A Bay Area VC Sees Some Missing Ingredients in San Diego’s Innovation Community

7/27/11Follow @bvbigelow

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formed. “In the Bay Area, there’s a pretty standard model,” Jain says. “People work on an idea for a little bit, and then look for money.” If you don’t reach an outcome, Jain says that’s still OK. In San Diego, the process is more speculative. “There’s no expectation that there will be venture dollars, and that has become part of the mindset here,” Jain says. “So there’s more of a focus on the business, and bootstrapping the company.” That’s fine, he adds, but it’s harder to grow fast—to focus on building a company with the capability to quickly expand to a global scale.

“I would think that it would be less expensive to form a company here [in San Diego],” Jain says. “But it’s more of a challenge to find talent.”

In fact, Jain says that identifying and recruiting a talented startup team may be the only area of real differentiation between San Diego and the Bay Area.

Starting an IT company, Jain says, “has become a little more democratic, in terms of building a product that can be successful. Look at Rovio,” he says, referring to Rovio Mobile of Espoo, Finland. “Nobody heard of them before ‘Angry Birds.’” But the IT business has become virtualized, so “a company’s location might be relevant in terms of creating partnerships, but you don’t have to be knocking on IBM’s door every day. The markets and channels are very open.”

So if IT startups generally have equal access to the same Web-based resources, to the best data centers, and online infrastructure, Jain says it becomes increasingly important to have extremely “high value” team members.

“There isn’t as much capital here [in San Diego],” Jain says, “but there still are a lot of talented people. What would help if there was a better way to curate the companies and entrepreneurs to screen out the bottom half or the bottom quartile of the startups. It’s not my goal to see everything. My goal is just to invest, and screening companies is not a good use of my time.”

In this respect, Jain indicated that the evaporation of San Diego’s homegrown venture capital firms has created a need among the out-of-town VCs that’s not really being filled. “It’s always helpful to facilitate that [curating] process if the selectors’ interests are aligned,” he says, “so they are investors themselves.”

In the Bay Area, Jain says a variety of credible groups and organizations help to distill the universe of startups for VCs. For example, he says the investment banking firm Montgomery and Co. organizes a couple of industry conferences each year, and the companies selected to make presentations are the companies the firm is interested in working with as investment banking advisors.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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