Officials Pushing Microloans as Saviors for Small Businesses By SLAV KANDYBA Staff Reporter Visibly emotional, Bill Herold, president of Thousand Oaks-based Conquest Technical Sales, took to the podium at a Burbank Hilton banquet room recently. Speaking before fellow business owners, non-governmental organizations and a state senator, the owner of the five-employee company specializing in sales of power supplies shared a poignant story about how a $15,000 loan from the Small Business Administration’s Microloan Program basically kept his business alive. “Had this loan not been approved, we wouldn’t have made it,” Herold said. Herold received his loan from the Valley Economic Development Center in Van Nuys, a SBA-sponsored hub which disburses federal microloans locally. The microloan program is being threatened and may be eliminated completely. President Bush did not request any funding to the program in his fiscal 2005 budget request, although Congress may end up restoring some of the funding, which was in the $30 million range in 2003. The situation has prompted State Senator Richard Alarcon to write legislation to recognize the issue, codify that microenterprise is a small business with less than five employees, and nudge state and local agencies to work together to help convince federal officials that microloan lending should remain available. A guest at Alarcon’s press conference at the Burbank Hilton March 31 to introduce the bill pointed out that microenterprises may have slipped under the radar at the federal level and until now, the state level as well. “The idea of microenterprise isn’t that well known,” said Boku Kodama, who works with Urban Voice, an Oakland-based technology training program that focuses on impoverished communities. “We know about it because we do it.” Sending a message Alarcon said he was hoping to “set the tone for local agencies” and “send a message” to Washington and Sacramento that microenterprise businesses are are an essential part of California’s economy. “It’s a step in the right direction,” said Roberto E. Barragan, VEDC director, of Alarcon’s bill. “We’re talking to all the representatives to let them know about the borrowers.” VEDC borrowers over the last six years included between 60 and 70 businesses in the San Fernando Valley. In 2003 alone, the Center made 15 loans worth more than $350,000, Barragan said. Barragan believes part of the reason federal officials is not recognizing the value of the microloan program is that they have wrong information about how much it costs. He said the cost was 33 cents per $1 loaned, as opposed to 97 cents per $1 the Bush administration claims. Frank Rincelli, a spokesperson for the SBA region covering Los Angeles, Santa Barbara and Ventura counties, said he did not have any information regarding SBA’s approach to microenterprises, technically the tiniest of small businesses. Rincelli drew attention to what he called “the express loan program” offered by the SBA, which is available to small businesses but is different from microloans. Express loans are backed by a mix of federal and private funding and borrowers have access to them through small banks, such as Innovative Bank. These small banks specialize in making loans that range from $5,000 to $15,000.

Azteca Finds L.A.’s Hispanic Market Not a Sure Thing By SHELLY GARCIA Senior Reporter You might think a Mexican television station could easily get traction in L.A., where about 70 percent of the Latino population is of Mexican heritage. But Azteca 54 KAZA TV Los Angeles is learning that it takes more than shared roots to win a share of the Hispanic audience. Although Azteca 54 has made impressive strides, more than doubling its advertising revenues and increasing its share of viewers, the Glendale-based affiliate of Azteca America still has only garnered a fraction of the audience share that its Hispanic television rivals command. “It’s not going to be an overnight thing,” said Tony Aguilar, media director at Acento, an L.A.-based Hispanic advertising agency with clients such as Albertsons and 21st Century Insurance. “It looks like they’re doing the right thing, but it’s taking a longer period of time than we all thought to see some results.” Mexico City-based TV Azteca S.A. de C.V., one of the largest producers of Spanish language television programming, first entered the U.S. market three years ago when the company struck a deal with Pappas Telecasting Companies under which Pappas would provide television stations in key Hispanic markets and TV Azteca, through its Azteca America division, would provide programming. The companies figured that Azteca’s powerful content library would fit naturally into a number of U.S. markets where the Hispanic population was heavily weighted toward Mexican immigrants. And the idea was so formidable that shares in Univision Communications Inc., the leading Hispanic media company in the U.S., plummeted on news of Azteca’s entry. But some of the Mexican programming met with less than enthusiastic response in America, the alliance with Pappas soon soured, lawsuits were filed, and last July, Azteca won operating control of the network as part of a new local marketing agreement with Pappas, which continues to hold the broadcasting licenses on the station. Getting more local Azteca installed Eduardo Urbiola, a 16-year media veteran who during an eight-year stint at TV Azteca successfully built a strong base of local advertisers in the company’s Mexican markets, as CEO of Azteca 54 KAZA TV, and Urbiola went to work to apply his local marketing expertise to the Los Angeles marketplace. “We’ve had to work to change the image of Azteca 54 from what it was without any local programming and establish local programming,” said Urbiola. The first order of business was creating a local news show. Although Mexican-Americans continue to harbor an interest in the events of their homeland, that news had to be tailored to their new lifestyles and culture in the U.S. KAZA built production offices, recruited local on-air talent, and last year launched two news programs under the “Hechos 54” moniker at 5:30 p.m. and 10 p.m. The 10 p.m. news show, which launched last October, achieved an average rating of 1 for the month of March, an 88 percent increase over the station’s rating in December, 2003, according to NHSI, the Nielsen Media Research division that measures Hispanic, Spanish-language programming. But KAZA is up against two Hispanic media giants, Univision, which operates KMEX Channel 34 and Telemundo which operates KVEA-TV, Channel 52, which in February, logged a 5.7 share and a 8.4 share of the 10 p.m. viewing audience respectively. “The truth is they’re not promoting their news,” said Ingrid Iannotti, senior vice president and media director at Anita Santiago Advertising Inc., a Santa Monica-based agency that handles the Hispanic accounts for such clients as Wells Fargo and the California Milk Processor Board. “Nobody really knows they have local