Ask the experts what's up in business financing for 2002, and they'll agree on three things. First, there's a lot of money out there. Second, only truly innovative technologies and companies will attract capital. Third, investors are already taking advantage of companies' lower valuations and are bottom-fishing for good deals.
"There is a huge amount of uncommitted capital that has been raised and is available for venture-stage businesses," says Dave Wanders, executive vice president at Transamerica Technology Finance in Rosemont, Illinois, which provides debt financing to emerging-growth businesses. "But since neither the IPO nor the M&A markets appear to be opening up anytime soon, investors will be much more selective."
Businesses with cutting-edge products and services will net the lion's share of capital. According to Stephan Mallenbaum, a tech attorney for legal powerhouse Jones Day Reavis & Pogue in New York City, "Entrepreneurial companies that drive innovation will continue to succeed and will find there is no shortage of risk-based capital."
Ken Dolan: "There is always capital available for good ideas that can make money."
Daria Dolan: "Entrepreneurs will have to bring fresh thinking about where they look for capital and new ideas about their businesses. How? They can partner with other businesses or form strategic alliances that will deliver the sales and earnings that will be so important in 2002. Business owners who can figure this out will find capital quicker."
-Ken and Daria Dolan, financial experts and hosts of nationally syndicated radio show The Dolans
That's the good news. The bad news is that some capital sources might try to take advantage of entrepreneurs in what promises to be a tepid fund-raising environment. Ora Smith, president of Science and Technology Campus Corp., the research park and venture capital affiliate of Ohio State University in Columbus, predicts that "canny investors will take advantage of the economic slowdown and public market retrenchment to lock up novel technologies and business opportunities by taking positions at attractive valuations." In other words, investors will want more of your company for fewer investment dollars.
Unfortunately, experts predict that some sources of capital will stay on the sidelines in 2002. According to Tony Warren, director of the Farrell Center for Entrepreneurship at Penn State University in University Park, angels are likely to be quiet. "Their net worth is probably hit by the stock market downturn, their own personal businesses may be suffering, and their interaction with the VC sector feeds them with negative vibes to hold off," he says. Warren, who is also a partner with venture firm Adams Capital, adds, "All the angel groups I am working with are not making investments."
Ditto for the banking institutions, it seems. "Lenders are still reeling from massive losses incurred as their clients have gone belly up," says William Del Biaggio, president of Menlo Park, California-based Sand Hill Capital.
As Transamerica's Wanders says, "2002 will be the best of times and the worst of times for raising capital."
Chris Penttila is Entrepreneur's "Staff Smarts" columnist. Geoff Williams is Entrepreneur's "Hot Seat" columnist. Kimberly L. McCall is Entrepreneur magazine's "Sales Force" columnist. David R. Evanson is Entrepreneur magazine's "Raising Money" columnist. Mark Henricks is Entrepreneur magazine's "Smart Moves" columnist. Amanda C. Kooser is Entrepreneur magazine's assistant technology editor and Nichole L. Torres is an Entrepreneur magazine staff writer.
- Debbie Arcabascio
(303) 664-0064, firstname.lastname@example.org
- Aromaleigh Inc.
(716) 454-0042, www.aromaleigh.com
- Beckwith Partners
- Duffey Communications Inc.
(404) 266-2600, www.duffey.com
- Fannie Mae Foundation
(202) 274-8056, email@example.com
- Fit Pregnancy
- Ramin Ganeshram
(631) 689-1061, firstname.lastname@example.org
- GTF Systems
(888) 892-0080, www.gtfsystems.com
- The Herman Group
(336) 282-9370, www.hermangroup.com
- Hillcrest Group Inc.
(617) 495-0020, Eshapiro@hillcrestinc.com
- IndUS Entrepreneurs
(202) 266-6793, www.indianceo.com
- International Coach Federation
(305) 666-7669, www.bobettereeder.com
- Jones Day Reavis & Pogue
(212) 326-7837, email@example.com
- Kilojolts Consulting Group
(781) 861-6800, www.kilojolts.com
- LSR Maternity
(720) 876-1815, www.lsrmaternity.com
- The Luxury Marketing Council
(212) 517-4614, firstname.lastname@example.org
- Mattern & Associates LLC
2207 Concord Pike, #396, Wilmington, DE 19803, (302) 475-7004
- The Outsourcing Institute
(202) 238-9518, www.outsourcing.com
- Penn State University
(814) 865-4593, email@example.com
- Polished Inc.
(617) 854-7301, www.polishedonline.com
- Quaero LLC
(704) 414-3048, www.quaero.com
- Rovia Inc.
(866) GO-ROVIA, www.rovia.com
- Sand Hill Capital
(650) 234-8944, www.sandhillcapital.com
- Science and Technology Campus Corp.
(614) 675-4100, firstname.lastname@example.org
- Specialty Retail Report
(800) 936-6297, www.specialtyretail.com
- Transitions for Health
(503) 226-1010, www.transitionsforhealth.com
(303) 382-1041, www.transteq.com
- Transamerica Technology Finance
(847) 685-1110, www.transamericafinance.com/ttf
- Weiner, Edrich, Brown Inc.
(212) 889-7007, email@example.com.
What Do You Think?
Are our picks for what's hot in 2002 on target or way off base? Tell us what you think.