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Entrepreneurs Learn Rules for Drawing Investors

By Ellen McCarthy
Thursday, November 25, 2004; Page E01

In the past six months, C.P. Singh sent out more than 50 copies of a business plan and met with a dozen venture capital firms. At each meeting, he presented slide after technical slide and explained at length the science behind his company's nanotechnology product.

He promises to stop doing that.

By early afternoon last Thursday, three experts who were brought together in a Tysons Corner hotel to help start-up executives learn the ins and outs of fundraising and business development had warned against the pitfalls of speaking in tech jargon.

Singh's use of jargon may not be the only reason his company, Nano Interface Technology Inc., of Lorton, has yet to land the $6 million it seeks, but it probably hasn't helped, he said.

The venture-capital industry is not in its infancy anymore, but the mystique remains and entrepreneurs like Singh are still, sometimes, a bit fuzzy on the basics. And while it's not yet clear whether all the buzz about a funding comeback will translate into big money for local start-ups, the demand, if nothing else, is strong.

Last week, attendance at a day-long boot camp for entrepreneurs swelled to almost 300, up from about 170 a year ago. "They seem to be as hungry as ever," said Judith Costello, executive director of Century Club of George Mason University Inc., the organization that put on the event.

But, Costello said, the expectation now is that executives seeking funding will be wiser -- if not older -- than they were in the past. So the quality of venture pitches and business plans needs to rise accordingly to be competitive.

"Those granting the funding are looking for later-stage companies with a proven track record," she said. "It's a much more competitive environment for funding."

Since 1988, the Century Club has worked to connect local entrepreneurs with angel investors and venture capitalists. Three times a year, the organization hosts breakfasts at which the management teams of five young companies are selected to give pitches to a room full of venture capitalists.

The Century Club decided it also wanted to do something to help those not selected to present at the breakfasts, especially since funding is still tight. In the third quarter of this year, 31 Washington area companies landed a total of $156 million in venture funding, according to the MoneyTree survey sponsored by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. That was up from the previous quarter, when $132.4 million was invested in local companies, but is a far cry from boom times. In the third quarter of 2000, for example, 129 local companies landed $1.57 billion.

Boot camp participants were told the funding environment may have changed, but the fundamentals are still the same, and it's more important than ever to know the rules of the game.

Those rules include: research the backgrounds of venture capital funders, perfect your pitch to a tee, shut up if it doesn't seem to be working. And one warning was sounded again and again: Don't try to raise outside capital at all unless you absolutely need it.

"The direction of the company is largely set by the people who invest in you. That is such an important thing to recognize," said Bryan S. Ware, co-founder and chief executive of DigitalSandbox Inc., a six-year-old Reston software company. Digital Sandbox landed $1.2 million in venture funding a year ago.

"If you don't feel like you can trust what they say, don't go into business with them. Just don't," Ware said.

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