Jackpot! Why bet the farm on an unknown VC when you can find a source with the funds and know-how you need to take your business to the big-money table?

Do you see the glass as half empty or half full? If you'rein the former camp, you may view the tech wreck as the death knellfor early-stage funding. If you're in the latter camp, youprobably see a much different picture. Despite the tumult, cash isstill available. But you need to give investors a reason toinvest.

Sunil Dhaliwal, a senior associate with Battery Ventures, aWellesley, Massachusetts, venture capital firm with $1.8 billionunder management, looks at a half-full glass.

"If you believe early-stage funding can't be found,that's tantamount to saying there's no more innovation leftto be funded," says Dhaliwal. "It's highly unlikelythat 2001 is the year that innovation will cease toexist."

Of course, there are caveats. Investors want more experiencedmanagement teams, so first-time BIZ Experiencess will have a hard go.Also, investors are looking to capitalize on less crowded nichesand are avoiding me-too companies. "The [best] candidates arethose focusing on problems or opportunities that will crop up in[the next] 18 to 24 months," says Dhaliwal.

Tighter screening means fewer deals, but an optimist sees thesilver lining. If the number of firms raising early-stage venturecapital goes back to levels seen in 1996, '97 and '98, then2001 could be the year when things finally return to normal.That's welcome news for businesses hoping to thrive in thepost-New Economy.

The "PricewaterhouseCoopers MoneyTree Survey in PartnershipWith VentureOne," prepared exclusively for BIZ Experiences, isproof that funding is still out there. By culling the firms withthe most early-stage deals in 2000, we offer insight into the VCfirms most likely to infuse your business with the cash it needs.(See "Top 100 Venture Capital Firmsfor BIZ Experiencess")

Picking a VC firm, however, takes more than simply pointing at aname on a list. The most important thing is to find a firmthat's a perfect fit with you and your business. The followingthree BIZ Experiencess did the legwork, and the following threeinvestors liked what they saw--companies that complemented theinvestment strategies of their respective firms. When the two sidescame together, they made very successful businesses--and that meanseverybody benefited.

Playing His Tune

Steve Wood & GerryLangeler
Djangos Records & OVP VenturePartners

When Steve Wood bought Portland, Oregon-based Djangos Records in1999, he envisioned a future for the store that went beyond usedvinyl records and obscure indie bands. Wood, 36, wanted to turnDjangos into the industry's most successful independentretailer. But there was just one problem: He needed cash.

Meet Gerry Langeler of Kirkland, Washington-based OVP VenturePartners. Langeler had funded Wood's first venture--a softwarecompany--and liked Wood's BIZ Experiencesial spirit. "Weadmire Steve's attitude and drive," says Langeler."Steve is a scrappy competitor."

Djangos also represented an attractive opportunity for OVP."This business will do better in a downturn because people aremore price-sensitive," says Langeler. "[Djangos] is aninvestment that will retain value, because it has protection on thedownside that we almost never see."

Thanks to lead investor OVP and a few other VC firms, Wood'scompany received $9 million in first-round financing last year.Djangos (named after legendary guitarist Django Reinhardt) now has19 stores in five major metropolitan markets, a Web site that letscustomers access all the stores' inventories, and projectedrevenue of $70 million for 2002. "What makes Djangos unique isour relationship with customers," Wood says. "They cometo our store to buy and sell eclectic products that are out ofprint or hard to find."

Langeler's hands-off approach has worked out perfectly forDjangos. "The last thing we want to do is run thecompany," says Langeler, who is a Djangos board member."We have a strong influence, not control. We're just hereto write checks and pour fuel on the fire."

Cleaning Up

Kirk Huntsman & DavidBogetz
Dental One & ABN AMRO PrivateEquity

Getting money is like pulling teeth. At least, it feels thatway. Thankfully for Kirk Huntsman, 43, getting expansion capitalfor his dental practice consolidation and management company,Dental One, wasn't nearly that painful. When David Bogetz ofABN AMRO Private Equity in Chicago came looking for Huntsman, heoffered more than just the financing Dental One needed; he alsobrought plenty of business savvy to the table.

