In Kevin Shea's case, computer dating worked beautifully.
Shea is the founder of Binary Engineering Software Inc., a Waltham, Mass., start-up that makes engineering and scientific graphing software. Through Venture Capital Network Inc. (see "Where the Money Is," Required Reading, August 1987) he met Russell Harter, a Natick, Mass., businessman who likes to invest in small companies. It was a typical match for Venture Capital Network (VCN), a Durham, N.H.-based matchmaking service that specializes in deals too small to interest many venture capital firms.
In Shea's case, VCN brought unusually quick results. Looking for $100,000 to help market his new product, in May Shea paid $100 to be listed for six months on the network, which currently carries about 120 entrepreneurs and 100 investors. After Shea sent VCN a business description with names deleted for confidentiality, the network decided Binary Engineering fit the criteria of 38 investors. Each got a copy of the summary, and 11 of them asked for more information. Eventually, the company was contacted by 6 potential dealmakers. Shea chose Harter. By the end of August, the two men had completed a $25,000 deal -- and Shea's own searching had lined up 3 other investors for the remaining $75,000.
To Harter, who spent more than 20 years in the insurance and venture capital businesses before going out on his own as an investor, the network is "probably the best source of leads" in his geographic area (he doesn't like to be involved with companies more than an hour's drive away). Harter has been listed with VCN for a couple of years, and the network typically generates at least two contacts a month for him. This is his second network deal.
When it works out, VCN provides an impressive return on investment for its participants (Shea, for example, spent $100 to get $25,000; Harter's listing fee is $200 a year). The catch is that, like any venture capital source, VCN contacts lead to matches for only a small fraction of its users. Since its 1984 founding, VCN pairings have resulted in deals for 2.6% of the 500 entrepreneurs and 7.5% of the 400 investors who have used the system. On average, each entrepreneur listed has received between three and four leads. And VCN is still small: while the network has 13 affiliates open or opening in various states, many remain in the formative stages, and membership growth has been slower than expected.
Even so, for the fortunate few who find compatible matches, VCN provides a welcome respite from the often-agonizing process of looking for money. "You sit back and wait," remembers Shea happily. "And it's real nice when people come to you rather than having to pull them out of the woodwork.