I have been a VC since 1995 and have lived in Oregon all that time. As I see it, there are 3 issues / challenges for growing the emerging technology company ecosystem here:
1. Lack of successful "poster children". Start up companies that end up with "home run" success (either big M&A or IPO) do several things - they demonstrate to other local entrepreneurs how it is done, they create wealth in the community that gets reinvested (look at all the angels in Seattle), and they show to others outside Oregon that they need to come here to get the next big deal. We have had pitifully few if any home run exits in the last 8 years. Ask Gerry how he responds to Silicon Valley VCs who ask him "tell me again what was the really good deal in Oregon in the last X years that I missed"?
2. Wrong core strengths. Oregon's (or at least metro Portland's) biggest strengths have been semiconductors, digital displays, and EDA. These are all TERRIBLE sectors for future growth. No one person or decision is to blame here – it's just what it is. There has been hope in recent years that open source (I'm glad to see Stuart Cohen of CSI on the panel) and nanotech would be the "next big things" but still too early to tell.
3. No Stanford or MIT. And last time I checked, they weren't looking to move to Oregon.

But there are some promising things on the horizon:
1. The Oregon universities are getting MUCH better in terms of securing federal research dollars (Arun can elaborate) and in terms of commercializing the technology that comes out of the universities. At the conference, there are two VERY interesting companies that have spun out of OSU - NuScale and Wi-Chi. Both of these companies have gotten VC $ from prominent Silicon Valley investors, and show great promise for the future.
2. We are getting more out of state investment $ to come here. Klieiner Perkins did its first investment in Oregon a couple of years ago (Platial) and Sequoia did their first investment in Oregon since Pixelworks when they invested in Jive Software in 2007. Many elected officials have done a good job to put programs in place such as OIF, OGA, and Oregon Inc to help bring new investors to Oregon, foster what we have, and target state resources on the highest growth opportunities going forward. Success of these programs cannot be measured in a year or two - they will take much longer to pay dividends.
3. IMO, the best hope for the "next big thing" is green / sustainable industries. Many other regions are also targeting this. But Oregon has some unique advantages - a solar power industry leverages Oregon's semiconductor expertise, with Bonneville Power (and PGE / Pacific Power) we have the experienced managerial and technical workforce, and it is very aligned with Oregon's green / sustainable culture. Will all of those solar plants out off the Sunset Hwy eventually go the way of all the Japanese semiconductor plants that were built in the 80s and early 90s? I hope not.

As a VC, I am an optimist. While 2009 and perhaps 2010 will be very grave years for the global economy, this is actually a great time to start a company – cheaper office space, easier to hire talent when big companies are laying off, it enforces fiscal discipline, etc. The glass remains half full.

2. Wrong core strengths. Oregon's (or at least metro Portland's) biggest strengths have been semiconductors, digital displays, and EDA. 

Jim, I need to disagree with the EDA part at least when it comes to importance. EDA is vital to the future of semiconductors, but there definitely isn't enough investment in it at this point. Yes, the EDA business models currently are somewhat broken - ROI is quite low - but new biz models for EDA need to be explored. Yes, it's much harder and takes much longer to start an EDA company than it is/does to start a web startup, and the VCs tend to find web startups easier to understand. This, I think, has led to some misinvestment in easy-to-start web companies. However, the future of our semiconductor industry will depend on new developments in EDA - there are plenty of new tools needed, it's just a matter of finding the funding and more efficient development methodologies to bring these new EDA tools to market. And, no, I don't believe that the current players (Synopsys, Cadence and Mentor) will be leading innovation in this field - it has to come from startups probably allied with academia.

No Stanford or MIT 

Painfully true. We definitely need help in the higher education department. We had OGI, but now that it has been folded into OHSU its focus has radically shifted to healthcare related technologies - not that that's bad, but we need institution where engineers working at companies like Intel can get graduate degrees. PSU is getting better - but that's about all I can say good about it, so I won't go on about PSU.

