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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,
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
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.
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.
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.
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.
"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."
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.
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.
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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