leaders with proven track records in good times and bad.

HIRING YOUR TEAM
Maureen Berg, Sr. Staffing Consultant, Intel, Hillsboro, OR

In a refreshing change of perspective, Maureen Berg provided a glimpse into the world of large-scale corporate hiring. Ms. Berg emphasized the importance of doing your homework to determine your hiring needs and market conditions, and the importance of forming a comprehensive hiring plan before trying to actively recruit candidates. Often times it will make more sense to move a business to where the talent is located rather than try to hire outside your geographical area.

Candidates may be found through employee referrals, online career portals, Internet searches, college recruiting programs and temp agencies. When giving your sales pitch to prospective candidates, remember that you’re selling the job, including your company’s culture, location and opportunities for development – be excited about what you do. During the interview, make sure you have a structured set of questions to determine if the candidate can truly meet the requirements of the job in question. When closing the deal, understand the motivations of the candidate and reiterate how your offer satisfies those motivations.

Remember, the mantra of corporate recruiting is “hire hard, manage easy”.

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11:00 – 12:15
Second Panel Discussion: DRESSING THE COMPANY FOR THE FINANCING DANCE

THE COMPANY PERSPECTIVE...WHAT TO SAY, WHAT TO DO, HOW TO CLOSE
Bruce Lichorowic, White & Lee Technology Venture Partners, Menlo Park, CA

Bruce Lichorowic provided a comprehensive overview of how to successfully plan, launch and manage a technology venture in today’s uncertain business environment. Bruce reviewed the state of the current investment market, pointing out that VC’s are holding back from investing in new companies and getting “back to basics,” i.e., taking their time in looking for ventures with exceptionally robust business models, proven teams, solid core technology and sales. This means that a new company may need to internally fund its seed growth, and may need to demonstrate its ability to close a sale before it can receive institutional funding. Plan on making your funding last longer by keeping your burn rate at a painfully low level.

After addressing ways to rethink your business from every angle in today’s market, Bruce wrapped up by giving the audience his Top Ten Personal Checklist for the budding entrepreneur:

1. Don’t fall in love with your product or your company; it will blind you to shortcomings.

2. Funding or selling is a full time job; as a CEO you must be always be selling.

3. Don’t assume anything from your VC’s

4. Constantly rethink your Plan.

5. Watch out for quick fixes.

6. Check your ego at the door.

7. Plan on three near-death experiences.

8. Always tell yourself the truth.

9. Know where the exits are; don’t forget your exit strategy.

10. Trust your instincts.

FROM QUINTA TO CAPELLA: HOW THE GAME HAS CHANGED IN THE CURRENT MARKET
Dr. Joseph Davis, CEO, Capella Photonics, San Jose, CA

In a fascinating first-person narrative, Dr. Joe Davis led the audience through his experience in forming 4 companies over the course of 11 years, with a focus on the three most recent ventures, straddling the life of the dot.com bubble. In doing so, Dr. Davis illustrated how the deal-making and financing environments have changed. Quinta, an optical storage technology company, was formed in early 1996 and sold to Seagate for $345 Million in 1997. Iolon, a Seagate spinout formed with the intent to apply Quinta technology to new markets, was formed in early 2000 and is currently shipping beta samples of its tunable laser technology after a wildly successful, albeit drawn-out, Series B financing. Capella Photonics, an optical network sub-system company, was formed in late 2000 with the original Quinta team and recently completed its series A financing after 7 months of renegotiations.

As a result of his experiences, Dr. Davis had recommendations for the audience with regard to negotiating the term sheet and shopping your deal. Here are some highlights:

· All terms, no matter how small, should be put in writing, and should be done so in a way that cannot be misinterpreted by an attorney 3 months later.

· The Termsheet is generally non-binding, expect a second round of negotiation.

· When deal shopping, an excellent PowerPoint presentation is better than a business plan. It must have a single-chart executive summary that tells your entire story.

· Make certain that any bridge loan is NOT contingent on a no-shop clause. The company must always seek to maintain leverage.

· Be prepared to financially outlast the time to obtain term sheets and negotiations until close.

LATER STAGE FINANCINGS AND HOW TO WORK WITH THE PRIVATE PLACEMENT INVESTMENT BANKER IN THE CURRENT MARKET
Dana Sands, Salomon Smith Barney Inc., Palo Alto, CA

Dana Sands presented a detailed look at the world of institutional private placement services, highlighting how Salomon Smith Barney sources, screens, manages and closes private equity deals. Ms. Sands explained how sponsorship from a Tier 1 global investment bank provides greater access to high quality investors, provides the resources to advantageously package and position the company for both the current round of funding as well as a future IPO, and gives a transaction credibility which will in turn support higher deal valuations. Salomon Smith Barney conducts an extensive due diligence process on every deal, including management background checks, customer surveys, thorough competitive landscape analysis, and a complete reevaluation of all financial projections.

