The company: Edison Venture Fund, named for one of the world's greatest inventors, invests primarily in technology businesses, with a focus on software, electronics, and communications. "We look for companies with an edge in applying new technology to classic business problems," says Ross Martinson, a general partner and Edison's chief financial officer. His brother, Managing Partner John H. Martinson, founded the fund in 1986.

With $205 million under management in four funds, Edison has financed 85 companies, mostly in the mid-Atlantic region. "Everyone was going to Boston and Silicon Valley," says Ross Martinson. "John scooped up what he thought was a neglected area for venture capital." That's not to say Edison isn't happy to go outside its territory when it finds good investments. It has provided equity financing to 20 companies in such areas as Texas, Illinois, Georgia. It invested in Marcam Solutions, a software company near Boston that went public in 1990.

The goal: Edison finances about 10 companies a year. The average investment is $2 million but amounts range from $1 million to $5 million. "We've invested as much as $6 million," says Martinson. When a company needs more money, Edison might organize a syndicate.

Edison prefers to finance companies at the expansion stage -- those with annual revenues from $2 million to $15 million. Martinson explains: "We can see there's a market, because they're already selling. But generally they have a poor cash flow. We provide equity to help them ramp up marketing and sales or work harder at broadening their product."

Still, Edison has invested at all stages, backing six startups and 10 early-stage companies. In 1995, it took a stake in two-year-old Visual Networks, whose Visual UpTime technology allows communications companies to monitor traffic on their wide-area networks. The gamble paid off: When Visual Networks went public in February, 1998, Edison reaped $24 million in proceeds and retained at least 50% of its original shareholding.

In exchange for the capital, Edison takes an equity stake of 10% to 30%. "It can be higher or lower. It averages between 20% and 25%," says Martinson. "We want to be influential but not controlling."

As the sole investor for more than half of its companies at the time it invests and the lead investor for three-quarters of them, Edison has taken a seat on the board of 75 of the 85 companies it has invested in so far. It acts as a primary adviser during the five or six years of its involvement. Investment usually takes the form of preferred stock convertible to common stock. "We're not so interested in a lot of rights. Just enough to help us exit when the time comes," Martinson says. And although an IPO is the ideal, he says, more often a company either merges with another or is sold. Edison generally defers the dividends until there's a "liquidity event," a merger, sale, or initial public offering, but the dividends accrue at an interest rate of about 10%.

The typical deal: Scott Ackerson, president of SMX Corp., a designer, maker, and marketer of portable laser measuring machines used by manufacturers to gauge the dimensions of large objects as they come off the assembly line, sought his first round of equity financing in 1995. At the time, his three-year-old company had 10 employees, $2 million in annual revenues, and 30 customers, including Boeing Philadelphia.

SMX had evolved out of an engineering company that Ackerson started with his father 10 years earlier. When Chesapeake Laser Systems and the National Institute of Standards & Technology introduced prototypes of a new laser tracker in 1988, Ackerson purchased an early version from Chesapeake and oriented his company's software and engineering services around laser-tracking technology. "I knew then [the laser tracker] would revolutionize our field," he says. Ackerson bought Chesapeake in 1992.

Loans from a local bank and state grants from Pennsylvania fueled his business to a point. And in 1994, he coaxed about $400,000 out of friends and family. But he needed more capital to grow, and that's where Edison came in. "They had an excellent reputation for first-year investment," says Ackerson. "In the high-tech area, you can't bootstrap: You have to explode on the world market with everything you've got. If you wait two years, you can be taken out by someone else who develops the technology."

With Edison's initial stake of $1.5 million, SMX launched a new tracker in 1996, which greatly increased sales. Penn Janney Advisory, a local investment firm whose president sits on Edison's advisory board, provided additional equity financing of $1 million. With this capital, SMX added graphic enhancements to its 3-D software. Two banks -- PNC, an Edison limited partner, and First Union -- have loaned SMX a total of $6 million. Edison has continued to invest, putting in about $5 million over three years, including its initial investment. Along with Edison's capital has come a lot of good advice, credibility, and connections into the business and financial community, says Ackerson. That support has been especially important, not least because SMX has been involved in a continuing patent dispute with two other companies. "We're in a period of rapid growth with all kinds of life-threatening problems -- technical, legal, competitive," says Ackerson. "It's a pretty wild ride, filled with volatile ups and downs. And it's important that [Edison] has a long-term view."

Ackerson says SMX has grown spectacularly: It now has 70 employees and 250 customers, which, besides Boeing, include Northrop, Chrysler, GE. Projected revenues for 1999 stand at $23 million.

The process: Edison receives about 100 business plans a month and takes phone or E-mail queries in advance of a business plan. It likes to find companies early, before they start fund-raising. If the business plan -- which must include financial statements, market trends and, competitive analysis -- sparks interest, Edison meets with management. During due diligence, Edison talks to a company's customers, including those it lost, personal references, consultants, and others the company does business with.

What works: It helps to have a product with a "proprietary" edge with customers. "If people can demonstrate that they are attractive to the marketplace and that they can build a new market or build market share by providing this better product or service, that's of most interest to us," says Martinson.

What doesn't: Underestimating how hard it is to get and keep customers. "Most businesspeople don't understand how hard it is to sell," says Martinson. "That's probably the biggest failing of good business plans that we see. They should demonstrate more clearly that they know their marketplace. Why is a customer going to buy your product? Why are they going to switch from another product or a different methodology of attacking that business problem?"

Parting advice: Know your market and competitors, and focus on your cash-flow needs. "Most business plans are weak in anticipating how much cash they are going to need and when," says Martinson. "They don't appreciate that it's not just a one-stage financing. The more your company grows, the more you need capital."

By Karin Halperin in New York

To: LENDER PROFILES