Full circle?

Money makes a comeback at a Seattle venture capital showcase.

Full circle?

MAYBE THE WHOLE dot-com drop-off was just a bad dream. Following a free fall, the stock markets seem to have found their footing again, bouncing back by three or four hundred points on some days. Even Amazon.com’s latest announcement that prosperity is just around the corner is not being met with the derisive jeers that greeted the company earlier this year.

Sure, recycling centers are gorged with business plans and PowerPoint presentations, and many of last year’s stock-option millionaires are learning the meaning of terms like “margin call” and “capital gains tax” the hard way. But venture capitalists only make money by disbursing it, and there is no shortage of entrepreneurs waiting their turn.

“It’s a challenging market, but from a venture capitalist’s standpoint, it’s a great time to be out there,” says Mike Anderson of Fast Track, a group of business consultants who do everything for start-up companies from writing their business plans and arranging introductions to financiers to serving as temporary executives while the business gets a foothold. “You get a big bang for your dollar. Company valuations have come down. There’s a lot more scrutiny,” he says. “If anything, it’s weeded out the entrepreneurs that shouldn’t be entrepreneurs.

“The downside from the entrepreneur’s standpoint,” adds Anderson, who occupies a space between the new businesses and the money people, “is that it takes a lot longer to get money at this point. Because the process has been extended, people want more validation—you want customers to actually pay you for your products, or have money, at least.”

Michael Chalcraft, the finance officer for CallVision, which handles online billing and collection services for telephone companies, says he actually welcomes the newer go-slow environment facing small growing companies. “It’s not something that makes us nervous,” says Chalcraft. “It’s actually probably a good correction. It makes more funds available for companies like ours. It’s not a quick fix.”

CallVision was one of nearly two dozen companies chosen to pitch their businesses to a group of investors at a recent daylong conference hosted by WSA (which shortened its name from the Washington Software Alliance). Throughout the day, one company follows another on the stage, while representatives of investment banks and VC partnerships make notes in their PalmPilots about their presumed prospects for rapid success and which ones to follow up with.

Most of the companies, like Xcache Technologies (which makes software to speed up activities on other companies’ Web sites), have earned relatively modest amounts so far. But they are predicting a jump in revenues for the coming year, hoping to garner even larger sums of investor cash for their expansion plans.

As Xcache CEO Wayne Berry takes advantage of his 15 minutes of highly concentrated fame to describe his product in detail, Anderson points to the man from E-fund, seated next to him: “If this presentation stinks,” he whispers, “you’ll have to give grief to this guy sitting next to me. He’s got some money in them.”

ONE IMMEDIATELY APPARENT change from the last few years is the nearly total lack of businesses aimed at consumers given a shot at the podium. There is little taste left for the so-called “B2C plays” here. After the spectacular failure of Pets.com and even delivery services like My Lackey and Kozmo.com, virtually all the smart money is being bet on strictly business-oriented services.

An exception is Keith Tucker, who was not on the select list of presenters but came along anyway. At every opportunity, Tucker was showing off the PC-Ephone. His all-in-one wireless device combines an Internet browser, 32-megabyte PC computer with pocket versions of Microsoft’s most popular programs, cell phone, and personal organizer, and comes equipped with a full-color 4-inch screen and a short-range wireless handset that looks like a fat pen.

“The problem in raising capital is [to create] relationships with venture capital companies that match what you’re doing,” he says. “Hopefully, I’ve talked enough to create a match here. I’ve handed out a few brochures. Before the day is over I’ll hand out more. But you never know what’s going to happen.”

Sheila Richardson, business development officer for Redmond-based Solthree Software, a venture-software company, says she comes to these events “to check out the trends as much as to find the companies.” She says she still sees a huge amount of VC money chasing the good ideas presented at these affairs. One change she says she’s seen is on the angel capital side—providing money for new companies at their very beginnings.

“The people who have lost a lot of wealth in their portfolios aren’t writing the $50,000- $100,000 checks quite as easily as they were,” she says. “What that means is we’re sort of back to an older model that we used to see in the ’80s, which is really friends and family [coming up] with the first capital in the deal, and ‘skin in the game’—in other words, the entrepreneur himself has money in the deal.”

One advantage that Erik Benson, a principle at Voyager Venture Capital, sees coming out of the contraction is that the promising companies starting out now are facing less competition for markets.

“Five or 10 years ago, if you have an idea, you can pretty much assume that there were 10 other entrepreneurs with the same idea that are all getting funded at the same time,” says Benson. “That was happening up until a year or so ago. With this current financing situation, which is much fewer venture capital firms investing in new companies today, you have less of that. Today, if an entrepreneur has a great idea and a great team and they can get funding, it almost becomes a barrier to other competitors coming in and getting funding.”

Benson agrees that the VC community is better off now, provided they have money on hand. “If you have money it’s a fabulous time to invest because prices are lower, entrepreneurs are a little bit more realistic as far as valuations are concerned, and the great entrepreneurs are still starting companies. A lot of venture firms spent all their money last year and don’t have any more.”


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