Jim Bryant founded his company, Pro CD, a publisher of telephone directories on CD-ROM, only three years ago, and already the company, based in Danvers, Mass., has reached $10 million in annual sales. "At first we were able to finance our growth out of cash flow, but by 1993 our sales were up to $2.5 million, and we knew we'd need access to outside capital. We started to think about venture capital," he recalls.

The cleverest investment strategies may seem like failures in their early stages. "Through friends and business contacts, I initiated conversations with a range of venture capitalists," says Bryant. "Those early conversations told us just how incredibly unprepared we were." He laughs. "Our first meeting with venture capitalists was a complete disaster. I didn't expect anything like the probing questions they asked about the company or my own business background," which, Bryant admits, had included a few entrepreneurial failures.

It was fortunate that Pro CD, at the time of those exploratory meetings, was not yet strapped for funds. "I stayed in touch with those firms for another 18 months, during which time they were able to see that Pro CD was actually exceeding growth projections. That helped establish credibility."

By last August, though, Bryant was ready for outside cash. His first move was crucial: he hired a top-notch chief financial officer with a decade of computer-industry experience. "Within two weeks, the new CFO had lined up a $1.5-million bank credit line. That gave us the luxury of enough time to explore about a dozen possible venture-capital deals."

After consideration of Pro CD's position, Bryant decided that it made sense to split its venture-capital needs between two firms: "I thought that if each one had a seat on our five-person board, and if the two of them -- completely independent of one another -- agreed on a management strategy, their agreement would be a pretty good indication that the strategy was worth taking seriously."

The deal, which closed last November, raised $4.5 million from two firms. In return, each firm now holds an equity stake of 10%.

"The way we handled our venture-capital negotiations -- starting early, building credibility, negotiating from a position of strength -- was really key to our never having to trade a majority stake in the company for capital we needed," Bryant emphasizes. "Now we're positioned to maintain our fast growth, and soon, with the help of our venture investors, we'll be ready to go public."