In addition to walking the audience through a typical private placement deal timeline and presenting a thorough review of the current investment marketplace, Ms. Sands outlined the criteria that Salomon Smith Barney currently looks for in private placement opportunities:

· Financing needs in excess of $15 million.

· Large and growing market opportunity.

· Significant customer traction.

· Cash break even within 6-12 months.

· Experienced management ream with proven track record.

· Disruptive technology.

· Previous VC backing. This has become critical in today’s market.

· Reasonable valuation expectations.

· Strong intellectual property position.

· Most important of all: nice people.

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12:15 – 1:30
Third Panel Discussion: FOUNDER BEWARE...WHEN THINGS GO TERRIBLY WRONG

TRENDS IN FINANCING TERMS: FOUNDER/MANAGEMENT CONTROL, PERFORMANCE AND LONGEVITY
Kevin Brannon, Preston Gates & Ellis, Portland, OR

Kevin Brannon discussed current term sheet trends with respect to corporate control, highlighting the unlikely simultaneous appearance of reduced investor voting rights and increased investor veto control over management decisions. In today’s market, lower deal valuations result in the investor receiving a much greater percentage of total company ownership than needed, at least from a control perspective. Investors are willing to give up a portion of their voting rights by means of revocable proxy or voting agreements, as long as such rights are restored in times of true crisis. At the same time, investors are demanding veto rights over specific management decisions, such as changes in the company’s business plan, making loans in excess of agreed limits, changing the location of the business, hiring key employees, etc. In addition, we are seeing a greater investor presence on the board, with the typical board now consisting of two directors elected by common shareholders, two elected by preferred shareholders, and one independent outside director.

MAKING A SMOOTH TRANSITION TO A NEW TEAM
Paul Tomlinson, Organizational Psychologist, Alexander Hutton, Venture Partners, Seattle, WA

Paul Tomlinson examined the inevitable transition from the founding start-up team to the long-term professional organization, and the critical need for early preparation, decisiveness, and open communication in order to make the transition painless for all concerned. It is key that open communication exist between the investor and founders, and between the investor and the new CEO. Both the founding team and the new CEO must be given milestones and benchmarks, which if not met, will result in their removal. In any transition, it is imperative that people be treated with dignity and respect, as this will communicate to the remaining employees that they will be treated right and will help shape a positive company culture.

Mr. Tomlinson highlighted the following tips:

· Look for people with the right experience, people whose references check out and who can work together.

· Look for people who can focus on product positioning.

· Performance metrics are key; you need to know how people are performing in relation to benchmarks from day 1.

· Keep employees informed during any transition.

· Be consistent with your follow through; make sure you monitor and enforce benchmarks.

WHEN PANICKED INVESTORS COMMANDEER THE COMPANY
Fadel Hamed, CEO, Lambda Optics, Albany, CA

Fadel Hamed added a notably human touch to the seminar by giving his first-person account of Lambda Optics’ nightmarish experience with a bad series A investor. In early 2001, Lambda Optics sourced a $5 million series A financing to be led by what will be referred to as Rogue Ventures. In March 2001 Lambda closed on the first $1 million of the round, with a second closing of $1.5 million expected to close in June 2001. Fadel first learned that something was horribly wrong when the prospective series A investors he introduced to Rogue Ventures kept disappearing, as Rogue Ventures convinced these investors to invest in Rogue Ventures’ own fund instead of Lambda. Things got worse as Rogue Ventures requested a one-year extension on the second closing and, as a holder of only 6% of the company, demanded a third seat on the board. By late June, Rogue Ventures had cancelled the second closing, demanded a repricing of the series A round, and falsely accused the Lambda management of embezzlement. After threats of litigation from both Rogue Ventures and Lambda and after weeks of bitter negotiations, Lambda was finally able to find a new series A investor to complete the round and bring the company back on track.

As a result of his experience, Fadel had the following lessons to shares with the audience:

· Open communication between investors and company is essential.

· Conduct the proper due diligence on your VC’s. Remain skeptical about the words of their portfolio company leaders.

· A delayed financing is better than a bad financing.

· Never work with a VC that goes after your investors.

· Having a good lawyer can make a huge difference.

· In every situation, no matter how bad, there is always hope.

