Venture capital panel advises entrepreneur

In the grand scheme of technology startups, funding is a universal hurdle. And in the increasingly global marketplace, competition for venture dollars continues to grow.

Major VC firms are investing more dollars into emerging economies, such as China. That country saw $1.8 billion in venture funding in 2006 – an increase of more than 55 percent from 2005 – according to data from Ernst & Young LLP and Dow Jones VentureOne.

The total amount invested in China might only be a drop in the bucket compared to the $25.75 billion that United States-based companies received in 2006. However, the growth in U.S. investments from the previous year was only 8 percent.

Luckily Northern Colorado entrepreneurs have the semi-annual Northern Colorado Rockies Venture Club meetings to give them a forum to present their products and learn the ins and outs of attracting venture capital.

At the April 18 meeting, three capital-raising experts shared their advice on how to land – and how not to land – capital. Drawing from their experiences on both sides of the investing table, their focus was on the three pillars to raising money – customers, financials and core competencies.

Anita Sayed, president and CEO of Colorado Time Systems, was 19 years old when she started her first business, which she promptly sold. It wasn’t long before she had launched her second company.

She now has five companies under her belt, admittedly not all successful. But she said it was her failures that taught her the most.

“Success in business is about cash flow,” she said. “Every time I have forgotten about the cash flow, I have gotten into trouble.”

Sayed also suggested that businesses look for funding before it is absolutely needed, because often it won’t be available at those times. She said that entrepreneurs might try to find investors when their companies are seeing some success so that the attempt does not seem desperate.

Tilman Schad has had experience raising capital during his career, much of it in Fort Collins. The former Hewlett-Packard Co. manager led the spinoff of CoCreate Software in 2000, which led to a combination sale and buyout by European investors and management. He went on to join up with Indicative Software, where he raised a $6 million initial round of financing. He now sits on the board of several companies and acts as a consultant.

Schad said that it is important for entrepreneurs to convey their passion for their companies but warned that emotion should be balanced by rational thinking. For instance, it is not rational to assume that one has created a brand-new market and that there are no competitors. In any event, few VCs are interested in waiting around for a new market to develop because time is money, he explained

When it comes to the evaluation process, many entrepreneurs are passive – that is, they allow themselves to be evaluated without doing any evaluating of their own. Schad said it is important to know the nature of potential investors and what they are looking for in an investment opportunity. For instance, angel investors don’t need to actually invest funds in a startup, whereas venture capitalists are investing funds placed with them for that explicit purpose.

“They are two very different animals when it comes to working on making your company successful,” Schad said.

Jan Horsfall, founder and CEO of Denver-based Gelazzi Inc. and Colorado State University graduate, was not shy about his aversion to getting funds from venture capitalists, because he used to be one. His current venture into the world of Italian ice cream or gelato is not indicative of his previous pursuits.

He headed consumer marketing for Valvoline Co., then served as an executive at Lycos, which sold for $12.5 billion in 1999. After the sale, Horsfall founded Gemini Voice Solutions Inc., an New York-based broadband voice company that raised over $52 million and had more than 13.5 million users within 18 months of inception.

He warned entrepreneurs to not jump into the capital search too quickly. Going directly from idea to investors is a misstep.

Instead, having trials, revenue, a good board and top-notch CEO will add value and leverage to a startup looking for venture capital. Better leverage equates to better terms – but having good terms is no good if the entrepreneur doesn’t understand them.

All of the panelists advised keeping the vision of a startup in focus. Knowing what the customer needs and wants and providing that should not be blurred by the pursuit of funding.

Kristen S. Bastian covers technology for the Northern Colorado Business Report. She can be reached at (970) 221-5400, ext. 219 or [email protected].

on Facebook on LinkedIn