news.” Urbiola concedes that the station has fallen short in the promotional arena until now, but he adds that is changing. KAZA has begun a fund-raising promotion, matching viewer contributions for a young girl in need of an eye operation and holding other events that will include personal appearances by its on-air personalities. “When we first arrived here there were a lot of priorities,” said Urbiola, “so we prioritized investing in local programming, news programming and local talent. We invested a little in promotion and hoped that would help, but we had to focus on equipment, local programming and staff.” KAZA last month launched another local show, “Detras de la Academia con Laura Caro,” which tells behind-the-scenes stories of one of its popular network programs, a talent show a la “American Idol” called “La Academia.” The station, which has added two-and-a-half hours of local programming since Urbiola arrived, is on track to add another hour of locally produced shows in the next six months including Detras de la Academia, which is hosted by a young entertainer from Tijuana who was previously featured in the Academia program. Novelas planned This summer, the station will launch two new network novelas. Although made in Mexico, Urbiola expects them to gain wide acceptance in the local market. “Our novelas compete directly in Mexico, so we’re going to stick with the successful strategy,” Urbiola said. Finally, Urbiola said KAZA’s strong sports programming should also help to gain wider acceptance for the station. The station, through its network parent, has exclusive rights to nine out of the 20 professional Mexican soccer teams, more than 50 percent of the soccer inventory. “Mexican soccer is the most important professional soccer league,” said Urbiola, “and we’re trying to leverage our domination in sports to other programs like news.” With those elements in place, Urbiola said he expects the station, which captured about a 4 percent share of the total market last year, to reach an 8 percent share this year. KAZA’s staffing, about 20 when Urbiola took over, has grown to about 100 employees, and the company is set to move into larger facilities to accommodate its workforce and production studio. The new space has been occupied by Telemundo, a move Urbiola considers a harbinger of things to come. “We’re going to be physically where they were at, and we expect to be at a place they were at in ratings and share,” Urbiola said.

Becoming a Strategic Business Owner By JONATHAN GOLDHILL Last of a series Your goal as a business owner should be to design a company that is distinct from you and quite candidly, works in your absence. You should create a separate cash flow entity, not merely a job for yourself. It should pay you a healthy salary plus a return on your investment of money, time and effort. You should build equity. You should build wealth. Bottom line, your role as owner should be to shape, manage and grow this independent and enduring asset your business. Your enterprise should function without you, not because of you. I know this sounds bizarre, but hear me out. While you can be the brains behind the enterprise, you should not be like Hercules trying to hold up the entire weight of the company. You will be crushed. Your business should work harder so you don’t have to. You should be able to make money everyday without having to work everyday. You should invest more brain equity and leadership equity and much less sweat equity into your company. Your business should be a product of your brain, not your brawn. You should strive to build a business that does not enslave you and does not rely on your being present every minute of every day doing all the thinking, deciding, worrying, and working. You must adopt a new way of thinking and acting. In short, you must become a strategic business owner. Specifically, you must learn to adopt a CEO mindset; systematize and document your business; lead more and work less; create a simple business plan; utilize the leverage of marketing; effectively manage your greatest asset, your people; and learn to let go. You must transform the way you see yourself and your business. You must begin to think differently. As a strategic business owner, your primary aim should be to develop a self-managing and systems-oriented business that still runs consistently, predictably, smoothly, and profitably while you are not there. You should shape and own the business system (an integrated web of processes) and employ competent and caring employees to operate the system. You should document the work of your business so that you can effectively train others to execute the work. You must make yourself replaceable in the technical trenches of your business. With a documented operating system, your employees should be able to carry on the work of the business while you focus on big picture priorities or even decide to take a break. You should be able to escape the daily drudgery. In fact, your company should run on autopilot status even while you’re on an extended, work-free, guilt-free vacation. To maintain freedom, independence and fulfillment, as your business grows, so must your leadership effectiveness and operating systems. You must stop micromanaging and start leading (macro managing). You must become more purposeful and proactive. Specifically, I suggest business owners and managers follow the following life-changing process: Step one: Learn to work on yourself by transitioning to a new way of thinking and behaving. Re-program yourself and your habits. Stop acting like an employee and start thinking like a CEO. Learn to work on your business, not in your business. Step two: Systematize your company by creating, documenting and continually improving all your key processes, procedures and policies. Trust the business system and personnel you put in place. Step three: Increase your leadership capabilities. Step four: Develop clarity of direction for your business and employees by creating a simple business plan and an effective implementation process. Step five: Learn to effectively manage your people, your greatest asset. Step six: Instead of incremental growth, engage the leverage of marketing to achieve substantial, profitable growth. Step seven: Learn to let go, delegate, and truly enjoy business ownership, your relationships, and your life. By working less in your business, you gain more time to work on your business and make those essential changes necessary to optimize your company and your life. You may well be skeptical. That’s normal. However, let me ask you “Are your current paths and strategies working”? If so, you wouldn’t be reading this article. If not, I invite you to acknowledge the problems in your business, take responsibility for them, and dare to try new approaches. Jonathan Goldhill, CEO of The Growth Coach in Los Angeles, owns a small business coaching and consulting firm. He can be reached at (818) 716-8826 or emailed at [email protected].

