From the October 2000 issue of Startups

Face the music. You're generating sales, but you're in a never-ending cycle of getting new work, doing the work, paying the overhead, looking for more work and not building your company. Project to project, client to client, payroll to payroll, over and over and over again.

The music swells, and your eyes begin to scan the dance floor desperately. Will you find a dance partner in this volatile market, someone who believes in your vision, who will stand behind you and actually write the check that will take your company to the next level? Welcome to the Money Dance.

Somebody, Anybody?

In 1995, when I started my first Internet company, Cybergrrl Inc., no one spoke of venture capital. The handful of Internet-related businesses was just discovering one another as our cold-calls to potential clients began to collide, but all of us had two things in mind: revenue and profitability.

As a "new media entertainment and marketing consulting firm," we generated sales from Web site design, Internet strategy, and Web hosting. In our "spare time," we also developed the first three Web sites for women-which couldn't begin to generate revenue until 1996, when online advertising became a viable concept. By the end of 1996, there were two new Web sites for women on the scene, both well-capitalized, and a lightbulb went off for my business partner and me: We needed an infusion of capital to grow our Web sites.

How did we get our first investor? We networked. I contacted a mentor of mine, a VC, who informed us that our company was too small for his firm to invest in. However, he offered to introduce us to a friend of his, the president of a major technology publishing company whom he described as a potential angel.

After our first meeting with the angel-to-be, he asked if we'd accept a strategic investment from his company instead. We agreed. We proceeded to ask for a small amount of capital and gave up a very small amount of equity. We thought we were on our way to megagrowth.

But VC Peg Wyant of Isabella Capital LLC in Cincinnati quickly sums up the mistake we made: "Rule No. 1: You can never have too much equity. Rule No. 2: You can never have too much capital. Rule No. 3: When 1 and 2 conflict, choose 2." The biggest mistake Wyant sees entrepreneurs make is "taking too little capital."

What advice do other entrepreneurs have about raising capital? Jeff Bonforte, who has raised $32 million to date for his San Francisco company, i-drive.com, suggests this: "Understand the entire process-the role of your investors, the effects of dilution, how and when to raise your next round . . . all of it. Talk with as many people as you can."

Brenda Chin Hsu, CEO of BuyerZone.com in Cambridge, Massachusetts, offers similar advice: "Get as much experience or outside help as possible. Get hands-on experience in the industry you're targeting, either personally or through your business partners," she says. "Find business advisors who can help create or review your business plan. Network with professionals and other entrepreneurs to get introductions to investors."

For me, the greatest challenge I faced when raising capital for Cybergrrl was having confidence as I was "selling" myself. Hsu has faced nearly identical issues. "I found that I had to get comfortable about selling 'me' and my goals of making money," says Hsu, who, with the company's founder, Mie-Yun Lee, raised $21 million for BuyerZone. "I had to throw modesty out the window and really talk about myself and my vision for the company. Investors are investing in people, not just the idea."

Take heart: When you're ready to dance the Money Dance, bring the right team, request the perfect music, and, above all, don't be afraid to show them your moves.


Aliza Sherman is an entrepreneur and author of Cybergrrl: A Woman's Guide to the World Wide Web (Ballantine Books, $12, 800-726-0600). She is currently working on her next book and new company.