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The Honolulu Advertiser
Posted on: Tuesday, October 1, 2002

HI. TECH
New math of Hawai'i's technology backers creates credibility problems

By John Duchemin
Advertiser Staff Writer

Hawai'i technology on Hawai'i Public Radio
Hear The Advertiser's John Duchemin on the latest Hawai'i technology news. (RealPlayer required.) He can also be heard every Wednesday on Think Tech Hawai'i, 5 to 6 p.m. on Hawai'i Public Radio KIPO FM 89.3 with hosts Jay Fidell and Gordon Bruce.
As Hawai'i technology backers work to gain support for their still fledgling industry, they occasionally use numbers to paint a rosy portrait of a blossoming tech community.

Sometimes, these statistics are a stretch. One example is the figure disclosed last week that $600 million has been invested in local technology companies.

By local standards, $600 million is a heck of a lot of money. This new figure, however, becomes far less majestic under close examination.

John Chock, director of the state's venture funding arm, said the $600 million represents the "cumulative available venture funds" in Hawai'i. Both the number and the description are misleading.

First, more than $300 million of that takes into account large investments in two companies that are doing very little business in Hawai'i.

Digital Island, which in the late 1990s raised $80 million through local channels — and then moved to Silicon Valley — only maintains a network operations center in Hawai'i with a handful of employees. Pihana Pacific, an Internet data center company that raised $240 million in 2000, spent the vast majority of its cash building a network in Asia; in Honolulu it maintains a titular headquarters and a small, and still mostly empty, data center near the Honolulu Airport.

Taking out the $320 million represented by Pihana and Digital Island, the investment total drops to $280 million. But much of that money was already invested years ago. To further muddy the waters, the $600 million figure not only includes money that already has been invested, but also "available" money: dollars that are committed to venture funds, but that haven't been put in a company.

So how much is actually "available" right now — as in, committed to venture funds that are exploring investments in Hawaii? No one seems to know, but it's clearly not near $600 million.

This lack of good data creates several problems, all relating to credibility.

One of the reputed obstacles in Hawai'i's struggle to build a tech industry has been a dearth of investment dollars. But until we can say for sure how much is being invested, we have no idea how successful business and government have been in addressing that issue.

There is no regular report showing the venture capital dollars invested in Hawai'i in the past quarter or year. Those in position to collect that data, such as Chock, say that's an impossible task because local venture firms haven't disclosed enough information to create credible reports.

More seriously, it's just not accurate to say there's $600 million invested in Hawai'i tech, let alone imply that it's somehow "available."

To Chock's credit, he always emphasizes the flaws in the $600 million figure and says he wishes he had better data. But his statistics have been misused by others to imply that multimillion-dollar investments are frequent in Hawai'i.

This misperception is unfortunate, because it can obscure some of the very real progress being made in the industry on a smaller level.

A recent $1 million investment in Kailua company AssistGuide seems like nothing when you compare it to $600 million. But that AssistGuide investment is one of the few real venture investments in Hawai'i so far this year.

Company founder Kevin Sypniewski is rightfully proud to get that money, having worked hard to get funded in an unfavorable money-raising environment. Other entrepreneurs could be inspired by his success, if it's not hidden behind a cloud of fantasy money.

Reach John Duchemin by e-mail at jduchemin@honoluluadvertiser.com or by phone at 525-8062.