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Outages are jolting venture capitalists

Recent blackouts have brought headaches and `the BlackBerry dance.'

June 13, 2007|Michelle Quinn | Times Staff Writer

MENLO PARK, CALIF. — They are the captains of Silicon Valley, dispensing cash and advice to companies on the cutting edge of technology. So why can't the venture capitalists on Sand Hill Road keep the lights on?

Electricity to the high-tech industry's money center has cut out, for several hours at a time, on at least three occasions in the last few months.

When it does, screams ring out from those who hadn't saved their files. Phones stop working. Fax machines cease spitting out term-sheets for deals. Venture partners head to their luxury-car-filled parking lots to seek better reception for their hand-held BlackBerrys and Treos.

"We're totally dependent," said Tom Rosch, a general partner at InterWest Partners. "We don't know what to do."

Venture capitalists joke that the blackouts are caused by the overheated funding climate. The industry pumped $6.9 billion into companies in the first quarter, up 8.4% from the same period last year, according to a recent survey by Ernst & Young and Dow Jones' VentureOne.

Others have blamed the outages on the construction of a luxury hotel that Stanford University is building down the road, and have asked the university to compensate them for computer equipment damaged when the power has surged back on. Stanford says it has nothing to do with the problems.

"I've told them the logical thing is to call the power company," said Bill Phillips, senior associate vice president of the university's land, buildings and real estate office.

It turns out that Sand Hill Road, which is to venture capital what Madison Avenue is to advertising, is the victim of bad luck and faulty technology.

Pacific Gas & Electric Co. says an outage in February was caused by vegetation. Failures in underground wiring caused blackouts on May 7 and June 4.

"We think the number of outages is unacceptable, and we regret the inconvenience to all of our customers," said PG&E spokeswoman Melissa Mooney, adding that the company was working to fix the problems.

Venture capitalists haven't complained too loudly. But the outages have caused some headaches.

Always on the leading edge of technology, many firms use Internet-based telephone systems. That means that when the power goes out and Internet routers fail, so do the phone lines. Mobile phones don't provide much help -- the rolling hills that help make the area such an attractive one for financiers also make it notoriously bad for cellphone reception.

Receiving calls, e-mail and instant messages in a timely fashion can mean the difference between closing a deal and losing to a rival firm. So during a recent daytime blackout, Drew Lanza, a general partner at Morgenthaler Ventures, joined about 35 venture capitalists in the parking lot to do what he called "the BlackBerry dance." They held up their electronic devices and twirled around, hoping to catch a cell connection so they could check their e-mail.

"People get twitchy when they don't have access," said Lanza, who had to move a meeting with an entrepreneur that day from his office to a nearby bar.

Richard de Silva, a partner at Highland Capital Partners, was in the middle of a video conference with his colleagues around the world. Suddenly, his face on their screens froze in one expression.

"Is he OK?" his far-flung colleagues asked each other, before realizing that the image was stuck that way because a power failure had killed his connection.

Twice, including last week, the outages came on Mondays, when venture firms hold mandatory partner meetings at which entrepreneurs pitch their business plans. With the inability to give PowerPoint presentations and no air conditioning, the entrepreneurs sweated even more than usual.

To some venture capitalists, the power outages offer a way to test the mettle of someone on whom they may bet millions of dollars. If the chief executive snaps at the team or loses his composure under the pressure of a power failure, that might say more about the company's chances than color-coded bar charts showing a market's growth potential.

But when the lights went out last week, Rosch didn't want the semiconductor executives he had brought in to fail. He believed they were all smart people but couldn't do their computerized presentation on a white board -- "No way," he said.

So the call went out across InterWest Partners for every available notebook computer in the firm. Then, Rosch, using a flash memory stick, copied the start-up's presentation on 12 of the laptops and continued with the business meeting -- until the laptop batteries died.

For other firms, the outage created the high-tech equivalent of a snow day. Even those who tried to work from home couldn't remotely access their companies' internal networks, which went down with the power.

"We couldn't do anything," said Marc Galletti, a venture Capitalist at Longitude Capital Management Co.

The latest outages have led to some soul-searching. Should they have a backup power generator, perhaps shared among the 113 venture firms clustered in about a mile-long stretch. Or, maybe it's time to invest in some low-tech backup.

"We should think about getting telephone land lines again," said Gaurav Aggarwal, a principal at Panorama Capital.

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