Part Four: THE INVESTORS
MS. SMITH: I'm going to introduce our featured guests, who will be prepared to
take questions from the audience. Starting in reverse alphabetical order, we have Frank
Tower, vice president with Silicon Valley Bank.
MR. TOWER: I'm Frank Tower with Silicon Valley Bank, with an east coast office
of the bank. We lend to technology companies, emerging growth, high technology companies.
You know, there aren't a lot of banks that do that. We are one. The one pearl of wisdom I
have is really reiterating what John and the rest of the folks here have said. That is,
really take the time and build a strong group of advisors. Attend events like this. Attend
the Netpreneur Program, go to George Mason, go to the Dingman Center and they will help
you build your advisory team, because you truly are building a company, not a product.
MS. SMITH: Next we have Angela Tandy, president of the Baltimore-Washington
MS. TANDY: Good evening. I'm Angela Tandy. I'm with the Baltimore-Washington
Venture Group. The Venture Group has been around since the early '80s. We are a membership
organization. We have over 500 members today. We create a forum that brings entrepreneurs
and investors together. We hope to facilitate win/win business relationships. We are the
sole gateway to the Private Investors Network. We screen all the deals that go on to John
May. And if you have any questions, there is some information in the back or you can talk
to me afterwards. My advice is just get out and network, network; be persistent, as John
mentioned, and be pro-active.
MS. SMITH: Steve Ritterbush, managing general partner of Fairfax Partners.
DR. RITTERBUSH: Thank you. I'm a general partner in Fairfax Partners. We are an
early-stage venture capital fund here in Washington, D.C., in the Northern Virginia area.
We have been around since 1989. We invest in three principal areas: health care, medical
devices, drugs, etc. We do a lot in information technology, with a strong focus on health
care information systems and business-to-business Internet. The third area is what we call
applied technologies, where we look for technologies that have been spun out of the
defense sector: sensors, lasers, and the like. I might add that while we do
investwe've probably invested in over 50 companies in the last eight or nine
yearswe also develop companies on our own. Every one of the partners in our group
has created companies on their own, and I think we've taken about seven technologies and
built businesses within our organization which we then spun off into others. So we are a
bit of a hybrid between a straight venture capitalist and an entrepreneurial group.
MS. SMITH: Gene Riechers, who is the managing director of technology venture
capital at Friedman, Billings, Ramsey & Company.
MR. RIECHERS: I come to this from a very different background. I spent the last
17 years helping entrepreneurs build businesses and now have joined a venture capital fund
and created a venture capital fund. So I'm going to do it more than one at a time. Pegasus
Venture Partners is part of Friedman, Billings, Ramsey & Company. We were raising $50
million to invest in electronic commerce, tele-communications and Internet and intranet
software and services companies, focusing primarily, but not entirely, in this region and
we are going to do early, middle and later stage investing. Generally not seed
stageinvesting the smaller amounts. We are going to do $1 to $2 million per round,
to give you some sense of what we are about. I can't add to the level of advice that's
been given already. I think the emphasis you have heard on building a company and building
a management team is exactly right. I have seen people do that successfully and I have
seen people try do it by themselves with one product, and it doesn't work. So let me add
something very different. I have seen a lot of entrepreneurs in this town develop consumer
ideas, and they don't have consumer marketing backgrounds. My recommendation is to go find
consumer marketing talent, if that's where you are going with your technology.
MS. SMITH: Jim Pastoriza, principal with AT&T Ventures, which opened here
not quite a year ago.
MR. PASTORIZA: That's right. We opened an office here just about a year ago
because we believe that this is a terrific place to be. We have got an office here now. We
have got an office in New York. We've also got an office in Silicon Valley. We are an
independent venture capital firm with about $230 million under management. We have one
limited partner, which is AT&T, so our charter is to look for businesses that we think
ought to be strategic to our limited partner.
A couple of areas of interest to us are enabling technologies that can do things like
multiply band width, things wireless, things local loop, things Internet. We have got a
portfolio now of about 40 companies that we have been able to build up over the last
couple of years. Our group consists of a mix of professional venture capitalists, as well
as people who have a pretty strong operational background.
MS. SMITH: Lyn Miller is the regional director for the Center for Innovative
Technology, a Virginia institution that has two incubators under its wing.
