JULY 23, 2003 VENTURE CAPITAL Q&A


"What the Real World Is All About"
[Page 2 of 2]


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Q: What about business plans?
A: My experience has been that 98% of entrepreneurs have no idea how to write a business plan, so rather than wasting a lot of time having them do draft after draft of an insufficient plan, I get all the facts and usually wind up writing it myself. I believe very strongly in a preliminary executive summary, which will range anywhere from eight pages to fifteen pages, take about 30 minutes to read, and which gives a good overview with a reasonable amount of detail.


It should give the prospective investor enough information for them to decide whether to proceed or not. Anything longer than that, they're not going to bother reading. Anything too short isn't going to tell the story. Guys who invest in startups are numbers people, objective people, and they want to see enough of what a business is about to develop a level of comfort. But ultimately, it comes down to numbers and how much revenue is there, how much can reasonably be projected, and the expense rate. And of course, how quickly can the business model produce a profitable company. The idea of funding losses for three or four more years is almost undoable unless it's a very unusual situation.

Q: How did you come to be in this business?
A: I had been in the garment business for many, many years, and one of the happiest days of my life was the day I got out of it. That was about 2½ years ago, when I began doing what I'm doing now. Retail apparel, it's a very difficult way to make a living. I had a lot of fun, and my career kind of culminated I guess about five or six years ago, when I started what, at the time, was the world's first name-brand off-price clothing Web site. It was called Deal a Day, based in Boston, and I sold it to a then-public company.

Q: So what inspired you to become a matchmaker?
A: I called some VC friends of mine up in Boston and asked if they had any interesting situations -- I was thinking of maybe doing some consulting work on turnaround situations. Well, a couple of them said, "We don't really need that. What we really need are good deals. We always have this money. We can't find good businesses to invest in." So that was the direction I took. What began as a lark two years ago has now become a business.

There are eight or nine people who I work with on an unaffiliated basis, each having very specific areas of expertise, and together we help source deals and place deals. I have one woman who does nothing but consumer products. One guy is asset-based lending. Another woman does nothing but marketing. And so we're always in touch, looking to do deals together, and it's worked out very, very well.

Q: When you do a deal, do you take any equity in the outfit?
A: Yes, always. My deal is always part cash and part equity, and the equity part is very important to me because I believe in the businesses I represent. My real goal and dream is to have two or three of these [startups] really hit. Because I believe in them, I think they're going to be big businesses, and if they do turn out that way, I want to be able to share in that success.

Q: Just briefly, describe some of those deals.
A: There's Kid Biz, a wonderful company based in New Jersey, that we helped raise a substantial amount of money for, and they're providing educational content to school districts around the country that are mandated to provide technology, computer education, to their students. They've becoming a very successful company, and they're doing terrific. Then there's HomeClick, which has targeted high-end sales of kitchen and bathroom fixtures, and other household wares, on the Internet. They've gone from zero to multimillion-dollar revenues in a very short time.

Q: How do you see the state of the entrepreneurial mind in the U.S.? Confidence and faith in innovation took a beating when the tech bubble deflated. Is the drive to innovate still in gear?
A: The level of entrepreneurial enthusiasm is great because -- and I'm being very candid here -- lots of people in traditional jobs, workplace jobs, either got downsized or their employers went out of business. There aren't as many jobs around, they are having trouble finding work, and many of those people are now forming entrepreneurial-type businesses, which is great. Unfortunately, there's still more ideas around than there is demand for them, or the money to back them. But the entrepreneurial spirit is very great. The key now is getting the investors to loosen up and finance more.

Q: Is there a golden rule people seeking venture capital need to observe?
A: The best rule in terms of looking for money is to put yourself in the shoes of the prospective investor and ask yourself the sort of questions they would be posing: What questions would you have? What reservations would you have, and how would you overcome them? Many people are so in love with their startup's product or service or concept that they fail to think through the business and financial questions and issues. Often, they're not even really prepared to even start looking at their concept critically. And these days, that's essential.

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