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AFTERNOON SESSION: THE MID-LIFE IDENTITY CRISIS: FUNDING THE SCALING ENTERPRISE

2:00 – 2:45
Fourth Panel Discussion: SHOW ME THE MONEY...WHERE IT'S GONE AND WHERE IT'S GOING

DOWN-ROUND TERM SHEETS…WHAT TO NEGOTIATE AND WHAT TO ACCEPT
Jon Summers, White & Lee LLP, Portland, OR

Jon Summers reviewed current trends in down-round term sheets, with a focus on how to negotiate away from onerous terms and how a company can swallow tough terms without destroying management incentive. A successful term sheet negotiation requires that the company have leverage, which can be based on the company securing alternative courses of action, or management’s ability to meet milestones. Some good news for the company is that early round investors will tend to avoid terms that will scare away future financings, and that all investors desire to maintain management incentive.

In general, expect to see liquidation preferences up to 4x investment, price-based antidilution, redemption rights, cumulative dividends, and special voting or veto rights. Mr. Summers pointed out that we are seeing a stronger emphasis on milestones, with management cash bonus pools and other incentives tied to successful performance. Remember that investors are interested in both protecting their investment and promoting the success of the company.

THE STATE OF VENTURE CAPITAL
John Gabbert, Director of Research, Venture One, San Francisco, CA

John Gabbert presented a detailed analysis of the current state of venture capital and the investing environment. In general, John pointed out that VC fundraising is still strong, and that investment levels for 2001, while down dramatically from 2000, are right on target with the healthy growth trend exhibited from 1995-1999. VC’s are focusing on their existing portfolios rather than investing in totally new ventures. Software, networking and infrastructure are still the hot sectors. Valuations, the size of median rounds, and levels of corporate investment are falling. Liquidity is tight, with exits shifted dramatically in favor of M&A, as IPO activity has largely dried up. Overall, venture capital, while available, is extremely tight. This should lead to even lower valuations and a more competitive marketplace.

2:45 – 4:00
Fifth Panel Discussion: MAINSTREAM VCS...THE PERSPECTIVE FROM THE VALLEY TO THE FOREST

THE VIEW FROM THE SILICON VALLEY…INVESTMENT OPPORTUNITIES AND CHALLENGES
Robert Winter, Rocket Ventures, Menlo Park, CA

Robert Winter provided the audience with his view of the current trends in business and investment environments, as well as his predictions for future hot technologies. Although we may be entering a recovery cycle, tech spending is down severely and every tech company has felt the pain. There will be a return to the fundamental drivers of cash flow and profits, instead of the branding and market share of the dot.com era. The capital markets have realized that it is sound business models that focus on sales and meeting the needs of the customer which will prevail. While valuations and deal flow are way down, limited capital and higher scrutiny are resulting in only high quality companies making it in the door.

Mr. Winter predicts that ubiquitous real-time Internet services, networks and hardware will be the hot technology in the coming years. The real-time enterprise and customer-driven data access will shape the way people do business.

THE SKINNY ON OREGON…TRENDS AND OPPORTUNITIES IN THE OREGON TECHNOLOGY COMMUNITY
David Chen, Olympic Venture Partners, Portland, OR

David Chen discussed the current state of technology and investment in Portland and the greater Pacific Northwest, providing detailed analysis of future driving technologies. According to David, VC’s are currently conducting triage on their portfolios, trying to focus their efforts and money on only the best portfolio companies and trying to relearn how to price deals correctly. The good news is that the VC’s and entrepreneurs still in the marketplace are those that truly want to be here, are willing to do their homework, and will commit to making sure that a project is done correctly. There is a much stronger focus on market analysis, with VC’s making sure that there is a current end-user demand for any new technology. In general, we are moving back to “normal” times, where hard work, real technology and time are the keys to success.

As an interesting side note, while discussing the importance of a good team, David pointed out the differences between Portland teams and Silicon Valley teams: Portland teams tend to be made up of “best athletes,” meaning the best scientists or professors in a particular area have joined to bring a technology to market; Silicon Valley and Seattle teams tend to be made up of seasoned players – individuals who have been through the start-up process before and are now seasoned veterans. This tends to limit the number of VC’s who are willing to invest in the Portland market.

WHAT'S HAPPENING IN THE WASHINGTON TECHNOLOGY COMMUNITY
Jerry Keppler, Alexander Hutton Venture Partners, Seattle, WA

Jerry Keppler presented both his view of the current investment climate and the view of other VC’s, as reported by Deloitte & Touche’s VC Confidence Survey. While investment is indeed down, a surprising number of VC’s expect the overall economic climate to improve over the next 6 months and believe that this is a good time to be a technology entrepreneur. On the other hand, VC’s expect to see a lot of down rounds and VC-backed companies going under in the near future. Currently, VC’s are doing fewer deals, at significantly lower valuations, and usually as part of a syndicate of 3-5 firms. VC’s are focusing on extremely high quality companies and their existing portfolios. In describing the current capital climate, Mr. Keppler pointed out that a large portion of the Seattle-based angel investors have been wiped out by the dot.com downturn, significantly restricting the availability of seed round financing in the Pacific Northwest.

