Silicon Forest Forum

Panel Discussion 1: The Venture Industry 2003: Institutional Change and the Search for Angels

The Venture Numbers and Trends for 2003
Amity G. Wall - Manager of Research Operations, VentureOne

Amity will discuss the following issues: (i) the general financing trends in 2002 and into 2003, (ii) the profile of companies that are being funded, the attractive investment sectors, and changes in the equity markets over the past 12 months, (iii) the range of funds being raised by companies in 1st, 2nd and 3rd round financings –the valuation parameters, (iv) statics and trends in the venture industry itself…the new funds being formed and raised, changes in the size of the overhang, and at what rate funds are being invested and in what stage companies, (v) statistics on funds returning capital, closing or simply not raising new funds …and implications for companies, and (vi) insight on the relative growth and activity of domestic funds in international markets and international funds setting up shop in Silicon Valley and the Pacific Northwest. Time permitting, Amity will also discuss fund activity in the major technology regions in the Bay Area, Northwest, Northeast and Washington/Virginia would also be useful.

An Insider's View of What's Going On and What the Future Portends
David Chen - Partner, OVP Venture Partners

With depressed returns, lost companies and out-dated fund economics, LPs are both more vulnerable on capital calls…and more vocal on fund direction and management. David will address some of these issues from his perspective as a GP, with the objective of pointing out how new fund dynamics are affecting fund management and portfolio investments. With respect to changes within funds, David will address (i) how and if most funds are changing management fees, fund carry for the GPs, and fund expenditures; (ii) if and whether funds should continue to carry the costs of internal staff supporting companies; (iii) the interaction of fund size and ROI…and a brief primer on fund economics and ideal fund size and expected return in the next 5 years for new investments being made in 2003; (iv) whether funds like OVP are making capital calls in this market, if so…why, and how are funds managing disappointed LPs; (v) the new mix of LPs…if any, with individual LPs not being in a position to make capital calls…and (vi) the effect of the new market in fund positions being sold to outside financial institutions. David will consider how these changes will impact companies, with particular attention to (vii) the amount of funds now available to early, mid-stage and late-stage companies, and (viii) the involvement that venture investors and venture directors now have in portfolio companies. On this last point, Dave will comment on what steps funds are taking to protect themselves on fiduciary concerns in working with distressed or under-capitalized companies.

Where the Angels Are and How to Catch Them
Steve Larson - CEO, EID Access

Steve raised funds from the angel investment community in the late 1980s, and again recently in the current market for EID. Given his 15 year perspective, Steve will comment on changes in the angel community in the Northwest over this period of time. Specifically, Steve will comment on (i) how the membership and profile of angel investors has changed over time, and (ii) why Steve has avoided venture capital and sought early-stage funds from angels…the positives and negatives. We will hear Steve’s view on key issues now confronting individual investors…what management must understand and address in order to successfully raise angel funds…including (iii) why would any investor participate in an early round, if in a mezzanine round, investors can now find low valuations almost comparable to 1st rounds, lower risk than 1st rounds…and less of a threat of being washed out in subsequent rounds?; and (iv) how can angel investors now protect themselves from being washed out if they don’t have the resources to continue to invest. Steve will further comment on (v) whether, as a result of early stage risk, angels are now joining organized funds to pool their money and participate in down-stream rounds, and (vi) whether angel investors are getting into attractive venture-backed deals…diminishing the pool of individual investors that early stage companies might seek. Steve will provide his sense of the health and size of the angel community in the Northwest…who are the players, and how they have fared in the post-bubble market. Finally, Steve will comment on the current market, whether the angel community appears to be resurfacing in 2003…and how they identify and qualify companies in which they now invest.

Panel Discussion 2: The Northwest Technology Funding Scene - What's Happening in Our Own Backyard

What's Happening in Seattle Post Bubble?!
Erik Benson - Principal, Voyager Capital

Erik Benson is in a unique position to comment on the markets in Washington, Oregon and the Silicon Valley…according to the investments Voyager is making in all three markets. Given this, Erik will address (i) how the Washington technology community has been affected by the tech recession, is the technology community there too narrowly focused on wireless, telecom and enterprise software…and when does he expect the market will recover; (ii) how will the growth of the Vancouver venture industry impact Northwest companies…and will Northwest funds now start to look to Canada for company investments more than in the past; (iii) what are the similarities and differences in companies and management teams in Portland and Seattle; (iv) why is Voyager investing in Portland, what do they like about this market that makes it attractive…and what is missing in Portland that needs to be addressed short term and longer term; and (v) should and how can Northwest based companies work with the investment community and companies in the Silicon Valley.

