Corrections or additions?
This article by Bart Jackson was prepared for the June 12, 2002 edition of U.S. 1 Newspaper. All rights reserved.
The New Rules For Reeling in Funding
Why on earth would you attend yet one more talk on how
to raise money for your startup business? Because no one does it better
than this guy — in this market. During the last 12 months, when
capitalists were hiding under the beds, with their money in the mattresses,
Jeff Parness launched three new high tech companies, funding
them with over $12 million in early stage capital.
Parness lists “Fifteen Winning Financing Strategies Straight from
the Trenches,” when he speaks on Tuesday, June 18, at 11:30 a.m.
at the Westin Hotel, in Morristown. The Venture Association of New
Jersey (VANJ) sponsors the talk. Cost: $45. Call 973-631-5680.
The Venture Association of New Jersey is designed to connect entrepreneurs
who need checks with funders who write them. In addition to its monthly
meetings, VANJ offers a newsletter, sponsors lists, and provides a
technology help desk. Full information about the organization can
be found at www.vanj.com. It also offers an ideal forum for Parness’
strategy number three: Network, network, network.
“Today’s climate is not so much tougher,” says Parness, “as
demanding different approaches. In l999 and 2000, entrepreneurs were
selling concepts. Today, they must sell sales.” For the past two
decades, Brooklyn-born Parness has watched the entrepreneurial climate
ebb and flow. Following a political science degree from the University
of Michigan, he served as an intern in the Reagan White House. He
moved on and up to become head of marketing and finance for Philip
Morris.
Out on his own, Parness, who lives in New York City with his wife,
a corporate attorney, and two sons, has raised over $141 million in
startup capital, including $12 million to launch VentureFX, QWireless,
and QOptics amid what others are calling this past year’s “nuclear
winter of high-tech funding.”
Entrepreneurs hearing the Parness strategy will doubtless find it
logical, clever and totally counter-intuitive to almost every instinct
they hold dear in initiating a business. Thus many of Parness’ tactics
involve not only action, but a flexibility of attitude.
Don’t hunt for money. The entrepreneur with a stone-rigidinvention seeking only the cash to put it into people’s homes is headedfor failure. Instead, Parness suggests, first seek a strategic businessvalue. This goes beyond needs assessment, on into possible customerbase, possible pricing, and product restructuring. The product shouldremain a vision, while its absolute business value is rooted in concrete.Find customers first. “The venture capitalist shouldnever be your first customer,” insists Parness. Nothing so provesa product’s buyability as a list of customers presented as referenceswanting to purchase this product before it even comes out. Let yoursearch begin with buyers, not funders.Make potential customers work. Too often, the entrepreneurreceives a “Yeah, sure we’ll buy it. Let us know when you’ve gotit on the shelf,” and walks away. Potential customers are notonly your harshest critics, they can be your wisest advisors. Youare selling them (and your funders) a vision, not your dear, perfectbaby. On one occasion, Parness and his team held customer seminarsduring which the final concept was changed eight times to meet theirneeds. In the end, they loved it, and he was able to show investorsa bushel of customer references.Enlist a huge advisory board. Outline what Parness calls”buckets of expertise” and then go shopping to fill the buckets.Search out the firms that have previously done the best in their areasof specialty, such as marketing assessment, IP legalities, or purchasing.Then recruit experts within these firms — and make them work.People placed on management or advisory boards almost instinctivelyview it as an honorary throne of inertia. The entrepreneur must selectthese experts and initiate projects to keep them involved. It is theadvisors’ job to convince your investors that the development teamis capable. “Your product may be vaporware at the early stages,but the VC will fund it if your people are solid,” says Parness.”Further, every board member should be chosen as an active leadto further customers. That’s equally his job.”Anticipate investor worries. Any investor is taking severalleaps of faith by putting his money where your dream is. Sometimesyou can fix these before you come to the table. Once, realizing thathis otherwise sound product had no development team, Parness swiftlygathered forces and had them installed in time for his first presentation.Sometimes you have to ask, as Parness frequently does, “Have wegot something, or are we just smoking crack here?” The entrepreneurmust pull his confidence from the clouds for a while, and walk inthe investor’s shoes. Doing so will enable him to foresee and quellthe investor’s worries.Be choosy about investors. “Oh Lord, just find mean angel — any angel — the deeper the pockets the better.”This devout entrepreneurial prayer, Parness says, may be granted,but the results can be unfortunate. Investors who do not know yourproduct and its market intimately are just check signers. You spendoceans of time teaching them so they can make barely-informed decisionsat best. Better to choose a capitalist who not only knows the business,but has a first-hand link to potential customers. The entrepreneurshould never be shy about asking his investors to bring new buyersinto his orbit.Finally, after you walk out of the room with the check in hand,Parness says, plan to wean yourself early. View this initial stagemoney as the last bit of outside cash your firm will ever receive.Always strive to become self sustaining. Who knows, if you have doneenough good planning, and got good people on staff, your next checksmay just be coming from new customers.— Bart JacksonPrevious StoryNext StoryCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
