On the road
Start-ups in the San Diego area strutted their stuff at a rowdy day of fun and games -- and lessons -- organized by local CEOs and investors
Onstage, the contestants wear hospital gowns and sit in wheel-chairs. One's head is wrapped in bandages. Another has a charred face and singed hair. "Keep your legs closed!" bellows someone from the audience. So begins the five-minute skit by the founders of SafetyVillage.com. Behind them, two bodacious nurses in too-tight uniforms belt out their version of the theme song from The Flintstones: "Village! Safety Village! We're your health and safety com-pa-ny! Help you! Let us help you! And most accidents won't come to be!" The entrepreneurs-cum-actors then drill through the SafetyVillage.com business plan, hoping not to get "gonged" by the judges who share the stage with them.
What in the world is going on? A play at a halfway house for runaway entrepreneurs? An overdose of dot-com Kool-Aid? Actually, the takeoff on the old Gong Show is part of iLounge, a first-ever gathering led by San Diego entrepreneur Bob Bingham, who is hell-bent on promoting new area businesses -- and who's having a heck of a good time doing it. "This is all Bob," says Stephen Tomlin, a private investor and one of the three "gongers." "It's an extension of Bob's personality."
Since he sold his Web-hosting business, Simple Network Communications Inc., to Broadcast.com in a December 1998 stock deal with a current value of about $200 million, Bingham has become a darling of San Diego's burgeoning Internet start-up community. The 33-year-old has devoted himself to promoting the work of other entrepreneurs. An active angel, Bingham assumed the role of iLounge's "chief kahuna" in early 1999, and he spent the better part of a year pulling together a production reminiscent of Rowan & Martin's Laugh-In. Speakers -- such as San Diego star starter-upper Michael Robertson of MP3.com Inc. -- leaped onto the stage accompanied by zany string music. The emcee, professional performer Anthony Bollotta, sported a pale blue tuxedo and a beehive Afro. And the 550 entrepreneurs and investors in the audience -- 59 of whom bid up to $1,600 apiece for seats in 15 front-row La-Z-Boy recliners -- soaked it all up.
"We wanted to have a lot of audience participation and camaraderie," says Carrie Stone, a partner at La Jolla's Enterprise Partners Venture Capital, who coproduced the program with Bingham and who moderated a panel on funding from a semireclined position in a leopard-print hammock chair. "Our vision was to make this conference more 'edutainment' than anything else."
To be sure, for all its hilarity, iLounge also served up some hard-core lessons. MP3.com's Robertson revealed how he succeeded in holding on to a whopping 40% of his company's equity: by steadfastly going it alone and proving his model in the marketplace, he was able to skip seed-stage financing rounds and hold out for an initial investment of $6 million from Sequoia Capital, which (no joke) approached him. Bingham shared how he bootstrapped his Web-hosting business with a combination of debt and leasing. "You can lease anything," he said. "I found out I could lease the grass in front of my house." And when this reporter asked the funding panel to identify the most persuasive factor for an entrepreneur to cite when trying to get a desired deal valuation, the answer was -- again -- both funny and frank: "The best way to get a valuation from a VC is to have a second VC."
The humor not only kept the audience in stitches but also tempered some brutal honesty. That was most evident during the "gong show," when executives from seven start-ups, including SafetyVillage.com, put themselves through all kinds of foolishness to compete for $10,000 in real prize money. Selected from a field of 21 applicants by the Entrepreneurial Management Center at San Diego State University, the contestants had been informed that they would be judged on the content and the commercial value, as well as the style, of their presentation. Or, as the emcee put it: "Each contestant will have five minutes to convince our judges that their model Internet start-up plan is more than just a smoke screen."
"Each start-up gets five minutes to convince us their plan is more than a smoke screen."
First up was a trio of dancing chefs who wielded enormous barbecue spatulas and regaled the audience with a promotion for Dine Out Discounts. Dine Out Discounts' CEO, chief technology officer, and chief operating officer bounced around the stage (sidestepping the four-foot-tall gong) and invoked every cooking clichÉ in the book as they described "a one-stop shop for restaurants and restaurant patrons." Dine Out would feature online menus, reviews, and an electronic reservation and mapping service.