The View From the Forest and Activity in Portland
Hugh Mackworth - Managing Partner, SmartForest Ventures

Hugh Mackworth will comment on (i) the current mix of technologies and companies now active in Oregon…and which technologies being developed within the State are particularly interesting; (ii) whether there has been an increase in funding activity in Oregon in 2003…why or why not, what technologies and maturity of companies are getting the most interest, and why; (iii) what are the major technology eco-systems in Oregon, what sustains these communities, and will these be the same eco-systems that dominate technology in Oregon in the next 3 years; (iv) what is Hugh seeing in regards to funds outside of the State participating in Oregon deals…which are the most active out-of-state funds….and what is the trend-line here; and (v) given the small size of the Oregon venture community, how do Oregon funds syndicate deals…and how does a smaller fund like SmartForest position itself with companies to show it can continue to support companies as they scale and need more capital.

The Valley Scene and Valley Investments in the Northwest
Forest Baskett - Venture Partner, NEA

Forest Baskett will comment on (i) the willingness of Valley-based funds to invest in the Northwest, and rely on Northwest funds to monitor portfolio companies; (ii) what technologies he sees as most promising in the Northwest; (iii) how Forest views the relative health of the technology communities in the Valley and the Northwest; (iv) whether funds such as NEA are now looking outside of the Valley for attractive companies…what are the major concerns that NEA would have in working with a Northwest company…and what they would require to make such an investment; and (v) how the Northwest as technology community measures up against Southern California, Texas, Northern Virginia, New York and Boston – and what Oregon and Oregon companies can do to enhance their visibility with the Silicon Valley investment community.

Intel's Current Investment Appetite - Where Its Putting Its Money and Why
Keith Larson - Venture Partner, Intel Capital

Keith Larson will be focusing his remarks on (i) the major technology areas Intel is now investing in to support its current and future business initiatives, (ii) the pace of Intel’s investments in 2003 relative to the past 2 years…and what to expect in 2004, (iii) the process and structure of investments that Intel is now making relative to years past….such as changes, if any, in the size of investments, stage, level of involvement and support of portfolio companies, special structure requirements in financings, and whether Intel is more involved in company management and operational issues than it has historically been, (iv) examples of technology “gaps” that need to be addressed that no one is working on….and (v) Intel Capital’s activity in the Northwest relative to other regions…and what Intel looks to Northwest companies to provide. Finally, Keith will comment on the spin-off technologies being developed by former Intel engineers….what eco-systems originate from or are supported by Intel – and what should the community expect from Intel Capital in the next 2-3 years.

Panel Discussion 3: New Money, Any Money and Selective Money - The Company Perspective

Getting Money Out of the Gate in 2003 - What It Takes in the Current Market
Rob Gowans - CEO, UXComm

UXComm develops standard- based tools that enable the development of unified management and control systems for next generation network processors – and just completed a $6m Series A round with OVP Venture Partners and Foundation Capital. With this background, Rob will address (i) where the Company has had the most success in getting VC meetings, what were the major concerns expressed by prospective investors and how were these concerns addressed, (ii) what story seems to sell best in this market, (iii) how the Company determined how much in funds to request, whether the Company had to stage investment to fulfill milestone development, and how management protected itself, if it did, on dilution and employee incentive issues, (iv) whether the Company’s location in Portland is a business positive or negative with respect to market partnering concerns, technology development and cost/operating issues…and why, (v) how Rob balanced his role as an EIR at OVP with his future role as CEO of UXComm…when he made the transition from being an EIR to a CEO…how this transition was made, and what he did that was right and what he did that was wrong, (vi) how Rob addressed founder issues, what were these issues, and what repositioning, rebuilding or changes did Rob have to effect BEFORE the financing in order to close the round, and (vii) what is Rob’s sense of how willing venture investors now are to talk to earlier stage companies, what absolutely must be completed prior to presenting the Company for its first round, and what did UXComm have in its favor that enabled it to complete its first round in this market. What are the challenges UXComm will face in its next round, how far out is that…and how will the existing investors work with the Company to get this done (i.e. what was promised and what can Rob expect). Finally, Rob will comment on whether he found UXComm, or UXComm found him…why he chose to work with the Company as contrasted to any other OVP portfolio company that Rob could work with…and whether Rob’s background as an EIR, in his view, has helped the Company in closing the round.

