October 2001
 

BY GINGER EHN LEW

Converged communications entrepreneurs seeking funding, then, should be optimistic yet realistic. Companies need to deliver an effective, distinctive pitch to venture capitalists (VCs) to maximize their chance of getting funding. Business plans and presentations that fail to cover crucial areas may be discarded because they are not perceived as worth the VC's time. Therefore, it is important to know what exactly interests VCs and others in the investment community.

STRATEGIES FOR SUCCESS
Each interaction with potential investors is a chance to capture their attention. Make the opportunity distinctive by following these tips:

1. Ask for an appropriate amount of money. VC firms are now looking for companies seeking funds that sustain them for at least 12 to 18 months. The current financial climate is creating uncertainty for some venture capitalists. For a company to present a business plan or a proposal indicating that it is seeking six months of financing with plans to then raise more money is not realistic in this environment. As Ned Martin of Piper, Marbury, Rudnick, and Wolfe pointed out at a recent venture capital forum hosted by the Telecommunications Industry Association (TIA), it is best to raise enough money to get the company to the next level, which might be characterized by milestones such as the development of a prototype or beta version, the generation of first revenues, closing the first major agreement, or the hiring of key management.
    
2. Conduct research to target the appropriate VC firms. Venture capital firms are typically segmented according to the types of investments they make. In the venture capital landscape, there are three primary sectors: early stage, growth-equity investment stage, and the late stage or leverage buy-out stage (sometimes referred to as "mezzanine stage.") The late stage is usually pre-IPO or pre-acquisition. Telecommunications Development Fund, for example, invests in the early stage. We provide seed and first rounds of financing. Other venture firms specialize in the later stage investments. They focus on management-led buyouts, strategic equity investment, equity mezzanine private placements, consolidations and build-ups, and growth capital financing. There are some Web sites that an entrepreneur can use to conduct this research such as the National Venture Capital Association or in the Mid-Atlantic region, the Mid-Atlantic Venture Association. Industry specialization and investment stages are profiled.
    
   In addition to selecting VC firms in the appropriate stage, also aim for firms with a suitable industry specialization. Some telecommunications opportunities cross over into the IT sector as well. Consider venture capitalists who invest both in the IT sector as well as in telecom.
    
3. Ensure that the company's leadership has significant industry experience. First and foremost, VCs examine the management. It is understandable that an early stage company may have only a small group of technologists who are focused on developing a core product. Companies in the growth-equity stage or in a late stage should have a full management team comprised of people with extensive management experience in the industry and know how to grow a company. A full management team should certainly include a strong vice president of sales or a strong chief financial officer and a chief technology officer combination.
    
4. Explain that the company's market size is fast-growing and accessible. VCs seek investments with a large market size and large market opportunity. Show that the company's market is potentially in the billions of dollars to demonstrate the potential payoffs to investors. Further entice investors by explaining that the market is fast-growing and accessible.
    
5. Provide details if the company has a sustainable competitive advantage. If the company has the benefit of a high threshold that creates a barrier to entry by competitors (such as a unique technology or unique business process that makes this particular company a potential leader in its sector), then provide a thorough explanation.

MEETING THE CHALLENGE
Obtaining funding is certainly a challenging process. Individuals possessing vast technical knowledge and extensive industry experience still commit avoidable mistakes. Reading articles such as this one and reviewing the company's business plan will help prevent common mistakes. Another good tactic is to view presentations given by others seeking funding, perhaps by attending a venture capital forum such as those offered by TIA. It is always beneficial to watch other presenters to see best (and worst) practices in action.

The way a company is presented, along with who presents it, has a tremendous impact on the company's success. A terrific product or service that is not well conveyed may not obtain funding. A well-prepared business plan or presentation will allow investors to focus on the company itself. These simple guidelines will help you get a step ahead of the competition.

Additional information on writing a solid business plan and crafting an effective presentation is available in the TIA white paper "Getting a VC's Attention -- Telling Them What They Want to See and Hear."

Ginger Ehn Lew is the chief executive officer and managing director of TDF -- Telecommunications Development Fund. Possessing almost two decades of business and financial experience, Ms. Lew has participated in all levels of small business and corporate development. She is a member of TIA's VC Advisory Council, which is supported by the organization to assist members in capital formation. TIA is leading U.S. trade association serving a communications and information technology industry, with proven strengths in market development, trade shows, domestic and international advocacy, standards development and enabling e-business.

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