Plusses and minuses of getting the money now

Southern Methodist University (SMU) in Dallas has the Carruth Institute of Owner-Managed Business as their entrepreneurial center. Jerry White directs the Institute while teaching at the university and tries to foster new companies wherever he finds them. Louisiana Tech has formed a Center for Entrepreneurship and Information Technology by merging Internet interests of their engineering and business schools. The University of Dayton’s Crotty Center for Entrepreneurial Leadership provides startup money for student businesses along with a forum and curriculum that exposes students to area business leaders. Students in Free Enterprise is a non-profit group in Springfield, MO that promotes entrepreneurship and seeks relationships with university business schools.

A two-day program at the University of Washington is designed to give new business owners the background to survive. Sponsored by the Northwest Entrepreneur Network and named “Entrepreneur University,” business leaders, attorneys, academics, motivational speakers and venture capitalists teach a variety of skills, including one session on how to make a clear and concise pitch to investors. An area that is particularly addressed is confidence because, when questioned, entrepreneurs have often reported that the biggest problem they face is a growing fear of risk.

The Houston Technology Center (www.houstontech.org) is designed as a business accelerator that incubates emerging companies within select industries such as: energy, information technology, life sciences, nanotechnology, earth sciences and NASA-originated technologies. The Center is aligned with Rice and Baylor universities and provides a convenient merging of the substantial technical resources of the area with the needs of entrepreneurial firms.

Your nearest business school probably has a website that’s a good source of business information. Some of the better a include: The University of Pennsylvania’s Wharton School, http://knowledge.wharton.upenn.edu; www.hbsworkingknowledge.hbs.edu for Harvard Business School; Stanford’s www.gsb.stanford.edu/community/bmag/sbsm.htm; and the University of Chicago’s http://gsbwww.uchicago.edu/news/capideas.

Many universities have special programs to support entrepreneurs and you probably have some excellent resources nearby. As an example, the University of Maryland operates a program that helps technology inventors assess the viability and the variety of options for commercializing their discoveries. The program, Market and Technology Assessment (MTA), also gives capital providers as well as entrepreneurs separate analyses of industry sectors, current technology advances and markets, on request. Their website is www.dingman@rhsmith.umd.edu and carries charges for the work of anywhere from $1,000 to $10,000. Services include: identification of market segments, size and growth rate; industry and competitor analyses; strategic alliance and partnership analyses; pricing and production cost data; development of pro-forma financial projections and a market strategy roadmap. MTA feeds into a number of other University business assistance programs including those for: technology transfer; mentoring by established entrepreneurs, accountants, attorneys, etc.; business plan review; and an incubator with space and support services. The University of Chicago (UC) introduced a “New Entrepreneurs Program” with an intensive mentoring feature as an effort to teach first-time entrepreneurs the basics of building a new business. UC operates the program over four months and includes readings in classic texts in literature and philosophy while also incorporating concepts from fields such as music and anthropology, all while focusing on a business launch. Along with the University’s program, the C of C runs a Chicagoland Entrepreneurial Center as a clearinghouse of information for emerging area companies.

Roughly 1,250 U.S. colleges and universities offer courses on entrepreneurship with 49 offering it as a degree program. The executive director of Ball State’s entrepreneurship program, Don Kuratko, suggested calling and taking someone like him to lunch to talk about your company and what it can do for the area economy, students, etc., as well as its own needs. The website of the National Consortium of Entrepreneurship Centers is at www.nationalconsortium.org. College tech transfer and other resources can be searched at portals such as www.utekcorp.com and www.techknowlegepoint.com. The National Network for Technology Entrepreneurship and Commercialization (www.n2tec.org) helps faculty and students alike find help and resources.

The University of Maryland has designated a new undergraduate dorm just for students who want to be entrepreneurs. Of the one hundred who were accepted the first year, twenty had already begun businesses and six of those were generating revenue. The dorm resembles a corporate environment and students are expected to gain by close contact with others who share the spirit. A multi-million dollar initiative, the special dorm is also found at the California Institute of Technology.

A European-based news service offers both information on Internet-related business topics and technology along with a networking option that could provide your business a lot of exposure. www.ecademy.com gives its free information service daily and connects you with sophisticated Internet users, including a separate discussion group on Financing the Future led by European funding veteran, Colin Alliso. Part of its network development work suggests that, if you think it through, you probably have 1,000 contacts that you can quickly and easily draw upon, and the group itself numbers over 13,000. The founder of ecademy, Tom Powers, feels that the marketing mediums of TV, press, sales promotion, direct marketing and telemarketing have run their course, don’t work well anymore, and that networking is going to become the soul of new marketing. Ecademy is actively promoting the use of personal online networks, blogs.

