Incubator eyes startups by the 'bunch'

Incubator eyes startups by the 'bunch'
Ever dreamed about striking it rich as an entrepreneur? If only you had a million-dollar idea; a million dollars or so in seed money, provided by the right millionaire investor; the right connections; and the right team of tireless startup partners.

Yeah, right. When pigs sprout wings.

Meet Frederick Giarrusso, a 32-year-old EE and financially independent entrepreneur who lives in San Carlos, Calif. Giarrusso's specialty for several years has been finding such fledglings among the tech community and training them as financiers who are capable of starting their own companies.

Armed with a PhD in engineering-economic systems from Stanford University and experience teaching courses in "entrepreneurship in high technology," Giarrusso has worked with a number of startups in Silicon Valley. For him, starting a company doesn't induce high anxiety; it's more like "been there, done that."

That's not to say that Giarrusso has lost his affection for startups. Indeed, his passion runs so deep that he has set up an incubator, Bay Enterprises LLC, to launch, in his words, "a bunch of startups," rather than just one at a time.

Giarrusso's most recent management stint for a Silicon Valley startup was as founder and chief financial officer of Rotary Rocket Co. That much-publicized venture was established to build a piloted, reusable launch vehicle for putting telecommunications satellites into low Earth orbit. Through Rotary Rocket, Giarrusso cultivated contacts with diverse engineering communities, including those at NASA and the national labs. And as CFO, he worked with the international financial community, whose scale of investment and interest in new businesses often stretches beyond that of the venture capitalists (VC) on Sand Hill Road, according to Giarrusso.

Giarrusso left Rotary Rocket in December. Rather than go into "early retirement"-the fashion these days among thirty-somethings who have made millions in high-tech businesses-Giarrusso is cheerily committed to building more startups. This time, he hopes to incorporate a few twists in the business model of his company, potentially to fill needs not met by today's VCs.

Launching a company takes more than cash and a 'brilliant idea,' says Bay Enterprises founder Frederick Giarrusso, left, who with senior vice president Shubber Ali is pursuing a new model for incubating tech startups.

One feature of Bay Enterprises that's atypical is that it's in the business of running multiple startups. Second, the incubator company intends to set its progeny loose as fast as possible and even to kill off those that fail to thrive. "Our goal is not to keep them," said Giarrusso.

"What we do here is neither a VC play nor management consulting. We will be with the startups from the very beginning, when things are very messy. We are here to get involved in their business from day one," said Giarrusso.

He plans to operate his incubator as a "virtual conglomerate." Each startup will be handled as a division of Bay Enterprises. "We first identify technologies or products. We bring together management for startups. We introduce them to partners, and help arrange financing and marketing deals," said Giarrusso. While most VCs tend to get involved after a startup is founded to help them finance their businesses, the strength of Bay Enterprises lies in "our understanding of how best to put together business plans and run a company at a very early startup phase."

So far, Bay Enterprises has two projects up and running. Neither hangs on a single, linchpin technology.

One of the projects, DataDigest, is focused on the development of a technology and product that would enable real-time, highly customizable analysis of very large databases. The project is looking for opportunities in the Internet and Web space, as well as in more-traditional businesses, like banking, according to Giarrusso.

The other startup is developing products that would conduct risk management for such clients as insurance companies. The products would assess everything from the residual value of leases to such large, one-time risk events as rocket launches (up to $500 million may ride on a single launch). The same group is also developing a risk-management tool for startups that's intended to make it easier for them to secure funding. Giarrusso is bullish on the project and said he hopes the risk-management tool might supplement venture capital or even supplant it in some cases.

Giarrusso has based Bay Enterprises' fundamental business model on his own analysis of what does and doesn't work at many startups today. He identifies "the ego issue" as the top obstacle that many startups face in pulling together as a company.

Often, he said, a CEO will continue to micromanage the business as it grows from a company of one to a company of hundreds. CEOs must understand that they can't do everything themselves, he said. Bay seeks to ensure CEOs' initial expectations are realistic.

That's because once a plan and a structure are put into place, they're "hard to rework," said Shubber Ali, senior vice president of Bay. By getting involved in a startup early on, the incubator can monitor the process and run a reality check with potential partners and investors. "It also lets us turn down a deal at an early stage," said Ali.

Further, it lets the incubator bring in a seasoned management team that can grow the venture or even put an end to it, if that appears to be the wiser move.

"Chances are excellent that most startups won't make it," he said. Thus, rather than hold on to a single business idea that may or may not pan out, it's more productive to sustain an active flow of people, deals and technologies.

A brilliant idea

"Many people who want to start up a company [mistakenly] believe a startup's success is dependent on one brilliant idea," Giarrusso said. What's more important is the "process of generating enough passion and commitment among the people who must quit their jobs to work for you" to allow you to realize your goal.

"You'll come across a lot of good ideas in your life," Giarrusso said. "The one great idea you have now isn't the only one. A lot of people tend to take an all-or-nothing approach to their startup ideas, thinking it's their one shot. But it isn't."

Hence Bay's emphasis on on nurturing good ideas, getting some deals going early on and seeing how far they can go, rather than on seeking the "perfect" business proposal.

The incubator concept isn't new. One established incubator is idealab! (Pasadena, Calif.), which was founded by Bill Gross and has developed a reputation for starting and growing Internet businesses. Alan Shugart, former CEO of Seagate Technology Inc., is also pursuing the concept via Al Shugart International. Some market watchers cite an evolving business community of "venture catalysts."

But Giarrusso claims that no one has pursued the model to the extent that Bay Enterprises has, or in the ways that it has. Indeed, he concedes, his concept "might not work," because it's untried.

He said Bay's structure reflects fundamental changes in the venture-capital community. "Today's VCs are driven to go after much bigger deals," he said. That leaves "startups needing much smaller funds and making smaller deals" out in the cold. Bay itself, borrowing from both the startup and VC models, is a genetically engineered entrepreneurial concept embodied in Giarrusso. If his concept thrives, Giarrusso won't just be catching those winged pigs anymore; he'll be breeding them.