City Officials Put Different Color On How to Relate to Businesses FROM THE NEWSROOM By Jason Schaff As an editor I feel obligated to comment on the Los Angeles City Council’s appalling affront recently to freedom of speech and to one segment of the business community. I’m talking about the ordinance that governmental body has voted for to regulate news racks in the city. It’s a harsh slap at one industry segment,and it’s governmental intervention that is way over the top. And once again our elected officials get involved in something that in the grand scheme of things is really minor when they really should be concentrating on making our government work efficiently amid tough budget problems. It’s real weak political grandstanding. Yes, newspapers have been my livelihood almost my entire career, so I have a vested interest here. But really, the news rack ordinance won’t have any effect on my job here at the Business Journal. We don’t own any news racks. So consider that when you attempt to discount my opinion. The thing that really gets me on this issue is that the city council proposed an ordinance that demands that all news racks be painted ivy green. So when are these people that we voted for more interested in decorating than city funding, safety and keeping L.A. a great place to live? There are things about this proposed law that make sense. Each newspaper box needs a city permit under the ordinance. That makes sense, you’re dealing with businesses selling their wares on a city street. I’ll even go for the fact that the ordinance would limit the number of news racks to 16 for every 200 feet and set height and width limits. We also don’t want our street corners in our city to be even uglier than they are right now. But let’s clean the dirty sidewalks first. A city sidewalk is made of concrete and people walk on it and that is where you put news racks. Publishing companies don’t put the racks on somebody’s front lawn. The damaging thing about this particular lawmaking is that it singles out a particular industry and constrains its ability to market its product. That’s a basic affront to free enterprise. As publishers of newspapers in L.A. contend, painting all the news racks ivy green would make it difficult to differentiate between the papers when you approach the racks. It’s like requiring all companies to have the same logos or the same signs on their buildings. Yes, government regulation of industry is not new. But usually that occurs in circumstances where consumers would have a chance of getting injured or cheated if there wasn’t regulation. Not because some people don’t like the way things look. Never mind the constitutional questions inherent in ordinances such as this by requiring the racks to be ivy green it’s telling members of the press what their papers must look like. To the person walking down the sidewalk, they first see the ivy green rack not the paper’s front page. The more dangerous thing in a business sense is the fact that it’s government micromanaging business and how it functions. Instead of developing strategies that will keep businesses from leaving the city they’re merely pandering to pockets of political support. Business Journal Editor Jason Schaff can be reached at 818-316-3125 or at [email protected].

Immigrants Find Own Set of Hurdles at Family Firms FAMILY BUSINESS By JEFF WEISS, Contributing Reporter Seventy-five percent of small businesses close within the first three years. With such a high rate of failure, the difficulty of running a successful enterprise only becomes compounded when one attempts it in a foreign land. Having familiar faces surrounding you in the workplace can help provide familiarity to an aspiring immigrant entrepreneur and help mitigate the steep costs of running a business. But being an immigrant also presents its own challenges when running a family business. However, in spite of the obstacles confronting them, many immigrants throughout the Valley and elsewhere have beaten the odds and established profitable firms. You can count Natarajan “Cheenu” Srinivasan, chairman of Mission Hills-based Broadspire Inc., in the three quarters of businessmen that start companies only to watch them quickly fail. Before he co-founded Broadspire in 1990, Srinivasan’s business fortunes seemed cursed. The Indian-born Srinivasan, first came to the United States via Germany in 1969 to work as a technician for Mercedes-Benz in Virginia. Eventually, Srinivasan grew tired of working for someone else, so he founded an export company, which soon failed. Out $100,000, with a wife and young children to support, times were turbulent for Srinivasan. Deciding to give the business world another chance, Srinivasan opened up a mechanic temporary staffing business. But his second attempt was no more successful than the first and it seemed like Srinivasan would permanently join the ranks of failed entrepreneurs. But opportunity arose with the dawn of the Internet age. Srinivasan’s two sons had recently graduated