Published: Sunday, October 22, 2000

Focus essential to going after venture capital

Steve Pederson is a partner in Edina-based Sherpa Partners, a hybrid venture capital/venture catalyst company that invests in early-stage technology companies in Minnesota. He offers this advice to WeaveIT on raising money through the venture capital process.

You hear it all the time: ``There is a tremendous amount of venture capital out there.'' While this is true, the allocation of venture assets by major funds in the past six months has increasingly been made in larger chunks, but to fewer companies. And venture capital firms on the coasts are doing less early-stage investing than in years past, leaving early-stage entrepreneurs outside of Silicon Valley struggling to find cash from regional equity resources.

So it's tough to get venture money. WeaveIT faces many of the same challenges we see in the hundreds of business plans submitted to our firm each year.

Focus is often the main challenge for a new company, and a good way to help focus is to remember this: Can you distill your firm's mission into a 20-second ``elevator pitch'' so even a casual listener will get it?

While I believe WeaveIT has experienced and professional technologists who are terrific at creating customized online databases, what is the company's focus for growth?

Are they specializing in placing IT job-seekers? (I've read five plans in Minnesota this quarter from companies striving to conquer this market segment). Are they going to take on the Big Five consulting firms and other major IT service heavyweights like Keane and Born? Or are they going to become a specialized Application Service Provider focusing on creation, design and hosting in the online database sector? Without a tight focus, venture capitalists cannot do a good job on due-diligence and will probably pass up-front.

Sherpa helps companies like WeaveIT better communicate their plans for growth by using an ``entrepreneurial blueprint'' and a set of ``tools to make an initial pitch.'' Essentially, WeaveIT or any firm seeking venture capital must pass several tests, including:

  • Rigorously quantifying its market and the potential growth opportunities for its product or service.

  • Adequately defining its unique strategic advantage -- or in other words, describing ``why you will win.''

  • Demonstrating that it has experienced management.

    If you have a ``been there, done that'' CEO, chances are your deal will get funded. Unproven managers have never built companies. The smart money is not going to pay their tuition to learn how to build a company.

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