4:15 – 5:00
STRATEGIC INVESTING WITH INTEL CAPITAL
Keith Larson, Intel Capital, Hillsboro, OR,

Keith Larson provided an enlightening look at the inside of a corporate venture financing organization, with an emphasis on equity investment. Intel Capital’s key focus is that of strategic investment – where fostering the development and promotion of synergistic technologies is almost as important as direct return on investment. Intel strategically targets technologies that complement and supplement its own. Not surprisingly, this changes the investment decision process significantly from that of a traditional VC firm. Thorough due diligence of a candidate’s technology and making sure that such technology is good for Intel’s other products is of primary importance.

Keith then led the audience through the typical equity investment process, highlighting when and how Intel’s business unit, treasury, and legal departments work with Intel Capital to carry a deal though fruition. Intel Capital typically prefers to take more of an advisory role with respect to portfolio companies compared to traditional VC’s, preferring to take board observer seats rather than actual board seats, and focusing more on providing support for technology development and marketing efforts. Portfolio companies help keep Intel informed about cutting edge technologies. Intel has increasingly focused on investments in Asia and Europe, with almost half of its current investment residing outside the U.S.

Keith wrapped up his presentation with the following advice for the budding technology entrepreneur:

· Strategic investors can be an accelerator for growing your business.

· Know what makes sense for you and the investor. Understand the investor’s motivations.

· Select a strategic investor that treats their investing as a core part of their business.

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5:00 – 5:45
Sixth Panel Discussion: MONEY THAT FOLLOWS THE MONEY

FINANCING SOLUTIONS FOR EARLY STAGE BUSINESSES
Derek Ridgley, Silicon Valley Bank, Portland, OR

Derek Ridgley reviewed the role of debt in the financing of the technology venture, with a particular focus on the financing alternatives a company has available as it works towards building assets and achieving profitability. Although debt is attractive to the entrepreneur in that it does not require giving up any equity, a typical startup is considered far too risky for bank financing. Debt financing focuses on minimizing risks, usually by securing debt with whatever tangible assets the company may have and possibly by supplementing the lender’s upside payoff with warrants.

When screening investment candidates, a bank will analyze its exposure to three types of risk: (i) development risk - will the company’s idea or technology work; (ii) execution risk – will the team be able to perform; and (iii) funding risk – will the company be able to find sufficient equity capital A bank’s exposure to start-up risk can be mitigated with covenants, warrant coverage, or even collateralizing a loan with intellectual property, if appropriate. More traditionally, accounts receivable, purchase orders and cash flow streams can be factored or used to secure lines of credit. Equipment can usually be financed if the company has cash flows from operations or sufficient liquidity to meet payments. When considering debt financing, the entrepreneur should be aware of various community and small business credit programs available.

“Capital is available for just about every opportunity. The key to finding it is to look in the right place.”

ASSET BASED FINANCING FOR START-UP AND EMERGING GROWTH COMPANIES
Ron Swenson, Western Technology Investment, San Jose, CA

Ron Swenson provided the audience with a peek into the world of venture asset-based financing. WTI has $1 billion under management, which is sourced from large institutions and currently invested in early and expansion stage companies, with a strong focus in the communications, photonics, software and biotech sectors. Prospective borrowers are screened for the following investment criteria: experienced management, large potential markets, proprietary technology and experienced equity investors. Mr. Swenson advises companies to pick their investment partners well, as your lender’s experience, flexibility and integrity will make a big difference in your ultimate chances of success.

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5:45 – 6:15
THE STATE OF THE OREGON TECHNOLOGY COMMUNITY...WHAT'S GOING RIGHT THIS YEAR...
Scott Gibson, Founder of Sequent, Venture Investor and Technology Community Leader, Portland, OR

Scott Gibson wrapped up the day with a discussion about the state of the economic climate in Oregon and the Pacific Northwest, including a review of Oregon’s advantages and shortcomings in technology and higher education. The most notable result of the dot.com crash has been a significant freeze on seed-round funding, customer expense spending, and investment in critical infrastructure technologies. Oregon’s hot new area of growth, biosciences spun from OH&SU-based research, will directly suffer from the lack of seed capital.

While Oregon is severely lacking in quality higher education facilities for business, science and engineering, the legislature and private investors are becoming aware of this fact and we are seeing dramatic increases in investment in educational institutions. Oregon has developed a critical mass of expertise in semiconductors, display technology, special software, PC subsystems, and specialty hardware, but it is uncertain whether these sectors will bloom without seed financing and better institutions of higher education.

Oregon is on the cusp of explosive technological growth, but needs the active involvement of the entire business community to see it through.

      

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