Taking the Pulse of Silicon Valley

Flexdisplay

MENLO PARK, Calif. – A panel of tech startups at an event here Monday night were mostly bullish about the prospects for success, even in the face of a faltering economy. Perhaps one good sign; these were not a lot of me-too social network wannabes, but a diverse set of product and service offerings.

The most ambitious and well-funded firm was Plastic Logic, which is essentially aiming to replace silicon with plastics. “We’re going to be big!” declared company CEO Richard Archuleta. The company’s first product, due out early next year, is a flexible display that could function as kind of portable electronic magazine.

The company has lined up an impressive set of investors, including the investment arms of Intel, Dow and BASF. Plastic Logic already has over 200 employees and raised over $200 million in venture funding.

At the other extreme is Triggit, a six-person startup currently funded by angel investors. Triggit says it provides a simple way for any Web site or blog to generate revenue by bringing text ads directly onto their pages.

Co-founder and Chief Operating Officer Susan Coelius-Keplinger said it wasn’t hard for her company to raise money, though she knows of many other startups that are struggling to get financing.

Coelius-Keplinger said one of her smartest decisions was investing in programming talent after starting the company with her brother. She recalled sitting in Starbucks brainstorming how they were going to create the service when he pulled out his notebook computer.

“‘Okay, Ruby on Rails, I can figure this out’, I remember him saying.” But instead they hired an experienced programmer whom she said has proved invaluable.

At least one of the panelists at the “Churchill Club-sponsored event here at SRI International, said his company benefits from the down economy. Gazelle is an online service that specializes in used electronic gadgets. They offer to buy your used gadget based on a set of market metrics – cell phone, MP3 player etc. – which they then resell to various sources. The company pays for shipping and says it will recycle devices they can’t sell.

“A down economy helps us because a lot of people want money so they can upgrade to the newest gadgets,” said Rousseau Aurelien, CEO of Second Rotation, the company behind Gazelle. Based in Boston, Second Rotation was the only non-Silicon Valley company on the panel.

Martin Frid-Neilsen, founder and chairman of mobile software company Soonr, put today’s conditions for startups in perspective. “We’re not partying like it’s 1999,” said Frid-Neilsen, a veteran of Borland and NetObjects. “Today it’s more like you have to be from Missouri. Investors say ‘show me revenue and tangible results’.” Soonr’s raised over $20 million from investors that include Cisco (NASDAQ: CSCO) and Intel (NASDAQ: INTC).

But he encouraged entrepreneurs to take their best shot at opportunity. “At Borland our big gamble was selling software for PCs,” he said, recalling the software explosion to come was far from obvious. “Then in the ’90s it was, hmmmm, this Web thing could be big.” His latest venture, Soonr (“it’s better than later”), leverages cloud computing to let mobile users access their files from anywhere.

Frid-Neilsen said a startup should decide whether it wants to “gamble or dance” as part of its fundamental strategy. He describes a gamble as deciding on a fixed idea like a specific kind of Web site and sticking to that plan. Conversely, the dance is having an idea of what part of the market you want to be in but not being tied to a specific product or service.

Next page: What to expect.

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What to expect and lessons learned

In either case, don’t expect instant success – a sentiment other panelists agreed with. “A startup is the ultimate high and low. It’s a binary thing – either it works or it doesn’t,” he said. Frid-Neilsen recalled an earlier venture required his startup team of ten people to go nine months without salary. “That’s what it takes, but here in the Valley, a poor entrepreneur is kind of cool.”

Coelius-Keplinger agreed. “If you failed in a bunch of startups, you can sell that,” she said, noting investors often appreciate a more battle-tested team. She also mentioned Venture Hacks as a good resource for those seeking advice on funding.

Among lessons learned, Aurelien said Gazelle took too long to release the version of its service. “We were trying to get it perfect, maybe that’s an east coast thing,” he said. “Now every three weeks we have something new. We look at it more like a living organism that’s influenced by users.”

Puneet Gupta, CEO of Connectbeam, said he’s been surprised how far his company’s been able to leverage social networks. Connectbeam itself provides social networking software for enterprises. He said, for example, a blog post about one of their customers, drug giant Pfizer, got the attention of Bayer, which then signed up as well.

All the panelists said they had patents or patents pending on their technology. Aurelien said his company spent $200,000 to file six patents. “I don’t know if we’ll benefit from it, but our investors insisted on it.”

But Frid-Neilsen said patents are a must. Plastic Logic’s Archuleta agreed. “We have 80 patents pending and 20 granted. IP is our core value.”

People, people …people?

Moderator and tech veteran Guy Kawasaki, took issue with one panelist’s suggestion that people are the most important asset in a startup.

“Every time I do one of these panels I hear that advice. What are you going to do, hire crappy people?” The problem, he said, “is you don’t know how good they are till you’ve worked with them for at least a year.”

And it may be at least a year until we see another boom in Silicon Valley. Audience members looking for a quick fix to the economic problems affecting even this tech Mecca took note of Frid-Neilsen’s most optimistic prediction:

“I still think 2010 will be a great year in the Valley,” he said.

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