Driving a Mezzanine Round Across the Finish Line in Telecommunications
Clive Cook - CEO, Elematics

Elematics is a telecom connectivity software vendor that has raised approximately $21 million to date from Warburg Pincus in two separate financings. The Company is on the verge of generating revenue and telecom carriers are now showing interest in the Company’s connectivity platform – but the Company is faced with a large financial investor that will control the Company’s funding plans and valuation issues.

Given this, Clive will address: (i) the valuation issue - how low to go, how to sell this to Warburg Pincus, and how to protect and motivate the employees post-close, (ii) in this market, how to set the amount of capital to be raised, and how to avoid performance milestone contingencies, (iii) how to position the round – whether to commit to an exit event within a certain time period…or paint the picture of a long-term operational play, (iv) given that Elematics is talking to both Northwest and Valley based funds…how will Elematics address the proximity concerns raised by Valley investors…are there any such concerns…, (v) how Elematics is addressing concerns about telecom and the absence of buyers, (vi) how Clive is managing the next round and balancing this against managing the Company through its initial critical customer engagements, (vii) the dilemma of servicing the Company’s first big client and accelerating burn….why it is not feasible to cut back staff, hold off sales and raise the next round based on promise and good trends in the telecom industry. Finally, Clive will discuss (viii) how to manage current investors…knowing that they will not continue to support the Company, (ix) why he is not using a placement agent to help in the financing, and (x) how Clive is teaming the funding effort…what he is doing, what others are doing…and why he is managing the financing in this way…

Doing the Impossible - An Up-Round Mid-Stage Financing
Steve Morris - CEO, Teseda

Steve and his team have had one financing success at the end of 2002 before the current recovery. Teseda, a test equipment supplier, raised $8m in a Series B round at a flat valuation to the Series A round. Now the Company is planning for a Series C round in early 2004, having launched products which are now generating revenue. How will Teseda position the Company for a new up round in the worst bear market private capital has seen?

To understand this, Steve will discuss (i) the impact of market and competitive dynamics on the Company’s Series B valuation…and how this may change in the Series C round, (ii) as an early-revenue company, what Teseda has done to verify the market and demand for Teseda’s products, (iii) ways in which Steve built the Board…and what the larger Board has done to help or hurt the Company prior to the Series B round and after, (iv) how the new investors in the Series B round were selected, whether valuation was the primary consideration and what other factors were considered, and how the Company will construct the Series C syndicate, (v) how Teseda distinguished itself so that it was assessed independent from market factors that have generally lowered company valuation in the Series B round, and (vi) the timing of the Series C financing, the amount to be raised…and how this might be set to minimize dilution for the existing shareholder base. As a final point, given the existing shareholder base with investors in LA, Sacramento and New Jersey - Steve will address how the Company has managed these investors outside of Portland.

Luncheon Speaker:

Microsoft's Perspective on the 2003 Global Economy and Where the Opportunities Are in Internet and Enterprise Software
John Fernandes - Director of Business Development and Strategy
Emerging Business Team, Microsoft Corporation

John will provide a general picture of Microsoft’s view of the health of technology, and strategic technology investment and speak more specifically about Microsoft’s road map for its primary businesses and where they are headed. John will identify the technology “gaps” that Microsoft seeks to address for markets that it believes are under-served and discuss where Microsoft is looking to outside development partners to assist in building these products. He will also discuss Microsoft’s M&A strategy, the types of companies and technologies it seeks to acquire and generally whether Microsoft believes this is the right time to acquire new technologies.

