Silicon Valley vs. Southern California VC Investors

Silicon Valley and Southern California are two prominent regions in the United States known for their vibrant startup ecosystems and venture capital (VC) investment activity. While both regions have a strong focus on technology and innovation, there are some differences in the investment landscape and investment philosophies of VC investors in these areas.

Silicon Valley, located in the San Francisco Bay Area, is widely recognized as the global epicenter of technology and entrepreneurship. It is home to numerous tech giants, prestigious universities, and a dense network of startups and investors. Silicon Valley VC investors have a long history of funding successful tech companies and have developed a wealth of experience and expertise in the sector. They often have access to substantial capital and are well-connected to industry leaders, which can be advantageous for entrepreneurs seeking funding and strategic partnerships. Silicon Valley investors tend to have a higher risk appetite and are more inclined to invest in early-stage, high-growth potential startups, particularly in sectors such as software, internet, and biotechnology.

Southern California, on the other hand, has its own thriving startup ecosystem centered around areas like Los Angeles, San Diego, and Orange County. While it may not have the same concentration of tech giants as Silicon Valley, Southern California boasts a diverse range of industries, including entertainment, aerospace, biotech, and healthcare. As a result, VC investors in this region often have a broader investment focus, targeting startups in sectors beyond traditional technology. Southern California investors may place emphasis on consumer products, media, entertainment, and lifestyle-oriented businesses. This regional specialization can provide unique opportunities for entrepreneurs operating outside the traditional tech sphere.

Additionally, the cultural differences between Silicon Valley and Southern California can influence the investment landscape. Silicon Valley is known for its fast-paced, competitive, and ambitious culture, with a strong emphasis on disrupting industries and achieving rapid growth. In contrast, Southern California has a more laid-back, lifestyle-oriented culture, which can influence the investment approach and priorities of VC investors in the region.

However, it is essential to note that these distinctions are not absolute, and there is some overlap and collaboration between investors in Silicon Valley and Southern California. Many VC firms have offices or investment interests in both regions, recognizing the strengths and opportunities each area offers.

While Silicon Valley and Southern California are both significant players in the VC industry, there are some differences in investment focus, industry specialization, and cultural nuances between the two regions. Understanding these distinctions can be valuable for entrepreneurs seeking funding and navigating the respective ecosystems. Ultimately, the choice of VC investors depends on the specific needs and alignment of a startup with their investment thesis, expertise, and industry focus.

Successful Angel Investments Have These Top Elements

Angel investing in startups is probably the most challenging form of investing there is. Having been involved with the Tech Coast Angels for the last 10 years I have seen 150+ companies funded and very few successes. One thing I have learned over that time is that about 90% of the investors in each company "didn't know what they didn't know". Why? Unless you are a full-time investor looking at business plans all day long or have some particular domain expertise, angel investing will turn into a charitable tax exercise for you. 

Successful angel investments usually had these top 10 elements going for them:

1. Investors had to earn their right to be part of the investor syndicate and invest
2. Investor syndicates typically had less than 5 investors investing $50K-$250K each
3. The investor syndicate only had domain experts in the deal
4. All investors contributed contacts, industry knowledge, or competitive intelligence
5. The investment was sourced through contacts and NOT blindly through random submissions
6. Sophisticated angels (like VCs) had looked at many other competitors from around the U.S.
7. The valuation was never an issue in negotiations and was understood by both parties
8. The market was in a recession and lacked institutional Venture Capital competition
9. The management team had worked on previous start-up successes and failures
10. The company had bootstrapped itself into a beta product and had to pay customers

Many angel investors may lack awareness or understanding of certain aspects of the investment landscape or specific industries. While it is true that angel investors, like any other group of individuals, may have knowledge gaps or areas of limited expertise, it's important to note that angel investors can bring valuable insights and experience to early-stage investments. Here are a few points to consider:

Diverse Backgrounds: Angel investors come from various professional backgrounds and industries. While they may not be experts in every domain, their diverse experiences can provide unique perspectives and insights. They often bring expertise from their own industries or successful entrepreneurial ventures, which can be valuable in evaluating startups.

Learning and Continuous Improvement: Angel investors, like any investor, should strive to continually learn and expand their knowledge base. Successful angel investors recognize the importance of staying informed about industry trends, market dynamics, and emerging technologies. They often engage in networking, attend industry events, and seek advice from mentors and experts to enhance their understanding.

