Monday, January 1, 2001 | Print this story

Strategies for Finding Venture Funding in 2001

By DEBORA VRANA, Times Staff Writer

    Money, and lots of it. That's what tops the wish list for most Southern California entrepreneurs in 2001. However, cash might be a lot harder to get this year than in previous years.
     That's not because there isn't plenty of money around. Southern California venture capital firms alone raised nearly $3 billion during the first nine months of 2000, according to Venture Economics, a trade group. Final figures for the year haven't yet been tallied.
     But the crash of so many "dot-com" companies and the stock market's tough year overall have prompted many VCs to rethink their strategies. Most are much less willing to throw money at high-risk business concepts than they might have been early in 2000. Instead, many VCs want to focus their bets on the most solid ideas they can find.
     That means new business owners will have to work harder than ever to attract venture financing in 2001.
     How can entrepreneurs boost their chances of getting venture capital in the new year? Here's some straight talk from some top Southland VCs:
     * Know someone the venture capitalist knows. "Blind" business plans--those sent to a VC without a recommendation from a mutual associate--rarely get funded, and, this year, it would be a miracle if any do.
     Most venturists say they will spend the bulk of their time in 2001 trying to hold together companies they've already backed. To get a VC firm's attention this year might require much more venture networking on the part of the entrepreneur.
     * A high premium will be placed on experienced management teams. The chief executive doesn't have to be over 35, but it would be nice, many venture capitalists say privately. Overall, financiers will look first at companies staffed by people who have started and run companies before.
     * Companies that are already profitable, or that at least have a clear path to strong cash flow, will be favored by VCs. Gone are the days when a great-looking Power Point presentation can cover up a flawed business plan, or one that is heavily capital-intensive up front, venturists say.
     "We're going back to the old days of venture capital: building a company a block at a time," said Jim Gauer, a general partner with Palomar Ventures, a large venture firm based in Santa Monica.
     Here's a look at some individual Southland VC firms, and what's on their "wish lists" for 2001:
     * TechCoast Angels-Los Angeles (John Morris, president; e-mail: morrisj@gkm.com; phone: [310] 268-2628). TechCoast Angels makes investments in the range of $500,000 to $2 million.
     Morris doesn't want to see "Field of Dreams" ideas. He's interested in entrepreneurs who can validate their business concepts by showing that they have customers already lined up. He wants to see a strong management team in place, and expects a CEO to have charisma.
     * Kline Hawkes & Co. (Jay Ferguson, partner; info@klinehawkes.com.; [310] 442-4700). The firm just raised a $250-million fund, most of which it expects to invest locally in investments as small as about $3 million.
     Ferguson wants to see more rational business valuations by companies that are looking for capital, including telecommunications and software firms that already have raised some venture money. He puts a premium on good salespeople.
     * TL Ventures (Massoud Entekhabi, principal; massoud@tlventures.com; [310] 450-1800). Entekhabi, who prefers to get business plans by e-mail, said he is looking for top-notch management teams made up of a mix of people who can execute business plans and think strategically.
     Entekhabi's dream deal: a company that has developed a defensible technology that serves a large market--"and I'm the only guy they talk to," he jokes.
     * Entertainment Media Ventures (Sanford R. Climan, principal; contact@emventures; [310] 889-8930). Climan, a former entertainment executive, invests in strong "core" technologies. On Climan's wish list for 2001: experienced management teams and technology ideas that give a company a protected advantage.
     * Palomar Ventures (Jim Gauer, partner; jgauer@palomarventures.com; [310] 260-6050). Palomar's focus is on technology-infrastructure companies, such as networking and software firms. The fund will make investments in very early-stage companies.
     Gauer wants to see companies whose success isn't dependent on quickly raising significant capital via a first-time stock sale. He's looking for CEOs who can sell their idea to a number of investors in this difficult environment.
     Entrepreneurs searching for networking opportunities in 2001 might try the following:
     * Los Angeles Venture Assn. Web site: http://www.lava.org/; phone: (310) 450-9544.
     * Los Angeles Regional Technology Alliance. http://www.larta.org/; (213) 743-4150.
     * Virtual International Community. http://www.thevic.org/; (310) 395-0200.
     * Digital Coast Roundtable. http://www.digitalcoast.org/; (310) 571-3278.
     Debora Vrana can be reached at debora.vrana@latimes.com.
     

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