Attracting venture capital is about plan, exit strategy - bizjournals:

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That means a defendable technology orbusiness model, a well-provenj team, a solid business plan and a cleadr exit strategy to garner interest from venturs capitalists. In the third quartert of 2008, venture capitalists invested $7.1 billion in 907 deals, accordin g to the MoneyTree Repory from andthe (NVCA). The report showed quarterly investmentt activity was down 7 percent comparesd with the second quarter of when $7.
7 billion was invested in 1,033 Jeremy Swan, a director in the private equity services group of the New York office of a global consulting and audir firm, said the profile of firmd obtaining venture capital in the current economy fit the same mold as thoser financed pre-crisis. The difference is VCs are much more focused and applyt a heavier hand when it comes todue “What makes a business successful in seeking venture capital? The criteria hasn’g changed,” Swan said. “The businesx has to be focused. The managemen team has to be focusedf and understandthe market, and it has to be viables as a business for the long term.
” Therew was just one venture-backed IPO in the thirx quarter of 2008, and 58 merger-and-acquisitionb exits during that same quarter, according to the The first three quarters of 2008 were not much There were six venture-backed companiesx that came to market, the lowesty volume for the first three quartersa of the year since 1977. Georgw Brown, a Protiviti managing director basedcin Washington, D.C., said that if a company seekinfg venture funding has a tech play, VCs want to see more than a proodf of technological concept.
“They’re looking at an actual businesw created, a revenue line, a cost line understooxd in the current econom and where they want to take thebusiness ... an economic proof of concept,” Brown said. These companiesa need to show acompetitivwe advantage, a means by which they can creatw a larger market or take away shares from otheres in the same business space. In company executives have to show that they can operated successfully on a technical andfinancial “The track record of the team and a demonstrable businesds model and operating model are very important for the money people to get behind,” Brown said.
As is flexibility, accordint to Ken Herbert, vice presidenr of the business and financial services practicde in theMountain View, Calif., offic of global businessconsultancy Frost Sullivan. The management needs to be prepared to change roless once VCs take a stake inthe business. The executivew team needs to beextremely open-minded, Herbert said. Ever y VC is different, and some may want to make significant changes ina company’s management structure when investing. Yet Herbert noted, “It’s rare that a personb is just shown the doorand told, ‘See you because they’re oftencritical to the business.
” These are the individuals who have the clieng contact or the technical It is not uncommon to transition them into another role for a numbere of years,he added. Peter Boni, vice chairma of the 3,000-member , or AeA, the country’ds largest trade association in thetech industry, said it’s more difficulr now for a new company not currently financed to get financinyg from venture firms. Many VCs are puttinh their effort into supporting their existing portfolios because it will take longer to realizean exit. The AeA, basefd in Washington, D.C., is in the process of mergingv withthe .
“It’s very important for a compan y today to preserve and protect what cash they have anddo what’sa only absolutely necessary,” Boni said. “We’ve adviser all of our companies to be predatory in theirt sales and marketing while preserving andprotectingtheif cash.” Companies that have a “me too” business plan or a product that might be a “nice to — but not a “have to — are in a tougher Boni said.
“In this economy, you really want to see the moneg bucket ofvalue that’sd created by buying someone’s product,” he Herbert points out that the IPO windos of opportunity may not be open long, whicy makes sparking the interest of a trade buyer just as