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SXSW: The Startup Shuffle

The annual South by Southwestgathering has plenty of success stories to crow about, but getting a big break here is harder than ever these days.

SXSW Festival 2011
Source: sxsw.com
SXSW Festival 2011

The show, dubbed "geek spring break" by some, has grown beyond its music and film roots to become a gathering spot for venture capitalists and some of the biggest stars in the tech world. But as it has grown, it has become more difficult for startups to turn heads.

That's not stopping hundreds, if not thousands, of companies from pitching their latest apps, services and more all around downtown Austin. It's hard to walk 20 feet without someone thrusting a flyer, sticker or sponsored cup of beer into your hand. And even if you dodge those, you're likely to walk into the middle of a startup-sponsored pillow fight or some other outrageous stunt meant to turn heads.

It's a bit reminiscent of the height of the dot-com boom, in some ways. Companies who have secured angel investing are doing whatever they can to grab the attention of show goers, who can spread buzz via Twitter and other social methods, and venture capitalists, who can help take them to the next level. Many are doing both.

Wines.com, for example, which is aiming to be a Yelp-like service for oenophiles, is offering free wine tastings just a stones throw from the Austin Convention Center. The goal: To build the company's customer base before it begins the search for a new round of capital. At the same time, it hopes to use SXSW-goers as its marketing force throughout the country.

"My goal is to have as many people register - and take it home - as possible to create a buzz and create a small group of evangelists in other cities," says Alex Andrawes, founder and CEO of the site's parent company Pervino, Inc.

From a VC perspective, the rush of companies competing for attention is a good thing. Not only does it give them more to choose from, it gives them insight into how the management team chooses to make a company stand out from the crowd. Given how competitive certain areas —such as group messaging (this year's dominant theme) and location-based apps — can be, what might seem like silly SXSW antics can be a good indicator of a company's sense of marketing.

"My sense is that it's more robust than ever," says Brad Feld, an early stage investor and co-founder of Foundry Group. "While the 'stand out from the crowd challenge' always increases, I think that's a good thing as it stimulates everyone to raise their game. More importantly, the density of amazing smart and creative entrepreneurs in one place for four to five days is incredibly powerful."

There is certainly an abundance of smart entrepreneurs here. Still, not every VC is convinced.

Some think SXSW may be at the end of its run as the birthplace of the next big thing – and are curious to see where the startup world turns to next as a launching pad.

"Every trade show seems to run it's course and have hot periods that last 4-6 years," says Jeff Bussgang, general partner at Flybridge Capital Partners. "DEMO, CTIA, TechCrunch, CES all have had their moments in the sun and now it's SXSW's turn. The trick for start-ups is to find the next SXSW where they can stand out and launch with a splash."

Questions? Comments? TechCheck@cnbc.com