Title	Santa Barbara Technology Incubator: Growing a Quieter High-Tech Center
Date:	3/14/2001
Author:	Ben Fritz
Source:	DigitalCoastDaily.com

While high profile incubators like Idealab are going through the highs (GoTo.com), the lows (eToys) and the hype (New.net) in L.A., Dennis Cagan is enjoying a much calmer life 90 minutes to the north as the Chairman and CEO of Santa Barbara Technology Incubator (SBTI).

"It's nice to be a big fish in a little pond," Cagan says of his 10-month old company, which is quietly building a new California technology hub in the university town of Santa Barbara.

Cagan founded SBTI last year, after almost 20 years in retirement serving on boards and occasionally helping out in temporary executive stints. In early 2000, he decided he wanted to start a business that would take advantage of the then-peaking I nternet boom, but still allow him to stay at home in Santa Barbara. As a shareholder in Idealab, Cagan saw a business incubator as an opportunity to involve his friends and colleagues by growing new firms in his own hometown. Even at a time when Idealab looked to be on the leading edge of Internet business, however, Cagan didn't set out to simply replicate it 200 miles up the Pacific Coast.

"One of my criticisms of Bill Gross and others is that in many cases they thought up the ideas themselves," he said. "Our objective is to incubate as many independent thought-up companies as we could.

"Cagan also noted that, in a city of just under 100,000 residents, SBTI involves people from local businesses, government and UC Santa Barbara (UCSB), something he believes helps to set his firm apart.

"We're involved with over 150 people between our investors, directors, advisors, and staff," he observed, "and have a range of relationships in the tri-county area (Santa Barbara, Ventura, and San Luis Obispo Counties). Everyone refers people and we're involved with the school of entrepreneurship at UCSB."

SBTI's greatest asset, however, may be its location. The stress of starting an Internet business isn't quite so bad in this low-key city in between the high-tech, high-stress hubs of Silicon Valley and Los Angeles.

"At least once a week I get a call from somebody who is thinking of moving here from L.A. or Silicon Valley," said Cagan, himself a Los Angeles refugee. "Most of the people are young, have families, have earned a little money and want to go somewhere they can stay for the rest of their lives.

"SBTI launched with a seed round of $6 million, and has since raised another round bringing its total to $7.5 million. That money has so far found its way into five companies, three of which are independent firms being incubated by SBTI.

One of these firms is Ants.com, which was founded prior to SBTI but is being incubated there. The start-up makes a contact management tool called Scout, which allows individuals and businesses to automatically organize and update address books. A second firm, Epidemic Networks, which has yet to launch, is a P2P network based on open source code and standards that Cagan says will be designed for a variety of file types beyond music and movies. The third company is Virtual Bandwidth, which is developing software Cagan promises will allow users to get the maximum speed available on their Internet connections, whether they're on a 56K Modem or a T1 Line.

Santa Barbara Technology Group (SBTG), SBTI's parent, also holds Santa Barbara Technology Properties (SBTP), which is building a new 26,000-square-foot, wired building set to open by the end of this month. SBTP will house SBTI's companies, as well as others who have, as Cagan says, "a business plan and the first month's rent. " SBTP is much more than a landlord, though. One of the conditions for getting housing in its space is that SBTG will take a 10 to 20 percent equity stake. "This will allow us to pick up small pieces in a broader range of companies than we can incubate," Cagan said. "And maybe as they move along we can invest in them or not.

"The final piece of the SBTI puzzle is the New Entrepreneur Venture Fund (NEVF), a VC arm for which Cagan is loathe to provide details, but which he says is filing for three business process patents. He would only reveal that NEVF will invest worldwide, that it is currently in a research phase and is gathering together the money for the legal costs of raising what Cagan hopes will be a fund of at least $100 million. NEVF's website, however, describes it as: "The first venture fund for the next generation of technology investors: university and college students."

For all of its companies, SBTI acts as what Cagan calls, "the fullest version of a full-service incubator." With its staff of 10, plus some interns, SBTI handles accounting, finance and legal issues, as well as business development, technology, Web design and marketing. Cagan also takes advantage of his own connections and those of SBTI's board of directors and board of advisors, made up of businessmen and UCSB professors, to put the executives of his company in touch with the people who can help it grow.

That philosophy is heartily endorsed by Ants.com Founder Jason Carmel, who says SBTI has taken his company a lot further than it could have gone on its own.

"I think the negative press about incubators in general is really a misidentified trend," he says of his experience with the process at SBTI. "SBTI has just been a golden rolodex when it comes to making connections to get smart people or smart money. Without them, we would have a made a lot more mistakes, had a lot more expenses, and hit a lot more dead ends. But by associating with SBTI, we've been able to avoid a lot of the pitfalls that have taken their toll on our industry.

"Cagan said he expects SBTI to invest in another five companies this year, and is especially eager to move into wireless, optical networking and ASP firms. Because his company provides so much in the way of business services, for Cagan it is mostly a matter of finding the right idea. "The most important thing is to get a good idea in an area we can really do something with," he stated. "We've done a huge amount of heavy lifting in terms of management and getting good management teams. That's the toughest job, but we knew that going in."

SBTI branches in San Luis Obispo Country and around Westlake Village are also possibilities. But, just like the town he lives in, Cagan says he wants to keep things low-key and at their present scale, rather than going overboard with big ideas for growth.

"The scale we're at is good," he said. "Any incubator that opens thinking it will one day go public needs to spend a few bucks on a good psychiatrist."