Corrections or additions?
These articles by Michael Schumacher and Barbara Fox were prepared
for the January 24, 2001 edition of U.S. 1 Newspaper. All rights
Venture Capital: Outlook for 2001
The boom days of venture capital investments could be
on the decline here in New Jersey and across the nation according
to industry experts who predict a return to more conservative
strategies. That would mean a sharp downtrend from the record
seen this past year, when a projected $100 billion was entrusted to
entrepreneurs nationwide in hopes of obtaining huge returns. While
year-end figures are not yet confirmed, it’s projected that New
companies received in excess of $2 billion last year for startups
or growth companies. If predictions for 2001 VC spending are accurate,
that figure could be lopped in half.
This projected decline is not necessarily a bad thing, says Jay
Trien, president of the Venture Association of New Jersey.
will be a lot less `dumb money’ out there now," he says, referring
to the huge amounts of money that had been thrown into high tech and
dot com enterprises in the past, much of which didn’t produce the
anticipated returns due to inadequate prior research. "People
assumed that the money would continue to be thrown at deals. Now it’s
a return to traditional due diligence in determining investments,"
"Venture capital investments in 2001 will be more reflective of
1999 spending," says Mark Heesen, president of National
Venture Capital Association (NVCA), headquartered in Arlington,
"People are more cautious. Dot com mania is over, and it takes
a lot faster to catch the wave. Venture capitalists today are stepping
back and asking more questions. It’s really a process that we’ve
had," says Heesen.
"We’re not going to have high returns this year, but they will
still be healthy returns," predicts Heesen. He will be the
speaker at New Jersey Technology Council’s annual Capital Conference
on Friday, January 26, at 8:30 a.m. at the Princeton Marriott. Cost:
$160. Call 856-787-9700. The conference is expected to attract CEOs
and senior management from companies in all stages of growth, as well
as venture capitalists, investment bankers, and others interested
in participating in the expansion effort through capital investments.
Heesen says that one reason for the downturn in reduced venture
will be the need for investors to spend more money strengthening
investments. Therefore, Heesen maintains, more than ever before,
need to create the best business plans possible, with excellent
teams in place, with evident indications for good revenue streams.
Investors are looking for companies capable of going public.
The good news for New Jersey is that industries based here remain
appropriate targets of venture capital funding. "The venture
industry has been the primary catalyst for the explosive growth of
the high tech and biotech industries in the United States over the
past 20 years," says Heesen. "I think that biotech is one
area that is actually ripe for growth in 2001, unlike other areas
of venture investing, which likely will decline from the record levels
Heesen holds a law degree from Penn State and a B.A. in political
science from Duquesne University in Pittsburgh, Class of 1980. He
has been associated with NVCA since 1991, serving as president since
1999. After the Capital Conference, Heesen will lead a VC and Equity
Sources Forum at 2 p.m.
In his luncheon speech, Heesen will review venture capital figures
for 2000, as well as discuss policy issues that face both
and venture capitalists this year, and the position NVCA is taking
on them. They include:
issue for the venture capital industry is the capital gains tax.
stated, if the rate is raised, the amount of investment shrinks; if
it is lowered, investment increases. NVCA will continue to approach
policy initiatives from the perspective of their impact on capital
treatment for business transactions and financial tools continue to
generate controversy. The Financial Accounting Standards Board (FASB),
an independent regulatory body overseen by the Securities and Exchange
Commission (SEC), is moving forward with an effort to eliminate
accounting for business combinations. In addition, the International
Accounting Standards Committee (IASC), an advisory body made up of
representatives from FASB and other foreign accounting standards
has issued a paper calling for the expensing of stock options.
that expand the opportunities and efficiency of worker training
as well as more fundamental education reform.
support lets employees who have been granted stock options to delay
their tax obligation from the exercise date to the date they sell
them. This legislation is aimed at encouraging more retirement saving
by rank-and-file workers through tax-qualified stock options. Another
bill NVCA supports would provide certain tax advantages to expand
the use of employee stock purchase plans (ESPP).
was introduced to modernize the Employee Retirement Income Security
Act (ERISA). Work on this legislation, which contains certain
provisions, will continue this year.
Improvements Acts of 1976 was designed to give the federal government
the opportunity to review mergers, acquisitions, and other business
consolidations prior to a deal’s completion. This would ensure there
was no risk of creating a monopoly as a result of the new organization
being created. One of the criteria for having to file (there’s a
filing charge) was that the size of the business needed to be $15
million in assets or more. The revised bill raises the business size
to $50 million. While this will provide certain critical relief to
the venture capital and entrepreneurial communities, additional
reforms may be pursued in the new Congress including redefining the
definition of "passive" investor and the elimination of filing
determine if certain software enabled business process patents, such
as Amazon.com’s patent for its "One-Click" website feature,
pose a threat to E-commerce or if they protect ingenuity and force
competitors to develop alternative — and better — business
agenda next year. Privacy advocates are seeking strong limits on the
collection and use of online data. Two main issues will be of
online privacy regulations and database protection. NVCA will advocate
policies that assure the growth and will not impede the promise of
the Internet and E-commerce.
is renewed annually, bars federal funding for research that destroys
embryos. The importance of this issue has been heightened by recent
breakthroughs in harvesting and using stem cells. NVCA advocates
to expand research in this area.
