How to Get Venture Funding, page 20

Obtaining Funding in Today's Challenging Environment

In the words of Marc Andreessen, “extreme market conditions are fertile ground for the rapid adoption of breakthroughs in technology.” In other words, downturns present opportunities just as much as boom times. But the most important business breakthroughs in down times are about saving time and money. (In contrast, in boom times, the best ideas are about helping companies grow at breakneck speeds.)

There are still tons of opportunities out there, but it is important that your idea is pitched to reflect the current times.

The fact is that the funds raised by venture firms is at an all-time high, and venture firms have more to invest than ever before (source: New York Times, 4/12/2001). The level of investment by those firms has dropped for the time being from what it was during the Internet boom years, but it is still running at a level that is in line with historical norms.

In other words, the money is still out there, it’s just a matter of using new tactics to get it.

It probably goes without saying that Internet, dot com, B2B, and B2C are phrases to avoid in your business plan, if possible. Make every effort not to characterize your business as an Internet business.

Since the public offering route is currently closed as a liquidity event, present an alternative possibility—such as a strategic buyout—if you can.

Venture funds currently want to be the second to invest—not the first. They are running scared, but they do still have all that money. Finding a VC willing to step up to the plate and lead a round of funding has become even more important. That said, more than four hundred arly-stage ventures have been funded by top-tier VCs in the last twelve months (source: The Industry Standard, 2/26/2001).

In today’s climate, even early-stage businesses should present a business plan that will lead to an early cash-flow positive state. (This has been dubbed “P2P,” or a “path to profitability.”)

If you present business ideas that are in keeping with down times, avoid the exaggerated rhetoric of the Internet bubble and show a reasonable plan for making money, this is as good a time as ever for raising funds.

For more information on this topic, take a look at the author’s companion briefing, Making Money in Technology after the Bubble.

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