I would add the following to the your first list of things the area lacks:
4. No incubator companies. In the past (20 years ago) Tektronix was a great incubator for new companies. People were allowed to work on side project which often spun off into new companies. Mentor Graphics is a good example of this. Bruggerre was allowed to work on an EDA application for Tek workstations. Eventually, Tek decided they didn't want to be in that business so they let him take that technology and start a new company that employs about 2000 people now worldwide and is one of the more philanthropic corporate citizens in Oregon today. What do we have in Tek's place? Intel, but they have a much more closed culture which isn't conducive to spinning off new companies - there are very few examples of Intel spinoffs as compared to spinoffs from Tek.

I would like to preface my remarks by saying that I'm a local software entrepreneur that has had to deal with the local VCs.

Sadly, I do think that the worsening economic situation will hit Oregon's small company/startup economy particularly hard. I think there are a number of reasons for this:

1) Local VCs have made many terrible decisions over the years about what companies to support and promote with local VC dollars. They've been repeatedly wrong, and this has led to the 'no poster children' problem as mentioned by Jim. I have little confidence that in hard economic times this will get better.

2) There are relatively very few dollars venture and/or angel here and as a result the companies that do get funded have a very hard time competing. In software, for example, you compete against Silicon Valley, Beijing, Bangalore, and Seattle from the get go. Many Silicon Valley firms know it is safe to ignore Oregon companies because they can simply out muscle them competitively with more money (and frequently inferior technology and teams).

3) Unfortunately, with many past failures the local VCs frequently take a 'blame the victim' approach...and implicitly or explicitly blame the entrepreneur or technologists in different forms...e.g. 'wrong core strengths', or 'no Stanford or MIT'...which is another way of saying that there are not enough good technology innovators here to compete with Stanford or MIT. That's complete balderdash. Truth is, Oregon and Portland are a great place for technology innovation (in software and hardware). There are many excellent technology people here. Portland has many of the prime movers in open source software, for example...and this has been/still is being squandered by our local VCs.

4) In software at least, the local VCs (and, in fact, the local business and management folks) are not very knowledgeable about what makes good software, how to make it, and how to manage the people that make it. So although the engineering/technology can be very good, the financing, management, and sales are at a disadvantage here in Oregon, and so local companies have a harder time competing.

5) When economic times get hard, the local VCs do fewer deals, and do even fewer deals with local companies. That is, they are driven by their ROI requirements to seek 'safer' deals...no matter where they are...and in many cases those safer deals are outside of Oregon...as a result you see local companies and the local economy hit particularly hard relative to non-Oregon companies. Witness the almost total lack of successful software companies coming from Oregon...a state with a tremendous sw technology talent base.

3) Unfortunately, with many past failures the local VCs frequently take a 'blame the victim' approach...and implicitly or explicitly blame the entrepreneur or technologists in different forms...e.g. 'wrong core strengths', or 'no Stanford or MIT'...which is another way of saying that there are not enough good technology innovators here to compete with Stanford or MIT. That's complete balderdash. Truth is, Oregon and Portland are a great place for technology innovation (in software and hardware). There are many excellent technology people here. Portland has many of the prime movers in open source software, for example...and this has been/still is being squandered by our local VCs.  

Well said, slweis, not meaning to tweak JimSherwood, but VCs tend to go for the low hanging "easy" fruit. Web startups for example. Easy to understand, can be quick to show income - a lot of them are making some money selling google ads within a few months of startup. But saying that EDA and Semiconductors are "the wrong core strengths" perhaps shows a fear of the complexity of those kinds of operations. Yes, an EDA app is probably going to take a lot longer to develop than a web app. The level of expertise and mastery of Computer Science, for example, tends to be a lot higher in an EDA app than it is in a web app thus you need more highly educated developers - that's going to cost more and take longer to show a return. So the VCs go for funding the web startups because they're a lot easier. It's quite possible that the VC model doesn't fit when it comes to EDA or Semiconductors - perhaps we need more of a partnership with academia and more federal research funds for these types of businesses that can take years to develop.

5) When economic times get hard, the local VCs do fewer deals, and do even fewer deals with local companies. That is, they are driven by their ROI requirements to seek 'safer' deals...no matter where they are...and in many cases those safer deals are outside of Oregon...as a result you see local companies and the local economy hit particularly hard relative to non-Oregon companies. Witness the almost total lack of successful software companies coming from Oregon...a state with a tremendous sw technology talent base.  

