BW Online | December 16, 1999 | Spreading the Fast-Finance Culture: Garage.com Goes to Europe

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DECEMBER 16, 1999

FINANCE

Spreading the Fast-Finance Culture: Garage.com Goes to Europe
The Internet may know no boundaries, but laws governing investment do

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Europeans have come to terms with one U.S. import after another over the years. First it was fast food, now it's fast finance. Garage.com, the online matchmaker for entrepreneurs and investors, is setting up shop in Europe to promote another American import — the high-tech startup and venture-capital culture.

Europe's tight-knit business and banking establishments aren't known for their hospitality to entrepreneurs. That doesn't faze Garage.com's executives, who plan to open a London office in January. "One of the effects of the Internet is that it is breaking down national barriers," says CEO Guy Kawasaki. "We want to create a network of 'Garages' all over the world to democratize the access to private equity." Garage.com, whose October, 1998, launch party at a Silicon Valley Mercedes dealership generated a deafening buzz, says 28 of its client startups have raised $85 million, largely through deals the company has brokered.

This will be Garage.com's second international foray, after Israel, a tech hotbed where many entrepreneurs have close ties to Silicon Valley. Yet for all the bold talk about breaking national barriers, transplanting the company's impersonal financing model — where startups hunt for seed financing by posting Garage-refined business plans online — is far from straightforward.

True, the high-tech startup boom is just taking root in Europe, and new equities markets that help VCs recoup their investments have made conditions for online matching more fertile. (Other European sites have sprouted as well, though none as well-connected as Garage.com, whose founders are prominent in high-tech and VC circles.) Still, the amount of venture money — defined as cash for equity — chasing young companies remains minuscule in Europe, though it's growing. Last year, roughly 2,400 companies divvied up some $4.4 billion of European venture capital, according to PricewaterhouseCoopers. By comparison, nearly 2,900 U.S. companies shared $14 billion, and this year U.S. VC investment is expected to double.

EVANGELIZING IN LONDON. More important, with multiple securities regimes across Europe, Garage.com, which has a U.S.-registered broker-dealer arm, can't just add local investors and entrepreneurs to its Web rosters. In fact, it won't list companies not incorporated in the U.S. To do so, Garage.com would have to register as a broker-dealer in each country from which it accepts listings. That's too expensive, says Geoff Baum, a company spokesman. Instead, Garage.com will help local entrepreneurs decide whether to incorporate in the U.S., a move that would permit them to use Garage.com's existing services. Nor will Garage.com broker investments for Europeans who want to take a chance on a company in its stable. The entrepreneur or another Garage.com-listed investor will have to bring the new investor into the deal directly. The same limitations apply to its Israeli operation.

So what will Garage.com do exactly in London? "Evangelize" about its services, to use a term popularized by Kawasaki, who once did just that at Apple Computer Inc. The idea is to build a network of European contacts. Garage.com will also export its "boot camps" — two-day seminars where 800 to 1,000 aspiring entrepreneurs can meet venture capitalists, high-tech company representatives, and other potentially useful folk.

As its European representative, the company has hired Katia Verreson, a dual French and Canadian citizen, lawyer, and founder of UpStart Ventures, a French matchmaking site. "Her company looked a lot like Garage.com, so we figured we'd better hire her or she'd be our competition," says Mary Ann Cusenza, Garage.com's vice-president and chief financial officer, who is spearheading the London expansion.

Currently, 1 in 10 of the entrepreneurs who list on its Web site are foreigners with a company incorporated in the U.S. By 2001, Cusenza expects this group to make up half of its listings. If foreign listings reach a critical mass, the company may register as a broker-dealer in Europe. "It's not lost on us that 40% of the new companies in Silicon Valley have CEOs from India, Israel, Hong Kong, and Europe," says Cusenza. "Skilled people get on a plane and go to where the meritocracy of technology rewards them." If Garage.com's vision takes hold, maybe more of them will find those rewards at home.