MS. MILLER: We have two primary sources of funding. One is a seed and
early-stage capital fund, which will be operational at the end of this summer. It will be
a $25 million fund and it will be used to cover those that Gene's funds don't cover, which
are the much earlier stages. We also have an even earlier stage, technology awards, which
are primarily for research and development stages, and those involve partnerships with
universities. One of our primary skills is putting you together with potential research
partners from universities around the state and other institutions that can help
facilitate some of your R&D work. So we have two sources of funding.
MS. SMITH: We also have Patrick Kerins from Grotech Capital Group in Baltimore.
He joined them recently from Alex Brown, where he was in corporate finance.
MR. KERINS: Thanks. Grotech is an investment partnership located actually in
Timonium, which is a suburb of Baltimore, not a chemical element, as somebody suggested
earlier. We have $200 million under management to invest in a broad range of industries.
We would like to put as much as 20 to 25 percent of that to work in information
technology. We are focused in the mid-Atlantic and southeast and we have made a number of
investments in this area, including currently being the largest shareholder in Digex. So,
I look forward to having discussions with many of you and my colleague, Andy Jones from
Grotech, is also here.
MS. SMITH: Not on the program, but at this table is the managing director of the
new Women's Growth Capital Fund, Pat Abramson. I would like her to stand up so you'll see
this new face in the crowd.
MS: SMITH: Suzanne Hooper from New Enterprise Associates.
MS. HOOPER: Hi. I'm from the NEA, as it's known. We are an early-stage venture
capital firm based in Silicon Valley and Baltimore, and we just recently opened an office
in Reston, Virginia that houses our technology team, which is myself, Peter Barris and Art
Marks. We invest about 60 percent of our portfolios at the early stage. We have about a
billion under management, but we are currently investing in a $310 million fund. Some of
the local companies we have invested in are Netrix, UUNet and AMISYS Managed Care Systems,
and most recently, two companies in Reston VirginiaNetstart and CTI Information
We have about 300 companies that we've invested in over the last 20 years. This is our
20-year anniversary, so we're very proud. About a hundred of those have gone public over
the years. Words of wisdom: I think one thing I haven't heard tonight, when you've
actually gone to a venture capitalist and you've spent some time with him, make sure you
ask about the process. You may think this person thinks you are the greatest thing since
sliced bread. But in our firm, there has to be a majority vote. So you need to make sure
you get in front of those other partners as well. Different firms have different
processes, so make sure you ask about that process.
MS. SMITH: Jeff Davison, partner with Triad Investors Corporation in Baltimore.
MR. DAVISON: Hi. I'm Jeff Davison, and I have spent ten years in the venture
capital businessall in the early-stage end of the businessand three years as
the VP of sales for an advanced materials company in between two five-year stints. Triad
is headquartered in Baltimore, and about two-thirds of our investments are pre-alpha
companies. We have also started companies from scratch. One of the ones that we did that
with was Dolly the Sheep, which you have seen on the Pizza Hut commercials recently.
We are focused on the Mid-Atlantic region. We spend 50 percent of our time in
information technology, a third in health care, and the balance in others. We invest up to
$750,000 per company, and typically co-invest with angelssophisticated individual
investorsas well as other early stage venture capital funds. I would, as far as
advice, talk about something that no one else has talked about tonight, which is how to
determine whether or not you and your company emotionally and psychologically want to get
into the venture capital game, because this is one crazy business. You really need to look
in the mirror and understand, for your lifestyle and your personal goals, whether you want
to bring an outside shareholder, like a venture capitalist, into your business, because
once you bring that money into your company, you have an obligation to those investors
because those investors have an obligation to their limited partners.
There is nothing wrong with building a nice $5 million company that isn't venture
driven. That can be a great lifestyle, and frankly I wish I owned a few of those
companies, but I don't. So in any event, I think it's important to focus on whether or not
you want to play the game.
MS. SMITH: Tony Carter, the Chairman of International Business Group's venture
MR. CARTER: The International Business Group is a venture incubator company. It
does concentrate on the first three stages. I guess the nearest model would be Bill Gross'
IdeaLab. We do, actually do, hands-on help in putting deals together, so we actually help
hands-on with putting the team together. It's based here, but it's an international fund.
We look forward to speaking and helpingmentoringsome of the new businesses go
to the next stage of traditional venture capital.
MS. SMITH: I want to apologize to Phil Herget. I skipped over him briefly.