Agreed, there is plenty of great talent here. I am afraid, however, that this downturn will once again hit the area hard as did the last one from 2001 to 2004. We will lose many talented folks who will likely have to move out of state to find employment. It's too bad. We do need more technology companies in the area to help keep talented people here.

To skeptictank and slewis et al - Look, venture capital is not an industry that funds good ideas or good technologists per se. Let's be clear - VC firms back great business plans being driven by great management teams attacking REALLY big markets ($500M+) with protectable and leveragable technology. There are MANY profitable and successful businesses that CAN and SHOULD be created without venture backing. The reality is that most Portland start-ups fail on one or more of those critriea. I have been doing venture capital in Portland for 13 years and have done 18 deals over that time ... but only one was in Portland. I would LOVE to do more deals in Portland, but I just don't see the quality of deals here. The good new is that the Venture Northwest lineup of presenting companies has at least 5 companies I am very interested in investing in. This is the best lineup of start-up Northwest start-up companies presenting at Venture Northwest I have ever seen - and I've seen hundreds of them. Believe me, there are tons of entrepreneurs in Silicon Valley who bemoan the stupidity and shortsideness of VCs who don't back their "brilliant idea" - it is no different down there in that regard than up here. What you need to do (and much easier said than done) is come up with a great business plan that can attack a huge market executed by a stellar managemeent team and you will have well heeled investors beating at your door. Just look at Jive Software - they nailed it. And don't be fooled by their recent headcount cutbacks. They did EXACTLY the right things at a time of economic uncertainty. As a VC, I see their RIF as a rapid response to current conditions, and the right moves to create a long term sustainable business and not a flash in the pan. Net, if you are an entrepreneuer who has been told "NO" by a VC, you probably think VCs are stupid - you're an entrepreneur who is by nature overly optimistic (and that is what we both love and hate about entrenpreneurs!). Sure, maybe we are stupid, but please understand we look at MANY entrepreneurs - each of whom thinks his or her idea is the next big thing - and that we have our fiduciary responsibility to OUR investors. Approaching a VC as a charity is a recipe for failure ... give a VC a great business plan which can be executed by a great managmement team and you'll get funded. Failure to be "great" on either criteria is a reason to pack your bags.

Hi Jim,

I'm not suggesting that VCs should invest in 'good ideas' just for the fun of it...obviously they are trying to make money. But so are SV VCs and they don't invest in stupid ideas/technologies and ignore good ones like the local VCs. *That's* why we have no big hits out of Oregon. Sorry...I also know plenty of VCs in SV...and the ones here just aren't in the same league when it comes to technology trends understanding, team building, sales, management, etc. This hurts local companies because as I said, they have to compete worldwide right away.

RE: come up with great business plan and team, etc., etc....that's *always* what VCs say...no matter where one goes. With the implication that they (the VCs) are competent to decide what a good business plan is and what constitutes a good team to go after a large market. That competence is not a given.

RE: Jive Software...several things...1) they moved here from out of town...the company got through it's seed/early rounds outside this area. and 2) they went outside of Portland for real VC support (Sequoia). Both good moves for a software startup...for reasons described. And incidently...I was the founder of a company doing similar technology to Jive's (i.e. communications/social computing, etc) in *2000*, and the local VCs uniformly couldn't understand the value of such a business.

I have never asked for charity, and, in fact I haven't been pitching VCs...precisely because I think that especially the local ones are broken for producing viable software companies...at least partially because of their model of 1 in 10 winner with 20x returns doesn't really work for building a real company these days (rather than building a company to go public with no IPO market).

RE: fiduciary responsibility to your investors. Yes, of course I'm aware of that...but what about your responsibility to the community? (and your limited partner's responsibility to the community/local economy?).

And unfortunately your last sentence supports my 'blame the victim' point: "Failure to be "great" on either criteria is a reason to pack your bags". Right...from the serious entrepreneur's viewpoint the only way to be great is to pack one's bags (I'm working with a startup now that is not based here, is pre-seed, and is great...thanks very much).