from Yale and Stanford and came home abuzz with talk of the possibilities that awaited people ready to take the risks inherent in investing in a barely tapped medium. Despite Srinivasan’s vision, getting money to start the business proved quite difficult. “I couldn’t get any money, people looked at me differently. I went to the bank having been here for 20 years and they refused to give me any money. I went to two or three banks around the Valley, all receiving the same rejections,” Srinivasan said. “I felt that it was because I wasn’t a citizen, and I just didn’t get the treatment I felt I deserved. They rejected me, because they said I didn’t have enough equity, I owned a house and they said it wasn’t worth enough money for it to be sufficient collateral.” Roadblocks That wasn’t the first time in the United States where Srinivasan felt his status as an immigrant hindered his ability to get ahead in the business world. He said that at various times during his tenure working for Mercedes-Benz, he felt like had been passed up for promotions due to his accent and skin color. “Color seemed to be very important to some people 20 or 30 years ago, but seems to be a bit less important now. When I worked for somebody else somehow there was the idea that the language barrier would keep me from being able to work effectively with the American public,” Srinivasan said. “I spoke English but I had an accent and it seemed quite difficult in the service area to get promoted even if you had a particular talent. The discrimination wasn’t in getting the job, it was in going to the next level. It was discreet.” Growing tired of that, Srinivasan put $5,000 on an American Express card, and with his sons Suresh and Arun, he founded Broadspire, an IT managed services provider that delivers outsourced IT, data center outsourcing, and fully managed Web hosting services. With 45 employees, data centers in Los Angeles, Virginia, London, and Amsterdam and sales offices in Los Angeles, London, and Madras, India, the Srinivasan’s investment has returned many times over. Yet for Cheenu, the most rewarding aspect of starting a business was the opportunity to work with his children. “Having a family business has been so important to me. I raised my children the way my father raised me. We’re a really close-knit family. I wanted to keep my family like that to show my grandkids that this is the way it’s supposed to be,” Srinivasan said. “It definitely helped our chances of success because it was a family business. I am so proud of my sons. They were instrumental in the creation of the business.” Route to success Family business expert, Dennis Jaffe, a professor at Saybrook Graduate School and the author of “Working with the Ones you Love,” claims that immigrants commonly start businesses in America, as the most suitable alternative to a low-wage job. “Starting your own business is a route to success when you’re an immigrant that doesn’t want a low paying job. When you look at a convenience store, restaurant, caf & #233;, and other stores, you often find immigrant families working together. It’s the American way. It’s a path that the United States has that other countries don’t and don’t support. It’s a uniqueness and strength of our multicultural society,” Jaffe said. “When you start a business you often can’t afford to hire people because you don’t have funds for workers compensation and compliance. It’s much more profitable to have family members involved. It’s also a language and assimilation comfort.” While some immigrants come to the United States seeking unfettered business opportunity, others flee repressive governments. Morad Zarabi emigrated from Iran, shortly after the country’s 1979 fundamentalist revolution. Being Jewish, Zarabi along with hundreds of thousands of Persian Jews quickly realized that their days were numbered in the fledgling theocratic state. “It was a very difficult decision to leave Iran. We had to leave everything behind, including a lingerie business that we had founded over there. But there was a great deal of discrimination and it was growing increasingly difficult to do business,” Michael Zarabi, Morad’s son said. Within a year of arriving in America, the elder Zarabi saw the potential of the vast American market and founded Piege Inc., the parent company of Felina and Jezebel Lingerie. The company has grown significantly since its inception and currently employs 145 people at its Chatsworth headquarters. A tightly knit unit, much of the company’s success can be attributed to Morad’s sons Robert and Michael, who initially began working at Piege part-time in high school and full time after college. Robert is the company’s spokesman and directs the design team, while Michael has run the finance department since 2003. “Our experience has definitely been positive in America because of all of our success. I’m sure it would have been different if we would have stayed in Iran. We probably wouldn’t still have the business,” Michael Zarabi said.

