Interview with Bill Reichert, Garage Technology Ventures

My interview this morning is with Bill Reichert, President and Managing Director of Garage Technology Ventures ( Bill is the keynote speaker at tomorrow's Software Industry Awards in Los Angeles, and gave me his thoughts on the market.

Ben Kuo: Bill, What's your opinion on the state of venture capital and entrepreneurship. It seems like tech is finally back -- what's your view of the market?

Bill Reichert: Yes, tech is back. The memories of the dark days of 2001 and 2002 have pretty much faded, and many are flirting with fantasies of the late '90s returning -- thanks to Google and Skype. But the venture world has clearly changed, for both entrepreneurs and investors. In some ways it is healthier, and some ways it is unhealthier.

On the healthy side, entrepreneurs and investors are more disciplined, before and after funding. Business plans are less insane, both in terms of revenue projections and in terms of spending plans. Entrepreneurs and investors spend more time understanding the fundamentals of the market, the customers and the competition. And everyone is more sensitive to good communications and good governance after the funding.

On the unhealthy side, the financing ecosystem is out of balance. Venture funds are too big and too impatient for the reality of the pace of innovation and growth in emerging markets. This is the result of there being so much capital at the next level -- the LP level, where there is a lot of capital trying to find a place in private equity vehicles. For entrepreneurs, the result is that it is hard for a very early stage, emerging technology company to fit the funding requirements of the current generation of VC funds.

Kuo: Where do you see the opportunities for Southern California?

Reichert: Southern California has the potential for being the fastest-growing incubator in the United States for the next generation of emerging technology companies. Silicon Valley will still lead for years to come, but Southern California has more depth and breadth than any other region of the country, when it comes to technological and entrepreneurial capability, with particular strengths in new media, gaming, health science, and materials science.

Kuo: What is Garage focusing on nowadays, and what's the current model for -- it looks like you are now really focused on early stage investing?

Reichert: Garage has been continuously evolving since we started almost eight years ago. Right now, we're on Garage 3.0. Originally we were, quite frankly, a Bubble phenomenon. We began as an accelerator back in the days of The world has changed a lot since then, and so have we. Now we are Garage Technology Ventures, a seed-stage and early-stage venture fund. We're focused on the earliest stage of the innovation cycle (the metaphorical "garage" stage, which sometimes is more than just a metaphor), and we're looking for entrepreneurs who are finding ways to use capital efficiently to change the world in some useful and meaningful way. Because of our bias toward capital efficiency, we are generally looking for companies that can do a lot with not that much capital -- and that often means software, which includes Internet businesses and SOA technologies. But we will invest in companies that will ultimately require a lot of capital, if a little bit of capital can prove the opportunity.

Kuo: What's your advice to entrepreneurs looking to launch their companies in today's environment?

Reichert: It sounds obvious, but it is so often forgotten: The most important part of creating a successful company is creating value. And the only way to create value is to create customers. And the best way to create customers is to build a network of people and companies who are excited about helping you bring your innovation to more and more customers. That's very abstract, but it comes down to something very basic: Focus on getting real customers from the day you start. Too many entrepreneurs get diverted focusing on the technology, or the business plan, or raising capital. These are all important, but nothing is more important than creating customers.

Kuo: Having seen hundreds of both successful and non-successful startups in your time at Garage, what do you think is the quality of most successful startup companies?

Reichert: I'd love to be able to promise entrepreneurs that, with this special secret key factor to success, I could guarantee that they will have riches beyond their wildest dreams. But the brutal reality is that many, many companies fail despite passionate entrepreneurship, brilliant innovation, a focus on creating value for customers, and great venture capital backing. Sometimes it's a matter of being in the right place at the right time -- and knowing how to take advantage of it. Usually, the market is not ready for a brilliant innovation, no matter how much passion and money you throw at it. Sometimes the key to success is stealing the brilliant innovation of someone else, and leveraging it in ways that haven't been done before. Google didn't invent search or click-through advertising. Microsoft didn't invent the PC operating system. Oracle didn't invent the relational database. Apple didn't invent the MP3 player. Skype didn't invent voice over IP. MySpace didn't invent social networking. Ironically, the success of each of these companies, and of many, many others, depended on years of prior innovation that created an infrastructure on which their innovations -- which were primarily related to the business model -- could succeed.

Kuo: These are great thoughts, any final thoughts on other good resources for entrepreneurs?

Reichert: For more thoughts on innovation, entrepreneurship, and the new venture ecosystem, see: - The New Entrepreneur - Small is Beautiful Thanks!

Kuo: Thank you!


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