Shannon Henry's The Download Live
Discussion with Ginger Lew
Chief executive of the Telecommunications Development Fund.
1 p.m. EST: Thursday, April 20, 2000
There's not much an eager entrepreneur won't do to get the ear of a venture capitalist, even if it's just for a few seconds. Experienced venture capitalists have seen just about every tactic to get their attention. Whatever the means, many say that a clear business plan is essential to getting any one to take your idea seriously.
Ginger Lew, a venture capitalist who sees dozens of plans and pitches for start-up technology companies, agrees.
Lew is chief executive of the Telecommunications Development Fund, a new venture capital fund in Washington that recently finished raising a $25 million pool of capital and made its first two investments. Prior to her current duties, Lew was Chief Operating Officer of the U.S. Small Business Administration, where she provided day-to-day management and oversight of the agency's $42 billion loan portfolio. She joins us at 1 p.m. Thursday to talk about strategies for early stage firms, how to write a business plan and how to use it to get the attention of a financier.
Hi Ginger. Thanks for joining us today! I know we have a lot of readers out there who have an idea for a business but don't know exactly how to present it to a potential funding source. So what are the elements of a good business plan? How long should it be? What absolutely must be included? What should be left on the cutting room floor?
Ginger Lew: The critical elements of a business plan include the following description: 1) the product or services you're selling or producing 2)your business model - that is, how you plan to generate revenues 3)who your target customers are 4)how large the market is for your product or services 5)who your competitors are 6)what differentiates you from your competitors 7)financial projections, including revenue and cost of goods, 8) what you plan to use the money for, and finally and most importantly 9)the management team. Ultimately, we are investing in people and their ability to execute the business plan. We look for relevant experience and that "extra entrepreneurial spark". The business plan should have a 1 page, maximum 2 page executive summary that provides all the above information. The rest of the business plan shouldn't be more than 10-15 pages. If we're interested in seeing more, we'll ask for more info.
venture capital is usually hard to get without a track record and blue chip contacts. Can you suggest ways to find private equity financing quickly and easily, preferably online?
Ginger Lew: There are several sources for private equity investment. I would urge you to attend several of the networking events that occur around the Washington DC area. You can easily locate them by logging on to www.netpreneur.org. Look for the events sponsored by Grubstake which features interesting companies seeking fund. You might also contact the Private Investor Network - John May at (703) 255-4930. PIN sponors monthly meetings at which entrepreneurs present their business plans to potential investors. You may also want to contact the Dingman Center at the University of Maryland. For more information about other sources, you may want to go to TDF's website at www.tdfund.com and click on "Resource Database" and you can search for other local resources by area code or zip code. And, you can send business plans to us at firstname.lastname@example.org. If it doesn't fit our investment profile, we try and refer you to others.
If a plan gets rejected by a VC, do you update and resubmit it or find another VC? How many times can you submit a revised plan?
Ginger Lew: Each time you submit your business plan or pitch it to a VC and they don't "bite", try and get some feedback from them. Recognize that our time is pretty valuable, and it's tough to respond to everyone that we receive business plans from. Remember that the process is an organic one...one that provides constant feedback to you so you can refine and hone your business plan. Thank goodness for computers so we can constantly rework our business plan. Don't be discouraged, keep plugging forward, but also listen carefully to whatever feedback you get, and be sure to take advantage of any available resources that help you with your business plan, such as the Dingman Center. They're terrific, and you get to talk with some MBA students who are themselves very entrepreneurial.
What is the most important part of a business plan. What part do VC'er really zero in on??
Ginger Lew: Market size (what is the size of the opportunity), quality of the management team, and what differentiates you from your competitors (which means you really have to know who else is in your space).
In recent columns, you've offered insight on making a presentation to investors. But how do you get angel or venture capital investors' attention in the first place, and what are some tactics for getting them to do more than lend an ear?