And how about VCs that don't support the local economy and repeatedly fail to produce viable companies...perhaps they should consider packing their bags. I think many people would prefer to have entrepreneurs stay around over leaving because there are so few/no good companies being created here.

Jim

If you have a great management team and a great business plan addressing an enormous market, the question arises as to the value added by the VC. Based on extensive European experience (sitting on a VC board, being an angel, setting up a start up fair etc), I observe quite a number of strong start ups going from angel to IPO on AIM or similar small public markets (particularly medical start ups) cutting out VCs. I can understand why. In the early days of SV the VC firms were staffed by the Fairchild descendants - former managers and industrialists who had one particular skill the VC community as a whole largely lacks nowadays: business building skills. This meant supporting, nurturing and guiding start-ups through the inevitable convolutions and reformulations that characterise the development of new businesses. The typical hold was 7 or so years. Most exits were trade sales. Contrast this with current practice: VCs follow voguish areas with a time-line ideally of 18-24 months trying to be one of the early parties to IPO. The firms are staff with young analytical types that look at though they were out of Harpers or GQ, few of whom have ever worked at a senior level in any industry relevant to the ones they are investing in. When things get tough, they try to fire key individuals, or find a solution by selling in the secondary market for venture capital investments. Typical holds have fallen to 24-36 months unless constrained by lack of IPO conditions. The idea of sticking with a business and helping it sort through its problems is almost a joke. For example, I was looking at the Sequoia presentation given a few weeks to 100 of the CEOs of its investee companies. The basic message was cut costs/scale back/minimise because there will be a recession. How can one possibly reconcile this with a notion of long term partnering through good and adverse business conditions relying on the financial strength of the venture backer to persevere with development when others are backing off? My advice to new start-ups is boot strap and angel.

The problem is that it seems that most of the software startups here are generally web-centric with a business model that basically consists of making money through google ads. I think many of them will fail during this downturn. We've got a lot of technology talent in the area, but the business ecology here is such that many will likely have to move out of state during this downturn to find paying work.

So far tech has been spared this time around, but don't get the idea that tech is immune this time. The last downturn (the tech wreck of 2001-2004) hit tech first and spared most of the rest of the economy. Tech will be one of the later segments of the economy hit in this coming downturn, but it will get hit as companies tighten their belts and cut capital expenditures. It's going to be a very deep, long recession.

BTW: TechCrunch is saying that there have already been 20,000 tech related layoffs this month alone: http://www...-counting/

For the past year I have gone before venture cap gropes like O.E.N. and was coldly received here in Portland. My invention is not I.T. it's not a
"Green" venture it's a product that would be used by the military. I was in a room of over 100 individuals and not one came up to me to seek more information about my invention after my presentation. This State has no interest in technologies that are military related. This state has to bring into it all types of business that develop living wage jobs that this state so badly requires. My invention will allow single-engine turbo-prop aircraft to be turned into aerial refueling tankers for unmanned aircraft and light utility helicopters. The unmanned aviation industry is today a $3.5 Billion dollar "Per Year" industry in this country and its still growing here and globaly. Two years ago the Pentagon put out the call that unmanned aviation assets need to be refueled in mid-air the need has been addressed I have a product to supply too that need and do you think I can get one interest from the Oregon investment community here in this town.
Forget about it. I'm a pilot and inventor and all I have hit are brick walls trying to find venture capital for a technology that can tap into a global multi-billion dollar per year industry and all I here is the sound of crickets from the locals. Oregon better wake up not all the jobs are in the IT or Green world this State has to broaden its field of industries to come to our state if it wants to have living wage jobs and tax dollars to support what citizens want from there government. I want to bring Defense and Home Land Aviation Security jobs to Oregon but with the response that I have so far have received from the Oregon Venture Community no wonder this state ranks at the bottom of defense monies coming into our state. People like me move out of state and take with it the jobs where the venture monies are. Oregon VC wake up the world is a dangerous place and this nation will need tools to control conflict there defense monies to tap into and bring those monies and jobs back to Oregon. All I have seen is that Oregon venture capital is to narrow minded. Alan S.

