You Need More Than an Idea to Get a Venture Capitalist's Attention or Money
Want funding for your Net company? Do your homework about your market and VC firms
Q: Can you direct me toward a list of venture-capital firms interested in the Internet? Any information will be appreciated. K.M., Miami, Fla.
A: Identifying venture capitalists interested in funding Internet-related companies should not be difficult. VCs gave U.S. Internet-related companies $3.8 billion in the second quarter of this year, nearly half the total VC funding for the period and quadruple the amount given to the sector in the second quarter of 1998, according to a recent survey by accounting giant PricewaterhouseCoopers.
"I can assure you that if you have a genuine Internet venture, you will
have no trouble finding not one, but probably several venture funds that
will fight over who gets to do the deal," says Lee Petillon, a partner
in the Torrance (Calif.) law firm of Petillon & Hansen, which represents
early-stage technology companies seeking venture partners.
The National Venture Capital Association (nvca.org), based in Arlington, Va., publishes an annual directory of its 300 members and 1,700 private equity professionals that can be ordered online in print, CD-ROM or Network/Single Server formats. The directory includes each group's location, branches, contact information, money under management, and investment preferences by industry, investment stage, and geography. The group's Web site offers resources about venture capital, including
statistics, background information, and definitions of common terms VCs use.
Pratt's Guide to Venture Capital Sources, another annual publication
that provides contact information and specifics on VC investment criteria, is available in hardcover and CD-ROM formats from the online bookstore at: www.investorsnet.com. An Internet search on the term "venture capital" should also turn up myriad resources.
To get venture capitalists to fund you takes a lot more than an Internet concept. Your company needs to have a product or service that can be protected, stands out from the pack, and has a competitive advantage. "We look for, No. 1, a very large market; and No. 2, a quality management team or a group of people who are technically very good and willing to bring in management specialists," says G. Bradford Jones, general partner in Brentwood Venture Capital, a venture firm with offices in West Los Angeles and Silicon Valley. The firm recently announced that it will merge with Institutional Venture Partners, based in Menlo Park, Calif.
The latest iteration of an online bookstore won't catch a VC's eye
unless it has a large and unique market niche. "By the time there are
four sites selling something on the Internet, the fifth one selling the
same thing isn't very interesting," Jones says.
As in so many other things, connections help. Brentwood sees well over
2,000 opportunities annually. Jones says the firm does respond to every
proposal it gets. Still, the ones that come in through a personal
contact get more attention from the partners. Use a lawyer, accountant,
or investment banker as an intermediary to improve the chances that your plan will be seen.
You can help your case by sending out a well-researched, thorough, and
well-edited business plan. Poor grammar, spelling, and punctuation will
turn potential investors off. Send it to the VC firms that best match
your business, industry, size, and stage of development.
Finally, geography matters to time-pressed venture capitalists. "The rule of thumb in Silicon Valley is that they don't like to go more than 50 miles away," says Petillon. "That way, they can go out and visit their nest egg and come back the same day." Some companies even promise to relocate to Northern California in return for funding. Jones says Brentwood will sometimes invest in far-flung companies though not often.
"The farther away a company is, the better it has to be for us to do it. We will make investments in far-away locations, but usually only with
people we know or have worked with in the past, and they must have a
really good management team," he says. "If they are local, we're more
willing to invest in a great idea with an incomplete management team
because we are close enough to help them build a team, which is
practically impossible to do if they're across the country."
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