Glad my columns have given some insight into the VC world. Your'e right, getting that attention in the first place can be unecessarily tough. For those with no connections to the venture community, I'd suggest applying to the Fastpitch program put on by Draper Atlantic and the Netpreneur Program. It can get you a few minutes in front of some knowledgeable money people. You can find out more at http://www.netpreneur.org/funding/fastpitch.html. Any thoughts on this, Ginger?
Ginger Lew: The FastPitch program is terrific as well as the Private Investor Network, e-media club, the Capital Club, the Dinner Club, and recently, the womenangels.net. You can locate the womenangels.net by contacting email@example.com. The other organizations can be contacted via firstname.lastname@example.org
I've heard that business plans shouldn't predict too far ahead-who knows what will happen in 10 years, etc. Do you agree? How far ahead should the entrepreneur be looking in the plan?
Ginger Lew: It depends on the sector, but generally business plans should not project beyond 3 to 5 years. In the telecom industry where technology is changing at Internet speeds, we look for a 3 year market analysis.
On the management team part of the plan, what are you looking for in particular? When you see holes in the team do you think of that as a chance to help shape the team or a sign of weak managment?
Ginger Lew: TDF invests in early stage companies so we do not expect to see a full management team. We're usually looking for a strong technologist - someone who has the resident knowledge and vision to build the product. We also look for someone who really knows the market and how to distribute or position the product. Occasionally, we see a full team, meaning a CEO, CFO, Senior VP, etc but then we get concerned with it being a top heavy organization. What's really important to us is the attitude of the management team - that is, they acknowledge that there are some holes and their flexibility in filling those holes. We see this as an opportunity to work with the company to bring in appropriately skilled management.
What networking technologies are you most interested in funding at this time?
Ginger Lew: We're looking at 3rd generation networking solutions - we've looked at some optical networking technologies. We've also looked at security solutions.
Do you think the era is over where two college buddies working out of a garage can come up with a great Internet idea and make millions on an IPO?
Ginger Lew: I don't think the era of "two people working in a garage" is over. In fact, we see that as fertile ground because they can be nimble, innovative and energized. Right now, we're looking at a couple of business plans from two young entrepreneurs that got out of college 5 years ago, got some experience from a big firm and have struck out on their own.
Many would-be entrepreneurs are paralyzed by the following Catch-22: They think they must take some preliminary steps (for example, applying for patent protection, developing a Web presence, conducting market research) before investors will take them seriously; however, they can't take even these preliminary steps without working capital. Which comes first, money or milestones?
Ginger Lew: What you've described is commonly referred to as "sweat equity". Many people maintain their "day jobs" as they're working evenings and weekends to put together their business plan and model. To us, that shows a real commitment to your idea. I know many folks who've quit their day jobs in order to achieve those milestones at a faster pace. They rely upon credit cards to get them through or are able to get help from family and friends.
If you do get in to see a VC, what's the protocol about revealing which other VCs you're visiting?
Ginger Lew: Be up front about it. The VC community in the Washington, DC area is relatively small and we see each other at many events. We also tend to know who invests in which industries. It helps to know if you're talking with others because that means your business plan has gotten through another's screening process which helps to validate your concept. It may also present an opportunity to syndicate or form an investment group, which also has some appeal, especially if you are an early stage company. There will be some desire to "spread the risks".
New York, NY:
Is there a formula for figuring out market share -- We're finding that this is the toughest part of the plan.
Ginger Lew: We see many business plans that use the "top down" approach. What this means is the entrepreneur refers to obtaining a percentage of the market. What we're more interested in is the "bottoms up" approach which requires the entrepeneur to tell us how they plan to obtain X number of customers, per quarter, at what cost, and thereby attain the percentage market share that yields a successful business.
Once I've created my plan, how do I know that it's ready to take into a VC?
Ginger Lew: Before you take it to a VC, take advantage of the entrepreneurial services offered by many of the MBA schools in the Washington DC area. These include George Mason, Georgetown University, George Washington University and University of Maryland. They can serve as excellent informal sounding boards. Because VCs screen business plans carefully, you only get one shot to get through the door.
