Cash flowing again from VCs?

[Dave Farber <dave () farber net>]

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From: Dewayne Hendricks <dewayne () warpspeed com>
Reply-To: dewayne () warpspeed com
Date: Fri, 06 Jun 2003 06:59:41 -0700
To: Dewayne-Net Technology List <dewayne-net () warpspeed com>
Subject: [Dewayne-Net] Cash flowing again from VCs?

[Note:  This item comes from reader Mike Cheponis.  DLH]

Posted on Thu, Jun. 05, 2003

Chasing innovation
FRESH START-UPS ATTRACT VENTURE CAPITALISTS, SIGNAL NEW ERA OF WOOING
HOT COMPANIES
By Matt Marshall
Mercury News
<http://www.bayarea.com/mld/mercurynews/6018690.htm>

Most people think it's tough now for entrepreneurs to get money. But
if you have the right experience, and a good idea, venture
capitalists will fight to give you their money -- and even shower you
with gifts to make sure you take it.

Take Scalix, a start-up that offers an e-mail system, based on
cheaper and more flexible Linux software. On Wednesday, it said it
received $13.2 million from two top-tier venture firms, Mayfield and
New Enterprise Associates.

In early April, the company's chief executive, Julie Farris, let a
handful of venture firms know she was interested in raising money.
Each pursued her relentlessly, wined and dined her, called
constantly, and some even refused to take accept a ``no'' after the
deal was wrapped up in a month without them.

Scalix is just one of several hot deals in recent months that some
say underscore a new era. During the downturn, most start-ups were
reeling: Their sales were non-existent or declining, few could sell
products to skeptical larger corporations, and venture capitalists
were like deer frozen in the headlights.

But lately, some companies are finding fresh ideas, showing growing
sales, and boasting experienced management teams cherry-picked from a
large pool of available labor.

The average deal still takes about three to four months, says Jesse
Reyes, vice president of Venture Economics.

But hot ones get wrapped up in little more than a month. New
Enterprise Associates calls the process of wooing a hot company
``love bombing.'' Partner Stewart Alsop said he ``bounced around in
his chair'' when Farris called him April 10 to tell him about Scalix.

Large companies were desperate for a more efficient e-mail platform
for their employees, he knew, and Scalix offered that. He said he was
irked, though, because Farris forced him to compete with other VCs --
even though he'd helped her get a job at one of his previous
start-ups.

Still, Alsop swung into action. He had the chief executives of his
best companies -- including TiVo's CEO Mike Ramsey, who had earlier
worked with Farris, Boingo's Sky Dayton, and MailFrontier's Pavni
Diwanji -- phone Farris on his behalf.

He delivered a bottle of 2000 Rochiolli Pinot Noir -- from his
personal collection -- to Farris' doorstep on April 24, the day he
delivered his written offer to invest. He then dropped by the
Mayfield Fund, and delivered a present to Allen Morgan, the partner
who helped incubate Scalix in Mayfield's basement: a bottle of Knob
Creek bourbon, Morgan's favorite. As an existing investor, Morgan
would play a key role in deciding. To top it off, Alsop bought Farris
dinner at the well-known Bacchanal restaurant.

Within 48 hours, four offers from other VC firms arrived, Farris said.

Fear motivated Alsop to beat the others: ``My partners were asking
every day: `How's Scalix doing? Are we in?,' '' recalls Alsop.
``You'd think we're all very cooperative. But when we want to get in
a deal, the knives come out,'' he said.

<snip>

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