JACKPOT!

Entrepreneur,  July, 2001  

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WHY BET THE FARM ON AN UNKNOWN VC WHEN YOU CAN FIND A SOURCE WITH THE FUNDS AND KNOW-HOW YOU NEED TO TAKE YOUR BUSINESS TO THE BIG-MONEY TABLE?

Do you see the glass as half empty or half full? If you're in the former camp, you may view the tech wreck as the death knell for early-stage funding. If you're in the latter camp, you probably see a much different picture. Despite the tumult, cash is still available. But you need to give investors a reason to invest.

Sunil Dhaliwal, a senior associate with Battery Ventures, a Wellesley, Massachusetts, venture capital firm with $1.8 billion under management, looks at a half-full glass.

"If you believe early-stage funding can't be found, that's tantamount to saying there's no more innovation left to be funded," says Dhaliwal. "It's highly unlikely that 2001 is the year that innovation will cease to exist."

Of course, there are caveats. Investors want more experienced management teams, so first-time entrepreneurs will have a hard go. Also, investors are looking to capitalize on less crowded niches and are avoiding me-too companies. "The [best] candidates are those focusing on problems or opportunities that will crop up in [the next] 18 to 24 months," says Dhaliwal.

Tighter screening means fewer deals, but an optimist sees the silver lining. If the number of firms raising early-stage venture capital goes back to levels seen in 1996, '97 and '98, then 2001 could be the year when things finally return to normal. That's welcome news for businesses hoping to thrive in the post-New Economy.

The "PricewaterhouseCoopers MoneyTree Survey in Partnership With VentureOne," prepared exclusively for Entrepreneur, is proof that funding is still out there. By culling the firms with the most early-stage deals in 2000, we offer insight into the VC firms most likely to infuse your business with the cash it needs. (See "Top 100 Venture Capital Firms for Entrepreneurs" on page 62.)

Picking a VC firm, however, takes more than simply pointing at a name on a list. The most important thing is to find a firm that's a perfect fit with you and your business. The following three entrepreneurs did the legwork, and the following three investors liked what they saw--companies that complemented the investment strategies of their respective firms. When the two sides came together, they made very successful businesses--d that means everybody benefited.

David R. Evanson

PLAYING His TUNE

Steve Wood & Gerry Langeler DJANGOS RECORDS & OVP VENTURE PARTNERS

WHEN STEVE WOOD BOUGHT PORT-land, Oregon-based Djangos Records in 1999, he envisioned a future for the store that went beyond used vinyl records and obscure indie bands. Wood, 36, wanted to turn Djangas into the industry's most successful independent retailer. But there was just one problem: He needed cash.

Meet Gerry Langeler of Kirkland, Washington-based OVP Venture Partners. Langeler had funded Wood's first venture--a software company--and liked Wood's entrepreneurial spirit. "We admire Steve's attitude and drive," says Langeler. "Steve is a scrappy competitor."

Djangos also represented an attractive opportunity for OVP. "This business will do better in a downturn because people are more price-sensitive," says Langeler. "[Djangos is an investment that will retain value], because it has protection on the downside that we almost never see."

Thanks to lead investor OVP and a few other VC firms, Wood's company received $9 million in first-round financing last year. Djangos (named after legendary guitarist Django Reinhardt) now has 19 stores in five major metropolitan markets, a Web site that lets customers access all the stores' inventories, and projected revenue of $70 million for 2002. "What makes Djangos unique is our relationship with customers," Wood says. "They come to our store to buy and sell eclectic products that are out of print or hard to find."

Langeler's hands-off approach has worked out perfectly for Djangos. "The last thing we want to do is run the company," says Langeler, who is a Djangos board member. "We have a strong influence, not control. We're just here to write checks and pour fuel on the fire."

Peter Kooiman

CLEANING UP

Kirk Huntsman & David Bogetz

DENTAL ONE & ABN AMRO PRIVATE EQUITY

GETTING MONEY IS LIKE PULLING teeth. At least, it feels that way. Thankfully for Kirk Huntsman, 43, getting expansion capital for his dental practice consolidation and management company, Dental One, wasn't nearly that painful. When David Bogetz of ABN AMRO Private Equity in Chicago came looking for Huntsman, he offered more than just the financing Dental One needed; he also brought plenty of business savvy to the table.

Designed to relieve management headaches, Dallas-based Dental One takes over dentists' daily business matters, such as hiring employees and negotiating leases. After starting the company in 1995, Huntsman and his co-founders realized they had tapped into a huge market and, more important, that their business model was working.