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If cities reveal themselves by what they celebrate, it would be hard to imagine a more telling omen of San Diego’s future than the Venture Capital Success Stories of the Year awards.
Each of the four winners honored at a Jan. 27 awards dinner displays the entrepreneurial spirit that is making San Diego the new mecca for start-up companies. The selection of the four also shows that San Diego’s most innovative start-up companies are no longer creations of the biotech industry. Today it’s information technology that dominates.
And while the industry shift may not have been apparent to the rest of the world, it certainly was to the venture capitalists who, together with farsighted area lawyers and accountants, are making San Diego’s communications boom possible.
Eric Harrison, a Venture Group board member who helped judge the entries, sums up the new direction this way:
"It is remarkable, the number of unique companies that have been backed in San Diego. It’s a product of the confluence of organizations such as the San Diego Venture Group with service providers who really get it — there are a number of attorneys and accountants who really understand what it takes to work with start-up companies. They're discounting their fees heavily; they're taking warrants or options as equity, instead of charging 250 bucks an hour.
"It’s these kinds of activities that provide a value-added sounding board for entrepreneurs who might not otherwise have the breadth of management experience to be successful at starting new ventures. It has been in the last four years or so that this really has taken off."
That figure of four years coincides with the number of years that the Venture Group, formed 13 years ago, has been holding its competitions to find the best success stories. This year no biotech companies were among the four finalists, although some were among the final 17, which were selected from 42 outstanding companies invited to participate out of the hundreds surveyed.
"San Diego has traditionally had a reputation for having interesting biotech companies that get financed typically by venture capitalists who are not local," Harrison says. "Information technology is the area that is attracting more than 60 percent of all the venture capital in the country. The rap on San Diego has been that we don’t have any of those kinds of companies here. Clearly we do. Now you have very, very interesting companies that are in really hot categories."
Harrison expects the trend of investing in San Diego information technology companies to grow, if anything, now that the secret is out.
"Certainly from my perspective as a venture capitalist, I think it’s one of the true secrets in the country as an untapped opportunity for wonderful growth companies," he says.
This year’s 17 nominees reflect that changing background. They were Applied Micro Circuits, Atcom/Info, Aurora Biosciences, Captiva Software, Cryogen, Desmos, Diversa, Ensemble Communications, Epic Solutions, InterVu, Land-5, Maxim Pharmaceuticals, Net Partner's Internet Solutions, Newgen Results, Nuera Communications, Pere-grine Systems and UROS.
The judges were Venture Group board members who are venture capitalists themselves. They were Harrison, a principal of InnoCal in Costa Mesa who is Venture Group's membership chairman; Scott Pancoast, executive vice president of Western States Investment Group in San Diego who is the outgoing president; and Robert Kibble, managing partner of Mission Ventures in San Diego who is vice president.
Because it’s unfair to compare accomplishments such as financial performance, shareholder return, product excellence and market potential of early stage privately owned companies with more mature companies that have gone public, the 230-member Venture Group divided the contest into two categories, one each for public and private companies. Two finalists were selected in each category.
The Venture Group, whose new president is John Otterson, vice president of Silicon Valley Bank, also decided that instead of presenting the awards at a low-key regular meeting, a more formal evening ceremony would be held at the Hilton La Jolla Torrey Pines. There the venture capitalists who financed the winners described what they initially had seen as the investment opportunities and the CEOs of the companies told what they had learned along the way, disclosing not just the routine happenings but what harrison dryly calls the "bumps along the road" and "the thrills along the way" in the winners' stories.
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