Learn by Pitching
"Where do I find money to launch?" is probably the single most frequently asked question of start-up entrepreneurs. Typically the answer is friends, family and fools-but college students and newly minted grads sometimes have trouble convincing those sources to ante up. Fortunately, there are some solid alternatives to consider, including venture forums and business plan competitions. Both have been around for years, but not all of them are created equal.
In fact, a number of universities have gotten quite innovative with their competitions. For example, at Wake Forest University in Winston-Salem, North Carolina, the Babcock Graduate School of Management has created the Babcock/Eno River Capital Elevator Competition. In this year's competition, held in March, 27 teams of MBA students representing 16 schools nationwide got two elevator rides of two minutes apiece to convince a venture capitalist that their business ideas were worth investing in.
The goal, says professor Stan Mandel, director of the Angell Center for Entrepreneurship, is to add a touch of realism to the process: "We wanted to simulate the way the world operates and show students that sometimes in the [span] of an elevator ride, you've got to convince a venture capitalist your company is worth investing in."
At San Diego State University (SDSU), the instrument of choice is the telephone. The Golden Phone Award was added to the school's annual business plan competition this year, the goal being to interest investors over the phone. Students talked until the VC hung up or expressed an interest.
Sanford Ehrlich, executive director of SDSU's Entrepreneurial Management Center, says the competition taught entrepreneurs how to pitch to prospective investors concisely, in a matter of minutes. Says Ehrlich, "Every entrepreneur has to be able to connect with a capital provider and give a pitch that contains a compelling vision of what they are trying to do and their path to profitability."
Shelly Peters, 34, president of 2-year-old Atlanta-based Legacy Data Access Inc., a hospital data storage and retrieval company, participated in both the SDSU and Wake Forest events this year. "We did San Diego State, and we did terribly," says Peters, who graduated this year from Kennesaw State University in Kennesaw, Georgia. "From my perspective, it was more academic than Wake Forest. All the other teams we were competing against had four or five team members from their schools-from finance, marketing, etc. Kennesaw State University is a very small school, and the only academic participant [on our team] was me." At the time, she was just completing her MBA.
By contrast, Peters' performance in the Wake Forest Elevator competition was so compelling that both venture capitalists she pitched are helping her refine her business plan with an eye toward potential funding. Her team also tied with a squad from the University of Georgia, Athens, for top honors. Says Peters, "I think what really convinced them was me saying we would keep going with the company whether we got funding or not."
Like business plan competitions, venture forums are not all the same. Most consist primarily of angel investors and can also be used as a dress rehearsal to sharpen presentation skills. But don't make the mistake of not preparing, cautions Gordon Chanen, a director of the National Association of Venture Forums.
At the same time, Paul Sweeney, board member of the Wisconsin Venture Network, points out that these angels don't see nearly the deal flow venture capitalists see, and consequently they might be more willing to invest in an unproven idea backed by a solid business plan.
In addition, be aware that while most forums are general-interest, some target specific industries, and their levels of sophistication vary. "To be successful at a venture forum, you should have some proprietary advantage, and the business should be somewhat [close to] having a product," suggests Chanen.
Beyond serving as a place to find potential investors, both Chanen and Sweeney say venture forums are a good source of education and networking with people involved in the private equity industry-the lawyers, accountants and others who can help you raise capital.