Looking for Investors Abroad Looking for capital? Consider looking abroad. International investors can provide funding--and much more.

It looks like 2005 is the year U.S. venture capital shakes offits tarnished reputation and gets back to business as usual.There's a growing pool of venture dollars just waiting to beput to work. Investments are up. Valuations are up. What more couldyou ask for?

How about a million-dollar investor that can also bring youentry into huge new markets, cutting-edge technology and teams ofdevelopment engineers? That's just what BIZ Experiencess aregetting when they look beyond--way beyond--the usual lineup of U.S.venture funds.

Distance Vision

Adi Sideman, CEO of Oddcast Inc. in New York City, looked all the way toJapan for both money and markets. Oddcast makes web-basedavatars--lifelike animated characters that act as virtual hosts oncompanies' websites. The company has over 3,000 customersthroughout the world but needed a shot in the arm to grow to thenext level. "We were looking for strategic investors, not justinstitutional investors," says Sideman, 35.

It didn't take long for Oddcast to find Itochu, one of thelargest conglomerates in Japan. "Between 2001 and 2004, theywatched our progress and eventually invested in us," Sidemansays. "Today, they are one of our best partners." SinceOddcast was built with money from angel investors, Itochu is thecompany's only institutional investor.

And what an investor: Besides deep pockets, Itochu hasoperations in everything from textiles to satellites, includingdeep R&D capabilities and broad distribution in the vastJapanese mobile-phone market. The Itochu partnership quickly hadOddcast's avatars packing up their bags and moving to thousandsof websites around the world. Oddcast's avatars will soonappear on mobile-phone screens and provide mobile-phone users withTokyo's weather forecast or updates on the Hanshin Tigers'baseball scores.

"Multiple products have come out of this platform thanks tothe Itochu investments," says Sideman. And he's quick topoint out that this kind of business growth could not have comefrom U.S.-based venture funds, which invest primarily for financialreturns.

Japanese investors are less concerned about financial returns ontheir U.S. investments than long-term strategic relationships, saysRoger Brook of Japan Venture Partners in Raleigh, North Carolina.Japan Venture Partners helps U.S. technology companies findstrategic allies and investors in Japan and other parts of Asia."Financial criteria take a back seat to the strategicconsiderations--what kind of revenues can they generate by sellingthe company's product?"

"Most of the [Japanese] capital available for U.S.companies comes from strategic corporate investors," saysBrook. "Usually, some strategic relationship has to happenfirst, before an investment is made." In the case of Oddcastand Itochu, there was a clear strategic benefit to both companiesas they shared ideas and development tasks before the investment.And not surprisingly, along with the investment, Itochu negotiatedfor the rights to distribute the avatar technology in Japan.

If Asia is on your radar, do your homework, advises Brook.You'll probably need to find a company with strong distributioncapabilities in your market. "In most cases, a company likeItochu may invest in a U.S. company," says Brook, "buttheir real interest is in selling the product in Asia."

Awake at 3 a.m.

Michael Simon had his pick of VCs last year when he set out toraise $10 million for 3am Labs Inc., his 2-year-old softwarecompany based in Boston. After all, Simon already had two $100million successes under his belt, including Uproar, a dotcom hesold to Vivendi Universal in 2001. So why did he choose to gohalfway around the world to Budapest, Hungary, to raise money?

In a word: "Strategy," he says. It really wasn'tabout the money but about the connections and know-how. "Wetried to put together an international consortium from theget-go," says Simon, 40. He ended up parceling out his equityto three venture funds--one each in Boston; Budapest; and PaloAlto, California.

The Budapest financiers--3TS Ventures--have connections aroundEurope and strong experience in wireless networks, a particularfocus for 3am Labs' instant networking service software."The managing partner [at 3TS] has very specific experiencethat is very useful for us," says Simon. "In Europe,you're simply more likely to find people with strongconnections to Nokia and Ericsson, for example, than you may findin the U.S." Those connections can be key to developingsoftware that works seamlessly with hundreds of millions of mobiledevices in markets around the world.

Of course, it doesn't hurt that 3am Labs has an office inBudapest, where Simon spends about half his time. Besides a largeteam of software developers, the office also supports the Europeansales staff, so the marriage to a European VC was an importantmarketing move, too: 3TS Ventures is a key link to customers. SaysSimon, "A lot of the important customers in Europe arequasi-state-owned companies--former monopolies like DeutscheTelecom. They've really opened doors for us there."

Have Money, Will Travel

You don't need an office in Budapest to attract Europeaninvestors, says attorney Heather M. Stone, partner and head of thefund formation practice group at Edwards & Angell in Boston.Stone has worked on both sides of the table, helping U.S.entrepreneurs negotiate terms with foreign investors and viceversa.

"Many foreign [investment] firms focus less on geographiccriteria than on what their fund is going to invest in," saysStone. Many Canadian, European and Israeli funds, in particular,plan on making some or most of their investments in the U.S."Based on the technology they are interested in, that'sjust where those companies are," she says. "They sort ofback into it."

That should be welcome news for BIZ Experiencess in cities thatlack a strong VC presence. U.S. venture firms tend to beconcentrated in the largest cities like San Francisco and New YorkCity, leaving many second-tier cities hungry for capital. Lookingoverseas may be the right move for BIZ Experiencess in those cities,especially BIZ Experiencess with products or technologies that canmake the leap to foreign markets.

Many foreign funds don't even have an office in the U.S.,says Stone. "They just get on a plane," she says."Most deals are done on e-mail now anyway, so there's someinitial travel, but it's not a huge time commitment."

Whether you're looking for foreign markets and partnershipsor just a new pool of investors, don't limit your search to theusual suspects in the U.S. If you expand your searchinternationally, you may find that international investors arelooking for you, too.

For a list of the top U.S. VCs for BIZ Experiencess, clickhere.

David Worrell is author of the e-book FindingFunding.