VC Activity Heats Up in Flurry of Deals By SHELLY GARCIA Senior Reporter Four separate venture funding deals closed in the greater San Fernando Valley in the past two weeks, bringing about $30 million in new financing to the area. The moves come as venture capital funding activity picks up across the country and reflect what many say is renewed optimism in the funding markets. “It’s definitely picked up,” said Jeff Crowe, venture partner at Norwest Venture Partners LLC, a Palo Alto company that has just invested in 5Square Systems Corp., a Westlake Village-based software developer. “You’re seeing more potential investments, more small companies looking for investments than a year ago. You’re seeing better companies with better management teams.” 5Square, which provides auto dealers with software and services designed to quicken and simplify the car buying process, received $12.3 million in a round led by Norwest and Storm Ventures. Encino-based TechnoCom Corp., a developer of technology that enables carriers and others to determine the location of cell phone callers, received $6.7 million from a VC team led by Timeline Ventures in San Diego. Ascendent Telecommunications of Encino, a developer of switching technology that connects mobile communications systems to the main communications hub, was reported to have received $7 million. (Ascendent officials declined comment.) Finally, Sherman Oaks-based InQ, which develops live-chat technology for e-commerce companies, closed a $4.5 million round led by Dolphin Equity Partners LP and Hudson Ventures. Venture funding fell precipitously after the Internet bubble burst in 2000. The failure of many of those businesses, a shutdown in capital spending that closed many markets to new products and the virtual disappearance of the IPO market, which cut off exit strategies for would-be investors, led VCs to retrench some even returned investments already in their war chests. “When the market burst, many of the VCs were spending much of the time focusing on investments they already made and figuring out what to do with them,” said Kris Kaufmann, a partner at Deloitte & Touche USA LLP. Now they’ve worked out a lot of the problems in their portfolio and they’re beginning to focus on new investments.” While spending overall continued to drop last year, the decline has slowed, according to the “Money Tree Report” published by PriceWaterhouseCoopers LLP in partnership with Larta Institute, a technology think tank. VC funding in Southern California totaled $1.7 billion in 2003, down 22 percent from the $2.2 billion invested in 2002. Investments along the 101 Corridor in 2003 totaled $207 million, down from $215.6 million in 2002, the data revealed. “The pig is through the python,” said Randy Churchill, director of business development for the PricewaterhouseCoopers. “There’s a wealth of good management talent available. There’s good technology and capital expenditures are coming back.” Different strategy What gets financed, however, has changed dramatically since the heady dotcom days when a business plan scribbled on a napkin could command millions in funding. Today most of the companies that succeed in getting funded already have customers and a revenue stream. Consider TechnoCom, a nine-year-old company that started in its founder’s kitchen and plans to use its new funding for expansion of its products and its sales activities. “For nine years we have been revenue producing and profitable,” said Masoud Motamedi, president and co-founder. TechnoCom provides the technology needed for 911 dispatchers, paramedics and agencies like the California Highway Patrol to determine where a cell phone call is originating from so that it can be routed to the closest emergency assistance location. The company counts among its customers seven of the 10 largest telecom carriers, and an FCC mandate that requires different agencies to adapt these systems promises to expand the market further still. “What is happening now is these location systems being used to provide e911 services are becoming operational,” Motamedi said, “Part of our offering is to look at the quality of service and the operational issues and our software is geared to do exactly that. I believe that was a big factor.” Market forces also played a role in the story 5Square had to tell its investors. With greater parity in car quality between manufacturers, many dealers are now turning to the in-store experience as a way to differentiate themselves from the competition. 5Square’s products help to accomplish that by making the car-buying experience easier and faster. But officials say that the overriding elements in the company’s story were the customers already using its products, and a management team that includes members who not only have first-hand prior experience in the auto industry but have also successfully developed and sold startup technology companies in the past. Among them, Yuri Pikover, chairman and CEO, was a co-founder of Xylan Corp., which was sold to Alcatel for $2 billion. “We had at least seven or eight VC firms that were excited about investing with us,” said Douglas Hill, who heads the company’s marketing efforts. “We have a chance to be the dominant player in our industry, and they can’t afford to invest in somebody that’s going to be No. 2. Second, it has to be a large space and automotive retailing is a $65 billion a year industry. And the third thing is we had a team with a proven history of success.”

LETTER Valley-Wide Consensus? I enjoyed Shelly Garcia’s interview of Joel Simon, the new chairman of United Chambers of Commerce (March 15). Simon has outlined the serious problems with workers comp and the business tax faced by businesses in the Valley. It is his job to try and coordinate a consensus among the 23 chambers of commerce in the Valley to bring about meaningful reform. That’s a near impossible task, what with each chamber adhering to its own strategic plan, many focused on local issues, and many involved in fund raising. With costs rising to do business, Simon would do better to focus on creating one new valley-wide chamber of commerce. Imagine businesspeople like Flip Smith, Ricky Gelb, Jill Barad, Mike Quiroga, Ken Banks, Guy McCreary, Susan Harris, Les Himes, Art Ginsburg, Bob Robertson, Paul Davis, and Stanley Bryant, coming together, working and participating in one new chamber of commerce. These people know too well that business is the engine that drives the local economy. Under one roof, you will have a cutting-edge chamber of commerce leading the way in new business thinking. We need a new San Fernando Valley Chamber of Commerce. Joe Hooven Burbank

