For the past year I have been trying to raise funds to launch a new product, a guitar accessory that I've invented. I showed a prototype to large manufacturers at a recent trade show. Everyone who saw it said the product has great potential, but no one was willing to invest in or manufacture it. I don't have a lot of collateral, and my family isn't rich. How do I find start-up funds? Is there a list of venture capitalists I could consult?
"In tough markets like these, venture capitalists are less likely to invest in early-stage deals that require a lot of money and high risk and offer little chance of return within a reasonable time frame," says Nancy Pfund, a general partner at Hambrecht & Quist, in San Francisco, and one of the experts who scrutinized our June 1990 Anatomy of a Start-up on The Plastic Lumber Co. "The industry is under pressure to deliver better returns, and that's caused an increase in caution." That said, Pfund allows that venture capital is still available to the entrepreneur with a "well-thought-out plan and a team to match, not just another good idea."
"Connections aren't necessary, but they sure help," says Dean Treptow, chairman of Polaris Group Inc., a mezzanine capital fund in Milwaukee, who told us how to deal with bankers in the February 1990 issue. If you do send out letters blindly, Treptow says trade shows are a good way to find out which firms are interested in your industry. He also recommends VC fairs sponsored by state or municipal governments or private-enterprise groups. "You don't have to attend," he says. The state department of business development can tell you when such fairs are scheduled. "Just call and get a list of the firms that are going."
If you're still gung ho, you may consult the following resources for venture capital information:
Venture Economics Inc., in Needham, Mass., publishes Pratt's Guide to Venture Capital Sources, edited by Jane K. Morris ($145 plus $5 shipping, prepaid, 75 Second Ave., Suite 700, Needham MA 02194, 617-449-2100). It lists 800 U.S. and Canadian venture firms, including their tastes in industry, locale, and type of financing, and additional information. It's available at large business libraries.
The National Venture Capital Association publishes a directory of its 220 members. It gives only addresses, telephone numbers, and contact names, but it's yours for the price of postage. Send a self-addressed 9-inch-by-12-inch envelope with $1.85 postage on it to NVCA, 1655 N. Fort Myer Dr., Suite 700, Arlington VA 22209.
The MIT Enterprise Forum Inc. organizes monthly forums in which start-ups present their business plans to investors and professionals who critique them, much as we do in our Anatomy of a Start-up series. Forums are held monthly at 16 offices nationwide, and it costs $30 to have a business plan included in a session. Before sending a plan, call (617) 253-8240. It's suggested you observe a few forums before presenting your plan.
Dean Treptow recommends Ernst & Young's Preparing a Business Plan to entrepreneurs nervous about making a good impression. The $12.95 booklet includes a chapter on how to make your plan more attractive to VCs. To order, contact Ernst & Young at 1300 Huntington Building, Cleveland OH 44115; (216) 861-5000.
Elizabeth Conlin looked at another source of start-up capital, angel investors, in her September 1989 Inc. article "Adventure Capital" ([Article link]). And this month Ellyn E. Spragins takes us through an angel investment now in the works and tells you how to construct a similar deal ("Heaven Sent," [Article link]). n