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."
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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."
For more on finding VC funding, see our 4th Annual VC 100.
Aliza Pilar Sherman (www.mediaegg.com) is an author, freelance
writer and speaker specializing in women's issues.