Local Finance Climate Improves By SHELLY GARCIA Senior Reporter Bankers are flush with cash. Stocks are gaining, and the IPO market is resuscitating. Could it be that good times are returning to the finance markets after several lumbering years? The Business Journal convened a group of investment bankers, attorneys and financial officers to try to answer the question. The panelists, Douglas R. Gonsalves, managing director of The Spartan Group, an investment banking firm in Glendale; Gordon Gregory, managing director of Mosaic Capital LLC, investment bankers in Sherman Oaks; Eric Larson, CFO, 5Square Systems Corp., a Westlake Village-based firm that recently completed a $12.5 million funding round, its first; and Brent A. Reinke, a partner at Reed Smith LLP, whose practice focuses on M & A; all agreed that the climate is improving, more for some types of companies and some types of deals than for others. Question: Expectations were high as we entered 2004 that the M & A; and finance markets were due for a strong rebound. What is your read of the climate as of the first quarter of the year? Reinke: I think there was an expectation that there was going to be a greater increase in activity than there has been, but I think it has picked up. I’m also seeing a lot more discussion about M & A; activity. Is it really turning into an M & A; transaction? Not yet, but I think a lot of people are talking about doing or wanting to do deals. Gonsalves: I think it has so much to do with the stage of the company. If you’re a $40 million or $50 million company it doesn’t get any better than it’s been over the last twelve months. Now that’s a pretty narrow window. Earlier stage companies I think it has been very difficult. If you look at the numbers that are coming out in Hart-Scott-Rodino filings, (required for mergers of a certain size) those are up 40 percent, in the first quarter from last year. So it’s a pretty bullish sign. Q: Why do you think there’s been more activity with the larger deals? Gregory: You have a huge pent-up demand of buyers, not only strategic buyers but private equity buyers and one of the takeaways from the private equity conference I attended Thursday was they’re now looking at internal rates of return in the 12 percent to 14 percent range, which is staggering, because there are so many buyers. There’s five buyers or 20 buyers for very seller. Now the question would be where are the sellers? We’re not seeing a lot of sellers today. Larson: I think there’s still a gap between expected valuation from buyers versus sellers. Just from speaking to other smaller, privately-held owners of businesses, what they think their business should be worth, what they think they can do over time and, if they’ve made it through all of this, they believe the upside is still in the next two or three years and they believe they should be paid for it versus the buyers. Until that gap comes together there’s going to still be a wait-and-see attitude. Q: What dynamics are you finding in the VC arena? Larson: I would say things have gotten better than what we’ve seen over the last six or nine months. If you’re a good company where you’ve got a seasoned management team, product that you can show works, there is a lot of interest and things are moving much faster than they used to. If you’re a startup that’s got maybe some first timers on the management team you’re still going to struggle. We’re fortunate in that we have a seasoned management team. Everyone’s done it before. And even with that, (we waited until we launched our product,) we knew it was going to be difficult until we had customers that the institutional community could call up and make sure the product really does what you say it does. Gonsalves: I think the VC market is only beginning to recover now for early stage. If you look at the VC market and you look at how capital is being deployed, you’ve got a bunch of VCs that look more like the private equity funds. They’re doing “C” and “D” and “E” rounds (advanced stage funding), but they’re not touching “A” and “B” rounds, and so there is no access for most companies to early stage capital right now. Reinke: (Angel investors) are saying they are seeing better deals now by far than they’ve ever seen before because a lot of the deals they’re doing were deals the VCs used to do. And even (angels) will not invest in a company for the most part unless it’s got a revenue stream and some customer validation to reduce the risk factor. Q: There have been more IPOs in the first quarter of 2004 than in all of 2003. How are those companies doing? And is the volatility we’ve seen in the stock market going to catch up to the IPO market? Gonsalves: How are they doing? Mixed. Is it going to catch up? If there was a correction in the public equity market does that kill the IPO market, we don’t know because the IPO market has so lagged. It’s now just starting to get some momentum, and it’s not open very wide. Q: What are some of the differences between the funding markets now versus the bubble of the late 1990s? Gregory: I talked to one fund that specializes in the food sector and for one of their funds that’s got about two years left they made a decision to return capital to their partners because (they found no investment opportunities) they have the next fund going and they did not want to do anything that was adverse to the interest of their investors. Gonsalves: Twelve to 14 percent internal rate of return hurdles are unprecedented for private equity. And it’s just supply and demand. I don’t think these guys are pleased to see their return hurdles dropping, it’s just that they have no choice. They have to deploy the capital. Q: First quarter earnings so far are looking good. Do you see the performance coming from continued cost cutting or from real growth, and how are improved earnings affecting the M & A; picture? Gonsalves: That’s the question. Is this the end of the cost cutting efficiencies running through the cycle or is it good healthy businesses that are starting to grow? I don’t know how that’s going to shake out, but I think it does play to the M & A; equation. If things continue to progress, they’re going to start looking to revenue growth and if they do that M & A; becomes one of your key tools in generating revenue growth. Q: Have exit strategies changed for investors since the bubble? Larson: I think now in the conversations it’s make sure you’re setting the company up not just to be a product but to be a true