John will also comment on (i) whether at this time technology should lead or follow market development…essentially the “innovators dilemma”, (ii) given the risks and capital required to penetrate new markets for young companies, whether it now makes sense for management to form companies that are hard-core technology providers to larger, more established OEM companies such as Microsoft – that then become attractive acquisition targets, (iii) the most promising new technology areas for markets that will develop in the next 2-3 years that are currently under-served, and (iv) whether the burdens of raising capital in a tight market, working under new risk from enhanced officer and director liability, and the absence of enterprise customers will fundamentally change the pace and way in which new technologies are created and put to market. Time permitting, John will offer his observations on whether the development of new technology in the past 10 years has been too fast and innovative for markets to understand and absorb. John will attempt to define a general strategic direction for technology managers to follow in the current market…and whether that direction is to build companies, build technologies, or build markets. The question is which comes first, why, and where can young companies and investors add the most value.

Panel Discussion 4: The Technology Roundtable - What's in the Research Lab for 2004 and Beyond

The Oregon Telecom Cluster Initiative
Scott Gibson, Gibson Enterprises

Scott Gibson will comment on (i) the informal Telecom Cluster Initiative (who's involved, the objectives, and the timeline), and discuss (ii) what the telecom ecosystem look like in Oregon, the categories of players, and the reason why telecom is important to the State, (iii) what fuels the creation of new telecom companies, products and services in Oregon…what the infrastructural support for the industry is like, and (iv) where the industry is going in the State…and places where opportunities exist.

EDA, IP and the Semiconductor Industries - an Incestuous Triangle
Bill Frerichs, DA Davidson

Bill Frerichs will comment on (i) the conflux of EDA tool vendors, IP code developers and resellers and the semi-conductor industry, the overlap of these competitors and the opportunities this creates in the EDA/IP industries, (ii) Oregon’s stature in this industry, with particular comment on Mentor Graphics and the opportunity for application specific fabless semi-conductor companies in the State, and (iii) the new product directions that the major tool vendors are attempting to address over the next 12-24 months.

The Killer Zaps in the Pipeline
Nancy Floyd - Co-Founder and Managing Director, Nth Power

Nancy will discuss in general terms the state the energy industry in the aftermath of Enron, and comment specifically on (i) new exciting energy technologies that are and those that should be in the pipeline, (ii) the most critical energy needs of the country – and how these needs will be likely be met by new technologies and when, (iii) why Nth Power is in Portland and the state of the energy industry in the Northwest relative to other regions, and (iv) the primary sources of energy innovation…the government, universities or energy companies…and what is the role, if any, of smaller energy innovators.

Bio-IT – What’s It All About?
Dr. Bill New - Oregon Health & Science University

Bill New will speak about new developments in Bio-IT. More specifically, he will (i) define Bio-IT (identify the players, customers and critical applications), (ii) provide an overview of Oregon’s health sciences industry, and the educational and industry infrastructure that supports and sustains the industry, (iii) identify the particular Bio-IT products currently being developed, people those working on such products and when will they become available, and (iv) generally, how the industry can and does work with the universities in Oregon for primary research needed for commercial product development.

Wireless Technologies
Doug Klein - CTO, Vernier Networks

Doug will discuss where the WiFi industry is today and where it's moving to over the next 12-24 months. Specifically, Doug will address (i) the similarities and differences between consumer and commercial WiFi products and services and the needs of customers in each market, (ii) the major technology challenges in developing secure, seamless and efficient WiFi systems; the weaknesses in today's generation of products; and things WiFi developers should be working on to take advantage of future market developments, (iii) current and future major OEM players for the distribution of WiFi, ways in which smaller competitors work with these partners and the critical issues in structuring these kinds of relationships, and (iv) how WiFi products and services look now and will look in the future, the users and the adoption curve, and (v) how the WiFi industry will look in two years: Will there be consolidation or contraction? Who will be the survivors and what are the opportunities for niche products and services?

Case Study Session
Money Road-Show...Getting the Story Right
Download Case

Case Instructor:
Mark Cameron White - Partner, White & Lee LLP

Expert Panel:
Todd Bauman - Partner, Stoel Rives
Jim Miller - President and CEO, Immunix, Inc.

This will be a 90-minute presentation of a case involving a fictional mezzanine-stage company facing multiple challenges and decisions on its future strategic choices and direction. The case will raise issues concerning (i) funding vs. acquisition choices, (ii) Board and officer conflicts and fiduciary duties, and (iii) financial strategy as it relates to company performance and market dynamics.