Agile Equity: Press

VC's Advice to Startups: Squeeze More Cash Out

atnewyork.com - February 26, 2001

By Paul Zakrzewski

If your start-up company is hurting for cash and fundings look dicey, don't panic and pull the plug just yet.

There are options to explore and areas where more cash can be squeezed out of operations, said some Alley venture investors, mergers specialists and battle-scarred entrepreneurs who addressed a forum on the issue today.

The panel, "VCs Dilemma: To Refinance or Pull the Plug," was part of atNewYork's monthly breakfast forum series.

Panelists included Danny Schultz, managing partner at Draper Fisher Jurvetson Gotham Ventures, Ben Boissevain, managing partner at Agile Equity, Elliot Fishman, senior vice president at Advantage Capital Partners, Ojas Shah of ONS Partners, a turnaround firm and Steve Brotman, managing partner with Silicon Alley Venture Partners.

Schultz noted that for many companies, the issue is one of survival, more than the valuations that have dropped. Think of the gas station analogy, he said. What these companies need to do now is put gas in the tank.

"Valuation is a much lesser issue than keeping your business going. Valuation is a spectrum of events across the lifetime of a company," said Shultz. Another important consideration for entrepreneurs looking for further rounds is syndication. "It's critical to have several investors on board. It's good to have three ways of looking at a company, three sets of rolodexes, and of course, three sets of checkbooks," said Shultz, whose portfolio companies include mimeo.com and XOSoft.com.

Advantage Capital's Fishman offered that venture investors never want to be in a situation where they can't fund the life cycle of a company. "That is especially true now, when IPOs can't be counted on as a late cycle round," said Fishman.

When approaching VCs for help, "the wise thing for entrepreneurs to do is not to look at valuation, but at the whole package. What can the VC offer you, how much time, energy, and vision will the VCs provide, especially when everyone runs to the hills."

On the changes in the private equity scene since the market corrections began, SAVP's Brotman said: "The big thing that's disappeared, at least for awhile, is angel investors."

On viable exit strategies, Brotman said: "The most popular exit strategy these days seems to be going out of business. The second most popular one is getting scrap value for your assets."

Brotman also warned entrepreneurs that now isn't the time for them to simply cut back, but to find strategies for building their businesses. "The two things entrepreneurs need to think about is not to run out of cash, and not to be greedy with assets."

Boissevain, who works in the mergers and acquisitions field with AgileEquity, said a viable exit strategy would be a merger of equals. "You need to figure that it takes three to six months to sell a company." Of the M&A buzz or activity of potential sales, "we're not seeing a lot of wireless or P2P plays, but we expect to in another six months or so," he said.

Ojas Shah, who as director of finance for Internet Appliance Network helped raise capital and then helped the company restructure its balance sheet, reminded the audience of how swift the change hit the start-up scene.

"In a week we went from having the (financing) documents to trying to figure out what to do with the company." Instead of considering a bankruptcy filing, "we mobilized intelligence," he said. "It's not going to be a $100 million to $200 million company, but that's okay."

Shah's advice on finding alternative sources of funding: "When you do put together a company, go to non-traditional sources such as angels. Venture capitalists are not the best guys to go with." *We like tips and feedback. Send to: atnewyork@internet.com