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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-rigid

invention seeking only the cash to put it into people’s homes is headed

for failure. Instead, Parness suggests, first seek a strategic business

value. This goes beyond needs assessment, on into possible customer

base, possible pricing, and product restructuring. The product should

remain a vision, while its absolute business value is rooted in concrete.

Find customers first. "The venture capitalist should

never be your first customer," insists Parness. Nothing so proves

a product’s buyability as a list of customers presented as references

wanting to purchase this product before it even comes out. Let your

search begin with buyers, not funders.

Make potential customers work. Too often, the entrepreneur

receives a "Yeah, sure we’ll buy it. Let us know when you’ve got

it on the shelf," and walks away. Potential customers are not

only your harshest critics, they can be your wisest advisors. You

are selling them (and your funders) a vision, not your dear, perfect

baby. On one occasion, Parness and his team held customer seminars

during which the final concept was changed eight times to meet their

needs. In the end, they loved it, and he was able to show investors

a 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 areas

of 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 instinctively

view it as an honorary throne of inertia. The entrepreneur must select

these experts and initiate projects to keep them involved. It is the

advisors’ job to convince your investors that the development team

is 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 lead

to further customers. That’s equally his job."

Anticipate investor worries. Any investor is taking several

leaps of faith by putting his money where your dream is. Sometimes

you can fix these before you come to the table. Once, realizing that

his otherwise sound product had no development team, Parness swiftly

gathered forces and had them installed in time for his first presentation.

Sometimes you have to ask, as Parness frequently does, "Have we

got something, or are we just smoking crack here?" The entrepreneur

must pull his confidence from the clouds for a while, and walk in

the investor’s shoes. Doing so will enable him to foresee and quell

the investor’s worries.

Be choosy about investors. "Oh Lord, just find me

an 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 your

product and its market intimately are just check signers. You spend

oceans of time teaching them so they can make barely-informed decisions

at best. Better to choose a capitalist who not only knows the business,

but has a first-hand link to potential customers. The entrepreneur

should never be shy about asking his investors to bring new buyers

into 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 stage

money as the last bit of outside cash your firm will ever receive.

Always strive to become self sustaining. Who knows, if you have done

enough good planning, and got good people on staff, your next checks

may just be coming from new customers.

— Bart Jackson


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