Collaborative Approach: Angel investors often collaborate with other investors and industry experts during due diligence and investment decision-making processes. This collaboration allows them to leverage the collective knowledge and expertise of a group, mitigating individual knowledge gaps and increasing the chances of making informed investment decisions.

Subject Matter Experts: While angel investors may not be experts in every area, they often seek advice from professionals, mentors, or industry experts who possess specialized knowledge. They may bring on board advisors or consultants with expertise in specific industries or technologies to complement their own skills and enhance their investment decisions.

Learning from Failures and Successes: Angel investors gain insights through their past experiences, both successes and failures. By reflecting on their investment track record, they can learn valuable lessons and refine their investment strategies. This iterative learning process helps angel investors become more knowledgeable and informed over time.

It's important to recognize that while angel investors may not know everything, their participation in early-stage investments brings valuable financial resources, industry experience, and networks to startups. The key is for angel investors to be open to learning, seek expertise where needed, and engage in continuous improvement to make informed investment decisions. Similarly, entrepreneurs should actively seek out angel investors who align with their industry and domain expertise to receive the most value and support.

Google Ad Manager Will Make Publishers More Money

Google Ad Manager is a comprehensive ad management platform that provides publishers with tools to monetize their digital content effectively. While using Google Ad Manager can potentially help publishers generate more revenue, several factors contribute to the overall financial success of publishers using the platform:

Obama's Views About Business

Translation on Obama's Views About Business

Prop up all big crappy businesses (ie. Auto Industry & AIG) to protect middle-class jobs that will crush all disruptive and innovative start-ups. Bigger businesses are better than free market innovation and smaller more volatile companies. Free market capitalism does not work so let the Government call all the shots about what businesses succeed.

Obama's business plan for the USA might as well have been written by a 5th grader.  His vision is incredibly short term, thinking that roads, bridges, and now runways (ooooh) will somehow create sustainable jobs?  This is ridiculous since that was our business plan from the 1930s and has nothing do with wealth creation or capitalism.  How does this help the United State create jobs and new companies that compete with China, Brazil, and Russia in a global economy?  It does not and has nothing to do with technology, education, healthcare, or environmental innovation.

There is a huge disconnect and this is why IPO's, venture capital, start-up acquisitions are at its lowest levels in decades.  The Democratic National convention should be a rude awakening for all start-ups and investors.  Put your money and checkbooks away if Obama gets elected because it will be a market of big businesses getting bigger.  Protecting middle-class jobs will be more important than letting start-ups innovate that create sustainable jobs and long-lasting companies.

The problem is capitalism is happening 100x faster than ever before and many Democrats are too stupid to get out of the way.  What would the auto industry look like today if we let GM go bankrupt?  We might have fewer jobs but better & cheaper cars?  Companies like Tesla might actually be an industry leader.  Think about all the companies that wanted GM to fail?  That's capitalism and preventing capitalism goes against American ideals.  Democrats call it a "zero-sum" game.  But no . . . the Government decided that GM is better.

Failure is good for business so they can be restructured.  GM was a huge shareholder cram down without restructuring by a shareholder (aka Gov't) with unlimited money. Some call this a Ponzi scheme because the cram down shareholder (Gov't) can print unlimited money and prop up the stock in the free market. GM has the same union problems and will ultimately fail soon as smaller companies slowly catch up to compete.  Obama just delayed innovation in another decade. Slower change is better? F that.

This goes without mentioning that the capital cycle needed to start new companies is broken because of faulty taxation assumptions.  Millionaires and billionaires (limited partners in VC, Private Equity, and Hedge Funds) need to be incentivized more to invest more.  Raising taxes on capital gains will kill the capital cycle flow back into companies drastically.  Making the pie bigger is a far better solution than redistributing money through higher taxes.  Mediocrity will soon become the middle name of the USA. 

Our Government is too big and needs to be restructured as well.

Health & Wellness Venture Capital Funds

I heard an interesting investment thesis yesterday on CNBC that obesity is a major reason for our poor economy. The analyst said that fighting obesity with new health and wellness companies could add nearly $1 trillion dollars to our economy and create lots of jobs.  While at the same time taxing fat and food companies that are responsible for putting this in our diets.  Southern California would undoubtedly be the leading region of the US where outdoor activity and fitness are embedded in our everyday life.  When you travel East or to the Midwest, you begin to really notice how the Country has changed in the last 10 years.  Kids are fat and parents are lazy.  

