Attracting venture capital
Getting funding is tough, but there are some ways to improve the odds.
By Jane Applegate, The Applegate Group www.janeapplegate.com
September 29, 1999
Copyright =C2=A9 1999, CNN America, INC.
----------------------------------------------------
NEW YORK - A tarot card reader telling fortunes at the recent Northeast
Venture Conference said she was astonished at how many "money" cards were
randomly picked by the folks who sat down at her table. "There is so much
money around here, it's unbelievable!" she said. That was good news for
Janet Stites, publisher of AlleyCat News, the business magazine that
organized the conference in mid-September. "Our biggest fear was that we'=
d
set it up, and then, only accountants and lawyers would show up -- not th=
e
money people," Stites said in an interview. But about 100 "money people,"
real venture capitalists and private investors, showed up in hope of find=
ing
a good deal and mingled with scores of eager entrepreneurs who presented
their dreams during two intense days of back-to-back presentations. Amon=
g
the companies that paid $995 and passed a screening process ranged from
LivePerson, which provides customer service representatives for e-commerc=
e
Web sites, to Robocast Inc., which makes a Web page jukebox.
Tips on capturing capital
Here are some highlights from the conference:
"We look at the opportunity first, then the business, then the management
team," said Roger Novak, general partner, Novak Biddle Venture Partners o=
f
Reston, Va. Novak and others on a panel of veteran venture capitalists sa=
id
entrepreneurs agonizing over their business plans should know the plan is
only good for one thing -- getting a face-to-face meeting with a potentia=
l
investor.
Panelists also shared these insights:
The best way to present your firm to a venture capitalist is to convince
someone whose company has already been funded by the firm to make a perso=
nal
introduction. This inside contact is much more effective that asking your
accountant or attorney to make an overture.
Don't e-mail business plans or executive summaries to venture capitalists
who ask to see yours. Send a hard copy, so they don't have to print out y=
our
document.
Always include contact information in the body of your plan and summary.
Cover letters often get separated from the documents. Carefully edit and
proofread the pages to eliminate typos and mistakes. Keep the summary und=
er
three pages, if possible.
Venture capitalists look for industry leaders that can quickly "scale up"=
to
meet increased sales. If you don't want to get big fast, don't seek ventu=
re
money.
The founding chief executive is often asked to step aside, so be prepared=
to
take the money and leave the management to others.
Prepare to raise money all the time
A panel of successful entrepreneurs, including Candice Carpenter, co-chai=
r
and CEO of iVillage Inc. (IVIL), and Bo Peabody, CEO of Tripod Inc., drew=
a
standing-room-only crowd. "As an entrepreneur, you're raising money all y=
our
life," said Rob McGovern, founder, president and CEO of CareerBuilder Inc.
(CBDR) in Reston, Va. The career and recruiting site has alliances with U=
SA
Today Online, Microsoft Network and Cnet (CNET). "I have $90 million in t=
he
bank, yet I just went on an investor tour to Europe," said McGovern. He a=
nd
other panelists said before soliciting venture capital, you have to ask
yourself, "What is this entity going to bring to the table," other than
cash? Carpenter, who recently took her company public, emphasized the
importance of a smart board of directors. "Disagreement is valuable," she
said. "One board member kicked my butt for 2-1/2 years. He pushed me to t=
he
point where I was ready to kill him most of the time."
Be ready to step aside
Peabody, who in 1992 founded Tripod, a Web community for college students=
,
when he still a teenager, said it is important to pick your investors
carefully and know when to step aside. "When you pick your partners,
understand how the market views them," he advised. And when it's time to
sell out, "look into your heart. ... The CEO has got to be honest with
himself or herself regarding an exit strategy," said Peabody, who enginee=
red
the sale of Tripod to Lycos (LCOS) for $58 million in 1998. "Be honest, a=
nd
ask yourself if it would make more sense to be part of something bigger."
The entrepreneurs on the panel all agreed on one piece of advice: "Make
mistakes, but make them fast, and move on."
'Brands go online for info, not sales'
Robert Lessin, chairman and CEO of Wit Capital, woke up the luncheon crow=
d
by predicting that "physical (not virtual) companies will dominate the
industry in the year 2000." "The benefit of a real company is enormous," =
he
said, emphasizing the importance of building a powerful brand. "The reaso=
n
the brands are going online is not to sell products. They are capturing t=
he
consumer information and using it." He said entrepreneurs in the midst of
launching Web-based businesses should not forget that "the challenge is t=
o
combine the physical and the virtual."
(The Applegate Group is run by Jane Applegate, a syndicated columnist and
author of 201 Great Ideas for Your Small Business. Send your small-busine=
ss
questions to [email protected]. "Succeeding in Small Business" appears
Wednesday on www.CNNfn.com.)