Back to basics at dot-com boot camp

Tips to get the funding your business venture needs

The first round of the Internet boom is over. If you missed it or if it ate you alive, then maybe - if you have the chops and the business experience - you can try E-business 2.0. But this time all those profits-can-wait, throw-money-at-it-and-they-will-come notions are history.

It's time to say goodbye to the Dockers and latte crowd who threw lavish launch parties and bought everyone Herman Miller chairs. Gone are the days when a kid with a clever idea was getting millions of dollars in funding before he was old enough to legally buy the champagne to celebrate.

And welcome back buttoned-down and experienced, according to coaches at a recent boot camp for start-ups seeking venture capital. It's time to call in the reinforcements.

Remember the never-worked-a-day-without-a-tie boss who believed in military-style management over touchy-feely team decision making? Thought he had been put out to pasture? Well, he's on his way back and he's going to nix the office-as-frat-house idea and make the profit-and-loss sheet the office bible.

That was the verbal image coaches were projecting from the stage overlooking a ballroom at the tip of Chicago's Navy Pier. A sea of largely 30-somethings in stylish black filled the room, soaking up tips on how to avoid becoming yet another Internet has-been.

While many admitted to being nervous about going out for first, second or even third rounds of funding, each one thought they had what it takes.

They understand that, statistically, the odds are stacked against them. That's why they turn to the boot camp, says Guy Kawasaki, CEO of Garage.com and host of the recent dot-com boot camp. "A few years ago, it was all about which money to take," Kawasaki says. "A few years ago, we felt every start-up would succeed. Now we're on the opposite end. We think most won't succeed. We went from irrational exuberance to irrational pessimism."

Kawasaki and other venture capitalists agree that funding has dried up in just about every sector, except networking. And even for network start-ups, it's not going to be easy.

Today, you're going to have to fight for your funding, says the boot camp drill. You'll have to know your competitors better than they know themselves. You'll need tested technology and lubricated distribution channels, along with brand-name partners that are willing to take you where you want to go.

"There's a lot more pressure now," says Jon Zeeff, CTO at SolidSpeed Networks of Ann Arbor, Mich., which received its first round of funding in December 1999.

SolidSpeed provides content delivery network services as well as Web site performance testing and reporting tools. "People in a position to put off [looking for funding] are putting it off. Some people are scaling back, cutting costs so they can wait longer before they need more funding."

Zeeff says a year and a half ago, getting money was the easy part. Today, he's nervous about venturing back into the venture capital arena. Those nerves are what pulled him into the boot camp sessions - sessions like "Surviving the storm," "Perfecting your pitch" and "On the firing line."

All of the sessions at the boot camp were packed. Amid the spattering of ringing cell phones and beeping pagers, boot camp recruits were trained to make the perfect 45-second sales pitch, so they could woo would-be funders at a meet-and-greet cocktail party or in an elevator if they had to. They were told how to work the press before a launch and how to find "angel investors," people with money to spend on a potentially good business deal.

Chris Melching, Garage.com's presentation coach, says Zeeff has good reason to be nervous. "You're in a real tough time to get funding," says Melching, who coached about 400 entrepreneurs on how to not sound desperate when pitching venture capitalists and how to find out if you and your presentation are boring. "But it's also a great time because if you do get funding, it's because you're the best of the best. Chances are good you're going to succeed."

Networking stays afloat

At one point during the boot camp, a panel of five venture capitalists and industry observers was asked to rate various markets. Business-to-business got a unanimous thumbs down. Software and telecom got a mixed review with mostly negative comments. The semiconductor area was also mixed. Wireless received more positive comments than negative.

But networking received a unanimous thumbs up. All the industry gurus there said networking - particularly Internet infrastructure - is the only arena with any life at this point.

"It is 10 times harder to get funding today," says Garage.com's Kawasaki. "Networking is the thing. That's technology. That's not clever ideas. . . . Even that area is crowded, but at least these [proposals] will get read."

Zeeff adds, "Our space, the infrastructure space, is a good area. Infrastructure is the arms merchant. You're selling tools to people out there building companies. If they want to sell books, they have to come to us to help them do it."

Ellen Carnahan, a venture capitalist with Chicago's William Blair Capital Partners, says she is focused on the last mile between the metropolitan-area network and the corporation.

"We want to make the edge more efficient," says Carnahan, who immediately after leaving the boot-camp stage was besieged by a swarming group of eager entrepreneurs armed with business cards and well-practiced pitches. "We're talking about a hybrid of storage and caching with intelligent routing, . . . [We're looking for] more intelligence in the devices."

Back to Business 401

They're also talking about more intelligence in the business models.

"It takes more due diligence," says Cliff Meltzer, CEO of Digital Fountain, a San Francisco on-demand content delivery company that is starting its crusade for another round of funding several months ahead to avoid running out of cash. "You need a management team with product experience and organizational experience. . . . You have to show how you're going to be profitable."

Bill Reichert, president of Garage.com and a coach at the boot camp, says successful start-ups need to have working technology and they need to have a business plan that can't be knocked over with a sledgehammer.

"There are lies and then there are business plans," Reichert says to a rapt audience scribbling notes. "Only one is going to get funding."

Anyone with the potential to fund your company - whether they're a venture capitalist, a friend or your in-laws - is going to be scrutinizing your business plan, financial projections, established distribution channels, business partners and management team, Reichert says.

Michael Bernstein, national director of Grant Thornton's E*tech Practice, a financial and management consulting firm in Vienna, Va., says it's time for experienced business combatants to boot the whiz kids to the back of the bus so they can take over driving a good idea forward.

"You still see four guys and a business plan getting funding but [venture capitalists] are looking for a deeper business plan and they're looking for people with more experience," Bernstein says.

Bernstein and Reichert agreed that once an entrepreneur has the makings of a good business, that person needs to "build a veteran class" - a management team with the experience and power to make things happen. Find business people who have run distribution at IBM, managed development at Lucent, or already throttled through a successful start-up.

"There's a different tone in the marketplace," says Susan Smith, an industry consultant with Performance Consulting Group. "It's more tempered. We've gone back to the basics."

Round one is over

That's because dot-coms have fallen from grace. At least 327 have shut down since January 2000, and half of that number have closed their doors in the past three to four months, according to Webmergers.com, an e-business analyst firm. Research by Webmergers.com also shows that the approximately 52 Internet-based businesses that closed shop in February alone represented more than $1.5 billion in investments.

And a study released in March by Rosen Consulting, an economic research firm in Berkeley, Calif., estimated that 80% of existing Internet companies in San Francisco will go out of business in the next year.

The gold-rush reality was virtual. But the financial turmoil it's wreaking is real.

"They were saying there was a new financial model," Smith says. "Anybody with an idea had money thrown at them. They figured they would worry about profits later, but the losses were mounting. Companies would come out with [poor] quarterly reports and the stock would go up. It defied common sense.

"But there is no new business model. Business is business," she adds. "It's all about profits and losses."

Tips to get the funding your business venture needs