I am an assistant professor of engineering and technology management at PSU. I teach courses in technology strategy, technological innovation and technological entrepreneurship. I have a line of academic questions that could have significant practical implications for entrepreneurship in 2009.

No matter who wins the election next week money will be tight next year, and the new admistration/congress may have to take measures that we have not seen in a long time. I am particularly courious about hikes in capital gains tax. At what level will capital gains tax become painful for entrepreneurship, venture capitalists and investors in VC funds? 15%? 20%? 25%? 30%? 35%? At what level of capital gains tax would they choose less risky investments instead? I include the entrepreneurs in this question, because many of them could make very high salaries as managers in high tech firms. Less risky for them means working for someone else for lots of money. Furthermore, given that VC-driven entrepreneurship is a major source of competitive advantage and growth for the United States economy, at what capital gains tax rate would economic growth in the US be significantly impaired? Finally, will entrepreneurship in Oregon suffer more or less than in California or in Boston if the capital gains tax rises?

Best regards,

Charles Weber

The show is starting with talking with Stuart Cohen and Jerry Langler pretty much just said that they (VCs) invest in their friends.

My question for both Jerry and Stuart is: if local VCs invest in their friends, and their friends are the 'usual local business suspects'...who have not had a big success...then how will Oregon companies ever compete against SV, Seattle, and elsewhere?

I just heard Jerry's reply...I do think it's essentially an old boys/girls network...similar to Silicon Valley VC (which is also a clique)...but the network here is very small as the host pointed out...which doesn't open the door to new ideas, and small, early-stage companies.

I would like to hear your guests comment on the challenges of getting seed capital and the pipeline of startups in Oregon seeking venture capital. What seems even harder in Oregon than getting several million dollars in venture capital is obtaining the seed capital -- the first few hundred thousand to a million dollars and getting the support to get a company to a stage where venture firms are interested. This "angel" funding seems harder here than in other markets. I'm an investor in the Oregon Angel Fund which is a great local effort to pool angel capital, but it can only invest in a handful of companies. Is the lack of angel capital and people to support early stage companies a big problem in Oregon? How does it compare to Seattle or the Bay Area?

I'd like to second this motion. Like the caller who just called, there are a lot of interesting opportunities (big and small) that need angel investment to get going.

The caller from Bend sounded very familiar! I bought out my employer recently, too. In this economy, a lot of businesses a lot more businesses with lagging energy would happily entertain buyout offers.

I also second this idea...I think that the VC model, which depends upon large, very rapid growth, makes it very hard for small companies to develop...and this is a huge disadvantage for Oregon entrepreneurs.

Is Oregon's business climate significantly different from California's such that new ventures in Oregon are stifled? I've heard entrepreneurs complain how expensive it is to do business in Oregon. My general impression from the media is that Oregon has a business-hostile environment. Is this hype or real?

I think the 'no major university problem'...which comes up as an excuse for our local small business difficulties...is a red herring. We have strong technical people and many good ideas. Those ideas can't currently be developed into companies here because of financing, management weakness, etc.

Sure, we have a lot of well educated, talented folks, but the problem with having not major world-class university is that it's difficult to keep our technical people on the leading edge.

Your statement about difficulty of keeping our technical people on the leading edge...this is not true. The technical people (e.g. in open source) that are here are the world leaders in software innovation...I know this for sure.

Agreed. Not all good ventures rely on research and other things that come out of university facilities.

The whole .COM thing for example definitely did NOT come out of the university/research space. In fact in many ways the whole university/research space was clueless about this kind of startup and had very little (if anything) to contribute to it.

Attracting venture capitalists is about as healthy for Oregon as attracting a raft of gamblers to our casinos. Building the economy from the top down, the supply-side, trickle-down method hasn't worked and the current international financial crisis is proof of that failure. We need to do what Obama recommends and build the economy from the bottom up by building the middle class and rewarding work and not using our tax structure to reward speculators and gamblers over workers. The boom and bust cycles that are the result of the supply-side methods are crippling to we the people. Continuous growth is a fiction