Over the last 10 years, Venture Capital has become increasingly more specialized and VC funds have become much smaller. The idea fund size in my opinion is around $25-$100M in order to accommodate smaller funding rounds. Health and wellness companies have been criticized by almost every VC fund over the last decade because they are thrown into the category of lifestyle businesses. I think this could soon change if the US Government and Wall Street decide they want to take some companies public and a few private equity groups start looking to buy companies.

This is one reason I think the health and wellness category could emerge as a new investment category that could garner lots of FDIC or government subsidy money.  Are there any funds out there that have the thesis?  If there are I want to know about them because exercise is a passion of mine.   The types of companies a specialized fund would look for would be the following:

1) Running, triathlon, and race organization groups (Marathons, Ironman, 10K Races)
2) Health Food Manufacturing, Distribution & Marketing Companies
3) Exercise Equipment Manufacturing, Distribution & Marketing
4) Adventure & Health Travel Marketing and Organizations
5) Natural supplements and vitamin companies. No drugs allowed
6) Internet publishing - coaching, counseling, advice, therapy
7) Physical therapy, employee health, and chiropractic groups
8) A healthy diet and meal marketing & distribution
9) Software & mobile applications
10) Restaurants (maybe)

Angel & Venture Capital Shareholder Liquidity

What Was Holding IPO Bull Back?

It has been a long 10 year drought of no IPOs and sub par M&A activity that has stifled the startup, venture capital and angel investment community throughout the US.  Finally it appears that the public markets are starting to look for new investment opportunities and are welcoming fresh new companies into the public stock trading world.  Skype, Green Dot (Tech Coast Angels get 110X return), Tesla Motors, Demand Media, Linked In, Zynga, Glam Media, Gilt Groupe and Yelp all have very disruptive business models.  All of these companies have been courted for  M&A opportunities by existing public companies like Google, Microsoft, Yahoo, Apple, Research in Motion, Nokia to be purchased.  However, smart and patient investors realized that they could achieve greater shareholder value by holding out and going public. 

Startup Investment Cycle 

One huge government obstacle that stifled startup investing over the last 10 years was Sarbanes Oxley.  This new financial regulation created a decade of virtually no IPO's and caused thousands of private companies to think twice about going public due to the high costs.  Has Sarbanes Oxley done anything to protect shareholders in public markets?  No, but accounting firms like PWC and Deloitte have sure benefited.  

Another obstacle that prevented many companies from going public was the lack of interest from the large investment banks to take companies public.  This was largely due to distraction and focus as proprietary trading and packaging mortgages like securities (CDOs) became a fad to make lots of money.  Investment banks make most of their money off of commissions and spreads.  When spreads are large the buyer and seller both lose.  It will be interesting to see if companies truly will follow the old school "road show" to do an IPO or if they will take the route that Google did many years ago and have a blind auction.  The blind auction is in the best interest of the company if there is enough investor demand for the IPO as it creates a fair market price for the stock and you get fewer pump and dump investors. 

So what does the renewed interest in IPOs and liquidity for investors mean?  The early stage startup and venture capital industry thrives off of a healthy and short investment cycle which depends on a final outcome (M&A or IPO).  The startup investment cycle can take only a few years during boom times and as long as 10+ years during slow business cycles.  When investors get their money back plus a multiple return on their investment they are incentivized to put this money back to work in new startups.  There are many tax incentives that encourage this but I believe their should be more.  I expect to see the increased IPO activity and liquidity have many long term positive effects on new startups for years to come as the stock market is begging for new currency.  Use the products of these companies and buy some some shares at a minimum (especially Skype).  Here is my list of Skype IPO 10 reasons to buy. 

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Southern California Ad Networks & Publishers

Southern California Ad Networks & Publishers

A stealth internet advertising/publishing renaissance is quietly happening in Southern California 10 years after the dot com bubble burst. Any investor who tells you it's hard to build management teams and big companies in Southern California is disconnected from the real markets. Southern California still lacks the big VC and Private Equity funds like Silicon Valley and Boston but entrepreneurs are scrappy here as you see by the list below. Most of these companies bootstrapped themselves and bypassed local SoCal VC firms raising larger rounds with Silicon Valley-based mega VC funds after achieving significant revenue growth.