Tyrone Williams , one of the conference panelists, "provide
entrepreneurs with the tools to prepare themselves for the equity
markets and enhance their ability to obtain capital." Williams
is the manager of the Technology Financial Services and Consulting
Group at First Union National Bank, which has a regional headquarters
on Scotch Road in West Trenton. "Businesses seeking capital,"
he says, "need to understand the importance of having an
written business plan, having the ability to articulate one’s
and having the right group of advisors, as well as understanding the
various channels of financing alternatives and the differences between
them. Without access to capital, the technology revolution would never
have happened or continue to grow."
— Michael Schumacher
As a young firm, you can hire a capital consultant and
pay a percentage of the funds you get, but you can also lean on your
lawyer or accountant to beat the bushes for you. Some law firms do
get very involved in matching their clients with funding sources.
"To compete effectively with the Bay Area law firms, we don’t
wait for people to come to us with a deal, we help young firms access
the dollars and open the doors," says Victor Boyajian, talking
about the services that Sills Cummins offers to midcap and younger
companies. A graduate of the University of Rochester, Class of 1982,
he went to law school at the University of Pennsylvania and joined
the firm with 175 lawyers in Newark, District of Columbia, Manhattan,
and Palo Alto.
Boyajian is helping the Credo Group on Alexander Road find funding
(see story below) and is speaking at the New Jersey Capital Conference
on Friday, January 26, at 9:35 a.m. at the Princeton Marriott. Jan
Leschly, CEO of Care Capital LLC at Princeton Overlook, will give
the opening keynote at the Capital Conference, followed by Boyajian’s
workshop/panel sessions and two other sessions. Cost: $160. Call
Boyajian’s panel is titled "Ten Sure-Fire Ways to Attract Early
Stage Venture Capital" moderated by Gerard S. DiFiore of
ReedSmith LLP at Forrestal Village. The other panelists are Jim
Gunton of NJTC Venture Fund and John W. Reynolds
Ventures at Forrestal Village.
The moderator for "What Exit for NJ Technology Companies? M&A
— Counting the Deals on the NJ Turnpike," also at 9:35 a.m.,
is Christine M. Marx of Duane, Morris & Heckscher LLP at Forrestal
Village. Among the panelists is Gregory H. Olsen of Sensors
Unlimited at Princeton Service Center.
At 10:40 a.m., the second set of panels begins. "Where to Go When
the VCs Say No: Alternative Financing Techniques for Starting and
Growing a Business" is moderated by Kenneth M. Van Deventer
of Riker, Danzig, Scherer, Hyland & Perretti LLP in Trenton. John
Tesoriero of the New Jersey Commission on Science & Technology
is among the panelists.
The moderator for "Help from the Heavens: How to Get Touched by
an Angel" is Steve Cohen of Morgan, Lewis & Bockius at Carnegie
Center. On the panel are John Ason and Robert Schaeffer
private investors, and Craig Allsopp, founder of Internet
Group, which recently expanded from the Straube Center to Newtown,
For "Getting Ready for the Next IPO Window," at 11:45 a.m.,
the moderator is David Sorin formerly of Buchanan Ingersoll
and now with Hale and Dorr at Carnegie Center. On the panel is Brendan
Dougher of PricewaterhouseCoopers LLP at Forrestal Village. The
moderator for "How to Obtain Financing for Your High Tech
is Caren Franzini of the New Jersey Economic Development Authority.
Panelists are Ty Williams of First Union National Bank, Kathleen
Coviello of TechBanc/Progress Bank, and Michael Nita
Biddle & Shanley LLP at Forrestal Center.
"As a strategic partner," says Boyajian, "we look for
the 5 to 15 VCs who are most likely to have portfolio companies that
match your profile, and then we make calls and introduce you. But
at the end of the day you are making your own investment
"We don’t just call a golf buddy. We have research databases and
trained young lawyers who understand how this space works," he
says. "We are not the only firm that does this," he admits.
"Our view is that the client will grow and prosper and the clients
will be extremely loyal."
Yes, the attorneys charge for their time, but the time needed to make
a call and send a business is, he says, minimal. "Unlike
bankers and capital consultants, we don’t take don’t seek remuneration
for these marriages." The payback comes in the deepening of client
Brand-new companies, especially high-technology ones
with no track record, don’t find it easy to get bank loans. Some
— up to $25,000 or $35,000 — might be made available through
an SBA Microloans (see story below). But even angel investment or
venture capital is hard for them to come by.
"We had a lot of trouble getting banks or private funders to even
talk to us," says Jeff Payne, CFO of the Credo Group, which
does Web-based direct marketing at 741 Alexander Road. "If you
have been in business two years, you are a high credit risk."
