Early Stage Funding Advice From Netpreneurs Who Have Been There
Coffee & DoughNets Assembles A Panel Of CEOs To Share Their First-Funding Experiences.

Copyright 1998,  Morino Institute. All rights reserved. Edited for length and clarity.  

(McLean, VA--May 21,1998) You will feel "beaten up" and like a "wounded wildebeest." You'll work around the clock and still feel behind. Your allies will be people you thought were your enemies. Yet, despite their frightening predictions, the executives of five young technology companies gave hopeful advice to the aspiring entrepreneurs at the this evening's Coffee & DoughNets Goes Late Night at the Sheraton Premiere Hotel.

The CEO's, all of whom had received their first venture capital funding within the last twelve months, shared their frank assessment of the process and tips on how to succeed in a panel moderated by Gene Riechers, Managing Director of FBR Technology Venture Partners, L.P. for investment banker Friedman, Billings, Ramsey & Co..

Bob Schmonsees of WisdomWare, Matthew Pittinsky of Blackboard Inc., Susan DeFife of Women's Connection Online, Brandy Thomas of Online Monitoring Services, and Bob Nelson of CrossMedia Networks gave their advice fresh from the trenches of negotiating with early-stage investors and getting their product to the market.

Their products ranged across hardware, software, content and online communities, but the advice they gave was surprisingly similar.

Wooing the first venture capitalists was extremely challenging, said the panelists. One of the hardest parts was continuing to develop the product while doing intensive fundraising. Pittinsky and Thomas said they relied on a great team of employees to run things while they chased capital. Schmonsees kept an employee whose only job was to raise funds.

DeFife gave advice on targeting investors for your company. "Don't go for investors who already invest in companies like yours, or who don't invest in the stage you're at, or that haven't raised funds yet." She and others said that netpreneurs should investigate their targets much as the venture capitalists (VC) investigate their prospects: talk to companies where the VCs have invested, and ask the VC how much capital they have raised.

All agreed that the valuation of the company, should not hang up negotiations with potential investors. Particularly in early-stage negotiations, it's almost impossible to arrive at a "true" valuation. Instead, they said, focus on communicating a successful business model, one with the potential to succeed in the marketplace.

The panelists gave sound advice on how to make a company attractive to investors:

• Schmonsees: "Be intellectually honest with yourself and with investors. You must be up-front."
• Pittinsky: When talking with potential investors, "keep your mouth closed about what other venture capitalists think about you . They do all talk to each other."
• DeFife: "Build a team of individuals who commit to [working for] you once you have money. And get signed deals [from customers]."
• Thomas: "You've got to get the money to stay alive. Do anything you can to keep running until you've got venture capital."
• Nelson: "Get a great lawyer and find out the valuation of companies who have done these things.... Surround yourself with people who have built companies quickly and who have experience."

Audience questions focused on fears about venture capitalists taking over the business and driving people out. The panelists were able to reassure on that score: "Venture capitalists want you to succeed," said Schmonsees.

Some audience members worried about disclosing information to investors and clients. The CEO's were unanimous: honesty is vital to attracting early-stage investors. Reicher said that "venture capitalists spend 25% of their time talking with clients and other investors, they "share the interest in making the company look good and not revealing damaging or protected information.

Two investors present at the event gave the speakers high marks. John May of New Vantage Partners said he was pleased to hear that "once they received the professional money, it was not a let-down. Nobody on the panel had found 'bad money.' They all found equity sources that brought them more than just money."

Ed Broenniman of the Piedmont Group said "it was particularly good because these entrepreneurs were speaking from experience. They had followed different paths and didn't necessarily always agree on how to do it, which showed that there are many ways to succeed."