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shaking the moneytree 3: Q1/2000

has the bubble burst?  

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are venture fairs fair ventures?

Mr. Ayers:  The Mid-Atlantic Venture Association, in cooperation with PricewaterhouseCoopers, has begun to track the success of companies that presented at its November 1999 Mid-Atlantic Venture Fair, now known as the Capital Connection 2000.  A remarkable 38% of the companies that presented at the Fair raised money during Q1/2000.

          We have seen a large number of venture fairs in the region recently, MAVA's Capital Connection 2000, Springboard 2000, Venture 2000, Globetech and Early Stage East, if you want to stretch the edges of the DC area a bit.  There are most likely a large number of companies in the audience considering venture fair opportunities, and a fair share of companies I have met who avoid fairs for fear of being overexposed.

          Does presenting at a venture fair really increase a company's chances of raising money?

Ms. Abramson:  Well, I'd like to give a little plug for Springboard 2000 because it happens to be the one that I am currently very involved in.  We are co-sponsoring this with the Morino Institute, AOL and the National Women's Business Council.  It will be in July and is the first venture fair focused on women entrepreneurs.  The purpose is to get some of these women CEOs to the attention of the other venture funds in the region.

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          When you look at groups like MAVA, which I think does a fabulous job of raising money and getting exposure for companies, you see very few women CEOs.  When I talk to a lot of guys in the venture funds, they say, “We would be happy to fund some of those companies but we don't see them.”  I think that's true because the people who are active in these different venture fairs tend to be the same ones over and over again¾the ones who will spend their time and energies and bring their companies to the table.  We are trying to expose more companies to the region, expose the region to more of these companies and allow more venture funds to see a wider variety of companies that tend not to apply to those venture fairs.

Mr. Walker:  The Mid-Atlantic Venture Association’s Capital Connection 2000 is in September this year, and I am one of the co-chairs.

          These fairs certainly work for venture capitalists.  As to whether they work for entrepreneurs or not, I think it comes down to this.  We all get dozens, even hundreds of business plans a month in our firms, and probably really only pay attention to those that are referred to us by people we know¾accountants, lawyers, other venture investors, etc.  Dozens simply don't get opened, honestly, and the great thing about the fairs is that, without any particular connection to any particular VC, it's an instant sponsorship for your company.  Patty's comments are right on point.  We need to increase the population of people who are sourcing companies to these fairs.  When you show up on that podium, it's like you are in.  I think they’ve created more relationships for companies, which can be very, very difficult to initiate.

          If you are already very plugged into the venture capital community, if you know a lot of the right people, have a lot of ins and don't feel the need to do that, then it's up to you, but, if you want to build those relationships, I think it's a great, efficient way to do that.

Mr. Kerins:  I agree completely, and I encourage everybody to be part of them.  Whether you need money or not, you can't get overexposed in these things.  You can get overexposed by having a deal that's out there for six months, eight months or a year without getting any funding.  That's death: “I heard of that one a long time ago, whatever happened to...”.

          With these kind of things, however, if you are going to be successful as a company, if you are going to grow and perhaps even go public, you are going to be part of a circle of investment banker conferences and such.  If you don't get in the habit of doing it, you'll die because people won't know you.  They won't know your name, the name of your company or what you're doing.  This is a way to get recognition, whether you want it now or not, for the next time you need something, even if it’s two years from now.  I strongly encourage people to do it.  It's a very crucial thing.  It is the most efficient way to raise money and to be seen by a lot of people with a minimum investment by you and the investors, so do it if you can.

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the audience: q&a

Mr. Guerrero:  I’m Francisco Guerrero from  Over time, will you become more selective in terms of your investments, and will you be investing in the same areas that you are investing now?

Mr. Kerins:  Someone was talking about the IPO market slowing to a trickle.  Sonus Networks went public last week with $1 million in revenues, a $15 million loss last year and a $5 billion market cap.  That's a pretty good trickle.  I think it reflects the current desire for people to be in broadband hardware technology.

          My guess is that there will not be a substantial difference in the range of industries that people are going to invest in this year versus last year.  There are going to be some significant valuation changes within the groups because, quite frankly, it was reasonable to expect certain kinds of companies were going to go public in a certain period of time at a certain valuation.  That was the basis for valuations in 1998 and 1999.  Now those assumptions have changed.  I think you will find, as we have always faced, areas coming in and out of favor modestly, but I wouldn't expect venture capitalists to be throwing out categories of investments.  These industries are changing and we all want to be part of the companies that change them.

Mr. Kling:  Arnold Kling with  To pick up on Steve’s comment that we aren't using all the assets in our area, one of those assets might be trade associations, especially given your interest in groups that know something about a particular business.  Do you see them as an asset in this area?

