In this economy, is VC funding still available for business owners with solid ideas, strong teams and viable business models? Yes, according to the following two entrepreneurs; but finding it is sometimes tricky.
"Our first institutional round of $3 million came from three institutional funds and several angel investors," says Shoba Purushothaman, CEO of The NewsMarket Inc ., a Web-based broadcast-news distribution service based in New York City. Purushothaman located the institutional investors by participating in the Springboard Venture Forum, an event that brings women business owners and investors together.
How was her first major fund-raising experience? "Hellish," admits Purushothaman, 42, mainly because she sought funding immediately after 9/11. "Our situation was compounded by the fact that we were in the media sector and a startup, [which] made us even less attractive to investors at the time."
Before seeking money from outside investors, Purushothaman and her business partner, Anthony Hayward, 45, contributed $1.7 million toward the company and raised $1 million from angel investors. The next round was used for building the Web-based service, recruiting a team, and implementing sales and marketing. "I had never really tried to raise venture capital before, so I was a novice. The most surprising thing was how powerful it can be to belong to a network," she says. Purushothaman cites Springboard and other professional networking groups as valuable for making the right contacts to get money.
For Vicki Esralew, 45, CEO and founder of Vickilew , a family-oriented media entertainment company based in Arlington Heights, Illinois, having a passion and commitment to creating empowering products for children and families was her main asset when starting her business. Everything else-experience, contacts, financial backing-came later.
Esralew first landed an angel round of $400,000 to cover product development and operations. Investors comprised friends, associates and people who believed in her vision. Through an investment banker, she then met several high-net-worth individuals who provided the next round of $1.9 million in 2003 for operations, expansion, product development and debt repayment. She is looking to do a round sometime in 2004.
"It's most important to understand that capitalizing your business through equity investment is very different from financing the growth of your business by taking out loans," says Amy Millman, president of Springboard Enterprises . "When you take investment capital, you are taking partners. And all money is green, but not all investors are good partners."
Esralew agrees: "Do careful due diligence. Make sure you have enough 'runway' and [that you] do not need capital yesterday." Her first major fund-raising experience was extremely time-consuming and took Esralew away from running and growing her company. "Very challenging, draining and stressful" is how she sums up the meetings and deal making.
Esralew admits the process would have been easier if she had someone with a strong financial background to work with existing and potential investors. Since that time, her company has hired a vice president of finance, which has vastly improved communications with investors and freed up Esralew's time for building and promoting her products.
Purushothaman believes this is a great time for entrepreneurs to be raising money. She recently landed another $4 million from existing investors, and found it easier to secure financing during her company's high-growth stage. "Women entrepreneurs must [realize] that capital raising is an art form," she says. "You have to understand the rules of the game. Venture investors are only looking to make financial gain; and they invest in opportunities that offer this."