Thursday, July 20, 2000

"Surviving the Financing Drought or The New David Letterman in Town"

Elliot Fishman isn't new to New York, or to the Internet community here in
town. He has 12 years experience in venture capital, industry operating
and technology transfer -- and he joined Advantage Capital from
Doubleclick Inc., where he built the company's new products group. But he did present a
witty, humorous and savvy Top Ten List a la David Letterman to the audience at
the New York Business Forums NY Venture Group meeting on July 20 at the NY
Athletic Club.

While the early-risers sipped coffee and delicately munched on breakfast
pastries, I mingled and chatted with the smart and sincere duo of Justin
Segal ( and David Leffler, who runs his own law firm. They
were giving me a run-down of the NY Venture Conference that occurred at
the Marriott Marquis from Monday through Wednesday this week. They
explained that there was an entire row devoted to incubators, and that all
the hatchery-named companies lined up to take in the fledgling companies.
David was also telling me that apparently with enough big law firms firing
their clients, VCs aren't the only ones experiencing the heady rush of
attention-seekers. Now lawyers are attracting lots of new clients.

Sherry Handel (CEO/President) of Rochester-based Blue Jean Media
introduced herself to Burt Alimansky, the man to know who's at the helm of
the NY Business Forums and Alimansky Capital Group. Daniel Dinan of IBM
(NetGen City manager, NYC) and Jerome Sarnat of I.M.A.G.E. Inc. also
introduced himself to us. Over by the Administaff booth (where I saw Mark
Elis) I met's CEO Rachel Hager and Kairos Consulting's managing
director Kira Mendez. Burt began calling people to their tables, and I
quickly met Nancy Curtain, (president, VCap Ltd.), and Paula Weiner (D.S.
Wolf). I also met Jennifer Wolff (Richard A. Eisner & Company) and Renee
Cooper and Benjamin Finane (United Way). They told me about their Young
Leaders group and the parties they have to help promote philanthropy among
younger people.

Burt gave a rousing introduction of Elliot, whose firm has offices in St.
Louis and New Orleans, in addition to its brand-spanking new slick space
on Madison Avenue in New York. They've also raised over $400 million
dollars in investments for their various clients like Comet Systems,
Stream Search, BizCapital and PowerAdz.

Elliot began his talk by referring to his perspective on the world, thanks
in part to impressions from National Geographic articles, thus leading to
a survival of the fittest analogy. I summarized his commentsÖ.

For instance, in the rainy season, the animals (and plants) get fat and
there is liquidity in venture funding. In times of drought, only the
hardiest animals (and companies) survive. Now we are in a change of
seasons. And now we must learn about what to do between seasons. Elliot
shocked the audience by talking about how many IPOs have been withdrawn
and about how capitalization is off 60%. Companies with S1's are being
pulled back and looking to private equity for funding. He further
explained that this trend means that many already-pubic
companies are going for private funding with known examples of Peapod and
Eloan. He illustrated the trends for business models over the last few
years: last year it was B2C; the last few months it's B2B; now people talk
about infrastructure and wireless.

So why the downdraft? Well, there were speculative excesses with
investing. It was: if you're first to market, you're IT. In fact,
Priceline, the first to offer "name your own prices for tickets," had a
market cap that alone exceed that of the entire airline industry! For a
while, any 28-year-old could have a balance of power. He blamed daytraders
and their involvement in the industry and the reaction to all these
excesses in the last 18 months for contributing to the downturn. The
private market has scaled back, and what we're experiencing isn't a
drought but a return to normalcy. We will no longer see dot-coms getting
funded that don't need to or shouldn't. Now is the time when VCs will (or
should) spend more time with their investments, which could especially be
aided if they agreed to sit on fewer boards. Now investors are looking for
a more mature business model and management.

While there are a lot of people who've been burned by these dot-com
shakeouts, people who will be gaining importance and significance in this
new era are the accountants, investment banks, recruiters, attorney and
people with knowledge on traditional business acumen. They will be the new
trendy-geek-style-setters. In this new era, businesses can grow
organically and not just have the pressures of quarter to quarter quotas
to meet.

Another advantage of this quieting-phase is that it'll be easier to
advertise and get attention with less noise. And then Elliot wowed the
audience with his winning top ten list. It's so good (and has so much more
information) we're offering it in full on our website. Click here to see
the ...

Elliot Fishman's Top Ten List for how to survive the financing drought

10. No Herman Miller chairs. No $16 million parties. No corporate jet.
9. Trim head count
8. Outsource services (fulfillment, human relations, ISPs)
7. Know your three C's (Customers, Customers, Customers) Everyone in your company should be selling for you. Your team should be a sales team. Senior management should meet with clients.
6. No Superbowl ads. Empower your CFO. Have your CFO in charge of advertising.
5. Take on profitable projects. Even if they're not part of your business plan, don't turn down money. It's more important to have business, not just follow the plan if it's not bringing in money. Better to have revenue than not.
4. Count your beans. Know your overhead, collections, contributions, variables, costs. Have a good CPA. Cash is king in the new economy.
3. Take the money. If someone extends a term sheet, whatever the terms are --take it.  Not many VCs are extending term sheets.
2. Sell out. If you can merge--do it.
1. If all else fails, start another company.