company, to be a standalone company you could take public and have a management team in place that could handle it. So I would say your exit now could be both (acquisition or IPO). Gregory: Plus if you’re planning early you can make yourself look just like what they want to own. For example this company we’re preparing for sale we’re putting in a new distribution center. We know the distribution centers for the three most likely buyers. We’re going to look just like a plug and play when we’re done. We want to make this as easy to be acquired and that reflects in value. Larson: I will tell you that in the raising money circles where your power point presentation would have focused on what are the exit strategies, what are the comps, what are the privately acquired at what price, I think the financial community is much more interested in the operational issues. We’ll figure out the acquiring group of companies once we know we’ve got a profitable cash flowing company. For you to come in and say our goal is to set ourselves up so we can go in to the Cisco sales channel and be acquired for $200 million, or whatever, they don’t want to hear about it. (Investors want to know) what is the highest probability that you are going to be a cash flowing good company before the cash runs out? That’s all they want to talk about. Reinke: Maybe when you get to that middle stage and you’ve got cash flow then (investors say) let’s start planning an exit strategy. Larson: At some point in time you do have to cross over into that and it does have to be a concern but I would still say public companies aren’t doing diluted deals. It still has to be accretive; it’s got to be a cash flow company. So I still think even in a little bit later stage, which is where my last company was, it still is very much focused on let’s get this thing so an acquirer would say this is accretive on day one. Q: There has been a lot of discussion about the concentration of VC activity in Northern California and to the South in Orange County and San Diego. Do you think for companies seeking investment that it matters where they are located? Reinke: What will happen with a lot of companies we work with is even if they have great technology, great management, the VC will come in and say we’re really interested but you need to go up north or relocate to San Diego because we don’t feel this area currently provides the infrastructure you need to take this company to the next stage. And the only way you get there is by having companies establish themselves here, developing a talent pool and then having it regionally based. So it’s been particularly hard to keep some companies in this area on that basis. Larson: The 101 Corridor does have some successes. Maybe not anything similar to Broadcom in Orange County, but I’ve been with several companies now along that area and you do see more startups; there is a talent pool. I still will tell you we’re still spending 50 percent of our time up in Northrern California. There is a larger venture community up there. We have an engineering development facility that we keep up north, and there is a little bit larger specialized engineering talent pool and there is still that north versus south thing, and sometimes getting engineers to come down is not easy.

Dynamic Duo Battles Showbiz Valley Writers Break Through With Eye on Pop Culture By JEFF WEISS Contributing Reporter Screenwriter Brent Goldberg is lanky and dark haired. His writing partner David Wagner is approximately half a foot shorter with light hair. Goldberg’s epiphany that he didn’t want to continue doing standup comedy came after he bombed at a Santa Barbara comedy club after having had a twelve pack of Natural Light beer. Wagner’s first brush with fame came in 1984 when he won that year’s Best Male Vocalist award, on the long since canceled television show Star Search. While both are affable, quick witted and prone to bursts of sarcastic banter, Goldberg is more extroverted, while Wagner prefers to speak in clipped soundbites. Wagner specializes in organization and the proper way to structure a screenplay. Goldberg, the former standup, had no idea that movies required anything more than a plot line and some humor until his post-graduate screenwriting program at UCLA. One might wonder how this quintessential odd couple might have melded to have become one of Hollywood’s hottest young screenwriting duos, but perhaps their strength lies in each other’s ability to balance out each other’s weaknesses. They might not be household names yet but something is working for the Valley-raised pair and they appear headed toward achieving the success that many of the thousands of writers in Los Angeles only can dream about. Since the release of 2002’s “National Lampoon’s Van Wilder,” they have received steady work, penning “Girl Next Door” which was released last week, the soon to be released “Underclassman,” and are currently slated to write a college-themed screenplay for Adam Sandler’s Happy Madison Productions. seems uncertain. The Guild has had two presidents resign this year alone and negotiations began last week toward a new deal with the studios. Though talks aren’t expected to get as heated as the last time the guild negotiated in 2001, many expect to see pitched battles over health care, DVD sales rights, and the lack of residuals allotted to TV writers. Goldberg and Wagner agree that writers still must battle for greater respect in the industry. Although the idea for a film always begins on a blank page on a writer’s computer screen, most of the praise for a successful film is lavished upon the director. “Writers have gotten the least amount of respect out of all the people in the medium, which is unfortunate because obviously it all starts out with the blank page and without that there’s no movie. It is a director’s medium, the writer is constantly trying to gain power and gain control and it’s tough,” Wagner said. “It’s gotten a little better but it’s not near what it needs to be, as far as getting invited to the set, being involved in collaboration after you turn in the script, with studio execs and the directors. It’s a constant uphill battle for writers to get the respect that they deserve.” Valley residents Wagner lives in Woodland Hills and Goldberg lives in Sherman Oaks. “We go to write at The Coffee Bean all the time and there seems to be an endless amount of people there who we went to high school with who are screenwriters and everyone has really great ideas. It seems like a flourishing idea to be a screenwriter and everybody wants to