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Business Services Industry

Talk Is Cheap

Entrepreneur, Feb, 2001 by David R. Evanson, Art Beroff

... but networking can go a long way toward getting you big venture capital bucks.

If you want something done right, do it yourself, the old saw goes. No truer words were ever spoken for Ray Jones, 41, president, CEO and founder of Firm Systems Inc., a Reston, Virginia, Web-based application service provider (ASP).

The tale dates back to Jones' prior career as an attorney. As head of a 15person law firm, he searched for an integrated desktop interface that could handle it all: billing, time and case management, e-mail, and file sharing.

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"I learned internal networks were too expensive and current Web-based offerings were too shallow," says Jones. The result was vFirm, a company Jones founded in October 1999 to produce a technology platform allowing professional services firms to set up virtual networks on the Net.

Jones used his own savings to fund the company, but by late spring 2000, he decided vFirm needed $250,000 to $500,000 more to fund the beta version of the platform. "My plan of attack was to approach local VCs, then turn to our advisors for contacts or capital or both," says Jones. "I also felt we might raise funds from strategic partners, such as a high-speed Internet provider."

However, Jones did not envision that a chance meeting would be the source of the $250,000 in capital and $500,000 of in-kind technical services he received. But, as he quickly found out, active networking is one of the most effective ways for entrepreneurs to raise capital.

A CLEAN, WELL-LIGHTED PLACE

In Jones' case, he ran across a newspaper ad for a First Tuesday meeting at a Washington, DC, restaurant. The London-based networking organization, started in 1999, now has operations in 130 cities worldwide, according to David Jacobson, a partner with Sonnenschein, Nath & Rosenthal, which heads the First Tuesday operation in Chicago.

Jones says that when he got to the meeting, he bumped into Chuck Mills, a principal at venture capital and consulting services firm Salera Capital Management, also based in Reston. "It turned out we had a lot of common experiences," he says. "We exchanged cards, and I agreed to send him my business plan the next day." The pair worked on changes to the plan, and Mills introduced Jones to local angel investors.

The scenario is anything but unusual these days, according to Jacobson. "What made this connection successful," he says, "was adherence to some subtle and not so subtle conventions of networking." In Jacobson's experience, these are the rules of networking to fund your business:

1. Plan your approach.

You can greatly increase your chances of success with some advance planning, says Jacobson. First, scout out local networking organizations to determine which events you want to attend. Then ask organizers whether investors are attending the events, and make it your objective to meet those investors.

Be careful not to push too hard for information about attendees, though, as well-connected organizers, like Jacobson, tend to react by politely feigning ignorance. No organizer wants to get calls from investors that begin with "Why did you sic that nut job on me?"

Jacobson says it helps to decide how many investors you want to meet. "With a number in mind," he says, "you'll work the room with more purpose than simply relying on serendipity." Try to get the names of at least three investors but not many more than five--because to be effective, you need to follow up fast.

2. Work it.

Not everyone is adept at striking up conversations with total strangers. But if you're serious about networking to raise capital, you'll have to. "Don't be shy," says Jacobson. "Take responsibility for reaching out to potential investors and getting them to hear your story."

At networking events, it's perfectly acceptable to walk up to strangers and introduce yourself, says Jacobson. But after you've gone over the basics--what brought you here, your thoughts on the speaker--it's time to take the conversation in a new direction by asking "What do you do?"

As banal as this sounds, it's an important springboard, because the question will come back to you just a few minutes later. And you've got to be able to respond with a memorable introduction of yourself. "It should be short," Jacobson says. "No more than 15 seconds, which is ample time to get a compelling message across." For example: "I've founded a company that I hope will change the face of publishing by producing mystery books that rely on Web-based content for clues. Now I'm looking for $5 million to put several titles into print."

3. Hit up other entrepreneurs.

If you run into another entrepreneur instead of an investor at a networking meeting, don't think of it as an immediate dead end. Jacobson says there's a "we're in this together" feeling among entrepreneurs. As a result, he says, they can be your best source of information, because they have fresh leads and understand the preferences of investors who've already said no to them. Says Jacobson, "If an entrepreneur tells you 'I spoke with an investor last week. He wasn't interested in my company but said he was looking for companies like yours, that's an extremely valuable lead."

Business Services Industry

Talk Is Cheap

Entrepreneur, Feb, 2001 by David R. Evanson, Art Beroff

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