Ron Bianchini and Michael Kazar started Spinnaker Network Solutions, which was acquired by NetApp in November 2003 for $300m. Spinnaker’s flagship product was SpinServer, a clustered file system that allowed 512 servers to provide 11,000 terabytes (11 petabytes!) to appear as a single file system. By many accounts, SpinServer “was a dead product once NetApp got a hold of it”, and many users reported a complete lack of support for the product.

In 2008, Ron and Michael started a new company, Avere Systems. Avere is still in semi-stealth mode, revealing only that they are developing “NAS solutions that would allow enterprises to scale storage network performance independently of capacity.” Rebecca Thompson, VP of Marketing, said they weren’t ready to talk, but StorageMojo did some digging which may help shed some light.

The title of their SNW talk SSD or HDD? How to Get the Benefits of Both with Dynamic Tiering offers some clues.

At the web site they have a picture of what might be a 2-3u rackmount box. So they aren’t a strict software play, although “tin-wrapped” software is something many customers find appealing.

They are also showing at SC09, the supercomputing show. That suggests a focus on bandwidth rather than IOPS as well as the less lucrative research markets.

Avere has already raised a whopping $15m in November 2008 from Norwest and Menlo Ventures, both of which had previously invested in Spinnaker. (Both of these firms list Avere in their portfolio, but this amount hasn’t been disclosed to my knowledge outside of the SEC filing).

Obviously, given their industry experience and past success, it’s not a surprise that Ron and Michael were able to raise a significant sum of money. At the same time, this is a lot of money for a Series A and certainly suggests to me that the idea has a hardware component to it (that is, something more than just off-the-rack NAS storage).

The Register believes that they have “developed a system which attempts to combine the performance of solid state drives with the low cost of hard disk drives in an architecture that dynamically tiers data onto the most appropriate media”. That said, I don’t see much evidence for this beyond what StorageMojo dug up – so that’s probably just a guess, albeit an educated one.

So, what is Avere up to?

As reported recently, ShowClix has raised an undisclosed round of funding from Pittsburgh Equity Partners.

ShowClix is an online ticketing company that provides performing arts centers, nightclubs, live music venues, and colleges and universities an affordable way to sell event tickets online, over the telephone or in-person through a point-of-sale/box office system. Live Nation Entertainment, the result of a merger between Ticketmaster and Live Nation earlier this year, is obviously the 500 lb. gorilla in the market. Even with this additional funding, ShowClix has an uphill battle to fight – but it’s not like there’s a lot of love lost for Ticketmaster. It seems like they are on the right path, focusing right now on affordable solutions for smaller, less traditional venues.

According to ShowClix co-founder Joshua Dziabiak, the round “ultimately totaled between $750k and $1.5m”, though as of last week it looks like $570k (out of $850 total) had been secured. Unfortunately, we don’t know more than this – the filing does not reveal who the other investors were, if any.

They intend on using the money to aggressively expand headcount, “hiring account managers, sales people, customer service reps and a COO” by the end of the year, as well as relocate from their Oakmont offices.

This is, to my knowledge, the first investment made by Pittsburgh Equity Partners. PEP is an early-stage venture firm that come out of a competition created by Innovation Works, Carnegie Mellon, Pitt, and the PA Dept of Community & Economic Development.

It is not clear whether Innovation Works, who has put in $400k collectively in previous rounds, has participated in this round – but given their goal of creating jobs in the region, it certainly wouldn’t surprise me.

In a previous post, I discussed the paradoxical issue where VCs were generally doing fewer but larger deals despite the costs of creating a successful business being much lower.

Adeo Ressi predicts that this trend will start to correct itself in the second half of 2009.

Venture capitalists have started pumping their remaining capital into hundreds of seed and early stage deals, looking for the next big thing. Dollars invested in these opportunities have already jumped from $893 MM to $1.49 billion between Q1 and Q2 of 2009, and there will be more increases in both Q3 and Q4.

Early stage companies have strong prospects of raising significant capital in a “make it or break it” round. Venture capitalists are offering more cash up-front with fewer chances for follow-on investments. The average early stage deal size jumped from $4.1 million to $5.6 million in the first two quarters of 2009, and this number should increase to around $6 million for the remainder of the year.

