'Gong Show' for startups

Win television's "American Idol" competition and you could launch a pop singing career propelling you to fame and fortune.

Win the Bay Area's techie version of the show and you could win millions of dollars to launch your startup company on its way to similar heights.

That's the premise of the Gong Show, an annual event created by the Asia-Silicon Valley Connection and now in its sixth year.

Executives from 10 select startups give their best two-minute "elevator pitch" in front of a panel of leading Bay Area venture capitalists and an audience of several hundred techies and financiers.

Contestants for the Gong Show - so named for the Chinese-style gong that is beat when the two minutes are up - are judged on a different sort of vocalization than "American Idol" contestants: the ability to convincingly sing the praises of their product, market and team in a short amount of time.

"VCs usually decide within the first five or 10 minutes whether they like a deal or not," said Barry Eggers, general partner at Lightspeed Venture Partners in Menlo Park. "If you only have that much time, you've got to make a good first impression."

The VCs tend to eschew biting Simon Cowell-like comments in favor of more constructive - but frank - feedback on how well the executive touted his business plan, product and potential market.

The competition, like the startup world, is efficient, if not brutal. Four firms are chosen to give presentations, with a winner chosen among those.

Officially, the winner's only prize is a one-on-one mentoring session with one of the VCs. Unofficially, he or she gets the validation and contacts that usually lead to a multimillion dollar investment.

"There was one company that closed on more than $12 million three months after winning the Gong Show," said Porter Wong, co-founder of ASVC and organizer of the show. "I don't know if that was directly related, but there are companies that close (funding) almost every time."

The promise of funding is what brought out Ping He, a 28-year-old engineer from San Jose, to the Santa Clara Marriott on the night of June 16. Six months ago, the Chinese-born He, along with two buddies, quit their Silicon Valley jobs to start Flexchip Inc., a software firm that promises to save chip design companies millions of dollars.

Self-funded so far, Flexchip's three partners work out of their homes to save on overhead. He is hoping to raise $2 million to refine the product, hire sales and marketing staff and rent an office.

Still, He says his expectations are not that high, primarily because he hasn't rehearsed enough.

"It's not easy to explain what we do in two minutes, but I'll try," He said.

Quality, not quantity

Another executive, Martin Doyle, of San Mateo-based Claryan Biosciences Inc., is more optimistic about his chances before the night begins.

"We've been wanting to get out in front of VC eyes," he said. "We're passionate about it and we hope we can get an investor to feel the same."

Claryan owns patents that could be used to create drugs that treat cancer and arthritis. But even Doyle admits that the technology is far from being proven, and would take six to 10 years before a product would be ready.

During the boom, as many as 400 firms vied for one of the 10 spots on the Gong Show. For this year's event, the number of applicants was closer to 100, most of them from China. At least three East Bay companies have presented during the show's six years.

Although the number of startup applicants has declined, the standards are higher, according to Wong.

"VCs are looking for a solid product, technology and revenue stream," he said. "There are no more business plans scratched on a piece of paper."

Defensible niche is best

While the Gong Show name suggests that some entrepreneurs will engage in wacky theatrics to impress the audience, the presentations are all straightforward. There is not even a single "dancing" PowerPoint graphic.

One Chinese executive flies in from Beijing for the presentation. Others give their presentations via a live videoconference hookup in Beijing. Although they speak English fairly well, the muddy audio on the videoconference hurts their chances.

Two of the Chinese companies appear to be localized clones of American social networking sites such as Friendster and LinkedIn. Their copycat quality and lack of a unique technology that would keep out potential competitors dampens the enthusiasm of the VC panel.

After the first round of pitches, four firms are chosen to go forward: He's Flexchip; Doyle's Claryan; Navitone Technologies Inc., a public Orange County mobile phone software maker that hopes to garner enough funding in order to go private; and K68.cn, a Web marketplace that allows small American firms to outsource projects to Chinese companies.

For the 10-minute presentations, the speakers are noticeably more relaxed. Flexchip's He, for instance, stands at the podium with his hands in pocket during most of his presentation.

Surprised to even be in the finals, He is not counting on winning. "To be honest, I don't rate my chances very high right now," he said.

But Flexchip does win, as the VCs are won over by Flexchip's unique technology and low cost to get to market.

"Flexchip hits on a key problem today, one that is costing chip producers quite a bit of money," said Peter Moran, a Doll Capital Management general partner on the panel. "The leverage that comes with a software model is very capital-efficient from an investor point-of-view. With a modest amount of money, they can test out the business and reach a success point."

Design errors "are very common in chip design," said Benjamin Xu, general partner with Santa Clara-based Harbinger Ventures. Speaking from the stage to Flexchip's He: "I'd like to see you in my office next week, if possible."

Mobbed by well-wishers and financiers bearing business cards, He says he is in shock that he won. "But when it got to the technical portion, I know that space, so I did well and sounded confident."

"We were already in later-stage discussions with several VCs," continued He. "Winning the Gong Show will allow me to push the investors a little bit faster. At this point, I think our chances of getting funding have crossed over 50 percent."