Thursday, June 10, 1999 at 1 p.m.

Welcome to The Download – Live. I'm your host, John Schwartz, sitting in for Shannon Henry. Shannon will be back in two weeks. My guest today is Jack Biddle (below, left), a partner with Novak Biddle Venture Partners.

Biddle is a former IT industry analyst and has served as an executive with several software and venture capital firms. He is a member of the board of the Computer & Communications Industry Association.

Henry profiled Biddle's firm in February, telling of the humble office that wields so much power over so many futures. One room with four desks serves as a soapbox for hopeful entrepreneurs and a sparring ground for Biddle and his partner to debate which firms have promise.

We discussed the emergence of the Washington area as a tech center and the availability of funding for start-up companies.

John Schwartz: Hi, everybody, and welcome to our chat. We're here with Jack Biddle and welcome your questions. I'm John Schwartz, filling in for Shannon Henry.

John Schwartz: --What are some of the companies you've helped to fund?

Jack Biddle: Locally, we were investors in Telogy Networks, which makes software for carrier class voice over internet. It was announced last week that Texas Instruments is buying them for a shade over $500 million.

We are also lead investors in Entevo, a software tools company to help large corporatios manage their networks. Also Blackboard, which makes software for Universities to manage on-line learning. In addition, Lifeminders.com is another very prmising local company. These were all two guys in a garage 2 years ago, and all are now heavily finanaced and growing.

More recently we lead initial investments in Paratek and Telecom Exchange. Paratek is a spinout of the army in antennaes, and T.E. is an e-commerce deal.

John Schwartz: --I'll kick off the questions. Mr. Biddle, how did you decide to take on the world of venture capital?

Jack Biddle: Its a little strange, but its what I have wanted to do since I was in college in the early 80's. Its a business where you can make a difference, and intellectually, its like being a kid in a candy store full of brilliant ideas. I started in the business out of school, then left for 12 years to learn the operating side, then co-founded NBVP with Roger Novak

Washington, DC: Mr. Biddle,
In this new and emerging Internet industry, is there a model or system companies use to value firms looking for capital?

Georgetown MBA 2000

Jack Biddle: There really isn't. There is just too much uncertainty.

One cartoon I saw had the VC saying to the entrpreneur, "Let me run your number through my valuation model" He threw a dart, and on the board there was only 1 number, $3 million. Thats pretty much how it works in a start-up. Later on its simple supply and demand.

John Schwartz: --What are other companies you think bear watching--whether or not your company has invested in them?

Jack Biddle: Ciena's founder has a new company that sounds very promising. We passed on a deal or two that in hindsite we should have done. WebMethods is pretty interesting. That said, we think our portfolio has a pretty fair share of some of the more compellin new companies in the region

John Schwartz: --Let's talk about some of the recent deals in the area--Texas Instruments has bought Telogy, a local firm that writes the software that runs DSP chips, which are found in mobile phones, phone network switches, and more. What does that deal do for the local company?

Jack Biddle: I think the Telogy/TI deal is just the latest of many very significant local start-ups. Companies like AOL, Ciena, UUNet, Torrent.

The press tends to focus on the dozens of local people who have made $50 or $100 million, and they are important because a lot of that money will be recyled into new venture companies -- $30 million of our funds come from such people. What is often overlooked though, is the thousands of young people who will make a quarter or half million. Those are the people who can quit their job, take a year off, and pull together a new plan. They are the ones who will found the next generation companies.

In the case of Telogy, since its in the public SEC filings, the employees will split over $100 million. You will see some of them start new companies a few years down the road. You will see even more from all the other local success stories. Thats really the key ingredient for a tech city to become a world class powerhouse.

Right now, that mass has been reached in Silicon Valley, Boston, Austin and Washington, and these 4 cities are way ahead of anyone else.

John Schwartz: --How much of your time is taken up, roughly, with pitches?

Jack Biddle: We probably spend roughly a third of our time working with current portfolio companies, another third taking detailed due diligence checks on strong candidates, and a third on first meetings, and reading business plans

Virginia: What's the most persuasive pitch you've ever heard?

John Schwartz: Let's just assume, because this is a family publication, that we're still talking about business here. Mr. Biddle, do you recall one pitch that really stood out--and what about it got your attention?

Jack Biddle: We have made several comitments pretty much on the spot, and other times, we might spend 6 months.