Thanks in part to last year’s NJTC capital conference and advice from
his attorney, Victor Boyajian of Sills Cummis et al in Newark,
Payne applied to the New Jersey Economic Development Authority and
came up with a whopping $466,000 loan from the New Jersey Seed Capital
Program. (For information on the NJEDA’s Seed Capital Program, call
"When we registered with the state we were sent information
EDA programs," says Payne. "That was the first time I had
heard of the EDA." He was reminded of the Seed Capital Program
at last year’s NJTC capital conference. "Our attorney also
speaking with the EDA, to get smaller amounts to tide us over until
the venture capital comes through." Payne started the financing
search last February, spoke with the EDA in April, and closed the
deal in October, 2000.
The EDA’s Seed Capital loans of up to $500,000 are tailored for young
firms. "The EDA’s application process required us to prove we
could not get funding from a private bank," says Payne. "In
addition, had we been able to get financing, the interest rates would
have been much higher." The loan was prime rate at the time it
was made in October, 9.5 percent for one year, with the term of the
loan for five years. The young company will use part of the loan for
worker capital needs and the rest for buying equipment it needs to
"Getting prime interest rates after being in business a year would
be very hard to do," says Payne. A bank, he says, would have
a rate similar to credit cards, "15 to 20 percent if you could
"New Jersey has a strong commitment to fostering the establishment
and expansion of high-tech businesses like the Credo Group," says
Caren S. Franzini, the executive director of NJEDA, who speaks
at the January 26 conference. "Programs like Seed Capital loans
and other types of financing incentives demonstrate our commitment
to fostering growth in the technology sector and making New Jersey
the Innovation Garden State."
All three Credo staffers had been working at Langhorne-based DiMark
Inc., a large direct marketing agency owned by Hart-Hanks. Kevin
McKenna, a Georgetown University alumnus, started a web-based
there in 1998 and he and Clair Boger founded the Credo Group
on Alexander Road early in 1999. Payne joined the company that
An accounting and finance major at Lehigh, Class of 1992, Payne has
been with Arthur Andersen in Philadelphia and CFO of DiMark.
"At the time we founded our company last year, no one was
incorporating direct marketing techniques with the Internet,"
says Payne. "We develop strategies and campaigns, find out who
we should target, and then we buy a list. We picked Princeton as
between New York and Philadelphia, and Princeton has a prestigious
The company has insurance, financial, and entertainment clients such
as TransUnion, Globe Life and Accident, and VerticalOne. With about
20 employees now, it expects to more than double that within two
and it expanded from the Daily Plan-It at 707 Alexander Road to 741
Alexander, next to Easy Graphics, in December (609-750-2640; fax,
Payne is still looking for venture capital and recounts his
VC financing search. He started by trying to find similar companies,
"companies that did deals in our space at the levels of funding
we wanted to do." Concurrently he asked Boyajian and the other
attorneys at Sills Cummis to look for a good match. "They have
done hundreds and hundreds of deals," he says. "At the time,
February 2000, people were already pretty heavily invested in our
"We are at the front of the dot com wave, but we are not really
dot coms. And VCs don’t like to have competing companies in their
portfolios. We ended up going to Capital Management Advisors, and
are in the process of brokering a deal."
MicroLoans are getting bigger. On January 10, the U.S.
Small Business Administration announced that its SBA MicroLoan program
has raised the amount of its maximum loan to small businesses from
$25,000 to $35,000. The new rules also permit a higher limit for
who secure additional financing from another source, upping the
combined total from $75,000 to $105,000.
This is good news for nascent entrepreneurs, for whom an SBA MicroLoan
often is the best hope for seed money to get a business going, or
to keep it growing.
Proceeds from MicroLoans, which are made through local nonprofit
may be used for working capital, inventory, supplies, furniture,
machinery, or equipment, but not for the purchase of real estate.
The maximum term of the loans is six years.
Last year New Jersey businesses received 114 MicroLoans for $2.1
That is a substantial increase from 1999, when SBA intermediaries
made 68 such loans for a total of $1.2 million.
MicroLoans to women and minorities rose last year too. African
received 33 MicroLoans totaling $634,445 and women-owned businesses
received 43 MicroLoans for a total of $738,654.
New Jersey small businesses ranked third overall among the states
last year in the total amount of SBA loans granted, receiving 9,228
loans for over $2 billion. The state ranked fourth in MicroLoans.
Virtually any type of for-profit small business is eligible for a
MicroLoan. Not-for-profit child care centers also are eligible.
must meet credit requirements of the intermediary lender.
For Middlesex County, the SBA intermediary is the Greater Newark
Development, (856-966-8181). For Mercer County, the intermediary is
the Trenton Business Assistance Corporation, (609-396-8271). For
the intermediary is the Union County Economic Development Corporation,
Technology and non-technology companies from the
area (Connecticut to Maryland) may apply to be one of 60 exhibitors
at the New Jersey Venture Fair by Friday, February 2. Fee: $395 for
a booth and an optional table. Call 856-787-9700.
Sponsored by the New Jersey Technology Council and others, the fair
will be held on Monday, March 26, at Liberty Science Center in Jersey
City. It will include a VC & Financing Network breakfast, lunch, panel
discussions, exhibitor presentations, awards, and reception. Cost:
$150. Early registration for attendees, at $110, is due before Monday,
Corrections or additions?
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