These digital media companies will likely have between $10-250M in annual revenue in 2009 and are great M&A / IPO candidates. The combined list of companies has raised in aggregate of well over $1B of capital and employs 2000+ people in Southern California. These companies will ultimately spawn new entrepreneurs when liquidity is realized for shareholders. Soon Southern California just might have had a sustainable ecosystem of investors and entrepreneurs to compete with regions like Silicon Valley and Boston. This list is ranked in order of capital raised from investors. SoCalTech.com and Crunchbase.com were the sources of investment information.  

Demandmedia.com - 1333 Second Street, Suite 100 Santa Monica CA 90401 - Owns and operates 1) a network of 65 destination websites 2) a content and social media marketplace connecting content creators, users, and publishers on a mass scale, and 3) the second-largest domain name registrar. Most recently, Demand Media launched 

Livestrong.com in partnership with the Lance Armstrong Foundation.Total Funding: $355.00M Investors: 3i Ventures Generation Partners Goldman Sachs Lance Armstrong Foundation Oak Investment Partners Spectrum Equity Investors

Oversee.net - 515 South Flower Street, Suite 4400 Los Angeles CA 90017 - Operates an advertising network, services for parked domain name holders, and a series of consumer-focused websites. The company uses search engine optimization and other techniques to increase revenue from parked domains and other websites. Total Funding: $150M Investors: Oak Hill Capital Partners

Specificmedia.com 4 Park Plaza Ste. 1900 Irvine CA 92614  is developing technology that helps online advertisers target audiences through advanced behavioral, contextual, geographic and demographic technologies. 200M Monthly Total Funding: $110M Investors: Enterprise Partners, Francisco Partners, Shepherd Ventures

Hulu.com 2312 W. Olympic Blvd., Los Angeles, CA 90065 is currently the third-largest video provider on the web. The site focuses exclusively on professional content and does not take on YouTube directly as a viral video destination. Hulu videos are played in their own embeddable branded player. Content from at least a dozen TV networks and two major film studios is promised. Initial distribution partners include AOL, Comcast, MSN, MySpace and Yahoo. Total Funding $100M Investors: Providence Equity Partners, Disney, Fox.

Adconion.com1322 3rd Street Promenade, 2nd Level Santa Monica, CA 90401 Performance-driven online advertising and content syndication network. Investors: Index Ventures & Wellington Partners. Total Funding: $80M

Veoh.com 10180 Telesis Court Suite, San Diego, CA, 92121 is an Internet TV service that gives viewers the power to easily discover, watch, and personalize their online viewing experience. Total Funding: $69.8M Investors: Intel, Adobe, Shelter, Spark, Goldman Sachs, Time Warner

Reachlocal.com 21700 Oxnard Street, Suite 1600, Woodland Hills CA 91367 Brings order to the fragmented local Internet by connecting advertisers, publishers, and creative solutions providers together on one platform. Wherever customers are online, ReachLocal helps businesses find them with the broadest reach of local digital media, a dedicated force of local Internet Marketing Consultants, and technology that continually optimizes results. Total Funding: $67M Investors: VantagePoint Venture Partners, Rho Capital Ventures, Galleon Special Opportunities Partners, LP

Adknowledge.com 3003 Expositio 1st Floor Santa Monica CA, 90404, (Headquartered in Kansas City, Mo) Performance-based advertising network that utilizes powerful predictive technology to connect advertisers with consumers across multiple channels, including email, search, and social networks. Investors: Technology Crossover Ventures. Total Funding: $66.3M

Gorillanation.com 5140 W Goldleaf Circle Floor 3 Los Angeles CA 90056 An online ad sales rep firm represents over 500 leading web publishers and offers integrated media and promotional programs to Fortune 500 brand advertisers. Total Funding: $50M Investors: Great Hill Partners

Rubiconproject.com 1925 S. Bundy Drive Los Angeles CA 90025 - Yield Management Optimization platform, REVV for Publishers™, is engineered to accelerate revenue for premium Web publishers. Total Funding: $42M Investors: Clearstone Venture Partners, Mayfield Fund, IDG Ventures and GE/NBC Universal's Peacock Equity Fund

