In Search Of A Better Business Plan

With more money to invest than ever before, venture capitalists are going on the regional conference circuit to find new deals, providing entrepreneurs with one of the best opportunities to get financing that has come along for years.

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Last spring, at a conference in Albany, N.Y., designed to acquaint entrepreneurs with venture capital, Alan J. Patricof, a New York City venture capitalist, was reflecting on his 14 years as a backer of promising young companies. Until a couple of years ago, he recalls, "we could invest in nearly anybody we wanted, and at very attractive prices." But, he observes, as record dollars have flowed into the hands of the nation's venture capitalists and the public equity market has soared, the pendulum has been swinging more in favor of those needing money. "There must be 500 venture capitalists for you to talk to, so it's a darn good environment," says Patricof, whose firm has participated in financing such successful companies as Apple Computer and Childcraft Education. "This is the time to quit your job and do what you want to do."

Lured by the recent performance of venture capital professionals, investors, including a growing number of employee-benefit and college-endowment funds, have been pouring money into risk capital pools like never before. In the past three years, more than $4 billion in new funds have come into the market; the $1.7 billion inflow during 1982 alone was nearly four times the total sum invested from 1970 to 1977, according to Stanley Pratt, president of Capital Publishing Corp. in Wellesley Hills, Mass., which publishes Venture Capital Journal. As the increased supply of venture capital money brings hundreds of entrepreneurs out of the woodwork and helps generate dozens of new investment funds, it is also fueling a proliferation of venture capital conferences in such cities as Albany, Cleveland, and Pittsburgh -- stops many fund managers didn't often make during the days when money was less plentiful.

The venture capitalists, who typically seek returns of 40% to 60% per year, have hardly given up looking for attractive investments in California's Silicon Valley and Massachusetts's Route 128, where they have been ubiquitous and mostly successful. But the growing competition among fund managers, together with the sheer amount of new capital available, is prompting many of the managers to spend more time sniffing out early-stage investment prospects in other parts of the country. It is a process which at least some venture capitalists believe is being enhanced by the increased number of regional conferences. "Contrary to popular perception," says Stevan Birnbaum, a Los Angeles -- based general partner with Oxford Partner, "we have to market our money and our abilities to help companies succeed, just as entrepreneurs have to sell us on what they're trying to do."

The conferences, most of which art jointly organized by universities and accounting firms, are providing venture capitalists with opportunities to make initial contacts with a number of companies at once and to establish early impressions about products and management talent -- judgments that may be hard to make from a stack of business plans. At a seminar last May in Albany, sponsored by Rensselaer Polytechnic Institute and Venture Capital Journal, for example, around 20 professional venture capitalists, among them Patricof and Birnbaum, spent two days listening to company presentations and mixing informally with entrepreneurs from more than 60 businesses based in upstate New York and in New England, as well as with Big Eight and local accountants and attorneys. The companies attending the RPI conference, mostly early-stage concerns involved in applications of proven technologies, represented everything from robotics to biotechnology and solar energy.

In a field where time can be the most limiting factor, "it's usually hard to justify hopping on a plane to see one company in a region you're not familiar with," says Birnbaum, whose four-man partnership gets about 500 proposals annually before selecting perhaps 10 investments. By necessity, he says, most of his traveling is thus associated with deals that have been qualified by the firm's analyses or by other venture capitalists looking for co-investors. "But if I can get a feel for 10 or 12 companies at a two-day conference," says Birnbaum, a former principal with Xerox Corp.'s venture capital subsidiary, "that's a fairly productive use of my time."

Venture capitalists, though, aren't attending conferences solely for the purpose of harvesting the current crop of investment candidates. "By going into an area," says G. Felda Hardymon, a partner with Bessemer Venture Partners of New York, "we can learn an awful lot about what's happening there and begin to develop some strong local contacts with accountants and attorneys." Particularly in a climate where attractive prospects are being pursued by several competing fund managers at once, he notes, "it's important for people to know who we are and be aware of our track record."

For entrepreneurs, the regional conferences are providing insights into how venture capitalists evaluate investment prospects and what it takes to rise above the sea of companies looking for backing. Four-year-old Power Kinetics Inc., a $2 million company in Troy, N.Y., involved in research and development and the manufacture of renewable energy products, for example, presented its business plan at the Albany conference as a prelude to "a serious approach to venture capitalists late this year or in early 1984," says president Mark P. Rice. "We used it as a learning opportunity and a way to make our next proposals better." Among the things Rice learned was that he and his associates would have to do a much more detailed market analysis in order to be taken seriously by investors.

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