Venture Frogs: Startups haven't croaked

Tony Hsieh, Venture Frogs

By Allison Tom
CNN

SAN FRANCISCO, California (CNN) -- Tony Hsieh is in his own high-tech hub. He lives in a loft. He works in an office. And, he owns a restaurant -- all in the same building.

His company -- called Venture Frogs -- funds Internet startups, something few self-respecting folks, frogs or human, have been into lately.

But Hsieh says he isn't discouraged by the recent dot-com downturn. Instead, he says, there's an upside.

"We've definitely found that there are a lot of advantages of being in business and running a business during this point in time," he says, "because everyone else has such a doom-and-gloom attitude. And for us, what we see is pretty much opportunity everywhere."

QUICKVOTE Do you agree with Venture Frog Tony Hsieh that there's still life in Internet startups? Yes. Let me on that lily pad. Not sure. I'll watch from the shore a little longer. No. Let's hope these Frogs don't get run over on the info superhighway. View Results

•  Less competition.

•  More qualified people to hire.

•  And, bargain-priced computer equipment from shutdown dot-coms.

"A lot of times it's 10 or 20 cents on the dollar," Hsieh says. "Same with furniture."

Currently, he's helping Zappos.com, an online shoe store, take advantage of these new opportunities.

"It's a lot easier," says Zappos' Nick Swinmurn, "to kinda get the deals that you want done rather than kinda fighting for the deals."

Starting up to help startups

Hsieh created Venture Frogs with a friend who'd been with him at LinkExchange, a company acquired by Microsoft for $265 million in November 1998. The Frogs' main approach to business development is the "incubator" model that flared into fashion while Internet startups were in the ascendency.

In the past year, Venture Frogs reports making more than 20 investments -- each ranging in size from $100,000 to $3 million -- from a fund of some $27 million. Some of the companies receiving investment money from Venture Frogs: Ask Jeeves, Entango, NeoPlanet and Fusion.com.

Venture Frogs on San Francisco's Van Ness, combines an eatery with Internet-startup business incubation

The flavor of the Frogs' high-tech culture extends far beyond office walls.

Hsieh's co-workers meet and eat at the company's restaurant. Speciality dishes are named after well-known technology companies.

Hsieh hired his parents to run the restaurant. For them, it was a way to spend more time with their son.

"Some times I visited him," says Judy Hsieh. "He wasn't available. He wasn't there. He was on the phone. He was busy or he was sleeping by the desk on the floor. Doing this, I'm able to see him more often."

Many servers and bartenders at the restaurant are former dot-commers.

"We're getting more applications than we can handle at this time for jobs," says Richard Hsieh, Tony's father. "So, we have a very large talented pool to choose from."

Location, location, location

Venture Frogs's Incubator program -- based in 15,000 square feet of space at the Marquee Building on San Francisco's Van Ness -- frequently includes office space for a new company. So Hsieh spends some time checking out what's on the market, taking advantage of the office space and equipment now available at distress-sale prices following the demise of so many dot-coms.

Real estate agents leasing commercial properties say the market has drastically changed -- both in availability and price. By some accounts, rates have been cut in half, rolled back to where they were some two years ago.

VIDEO Companies like Venture Frogs look to take advantage of the dot-com slowdown. CNN's Allison Tom reports (July 6) Play video (QuickTime, Real or Windows Media)     RESOURCES Zappos.com's Nick Swinmurn talks about working with a business incubator to develop his online shoe-store company. Click here for Allison Tom's Q&A with Swinmurn.

That's good news for Hsieh and his colleagues, who say they plan to expand in the near future. Some offices even come fully furnished and wired.

Analysts say close to 500 dot-com's have folded since the beginning of last year. Half shut down during the first five months of this year.

Figures from industry-watching outsourcing firm Challenger, Gray and Christmas indicate the bottom may finally be in sight, in terms of job cuts in Web-based companies. Challenger reports that Internet companies cut 9,216 jobs in June, down from 13,419 laid off in May.

But even with that eight-month low figure in May, Challenger's logs show a total 74,199 people laid off by dot-com companies in the first half of this year -- 14 times more than the same period last year.

Still, some running companies that did survive -- such as the Frogs' amphibious restaurateur-venture capitalist Hsieh -- say there are still strong signs of life in the dot-com world.