We loved the lifeminders proposition, and would have closed quickly, but it took quite a while to agree on price. Strong entrpreneur, and a very compelling capital efficient business model.

Tantivy was pretty much something I knew we were going to do at the first meeting. Great engineers with a clearly better mousetrap.

Arlington, VA: How do new entrepreneurs go about connecting with a venture capitalist? How does that process work?

Jack Biddle: We get so many plans, its really hard to stand out. Its like getting a thousand resumes for one job. You don't look for reasons to say yes, you look for reasons to say no. He wasn't an eagle scout, 62 others were, etc.

So we rely heavily on people who's judgement we trust to make the first hurdle. Our fund is a little unusual in that 50 of our limited partners are successful entrepreneurs. They see more than all the VC's combined, and we rely heavily on them to help us find opportunities and priortize

McLean, VA: Mr. Biddle: Could you speak a bit about your past experience as an IT industry analyst? How much did that educate you about both the technical and business -money- issues you now deal with day to day when deciding where to invest your money?

Jack Biddle: I was at the Gartner Group early in my career, and it was beneficial. You really learn in that business the importance of 'mental mindshare'. The entrepreneurs who can position there companies well with the analysts, wall street, and the media are in the best position to recruit the best people and the best investors. It feeds on itself, and tends to become self fulfilling -- not always, but often

You also learn to separate the real analysts who have vision, and those that are more straight line futures. Set breaking is the key to any new business.

Washington. D.C.: How much of an investment do you typically make in a company?

Jack Biddle: We have intentionally stayed small so we can continue to focus on the 3 guys/gals in the garage.

We like to end up with $1-3 million in a company, but initial investments will often be under $1 million. In the case of Engenia, we wrote a $50k check so a co-founder could leave his employer and work full time on the plan. Then we lead a $1.5 million round.

John Schwartz: In one of your responses, you said that your time is set up in thirds: "We probably spend roughly a third of our time working with current portfolio companies, another third taking detailed due diligence checks on strong candidates, and a third on first meetings, and reading business plans." What does that mean in terms of a typical day? When do you start up in the morning, and what sort of business-related social events keep you going into the night? When do you get to call it a day?

Jack Biddle: My wife isn't thrilled, but with the recent closing of Fund II, I usually get up at 6, get home at 7, see my family for an hour, then am on the computer or reading plans until 12 or so, but try not to work on week-ends

Falls Church, VA: I just returned from a conference in the Silicon Valley, and let me tell you, the energy there is palpable. The whole Bay Area is tech-crazy, and it's really quite an exciting environment. I know our tech sector is expanding and vibrant, but we just don't generate that kind of buzz here, and it's regrettable. Thoughts?

John Schwartz: This question undercuts the one I just asked you, but it does raise an important point: is the fact that Washington a government town detract from its ability to position itself as a high-tech center? Is it possible to be a tech Mecca when the atmosphere is suffused with budget talk, partisan food fights and sex scandals?

Jack Biddle: This is a real interesting question. I have kind of joked about the inevitability of 100% tax rates when the congressman and senators have to commute 2 hours because they can no longer afford to be near DC, since the techie millionaires will own all the good local housing.

I grew up here, and when I finished Langley High School in 1979, there was really only one significant local commercial IT firm -- Software AG. Thats really changed.

The IT world really doesn't care about the government business. The integrators are in big trouble because the best young people want the shot at the brass ring. The local IT world is now totally bifurcated.

Cinnaminson, NJ: Say I have a great idea, but no -and I mean NO- capital or entrepreneurial experience. How easy -or difficult- is it to get a business plan together, find potential backers and nmake a convincing pitch?

Jack Biddle: Depends on the idea, but if you don't have any capital at all, and can't develop the idea where its credible, its really nearly impossible to get institutional money.

Thats where you must either max out the Visa, or go to the "3F"'s Friends, Families and Fools.

Ideas are not worth a lot. The ability to execute a good idea is priceless

washington, dc: is it possible for ordinary investors to invest money in your venture fund?

Jack Biddle: The VC world is nearly impossible for individuals to invest in, unless you are a 'value added' investor. Cable and Wireless's just retired CEO is an investor, as are many others like him. But they are huge helps to us.

Even institutions have a hard time getting into the better funds, since there is so much money available. Its very much 'old boy'

washington, dc: the whole question of valuation for a brand new company seems to be a shot in the dark. does the vc assign the valuation, or is there some input from the founders?

