Business & Finance

"Getting a Venture Capitalist to Say Yes" at Venture Association Meeting

On Tuesday, July 20, the featured speaker at the monthly meeting of the Venture Association New Jersey (www.vanj.com) was Mark Davis, an Associate at DFJ Gotham Ventures (www.dfjgotham.com), an early-stage venture capital firm based in New York City focused primarily on investments in information technology startups based in the Northeast U.S. and Israel. His presentation - Getting a Venture Capitalist to Say "Yes" - was based on his experience not only as a professional venture capitalist but also as an active participant in and advisor to several private business groups whose members are interested in all aspects of entrepreneurship.

After a brief introduction, Davis began his presentation by stating that the way entrepreneurs choose to raise capital should depend on two interrelated factors - the amount of capital needed to achieve breakeven cash flow, and the scalability of the business. The larger the amount of capital required and the greater the ability of the company to grow into a very large enterprise, the more appropriate venture capital becomes. On the other hand, for a company in need of only limited amounts of capital with limited ability to grow, some type of bootstrap financing would probably be more appropriate.

In estimating scalability, it is important to consider the various ways in which IT companies can grow, Davis maintains. One way is through novel application of existing technology, as exemplified by companies like Facebook, eBay and Twitter. Another is by development of entirely new technology, as companies like Google and Oracle have succeeded in doing. A third way is by combining the two approaches as companies like Adobe and Skype have done. All three approaches are valid avenues of growth.

Another consideration is the type of assistance needed beyond just raising capital. While VC's are generally the most expensive source of capital, for example, they are also most helpful in providing advice and connections. Friends and family, on the other hand, provide less expensive capital but also less effective advice and connections, while angel financing falls somewhere between the two.

Once the decision has been made to seek VC financing, the next step is to get a meeting. The most effective means of doing this is a direct introduction by a mutual contact, the least effective being cold calling or, even worse, spam e-mail. Networking, especially through online groups such as LinkedIn, can be helpful in this regard. The three most important requirements for a first meeting are an Executive Summary (required to get the meeting), a convincing Presentation (required to create interest in the company) and a compelling Financial Model (required to show the path to success). The most important objective of the first meeting is to get a second meeting.

Davis cautioned that in preparing a presentation, it is critical to define the size of the specific market niche targeted by the entrepreneur, not the overall size of the general market. Other important factors that require definition are specific advantages versus the competition and technical and/or financial barriers to entry.

Next Meeting Sept. 21 - "Value Drivers & The Entrepreneur's Dilemma"

The next VANJ meeting will be held on Tuesday, September 21 (no meeting in August) at the Marriott Hanover, 1401 Route 10 East, Whippany, NJ. The featured speaker will be Frank J. Graziano, an Angel Investor, Managing Partner of Monmouth Venture Partners (www.fjgraziano.com) and Managing Director of Golden Seeds (www.goldenseeds.com). His topic will be "Value Drivers & The Entrepreneur's Dilemma."

The next "Entrepreneurs Expo and Elevator Pitch Olympics" will be held at the Marriott Hanover on Monday, October 25. From 10:00AM to 12:00AM, as many as 35 entrepreneurs seeking startup and growth capital will showcase their companies to potential investors in a walk-through exhibit hall. At 12:00 Noon, the luncheon program will feature a panel discussion by a group of investors, followed by The Elevator Pitch Olympics from 1:30PM to 3:00PM, during which entrepreneurs will make 2-minute presentations that will be judged by the panel of investors. The exhibits will then reopen from 3:00PM to 4:00PM for additional networking.

Advance reservations for the September luncheon can be made by calling Clara Stricchiola at (973) 631-5680, faxing (973) 984-9634 or e-mailing clara@vanj.com and mailing a check ($35 for members, $55 for non-members) to VANJ, Box 1982, Morristown, NJ 07962-1982. Telephone reservations are taken only if mail would not be timely. Reservations received after 12:00 Noon on September 20 will be considered door registrations for a charge of $75 each.

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