The soothing strum of harp strings in the background signaled that the chefs had made it through their pitch and were ready to move on to the Q&A. That's when Dine Out Discounts' prospects soured. The contestants explained that they intended to market their service to restaurants by hiring "a massive sales force," which provoked big-time boos from the audience. Indeed, gonger Tomlin -- who in 1998 sold the start-up he'd cofounded, PersonaLogic Inc., to America Online Inc. -- subsequently drubbed Dine Out with a meager score of 2 (out of 10). The monumental effort required to sign up restaurants would take too big a bite out of profits, Tomlin explained. "My stomach turned when I heard the sales-and-distribution model."
Contestant company EquityMining.com spiced up its otherwise bland presentation with a skinny Marilyn Monroe impersonator. As CEO Michael Zambotti plodded through his pitch, Marilyn smooched at the judges, tramped around the La-Z-Boy loungers, and plopped down in one guy's lap. "Mr. Zambotti," she cooed, "I think I've found a real rich one here, and it looks like he has a heart of gold."
Zambotti quipped that Marilyn had possibly hit on his first angel investor, but in truth the floozy only distracted from what was already a hard-to-fathom business model. Zambotti declared that his company "would improve and enhance everything that you do on the Internet." He described his software product as "a bridge between Web portals, search engines, Internet service providers, Wall Street, and private companies."
Clearly befuddled, gonger Gary Sutton, the CEO at SkyDesk, wasn't buying any of that. Sutton bluntly informed Zambotti that in the real world, his pitch would only irritate time-strapped investors. "There's too much fog in your presentation. Maybe I have a challenged intellect, but I just don't get what you're doing. It would take too many questions for me to find out, and it sounds like you're way too scattered. If I'm a VC and I have to work that hard to figure out what you're doing, my mind's already turned off."
The act of zRomance Inc. suffered similar shortcomings. Its performers put on a terrific display as snotty, tattooed Gen-X-ers in a frustrated love tangle. But the underlying pitch was so vague that it made zRomance seem like a be-all-things-to-all-people Internet play posing as a matchmaker. Gavin Mandelbaum, CEO at iHome Inc., gonged them. Why? "I've tried those dating services, and they just don't work," Mandelbaum said, shrugging. The audience whooped it up, realizing that Mandelbaum's flip reasoning was no different from what you get in the real world, where investors can also be arbitrary and capricious.
In the space of an hour, the competition boiled down to two finalists: Unwired Sales -- a wireless data provider for sales applications -- and the guys in the hospital gowns from SafetyVillage.com. Gonger Tomlin said he "loved" the business-to-business model Unwired Sales was pursuing, for two reasons: its section of the wireless landscape is not yet crowded with competitors, and San Diego has a rich talent pool in wireless technology. Tomlin was also wowed by SafetyVillage.com because it aimed to simplify a set of daunting compliance tasks required of all California businesses. "I love businesses that do things that others have to do but don't want to do," he said.
The emcee then turned the judging over to the "studio audience," explaining that they would decide the winner, based on "applause and screams of joy." Four raucous rounds of cheering and clapping ensued. The winner by a decibel: SafetyVillage.com.
By noon the sense of community among attendees was so strong that lunch on the lawn of the Hilton La Jolla Torrey Pines felt more like a wedding bash than a business conference. Chad Carpenter, chairman of a CEO group called the San Diego Internet Roundtable, which helped pay for the $330,000 event, called out over the tables: "Hey, Bingham, where's the beer?"
At the lunch, too, Bingham pulled off comic stunts that would have flopped with a less receptive crowd. He persuaded a principal of one sponsoring company to clamber up into a chain-link cage and sit perched above a tank chock-full of ice cubes and water. Meanwhile, a panel of Internet aficionados took their places, ready to field questions gathered from the audience by Mike Krenn of TheGolfer.com, who roved among the tables in a maroon leisure suit festooned with question marks. If the audience wasn't satisfied by the panelists' answers, well then, Bingham kicked a button and the sponsor (decked out in an Armani suit) got dunked.
All day long, iLounge organizers had worried about the turnout for their big finale -- in which another 50 San Diego Internet start-ups strutted their stuff at an exhibit hall. Shortly after the doors opened, though, the hall was packed. And it wasn't just for the Lizard Lager and blue martinis, either. "People wanted to see what was next," says Enterprise Partners' Stone.
For Bingham, the low-key entrepreneur behind all the wackiness, it would have been inconceivable to pull off iLounge any other way. "I just wanted to do something that would have some edge," he says.
D.M. Osborne is a senior writer at Inc.
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