Jack Biddle: Its always a negotiation. The entrepreneur explains how he is worth 30 times year 2001 revenues, since Koop, or Yahoo is. We don't really care what the public pays.

We are high risk investors, and have a price that we will pay. There are many interesting deals we would have done, but could't agree on price.

The current mania can't last, so we feel its important to be disciplined, and we are. Those that aren't will end up out of the business, as happened in the early 80's when the disk drive, super-mini, and 32 bit hot box craze hit the VC world

washington, dc: does it make more sense for a new company to seek venture funding or angel investor funding?

Jack Biddle: If you've got a good idea, and are committed to making it happen, what makes sense is to get on with it any way you can. If you can get quality VC, take it. If you can't, take angel money. As they say, 'gotta play to win'

Bethesda, MD: As an entrepreneur what's the process for seeking venture capital from your firm. What documents, information do you require? What's the selection process and criteria? Where does one start?

Jack Biddle: We work with all the accounting firms and tech lawyers. They are a good way to get an intro. We do occasionally invest in 'over the transom' ideas, but that is rare.

When one of my LP's, who invented the 8008 micro-processor, arc-net, and who founded a Fortune 500 company calls me and says "This is the best idea I have seen in 10 years", I am interested. That was Tantivy.

An intro from someone who is technically credible is best.

Arlington, VA: What are some of the other sources of contribution to your funds?

Jack Biddle: Institutions are conservative, just like VC's.

Our first fund was really tough to raise. It took 9 months to raise $23 million. The second fund was really easy, since we had "proved the model" -- just like for start-ups.

Fund II has institutions like Bell Atlantic, Bessemer, PNC, Riggs, The Common Fund (Universities). These are all pro-s who are this for the long haul, so they are people we actively sought out. Most VC industry wide is pension money, endowments, and insurance companies

St. Joseph, Mo.: Are there many women in venture capitalism these days?

Jack Biddle: There are very talented Women in VC, but it is a minorty. Suzanne King locally is at NEA. There are superstar female General Partners at Oak, Patricof, etc.

VC's really are gender/race blind. We are in a business where our 'goodness' is totally objective. Its rate of return. We hire and back the best people. If we don't, we underperform, and are out of the business

Arlington, VA: When do you think we'll start seeing startup companies emerging from retired millionaires from AOL and UUNet?

Jack Biddle: As a rule, retired millionaires don't make great entrepreneurs. We like near millionaires who wouldn't dream of retiring, and still have the fire in the belly.

There are lots of these people in Washington -- thousands

rockville, md: Mr. Biddle,

What is it about a pitch that either gets you to commit or reject the deal? Can you be more specific about what tops your "best" and "worst" lists?

Jack Biddle: The worst thing to happen is to have me or my partners no more about your market than you do. The best is to have an absolutely commanding knowledge of the players, markets, etc

Silver Spring, MD: Have you financed or considering financing and African-American internet ventures?

Jack Biddle: We have looked at a number of deals started by African Americans, but haven't financed one yet. We fund 'deals', not groups. Frankly, we are probably more likely to fund a minority founded company because there might be more fire in the belly. In technology, it really is all about what you can do.

rockville, md: Mr. Biddle,

What do you make of the NASDAQ slow-down, and NYSE upswing? Do you think it's just a cyclical event, or has the time of the "teckies" been supplanted with a new big manufacturing return?

Jack Biddle: Who knows! The demographics of the baby boom means lots a free cash, which is driving a lot of this, but its also a cyclical world.

John Schwartz: Well, folks, that wraps it up for us today. I'd like to thank Jack Biddle for taking the time to be with us, and for shedding light on the world of venture capital. It's been great. And let's all wish Shannon Henry well--the reason I'm filling in for her is that she's getting married today! So congratulations, Shannon, thanks to Jack Biddle and to all of you for joining us. See you online!

DC: Thanks for taking our questions!
Do you and other investment groups invest in companies that don't even have all the pieces together? For instance, if the idea is good, but the company isn't even yet afloat, would you still invest?
Thanks!

Jack Biddle: The VC world is stratified by early, mid and late stage funds. We are early stage investors, so the idea/team is never complete. Thats what we do.

Then we will help fill it out, and pass it up the food chain to people who specialize in later stage deals.