Openx.com Pasadena CA - Ad server for web publishers. OpenX offers a vast community of publishers comprehensive, customizable and free-to-use ad serving technology. The OpenX ad server empowers a community of more than 150,000 websites across the Internet with the ability to take control of their ads and maximize their ad revenue and relevance. The OpenX ad server products are translated into 25 languages, used in more than 100 countries around the world, and serve more than 300 billion ads each month.. Total Funding: $31M Investors: Accel Partners DAG Ventures First Round Capital Index Ventures Mangrove Capital Partners O'Reilly AlphaTech Ventures Miller, Jonathan

Break.com 311 North Robertson Dr. Beverly Hills CA 90211 - Break Media is the Internet’s premier entertainment community for men. Break Media consists of wholly-owned branded properties such as Break.com, Cage Potato, Chickipedia, Holy Taco, Wall Street Fighter, Screen Junkies and All Left Turns as well as a publisher network, the Break Media Network, that counts over 95 member sites. Total Funding: $21.4M Investors: Lions Gate Entertainment

Mahalo.com 902 Colorado Avenue Santa Monica CA 90401 - Human-powered search engine where results are generated non-algorithmically by a team of profile builders who create pages for search terms. Mahalo includes the most appropriate hand found links and information for about 10,000 unique queries. Total Funding: $21M Investors: Sequoia

Hydranetwork.com 8800 Wilshire Blvd, 2nd Floor Beverly Hills CA 90211 Performance-based ad network that distributes cost-per-acquisition (CPA) and cost-per-lead (CPL) campaigns through online affiliates. Named by Inc 500 as the fastest-growing advertising company in the U.S. in 2009. Total Funding: Unknown Investors: Unknown

Connexuscorp.com 2141 Rosecrans Avenue, Suite 2020 El Segundo CA 90245 Connexus is an online marketer and pay-for-performance ad network. Result of the merger of Vendare Media and Netblue. Investors: Insight Venture Partners & Oak Investment Partners Total Funding: Unknown

Silicon Valley vs The Gold Coast

The Civil War II has begun but this time it’s not the North versus the South. This Civil War II is about money under management in the financial services industry and it’s the West Coast (Venture Capital & Private Equity) versus the East Coast (Hedge Funds). Let me see if I can paint the picture for you . . .

The bulk of Hedge Fund investment comes from the East coast – principally Connecticut and New York City – which has become the leading location for hedge fund managers. In 1999 there were 500 hedge funds with roughly $500B under management. In 2008 were 12,000 hedge funds with nearly $2.5 Trillion under management. 500% growth!

The bulk of venture capital investment comes from the West coast - principally Silicon Valley. In 1999 there were 1000 VC firms which invested $100 Billion. In 2008 roughly 250 firms invested less than $25 Billion. That is a drop of 75%. Meanwhile Venture Capital accounted for 18% of the U.S. GDP in 2008.

Have you ever asked yourself why VC's or angel investors don't have the ability to sell short (hedge losses) against every private company investment in which 90% go out of business. If VC firms could hedge there would be no job or wealth creation by companies who actually add value to society. VC firms get paid to take risk and are rewarded by 10% of their companies making 10X+ returns. Everyone involved prospers for obvious reasons!

Hedge funds on the other hand profit from short selling and the destruction of capital or stock prices. These funds are primarily responsible for the bulk of the job losses and wealth destruction in the last 10 years and has driven the Stock Market to its' lowest level in 15 years. No one has benefited from this wealth destruction except a few fund billionaire fund managers and investors who I would put in the category of Maddoff even though their practices were legal (today).

Most of the Billions of dollars that have moved away from the Venture Capital sector in the last 10 years has moved across the coast (West to East) into the Hedge Fund investment category and look what it has done. I am very happy that the SEC is considering rules to regulate short selling practices and require funds to start disclosing short positions in companies. Hopefully, this will actually bring money back into the category of Venture Capital and help IPO prospects like Facebook and Twitter.

It is pretty scary when one trader with $12M can manipulate oil futures by $10. I am tired of hearing about traders on TV and want to go back the basics of investing. Futures are for businesses to hedge and not speculation. Stocks are for investing not trading. Some day my wish will come true if Obama stays strong.

West Coast = Venture Capital Funds, Wealth and Job Creation
East Coast = Hedge Funds, Destruction of Wealth and Jobs