Forget all the gloom and doom surrounding the dot-com bust. Savvy investors, both private and corporate, are dusting themselves off and getting back into the game.
“Angels have continued to write checks and have been filling the venture-capital void while the VC community focuses on its existing investments and follow-on rounds,” said Scott Peters, co-CEO of the AngelSociety, a company based in New York City that produces educational and networking events and publishes Angel Advisor magazine.
Peters said that angels (private investors who fund early-stage companies) are seeking to invest in firms that don’t need a huge amount of cash to reach profitability.
Despite the chill that hit the market after hundreds of poorly conceived Web-based companies tanked last year, investors are still writing checks to companies with a proven business model and solid growth potential.
Strong connections
BabyPressConference.com, which provides live streaming video from kiosks set up in hospital maternity wards, recently closed a $4.9 million round of funding. The company, founded in late 1998 by Lee Perlman, executive vice president of the Greater New York Hospital Association, capitalized on its strong industry connections when it came to promoting its video services to hospitals.
In fact, a for-profit subsidiary of Perlman’s nonprofit trade association invested $1.5 million in BabyPressConference.com and owns 40 percent of the company. Perlman acknowledged that his involvement in the hospital industry gave him access to a “trusted place in the hospital”: the maternity ward.
Proud parents now broadcast live on the Internet from 75 hospitals, reaching friends and family at no charge. The catch? The company hopes to make money by selling families a CD-ROM of the 30-minute broadcast for $29.95 because the video file is only available online for two weeks after the initial broadcast.
“The people who invented the Internet didn’t realize that this is what the Internet was made for,” said Perlman. “The Internet was not made to go shopping it was made to create community.”
So far, 3,000 families have introduced their newborns to the world via Web cams set up in the maternity ward. (The service will expand to 200 hospitals this year.) Families register online in advance of the birth and need only to type in their phone numbers to activate the camera.
Because parents and grandparents are avid consumers of baby clothes, toys and equipment, investors including Toys “R” Us, have eagerly supported Perlman’s company. Toys “R” Us links from the BabyPressConference.com site to its Babies “R” Us online store. When expectant parents register for the Webcast, they can also register for baby gifts at Babies “R” Us.
Michael Goldstein, chairman of Toys “R” Us, said the business relationship with BabyPressConference.com was “a natural.” He also proclaimed to the Wall Street Journal that the service was “fantastic,” after introducing his newborn daughter to the world using Perlman’s streaming video service.
Perlman said he has attracted a total of $13 million from investors, including Cabletron Systems’ Enterasys Networks, which sells technology to hospitals, and Primedia, which owns American Baby magazine.
“In a tough financing environment, you have to look for the right strategic relationships,” advises Perlman.
The right relationship can also spell the difference between success and failure when it comes to raising money. If you listened to your parents and went to the right college, you may have a better shot at funding your dreams.
Alumni helping alumni
“We’re very much based on alumni helping alumni,” said James Marcus, CEO of UniversityAngels.com. “We believe entrepreneurs who have gone to top schools have a better chance of success, so the question was, how can we help these people achieve and succeed in the entrepreneurial world?”
Angels and entrepreneurs find each other via a network of about 75 university-specific Web sites. (Forty-five schools are based in the United States.) So far, more than 2,000 graduates of top schools have registered as accredited investors with an interest in connecting with worthy entrepreneurs.
The company, which was founded in 1999 by four graduates of Harvard Business School, has facilitated about a dozen deals since its launch in January 2000. UniversityAngels.com has also established a $20 million fund that intends to make follow-on investments in a select group of companies that receive funding through the network.
“We received funding from people we never would have contacted in any other way,” said Stephen Hassett, CEO and co-founder of iTendant Inc., a small company based in Atlanta that sells software to property management companies.
The firm raised $780,000 from several private investors. Hassett declined to say just how much money came through his Univer-sityAngels.com posting.
“They made the introduction and they vouched for us,” said Hassett, a 1989 graduate from the University of Virginia.
Hassett said he started his career in the information technology industry and then went into corporate finance. The company is banking its future on the fact that about half of all Americans have access to the Internet. ITendant’s new software makes it easy for tenants to go online to register complaints and make requests for help to their building managers and superintendents.
“We are beta-testing the product now with two property management firms in Atlanta,” said Hassett. “We expect to go live in March.”
He said anyone trying to raise money should log on to the UniversityAngels.com site to see if their alma mater qualifies for access to the network.
“They really did a great job in an extremely tough market,” said Hassett. “There were a lot of eager investors and they found some for us.”
AngelSociety’s Scott Peters has these suggestions for attracting investors:
Demonstrate that there is a substantial market for your product or service.
Prove there is a strong demand for your product or service.
Prove the economics of your business model; know your customer acquisition costs, expenses and revenue streams.
Have a strong, committed management team. Part-time managers scare investors.
Jane Applegate is the author of “201 Great Ideas for Your Small Business,” and is CEO of SBTV.com, a multimedia site providing small-business resources. She can be contacted via e-mail at [email protected], or by mail at P.O. Box 768, Pelham, NY 10803.
