Friday, February 27, 2004

MIT Enterprise Forum

Tuesday night I had the pleasure of attending the Annual Retro/Future-Spective 2004 Kickoff Event. How to attract investors; a topic of keen interest to entrepreneurs and those of us who have the pleasure of telling their stories. The evening began with success stories from past MIT Enterprise Forum presenters, followed by a panel discussion about what makes or breaks deals. Capping the evening was Scott Lundstrom's perspectives for the coming year. Here are some of the highlights:

Chris Westphal of Visual Analytics emphasized the importance of financing your business in a way that does not detract from your core business. Visual Analytics was bootstrapped, financed from sales, because it made sense for its business.

Bob Storey of Vapotherm explained how they managed their costs like an auto supplier rather than a manufacturer of medical devices. Everything not immediately connected to its core business was outsourced. Vapotherm was careful to choose suppliers who understood and believed in its business. Storey spoke about the importance of knowing where your demand is and not always going after the high profile customer. Community hospitals used and understood the product, so Vapotherm used their case studies, which were picked up by medical journals. It was unnecessary to pay any research companies.

The panel discussion was moderated by William Winslow with Charles Curran, Mike Clarke, and Joe Walsh as panelists.

Winslow compared the current investing climate to those scenes in the old Star Trek series where Kirk would say what is it, is it alive? and Spock would answer it's life, but not life as we know it.

Here are some of the observations from the panelists:

Venture capitalists like to spend as much time as they can on due diligence without losing the deal to rivals. It is important for the entrepreneur to take control of the process, set a deadline and enforce it.

Investors are looking for a company that can succeed as a stand alone company, an initial public offering or at least merger & acquisition.

It is important to explain why anyone would require your product or service.

Entrepreneurs should not overlook debt financing. Networking with groups like the MIT Enterprise Forum is the best way to learn about banks who understand startup companies. Permanent-working-capital-term-loans or lines-of-credit backed by receivables and inventory are the most common forms of debt financing.

Don't overlook government programs, not only the well known Small Business Administration's loan programs, but also state programs such as the Virginia Small Business Financing Authority.

The most important element is the level of personal commitment on the part of the entrepreneur as there are usually no other assets. Bankers are different from venture capitalists, as they have no interests in running the company.

Scott Lundstrom's Perspectives for the Coming Year

The economy is coming out of a period of investment capital, where wealth flows to investors and top management, to a period of productive capital, where wealth flows to the customer. The low cost producers will gain market share at the expense of the price leaders.

Buyers are no longer interested in buying systems, paying maintenance fees and replacing the whole system in three to five years. Now they want to outsource the whole thing. In a period of productive capital, technology companies can look forward to single digit growth and will have to struggle for that.

The IT department no longer owns the budget; new projects are only undertaken if they solve a business problem, production problem or supply chain problem.

The middle size companies want ease of installation, ease of integration and ease of use. They refuse to pay a fortune for software and then hire an army to run it.

Open source already dominates certain markets, including web and application servers. It is clearly the wave of the future. In India and elsewhere the engineering schools are all teaching open source and the next generation of programmers will be proficient in open source.

Lundstrom ended on a semi-optimistic note suggesting that technologies such as Radio Frequency Identification (RFID) or software systems that enable compliance with regulatory requirements such as Sarbanes-Oxley have a bright future.

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