Burt Alimansky runs the Master Class Forum in New York City as a cornucopia of seminars on business and investment topics. Some of the bigger names in venture capital and industry regularly make their way to his podium. www.capitalroundtable.com averages half-day sessions at around $350 but makes tapes on popular subjects available for $195, and has eight tape modules for $495. Some of the areas that tapes are available for include: Cashing In On Your IP—How To Create New Revenue Streams; Effective Presentations—How to Win Business, Raise Capital, Sell Companies; Dealing With Family-Owned Companies—How To Overcome The Obstacles; HealthCare Investing—Meet Seven Top Investors; Renewable Energy Ventures—Meet Seven Investors; For Women Only—Growing Your Own Company; and nearly one-hundred more, at: http:/store.yahoo.com/masterclass-audiotapes/.

www.DigitalHarborOnline.com is a free news service on technology and business events in the Baltimore, MD area. Nearly anywhere you live today you’ll find your region is served by a similar organization. The New Jersey Technical Council runs a number of programs for entrepreneurs and puts out a good magazine on developments in the area. www.njtc.org. For the nitty-gritty details of running a company including health plans, associations, services, etc., you may want to check out the Home Office Association of America (www.hoaa.com , European Small Business Alliance (www.esba-europe.org), the Small Business Alliance (www.asbanet.org), Women’s Business Alliance (www.womensbusinessalliance.com), www.bizoffice.com or www.isquare.com.

If your company has an environmentally friendly product or service, you may wish to look at the forums sponsored by Keith Raab and the Clean Tech Venture Network, at www.cleantechventure.com. These sessions allow you to present in front of institutional investors who make investments of $1 million to $15 million. www.technologyshowcase.com is a regular New York City forum with as many as 125 companies exposed to venture capitalists and institutional investors.

In almost every city, a number of business organizations exist to help you. In Indianapolis you can try the Indianapolis Business Forum, www.Indybusinessforum.com. One of their recent offerings suggested: “Rather than shooting from the hip, learn to identify your target market, develop a strategic plan, test it, and successfully implement a tactical approach that will propel you ahead of the competition.” Jim Cotterill at www.Jcotterill.com has details. In the same city you’ll find www.ventureclub.org, one of many clubs around the country that promote networking for entrepreneurs among venture capitalists, bankers and service providers. The Greater Baltimore Technology Council offers programs for young businesses including new business leads, funding help; roundtables; online discussion groups, etc. Access them at www.gbtechcouncil.org. www.richtech.com is the website of the Greater Richmond, VA, Technology Council, a group providing networking and talks for area entrepreneurs.

eGrants is an online sponsor for classes in raising money for nonprofit ventures, but may still fit into your strategy. One day workshops are devoted to planning online fundraising campaigns, making websites effective, connecting with donors using email and the web, driving potential donors to websites, etc. Program details at www.egrants.org/services/workshops.cfm and costs roughly $150.

The website of accounting firm Deloitte Touche has a booklet on mergers and acquisitions that can be useful. At www.deloitte.com you’ll find M&A content that includes a primer, planning an endgame, public shell mergers, and putting your company on the block, among many other sections. Deloitte’s guidebook series includes titles on Raising Capital in the US—A Guide for Foreign-Owned Corporations, Selling Your Business, Writing an Effective Business Plan and Strategies for Going Public. Separately, www.mergercentral.com is a source for industry merger data.

www.launchfuel.com sponsors venture capital fairs and is an information source on partnering with universities, corporations and government agencies to commercialize high potential intellectual property. They operate with both the inventor and technology transfer offices to bring together management talent, seed funding, and operating support to create new ventures. Launch Fuel CEO Mary Knebel began in PR and later helped develop a number of hot Internet companies.

Event calendars will alert you to the organizations and programs that exist in your area to aid entrepreneurs. In the Mid-Atlantic region, the Virginia Venture Calendar covers events from Delaware to Georgia and lists and describes sessions at www.cit.org/venturecal. Virginia also operates a website with technology and other resources for companies along with events in that state at www.innovationavenue.com. At the site you’ll find separate headings for such areas as nanotechnology, biotechnology, business financing, international opportunities, etc. The National Commission on Entrepreneurship has a listing of events that could be useful to entrepreneurs at www.ncoe.org. The site also has a variety of reports on entrepreneurship such as From the Garage to the Boardroom, The Entrepreneurial Roots of America’s Largest Corporations and Five Myths About Entrepreneurs, Understanding How Businesses Start and Grow.