Designed to relieve management headaches, Dallas-based DentalOne takes over dentists' daily business matters, such as hiringemployees and negotiating leases. After starting the company in1995, Huntsman and his co-founders realized they had tapped into ahuge market and, more important, that their business model wasworking.

As it turns out, Bogetz and ABN AMRO were on the lookout for adental practice consolidation company to invest in. Bogetzcontacted Huntsman after hearing about Dental One through a Dallashealth-care lender. The company and its principals had all themarkings of a good investment for Bogetz: a proven business model,great business sense, and a stellar vision of the future. "Wereally liked that Dental One was run by businesspeople who haddental practice experience," says Bogetz. "Kirk has lotsof ideas and energy--and he's moving this business forward.It's better than having a CEO who has no ideas and no vision.I've [experienced] it both ways, and [Kirk's] way makessuccessful companies. The other way is how you lose yourmoney."

Dental One and ABN AMRO began negotiations in 1999, which led to$4 million in financing in March 2000. By year's end, DentalOne's sales were $45 million. Who'd have guessed pullingteeth could be so lucrative?

Take The Lead

Lucinda Duncalfe Holt & HenryBarratt Jr.
Destiny WebSolutions Inc. & Blue WaterCapital

Although he regularly attends venture forums, it's unusualfor Henry D. Barratt Jr., managing director of Blue Water Capital,to find a company worth pursuing. So what moved him to not onlyinquire about Destiny WebSolutions, an Internet solutions provider,but to compete with others to fund the company? It had a lot to dowith what Barratt saw in the company's president and CEO,Lucinda Duncalfe Holt.

"We first saw them at the Mid-Atlantic Venture Fair,"explains Barratt. "[Duncalfe Holt] had a strong knowledge ofleading people. She was a team-builder."

The team is the essence of Conshohocken, Pennsylvania-basedDestiny's corporate culture. "It's [about] enablingeverybody from senior management to associates and empowering themto do their jobs," says Duncalfe Holt.

Barratt also appreciated Destiny's profitability. "Theydidn't need the money to make payroll," he says."They needed it because they wanted to expand." Once BlueWater Capital pumped $750,000 into the company, Duncalfe Holt wentafter that expansion--2000 sales were $17.5 million.

Barratt says good communication is the cornerstone of theiralliance. "We've [left] situations that were greatinvestments but where we felt we couldn't communicateeffectively with the management team," he says. "It'snot the easy times we're concerned about; it's 'What ifsomething hard happens--how will we work through ittogether?'"

For information on new venture capital programs, check out"BulletinBoard."

Financial Support

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Reality Check

In the first quarter of 2001, early-stage, pre-IPO companiesraised less money than they have since the second quarter of 1999.According to the "PricewaterhouseCoopers MoneyTree Survey inPartnership With VentureOne," total equity financings inventure-backed companies fell to $10.1 billion in the first quarterof 2001, a 40 percent drop from the last quarter of 2000. Thatrepresents the steepest quarter-to-quarter drop in history in termsof absolute dollars.

What does that mean for companies seeking financing? The numberof businesses receiving early-stage funding dropped from 453 infourth quarter 2000 to 235 in first quarter 2001, a 48 percentdecline. Yet the median dollar amount each business received fellonly 13 percent, from $10.9 million to $9.5 million per company(see below for first quarter investments for the last three years).So while it's more difficult for companies to get backing,those that do, get plenty of it to grow rapidly. Plus, industrysectors like networking, telecommunications, consumer and businessservices and software continue to attract huge amounts of fundingcompared to mid-1990s levels.

The dramatic drop-off in investing doesn't necessarilyindicate a significant economic downturn. Setting aside theInternet gold rush of the last two years, the current climate isstill more aggressive than historical norms and will likely remainthat way. The bottom line is that BIZ Experiencess need more than justa new idea to get funding.

Contact Sources

• ABNAMRO

• BatteryVentures

• Blue Water Capital

• DentalOne

• DestinyWebSolutions Inc.

• DjangosRecords
  (503) 241-4750

• OVP VenturePartners