If a funded company needs more money without achieving significant market traction, the remainder of 2009 will be difficult. More than 50 percent of venture capital portfolio companies will be left with insufficient capital to operate. Many of these companies will be gutted and put into “life support” mode or sold off to competitors for stock, allowing venture capital firms to maintain inflated portfolio valuations. Any acquisitions that generate precious cash will get pushed through at historically low returns of less than 2x, like the recent story of Mochi Media.

Well, sort of. Early stage is, of course, relative. The fact that these “early stage” deals are 35% larger on average only means the gap between seed and institutional money is widening.

Still, for the viability of the venture capital business, this is probably a good approach. Given the high rate of failure even among well-funded companies, it seems like a better strategy to have $30m deployed over 6-12 companies as opposed to just a handful.

Ultimately, it will be interesting to see how this trend affects VC expectations. On one hand, more money and higher valuations usually come with higher standards for the state of the business. On the other, it’s possible that it may become easier to raise money if the VC firm is committing less money over the life of the deal, even if they are putting more upfront. If a company can truly “make it” without follow-on rounds, this will also mean less dilution for the founders and employees.

Believe it or not, great tech business can – and are – sometimes built outside of Silicon Valley. No, seriously.

During a recent Founder Institute talk, Adeo Ressi said that if he started a company in NY and someone started an identical company on the West Coast, the NYC company would be worth 1/5th or 1/10th. The idea that any business not started in Silicon Valley is automatically inferior is ridiculous – as is the idea that simply by starting your business in Silicon Valley that it will automatically be worth that much more.

Silicon Valley champions love to point at the number of big companies that have come out of Silicon Valley, but looking at this statistic alone ignores the fact hat there are more businesses period started in Silicon Valley. This also means there are an order of magnitude more failed businesses and bad deals in San Francisco. Fred Wilson attacked this fallacy in a recent post:

Let’s look at the facts. Seattle has produced Microsoft and Amazon. Boston has produced DEC and Lotus. Austin produced Dell. NYC produced Bloomberg and Doubleclick. Europe has produced SAP and Skype. I’m doing this at 5am on my blackberry on the redeye because I can’t sleep so my examples are what I can muster at this moment. I could do better with a clear head and an Internet connection.

But the point is this. Not every great tech company comes out of Silicon Valley and you don’t have to be there to be a successful entrepreneur.

The West Coast clearly has certain advantages, but it’s important to recognize that you’re trading one set of problems for another. As Fred put it, “[f]or all the benefits … like density of great engineers and VCs, you have negatives like hypercompetition for talent and the creative cost of living in an echo chamber” – and of course higher costs talent and office space and related expenses.

The thing that really bothers me is when others give prescriptive advice that you “must” start or move to Silicon Valley in order to be successful. Giving advice like this while blindly ignoring the context and circumstances is a disservice to budding entrepreneurs. Your network is the most important source for building a great team (and thus business); if you have a great network in Pittsburgh or Ann Arbor, you’re probably going to have better luck attracting and retaining talent there than in Silicon Valley. Launching a business involves a lot of hard work and sacrifice; if your support system is in Austin, then you’ll probably find it easier to stick with it there when the road gets tough than if you’re out by yourself in Silicon Valley.

And, as Alan Warms discussed, a whole slew of services (such as Twitter) have really made it easier for people to connect with the Silicon Valley crowd even when they are not physically present. (Alan is a serial entrepreneur and investor in Chicago).

The area where we definitely were lacking in before was the whole networking game – 10 years ago you flew to the Valley at least once if not twice a month — plus you attended 5 or 6 tech conferences a year. But nowadays, with all the new collaborative technology out there — i can see what VCs in the Valley are thinking by reading their blogs and reading BuzzTracker Venture Capital — I can track the technology news by going to BuzzTracer Technology. And by commenting on these blogs and using new services like MyBlogLog you can really start to develop new relationships online.

Ultimately, I think Fred makes the point best in his conclusion:

When asked to summarize my thoughts on business models at the end of last night’s panel, I said “there’s more than one way to do it.” And the same is true of locating your startup. You can build a great startup in any of the dozen to two dozen startup hotbeds around the world. Pick a place you want to live and work and possibly raise a family. And then get busy.