Mr. Walker:  Indeed, and that's one that we typically don't use, especially early stage companies.  To them, a trade association is something way off in the distance.  With RetailMetro, for example, they are finding all kinds of linkages.  RetailMetro is one of the companies trying to link manufacturers of furniture with retailers, and they are involved in exactly those kinds of activities.  There are a lot of things out there that we need to take advantage of, more than just what I mentioned, but in particular, universities and the agencies. They are resources we are foolish not to tie into.

Ms. Abramson:  This is one of the areas where we see what this region brings to the table.  The government is always a little slow to act, the trade associations are a little slow to act and the nonprofits are a little slow to act, but the reality is, these trade associations have huge reach in their various industry areas and can bring some real money and connections to the table for their members.  They have yet to do it across the board, and we are going to see that in the next year or so.

Mr. Levy:  Steve, as someone who lives and works in Maryland, could you comment on what is hopefully not a worthless question, the differences between how you see Maryland moving and growing relative to Virginia and DC?

Mr. Walker:  When I was running TIS in 1995 and we were starting to get into growing the firewall business, several VCs came to me and said, “I'll be happy to invest in your company, but you have to move to Northern Virginia.”  I didn't do it, and I'm glad I didn't.  Maryland is not as aggressive in supporting business as Virginia has been, and it's to the state’s loss, but Maryland is growing very rapidly.  As a region, we look to Boston and Silicon Valley and wonder if we will ever be what they are.  Well, Maryland sort of looks to Northern Virginia the same way, and Baltimore sort of looks to the rest of Maryland that way.  I say, cut it out!  You are doing fine. There are dozens of companies in Baltimore and in Maryland and in the District that are doing very, very well and will keep going.  We don't have some of the traffic problems, although we do have some of our own.  I'm very high on Maryland, and I'm very high on this region as a whole.

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Mr. Kerins:  Look out for Baltimore. We have four hot Internet companies in Baltimore, and, hopefully, one or two of them will create the kind of spinoff success that we've seen in some companies here.

Ms. White:  Good morning.  I’m Laura White with  We are considering expansion through a rollup strategy.  Are VCs a good source of funding for that kind of strategy?

Mr. Kerins:  Some are.  We have been active in some rollups, or “buildups” as people are positioning them these days.  Some aren't.  It tends to be bigger funds that have capital available.  The Carlyle Group, here in Washington, DC, has been active in buildups, including some of the more successful public ones.

Ms. Abramson:  I think you are going to see a lot of it, either rollups or consolidation, especially in the B2C space.  There are a lot of players in these different areas.  Only a couple will be winners, but each brings something to the table.  We have been talking to several of our portfolio companies that are pursuing rollup strategies.  We are going to see a lot of it, and many of us will participate, even though we haven't so far.

Participant:  Could you say a little bit more to alleviate the fear of overexposure?  This is the most common fear of companies that come to see me.  Not just at venture fairs, but the whole concept of folks giving out their business plans with proprietary information in them.

Mr. Ayers:  Sounds like nondisclosures are lumped into that as well.

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Mr. Kerins:  One of the smug answers people in the investment world used to have for that was, “If you are worried about me knowing what’s in your business plan, then it's not investable.  At some point in time, you have to get out in the world and start doing it.  If it's that easy to do, it's probably not a very good business.”

          There have been some pretty bad stories in Silicon Valley about business plan ideas being stolen and funded with other management groups.  I haven't heard much of that happening in this region at all, and there are obviously legal remedies for that kind of thing.  I don't think it's been a feature of our region or our venture capital community¾I mean having people sift through business ideas and say, “I like this, but I don't like this team, so I'm going to go fund another team.”

          This community, in my experience,  has been one that backs management teams, not business plan ideas.  That doesn't alleviate the fear if you have it, but that's just the empirical evidence.  It's a scary thing.  In order to get the money you need, you have to tell your story.  You have to learn from those meetings, modify what you are doing and you've got to deal.  The only thing I can recommend is to deal with the kind of firms who have been around awhile and who plan to be around awhile.  They are not going to ruin their reputations by abusing an entrepreneur or an entrepreneur's ideas like that.

Mr. Walker:  You have to be able to get your idea across in a way that people understand, even if you are leaving out a lot.  You can have a lot of hints that there is secret technology, but if you need a nondisclosure agreement before you even get in the door, you are probably not going to get in the door.  It's a dilemma, but find a way to say it without giving away the secrets, if you can.

Ms. Abramson:  And don’t send your business plan to 100 of your “closest friends.”  Theoretically, it will go to people you have a relationship with or to somebody who has a contact.  Don't paper all the venture funds with your business plan; however, if you want to raise money, you have to let some people see your plan.

Mr. Ayers:  Thanks a lot panel.  That's going to be our last question, and this is going to conclude our discussion.  I'd like to thank the audience for coming and our panelists for sharing their valuable insights.  PricewaterhouseCoopers and appreciate your coming, and we look forward to seeing you again next quarter as we continue to Shake the MoneyTree.


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