Accenture, the successor to Arthur Andersen Consulting, has 25 business launch centers scattered around the country that are oriented towards startups. The centers begin with the business and marketing plans of young companies and focus on strategic planning and technology infrastructure. The Product Development & Management Association also helps young companies with advice on methodologies and discipline that help form early corporate structures.

www.v-capital.com sells startup resources including a private placement memorandum for $75, a PowerPoint presentation of an investment pitch for $50, a non-disclosure agreement for $20 and a bridge financing agreement for $15. Somewhat more expensive but with the resources of a major law firm to help, Andrews Kurth has a fixed fee ($5,000) start-up organization package and includes documents and services in: incorporation; organization & qualification; employment and consulting; capitalization; intellectual property; and consultations on venture capital term sheets; employment matters and employment benefits; and IP. Alan Bickerstaff, a partner in Andrews’ technology and emerging companies practice group is the contact point, at www.akstartup.com.

www.bizjournals.com is the site to visit for newsworthy regional business information. A network of financial websites is at http://cbs.marketwatch.com. www.yet.com has a continued listing of technology offerings and technology needs. Legal forms such as employment agreements, letters of intent, and other business guides are found at www.allbusiness.com. Nolo has a wealth of legal information for small businesses that is written in a self-help format at www.nolo.com. Nolo also connects to sites on franchising, incubation, banking, women sites, etc.

Right-Hand Partners helps clients in the San Francisco Bay area meet investors and massages young companies to the point where they’re in good shape to present their business models, www.rhpartners.com. Strategies Unlimited (SU) is a source of both business and high-technology information and studies. SU will evaluate your business and marketing plan from a scientific perspective if it is in the area of optoelectronics, optical networking, RF/wireless or photovoltaic sectors, accessed at www.strategies-u.com.

Venture capital funds were first organized shortly after World War II when General Doriot formed American Research and Development and, in February 1946, when Jock Hay Whitney initiated J.H. Whitney & Co. Whitney had made speculative money by being one of the backers of the film Gone With the Wind and coined the term “venture” from a statement made by Bill Jackson, “I think the most interesting aspect of our business is the adventure.” In one form or another, venture capital has always been with us—even Queen Isabella hocked her jewels to finance Columbus’ expedition. Arguably, venture capital reached its peak in the late 1990s when a roaring stock market provided nearly instant profits for startup companies and brought hundreds of new venture funds into the field. Because of the downward spiral of the stock market in the early 2000s, some analysts estimated that at least one-third of the venture capital firms would eventually disappear although at this writing the industry looks alive and well. If such a shakeup occurs, seasoned VCs will probably feel the industry is better and stronger than ever. Venture capital regularly undergoes cycles and the Internet boom will undoubtedly be followed by another golden age—we just don’t know when.

The turndown in the stock market in the early 2000s not only made more VCs wary of startups but less interested in investing in any kind of company, except those that had such good revenues they seemed “slam-dunks”. Carlyle led a group that purchased Qwest’s yellow pages for $7 billion. A number of firms still call themselves venture capitalists but really have moved on to the safer space of becoming buyout pools. Buyouts require large amounts of capital but ongoing businesses with real assets seem a better bet. Many tech companies are finding that having a publicly traded stock can be a real negative in a bear market—at one point about 150 companies with more than $50 million each in the bank were trading below their cash values—and are interested in becoming private again, a buyout strategy.

Because VCs usually have to invest as much time in due diligence and research for a small company as for a large one, they feel their resources are usually better spent in large deals. Risk plus lack of size increasingly steer VCs away from startups. Angel investors fund more of the early-stage companies and VCs are coming into play once the proof of concept and early corporate development are completed. Universities or other research labs are sitting on technology for a longer time, allowing it to become more mature before putting it on show for investment.
Roger Novak, one of the partners of long-established Novak-Biddle, says that he is always “looking for people who are passionate about their businesses and want to change the world.” Implicit in this statement is that your potential market is large, that you have invested long and hard in developing your business model, that you know things work, that your statements are true and that you are so committed to the concept that you’re going to stay and make it successful regardless of what happens. Novak is also one of the few VCs who invest in startups although they prefer a company that has demonstrated sales and marketing solutions.
If you’re going to operate in this field, you better know the jargon. VC taxonomy reflects the correlation between financing choices and development stages:

• The earliest external financing is known as seed financing. Market studies, business plan, etc. are all in place and the principle investment risks are those of discovery.

• Startup financing covers activities from late-stage R&D to the initiation of production and sales. Main risk is cost-effective manufacturing of the technology/product.

• First-stage financing is most suitable for a company that has initiated production and is generating revenues but usually not yet profitable. Market risk dominates at this point.

• Second-stage financing supports growth of a company from around the breakeven point.

• Mezzanine financing (debt financing) is used for a major expansion of a profitable business, usually with revenues above $10 million. Bridge financing is temporary, between later-stage and harvesting.