Quite simply – you shouldn’t buy the inferiority complex that they’re selling. San Francisco is great, but there’s no reason you can’t build a great business anywhere. (Well, within reason). 

This article probably isn’t the article you were expecting to read; most articles with a title like this one will usually talk about how important it is to be in Silicon Valley. Rather, I think it’s important to consider the other side of this conventional wisdom.

As I wrote in the past, there are valid reasons why you shouldn’t start a tech company in Silicon Valley. Obviously, one of the key elements there was money and, in particular, the accessibility of early stage money. Given the changes in the fundraising market since I first wrote the article, I thought it would be worthwhile to revisit that discussion.

Raising money from VCs is more difficult

Even though venture fundraising was down an astounding 82% less in Q2 (with half the number of firms being raised), the reality is that many VC firms still have way too much capital to deploy. In order to realize the returns necessary on these larger sums of capital, VCs are doing fewer deals but putting in massive amounts of money, often to negative effect.

None of this is to say that good companies won’t be able to raise money – just that the traditional fundraising model seems to be changing. Because it’s cheaper to build a business, you’re expected to be further along by the time you start raising institutional money. Unless you’re a serial entrepreneur with a history of big exits, the days of raising $5m on a PowerPoint are largely gone. 

Higher expectations for seed stage

This is further exacerbated by a tighter market for seed money in the $250k-$750k range. Angel investors have gotten a lot more organized in recent years, forming angel groups that syndicate deals and allow them to move into territory that was once exclusive to the VC. On top of this, many casual angels aren’t investing in light massive losses in the public markets. Ultimately, this means that more actual money may be deployed by angels today, but at the same time the relative number of companies that are angel funded is dropping. Of course, these bigger deals come with the same higher expectations that VCs have today.

Some VC firms have launched “seed” programs that provide funding up to $250k, but the untold secret there is that the standard is even higher than a traditional Series A. The reason for this higher standard is that the VC will often spend just as much time on the small deal as the large one, even though it won’t fundamentally affect the fund’s bottom line. As a result, the VC has to be even more selective about who they commit to so early in the process. (This doesn’t apply to all such programs; some are more passive with the VC not taking a board seat or otherwise getting heavily involved).

There may be less money – but you also need less of it

In other words, your initial $25k needs to go a lot further if you want your business to have any chance of survival. With that seed money, you either need to start generating revenue such that the business will be self-sustaining or you need to cross that ever-widening chasm to institutional investment.

The good news is that, while expectations are higher, the cost of starting a business is a lot cheaper. Infrastructure costs have dropped dramatically in the last few years. Better tools and frameworks, cheaper outsourced talent and the availability of open-source software have driven down the cost of building and launching a product.

For an early-stage startup, talent and office space make up the most significant portion of your burn rate by far. Our hosting and development costs were virtually zero by comparison. I recently worked with a company that had one of the most aggressive (and perhaps unrealistic) growth plans I’ve ever seen. Even with an estimated $6,000/mo in server hosting, $10,000/mo in employee benefits and $10,000/mo in travel, over 90% of their expenses were office space and salaries.

And here’s the thing – you have the ability to control these costs, because location plays a major role. San Francisco and New York City are the two most expensive places to live in the United States which directly translates to a higher burn rate. For example, we raised around $80,000 for Notches last year. Much of this funding was used to hire an engineer at $65,000 – less than market rate in a competitive job market at the time, though perhaps still a little higher than you’d pay in San Francisco. We spent another $1,575 per month for rent on three desks in a shared office space. Without myself or my my co-founder collecting a salary, we were spending nearly $7,000 a month.

If we had started the company in Pittsburgh instead, our monthly costs would have been 30-40% less. Right off the bat, talent is at least 15-20% cheaper. Given the city’s affordability, you’re also more likely to find people willing and able to work for less relative salary and a greater slice of equity. Office space is much cheaper as well – 200-300 sq ft turnkey offices are available for less than we were paying for a single desk.

On a small $25k raise, we’re talking about an extra two months of runway for a company – a difference which may very well determine whether your business survives or not.