be it,” Goldberg said. “But it seems like there aren’t a lot of jobs. The supply seems to be not as high as the demand. I feel we’re lucky and really blessed to have this kind of opportunity.” Both writers attended Woodland Hills’ El Camino High, the 31-year-old Wagner one year ahead of 30-year-old Goldberg. After high school Goldberg attended UC Santa Barbara while Wagner went to Cal State Northridge. Though both went to El Camino, it wasn’t until the pair had graduated from college when a mutual friend introduced the two aspiring writers. Quickly, they noticed that each other shared an admiration for the same films and both loved to write. “When I graduated high school, I went to Santa Barbara and whenever I’d come back I’d wait tables. I worked at Domino’s, Maria’s Kitchen, Star Caf & #233;, Mimi’s and several others. A total of seven restaurants and I got fired at every one,” Goldberg said. “I’d do that while I was writing. I’d work the day shift, go to David’s and write, work the night shift and come back and write. And in the meantime he’d come in and tip very poorly. That’s why he’s a rich man right now.” Like a couple of sarcastic brothers, the two mock squabble back and forth. “How would you like it if your buddy, your writing partner comes in, and you can’t even get a free drink?” Wagner attempted to defend himself. “It’s not my fault. He’d bring in girls and boss me around. He’d yell ‘I said extra sauce amateur!”‘ Goldberg asserted. Wagner’s final verdict on Goldberg’s hospitality: “Thank God you could write because you couldn’t wait tables.” Early trials Hollywood is notoriously tough to break into, as Wagner and Goldberg wrote several scripts that languished in the huge mountains of dead ideas that decorate the average agent’s office. Their breakthrough came in the satire, “Saving Ryan’s Privates,” a short film about a band of brothers searching for a fallen comrade’s genitals. While the Academy didn’t come calling, it became one of the most downloaded films ever on the Internet, generating significant amounts of buzz. But before finally landing an agent whom they trusted, the pair witnessed firsthand the lack of devotion some agents have to their clients. “When we started off, our lawyer hooked us up with an agent at ICM. What he did was called hip-pocketing. No papers were signed and it was only a verbal agreement, they try to sell you to the studio,” Goldberg said. “I remember walking in, wet behind the ears, and seeing scripts from floor to ceiling. I asked what that was, he said, ‘my weekend read.’ He probably doesn’t even read them all, his assistant reads them. That’s a lot of dead trees. That agent eventually stopped calling.” Tired of being unknowns in a town where even the busboy waiting on your table seems to have a screenplay lying around, the pair decided to forcibly shape their future. Though their agents and lawyers advised against it, the two wrote Van Wilder on spec, hoping that a studio would pick it up and target it for development. Years later the film was made, though the writer’s only pocketed a mere $7,500 between the two of them, not accounting for taxes, lawyer, and agent fees. “We were excited to get to write something. Even though we got paid like $5 each for the movie, we had a great time doing it,” Wagner said. “We weren’t even in the Writers Guild at the time. But we were huge fans of (actor) Ryan Reynolds. He always wanted us on the set to throw out one liners and give ideas. It was a great experience.” Goldberg and Wagner chalk up their good fortunes to a variety of converging circumstances. “It’s a lot of good luck, fortune and hard work coming together. It’s so tough to get a movie made. Even the worst movies in the world took some really talented people and hard work to make it a terrible flop,” Goldberg said. Van Wilder established the pair in the business, eventually leading to the purchase of their previously written script, “Girl Next Door.” Currently, they are finishing a script for Happy Madison Productions and another for an animated feature from Dreamworks called “Jive Turkeys,” starring Eddie Murphy and Chris Tucker. “They’re passionate and great listeners and pop culture geniuses. I really believe that they have a handle on what the next generation wants to see and what’s funny and that’s rare to be in their early 30’s and to know what drives the next generation,” Andrew Panay, a producer at Tapestry Films said. “They know how to set trends. Not to mention that they are gifted writers as well. They give the audience what they want, they aren’t afraid to embrace what the audience wants to see.” Perhaps Goldberg best summed up the amount of dedication it takes to succeed in a business where failure is the norm and success the anomaly. “I think you need to persevere. When my mom kicked me out of the house and told me to find a real job, I kind of made a decision that writing is what I want to do,” Goldberg said. “I told myself, I’m going to do whatever it takes to keep writing and to keep working. I think that everyone will find their talent and if they push forward they can be successful.”

Wells to Open Sundays Wells Fargo on April 11 began operating two of its Northeast San Fernando Valley bank branches on Sundays to better serve the Hispanic community, officials said. The bank’s full service locations in Pacoima and Panorama City, which provide a range of services including mortgage lending and investment products, will be open from 11 a.m. to 5 p.m. on Sundays. Competitor Banco Popular several years ago decided to operate its Panorama City branch seven days a week in hopes of attracting its check cashing customers to the bank’s other services. But the extended hours were eliminated after a year because the bank found its volume of business on Sundays was not sufficient to justify the added cost. “We never saw the traffic materialize,” said Vernon Aguirre, California region executive for Banco Popular. Aguirre added that the bank’s check cashing services, which remain open seven days a week, continue to draw a lot of traffic on Sundays. Wells Fargo on May 1 will also expand its Saturday hours to 9 a.m. to 4 p.m. at all its Northeast Valley locations, including Pacoima, Panorama City, San Fernando, Van Nuys, North Hollywood, Granada Hills and Northridge. “Latino banking consumers in the Northeast Valley have traditionally been under-served,” said Marla Vasquez, district manager for the Northeast Valley. “We hope that the expanded weekend service will send the message that Wells Fargo is actively seeking their business.” Shelly Garcia