MR. HERGET: I'm with Columbia Capital. We have two sides to our shop. We are
based in Alexandria, right down in Old Town. We have an investment banking operation
that's focused on mergers and acquisition advisory services, and we have our direct
investment side, where I spend most of my time. Our direct investment strategy is focused
on investing in early-stage telecommunications and information technology companies. As
you build your business, one word of advice is: stay focused. Remember that you have
limited resources. There's limited capital and limited people to accomplish what you are
trying to do.
Manage the expectations of your stakeholders and that includes your customers, your
investors, your employees. Be conservative, be realistic. Be upfront and open about
issues, especially with us investors. We really don't like surprises, and we like to be
treated as if we are partners and members of the team. And as you go out to raise capital,
make sure you have a very clear, concise story that encompasses the product, the market
opportunity, and really gets across your competitive advantages.
MS. SMITH: We have both Roger Novak and Jack Biddle of Novak Biddle Venture
Partners, the most recently closed fund in our area. Congratulations, guys.
MR. BIDDLE: I'm Jack Biddle of Novak Biddle Venture Partners. Just a quick
background on the fund. It's a new partnership. My partner was the founder of Grotech in
Baltimore. Grotech has become very large and he likes early stage, so we're actually
interested in very early-stage deals from $100,000 to a couple of million. As for my
background, I actually was hired for Intercapthe successor business to the one that
Charlie startedto close the company down. The venture guys figured I could do it a
couple of days for a few weeks, and ended up turning it around. But I had the experience
of going out to raise venture money, and everyone turned me down. The venture people like
to back winners, and winners do not put themselves in positions where their futures are a
binary yes or no. I was able to get the business profitable by doing deals with suppliers
and customers and then I could raise venture money. Most of the money in our fund is from
entrepreneurs who built successful companies before there was a venture business.
The other advice I want to give, when you do go the venture route, every venture
person, and every CEO, and every entrepreneur has three tall stacks on their desk. The
stack on the left is a big pile of things that if you don't get to, some-thing bad happens
to you. The stack in the middle is stuff that something good happens to you, and the stack
on the right is stuff that's indeterminate. Nobody ever gets to the stack on the right. So
you need to make it easy for the people to get you onto the middle stack where there's
some upside, where you have a chancewhich means go ahead and pester them to commit
to look at your plan.
Other advice: business plans are not operating plans. It's like a resume. When you have
a stack of 300 resumes, you are looking first for a reason to say no. So we just want a
reason to say no, we'll throw it out, and then what's left, we'll think about. The reason
we'll say no is because you don't understand the market, you don't show us the business
model. We want to understand the fundamental drivers. Then you get your meeting and you
move towards the deal. It's the operating plan that you are going to be held to, not the
I have one other piece of advice. What we used to call in the businessI started
in the venture business and then went to the operating side and am coming
backRosen's Revenge. The 40-page spreadsheets in the back of the business plan are
real heavy to carry in your briefcase and venture guys read these things on airplanes.
Rosen's Revenge. They put up the original money for Lotus, so keep it light.
MS. SMITH: And finally, we have Marc Benson, a partner with Mid-Atlantic Venture
Funds, formerly known as NEPA, who has a very exciting announcement to make.
MR. BENSON: We manage a total of about $80 million. We have offices in
Pennsylvania and just down the street in Tyson's Corner. Our latest fund, capitalized at
around $50 million, was closed two months ago. We've made three investments or commitments
to date out of that fund.
We have been in business for 12 years and we have made 45 investments, mostly in the
Mid-Atlantic area, which is where we focus. Thirty-three of those 45 investments were
pre-revenue at the time that we did the first capital infusion, so it's certainly an area
that we are comfortable in. We are comfortable in the $500,000 to $2 million range. Some
of our most recent investments in this area include leading the first round at Visual
Networks and NetSolve. I'm also pleased to announce that we have made two commitments in
the last few days, one to Women's Connection Online, represented here tonight by Susan
DeFife and Gary LeFevre, so we will do Internet deals, for those who said we wouldn't. My
advice to you is start the process early. It's time-consuming. You are in a far better
position to raise money under terms and conditions that are acceptable to you if you're
not desperate for capital. So start the process early, get the business plan out there and
start talking to people.
Part 5: THE AUDIENCE WANTS TO KNOW
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