Fair game

Entrepreneur, Oct, 1998 by David R. Evanson, Art Beroff

There's no doubt about it: Mark Tofano is on the cutting edge of telephonic integration. His 4-year-old company, TeleSys Technologies Inc. in Charlotte, North Carolina, has developed a product called SynPhony, which controls, routes and manages a business's data, voice and video communications through a single consolidated (and literally black) box.

"By simultaneously handling the switching functions for the three primary communications media, our product taps into the market potential to replace or enhance PBX equipment, voice-messaging systems, videoconferencing, local and wide area networks, and data servers," says Tofano, 54. "Standing alone, they're big markets. But when combined, it's [an even bigger] opportunity." To tap this potential market, however, TeleSys needs about $1 million to make the transition from the product development stage to the initial rollout.

But as much as Tofano and his company may be on the leading edge of computer telephony integration (CTI), when it comes to raising capital from angel investors or early-stage venture capital funds, they're in the same place as everybody else. To raise money, Tofano must methodically beat the bushes for investors, call each one personally, send them his business plan, then follow up, follow up, follow up. "Raising capital can be tough because in many respects, it's a number's game," he says. "Generating the right number of leads and then tracking them down takes a lot of time."

Time that many small or emerging businesses don't have. It's a sobering thought when you consider that most small businesses don't fail - they run out of money.

ON YOUR MARK ...

So how does an entrepreneur increase the number of investors who are exposed to his or her company and compress the time frame for raising the oh-so-critical early-stage financing? The answer for Tofano, as well as a growing legion of capital-hungry entrepreneurs, can be found at one of the many venture capital fairs popping up nationwide.

The idea of venture capital fairs is certainly not new. Professional and institutional venture capitalists have held them for years. What is new, according to David Freschman, president of the Delaware Innovation Fund and chairman of a venture fair known as Early Stage East, is the increasing number of venture capital fairs that are catering to early-stage businesses. These fairs are attended by individual angel investors as well as early-stage venture capitalists. Such venues are materializing, Freschman says, because traditional venture capitalists focus largely on more mature companies. "That leaves not only entrepreneurs but also investors in a lurch," he says.

Testimony to the void being filled is Freschman's Early Stage East, which was held in June in Wilmington, Delaware, with a big boost from the state's Economic Development Office. More than 180 investors from Boston to North Carolina attended the event to rub elbows with 24 entrepreneurs, who were on hand to share their stories and convince investors that investing in their companies would return a multiple of the investment in a very short period of time.

KNOW THE RULES

Early Stage East, like many venture fairs, offered entrepreneurs several opportunities to pitch investors. First, there was the opening reception, held the first evening, where entrepreneurs and investors circulated freely. Says Freschman, "The better you are at working a room, the more successful you'll be in this environment." But regardless of your networking skills, these fairs give you a target-rich environment in which to work.

Next, there were the display booths. Each of the 24 companies that presented at the fair had the opportunity to showcase their wares and work the show's investors as they filed past their booths, stopped to ask questions, or picked up the freebies that some presenters offered.

Another big opportunity for entrepreneurs to meet and interact with investors was during lunch. Tables were "owned" by the presenting companies and clearly marked. Investors who wanted to meet with the small-business owners had only to find the table of the company that most piqued their interest. Sometimes investors sat at tables for reasons related more to musical chairs than interest in a deal. But, says Freschman, many investors proactively used the situation to get to know a company better and to ask questions in a setting that didn't tip off other investors to their plans. "Whatever the motivation," says Freschman, "meeting an investor over lunch represents a golden opportunity for entrepreneurs who want to raise capital."

Finally, there were the formal presentations, which Early Stage East held during four sessions scheduled throughout the second and final day of the conference. Here, each presenting company at the conference got the stage for eight minutes to tell their story. Says Freschman, "The formal pitch is important because it often gives companies the highest-quality exposure to the greatest number of investors at one time."

AHEAD OF THE GAME