What do you look for in an Internet business plan ? Is first- mover status a must?
Ginger Lew: The recent decline in NASDAQ reflects some nervousness on the part of investors about many dot com companies that do not have revenue. Many Internet business plans we see have as their revenue model the receipt of advertising revenue. The CPM rate has dropped dramatically over the past 18 months which has resulted in a significant short fall in projected revenues. In addition, e-commerce revenues have not been as robust as many companies would have hoped for. As a result, these companies are having to spend a lot of dollars to drive traffic or eyeballs to their site. Even with a first-mover advantage, it still takes millions of dollars to attract the traffic to support the revenue projections based on that type of business model. I expect we'll see a consolidation of e-commerce and dot com companies in the next 12 to 18 months.
What do you see as the greatest areas of opportunity for businesses in the telecommunications arena - Voice Over IP, broadband internet access, wireless LANs, wireless local loop, or something else?
Ginger Lew: All of the above continue to be tremendous opportunities. We're seeing a number of Voice over IP opportunities, as well as broadband - MMDS, LMDS, wireless, etc. Some analysts believe that the wireless market will outpace wireline but I believe both present tremendous opportunities for the next 10 years.
Are you interested in investing in internet-based new startup business other than the wireline and wireless telecommunications? Thanks.
Ginger Lew: We're also investing in "casting" technologies - video and audio streaming hardware and software technologies. Generally, we do not invest in e-commerce or content plays.
What is an example of a proposal you've turned down.
Ginger Lew: We've turned down several e-commerce business plans, as most were focused on b2c. We are considering some b2b ASP business plans. We turn down "me-too" business plans where there isn't any differentiators from competitors who are well established in the space. We've turned down business plans seeking more money than we choose to initially invest.
This leads me to an important point. Do some research on which VCs to approach. TDF invests exclusively in communications, but I often get health care business plans or cosmetic business plans, etc. You can find some information about VCs by visiting the National Venture Capital Association website at www.nvca.org.
Any tips on writing the plan? Does it make sense to hire a professional writer? Avoid jargon? Who should the business plan writer think of his or her audience?
Ginger Lew: My advice is to write your own plan. If you use a third party, it shows that you don't "own" your business plan. The business plan demonstrates to us your understanding of the proposal you're making, and if you have to rely upon a third party, it suggests either a lack of commitment or understanding. My other advice is to keep it succint. We've seen business plans that make grandiose claims which suggests that the entrepreneur is not grounded in the challenges of starting a business and getting it off the ground.
New York, NY:
Many business plan guides suggest submitting a potential board of overseers -- when and whom should I approach to be on my board?
Ginger Lew: If you're an early stage company, my advice is to leave the composition of the board members flexible. Although it would be great to see one or two "name" players, the VCs want to be able to make their own recommendations as well.
College Park, MD:
Are there any good numbers that show how effective online advertising is?
Ginger Lew: Take a look at Industry Standard Magazine. They seem to have excellent statistics re: online advertising.
I understand that you have been with the telecom since the very beginning, what are the lessons you have learned and would like telecom college students to know when they graduate?
Ginger Lew: I would urge college students to take engineering and computer courses related to telecom. I would also urge you to take some business and finance classes. If your school offers classes in entrepreneurship, sign up as fast as possible. Finally, if you can intern with a start-up company for the summer that experience would be invaluable to you.
How does your company help entrepreneurs and other professional develop business plans with telecommunications technology companies?
Ginger Lew: TDF's website is unique from other VCs' website. We spent a considerable amount of time and effort to create our Resource Database which refers entrepreneurs to resource providers who can help you with your business plan. It's free and you can use it anytime. We also have a virtual online classroom which outlines the critical elements of a business plan geared for equity financing. The kinds of information VCs want to see is different from business plans geared toward debt or commercial lending. That is also free, and you can download it and work on your business plan at your own pace.
We're out of time for this discussion. Thanks, Ginger, for educating us all! And thanks for the great questions.
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