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Thursday, 24 October, 2002, 09:03 GMT 10:03 UK
Money men still wooing tech firms

The love affair that blossomed between technology entrepreneurs and international money men during the late 1990s has hit a decidedly rocky patch.


We've seen venture capital investment completely dry up in the last two years

Phillip Alvelda, Idetic
Venture capital firms, heavily exposed to the tech sector recession, have abruptly pulled the plug on many small internet and telecoms companies.

The cash crunch has forced thousands of fledgling tech firms out of business, turning California's Silicon Valley - the epicentre of the last decade's economic boom - into an unemployment black spot.

But despite this setback, the relationship between venture capitalists (VCs) and tech entrepreneurs is not over - rather, it has been comprehensively redefined to suit these leaner times.

Focus

At this week's Cal-IT conference - an annual non-commercial event in London where California-based tech firms mingle with European VCs - a new mood of realism had replaced the devil-may-care optimism of a few years ago.

Laptop and mobile
Mobile data delivery is driving tech sector growth

"Back then, if someone wanted to sell pet food online, they'd get funded," said Yuan Huntington, vice-president of Talkway Communications, one of the exhibitors.

"But now, the companies that get funding are those with real business plans."

In fact, relatively few of the firms touting their wares at Cal-IT 2002 are looking for a simple cash injection.

Most have got beyond the early start-up stage, and are hoping to clinch long-term partnership deals with the venture capital divisions of major European tech and telecoms players.

And the fuzzy "gee, why didn't I think of that" business models that gave the dot.com boom a bad name are entirely absent.


We're looking for technology that's already proven in the marketplace

Felix Wunderer, BV Capital

Most of the firms at the event make highly focused products aimed squarely at high-growth technology markets.

Talkway, for example, has developed technology which allows e-mail users to view video messages without any supporting software, a product which fits in well with the growing trend for multi-media messaging.

The company aims to introduce the new technology to the European mass market solely through marketing deals with established telecoms firms.

No timewasters

This new, hard-headed approach is mirrored on the investment side, where the money men have reined in the legendary profligacy which not so long ago turned many no-hope dot.coms - however briefly - into multi-million dollar corporations.

Nowadays, only start-ups with promising technologies and high growth potential need apply.

"We're looking for technology that's already proven in the marketplace," said Dr Felix Wunderer of BV Capital, a venture capital firm backed by media giants Bertelsmann and AOL Time Warner.

"Also, we would aim to sell our stake within three to five years, so the company should be able to scale up within that period."

According to Mr Wunderer, investors' recent disenchantment with the tech sector has been overdone, burying some exciting new developments under a tidal wave of negative hype.

"The interesting areas now are (technologies) which enable corporations to make their processes more efficient, or which help them to interact better with their customers," he says.

Not First Tuesday

Spokespeople for Cal-IT are keen to distinguish it from First Tuesday, the iconic dot.com-era networking forum for VCs and entrepreneurs.

Money
VC cash: Still there for the right firms

They point out that the firms which attend have been pre-selected by a panel of seasoned VCs, in contrast with First Tuesday's cheerful free-for-all.

And most of the tech hopefuls at the event have already held talks with potential backers, paving the way for deals to be signed in a row of small meeting rooms on the floor above the main conference hall.

The California Technology, Trade and Commerce Agency (CTTCA)- the state export promotions body which organises the event - says it has generated partnership deals and investment agreements worth about $500m since it started in 1996.

According to Jeffrey Gersick, the CTTCA's chief European representative, Cal-IT's emphasis on matching entrepreneurs with the right financial backers helped to make it a success even during the dark days immediately after the 11 September attacks.

"This event last year came five weeks after (the attacks), when the tech sector was already having a difficult time," he said.


We were cashflow positive last year largely as a result of exposure (at Cal-IT)

Phillip Alvelda, Idetic

"But we broke the previous record for the number of meetings (between companies and VCs)."

Lifeline

The event has certainly proved a life-saver for some struggling Californian tech firms.

Idetic, a Berkeley-based company specialising in mobile data delivery software, started up at the tail-end of the tech boom in 1999, and was still looking for that vital breakthrough when it attended Cal-IT last year.

Its appearance at the event paid off, leading to a partnership deal with German electronics giant Siemens which gave it access to key markets in Europe and Asia.

"We were cashflow positive last year largely as a result of that exposure," said Idetic chief executive Phillip Alvelda.

His relief is evident.

"From a small company perspective, the situation (in California) really is disastrous.

"We've seen venture capital investment completely dry up in the last two years"

"But to quote Winston Churchill, when you're going through hell, keep going."

See also:

18 Oct 02 | Business
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17 Oct 02 | Business
17 Oct 02 | Business
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