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How to Play Ball with Venture Funds
By Susan Schreter, Mg. Editor
I've taken over a profitable, well established business a few years ago. I'd like to really push our growth in some new technology-related services for homeland security. We also have strong interest from all areas of the government and starting sales to prove it. Here's the problem. VC's tell me "you're too far along for us", "we don't do military or government oriented companies", or "we don't invest that much on first rounds." It's depressing. What should I do?
Do you like baseball? I do.

I'm not the first person to write that baseball offers many subtle but meaningful lessons for scrappy entrepreneurs and business owners. For example, baseball history demonstrates that big swinging home run kings also have their share of discouraging, even embarrassing strikeouts. Still, they persevere.

The message here is patience matters. You have too much going for you to let a few miss-matched solicitations undermine your goals.

So, how can you step up to the plate again with confidence? Let's start with a little background on the venture game itself.

My first comment is about the evil "fast no." While venture capitalists ("VC's") may seem heartless with their apparent lack of thoughtful consideration, their speedy candor is really a blessing. You don't want disinterested VC's to humor you for no productive purpose as every phone call and trip costs you time and money.

All VC's know the characteristics of companies that will gain approval by their decision making partners. They know it so well that they can rule out say more than 80 percent of business plans quickly.

Here's another take on your early VC feedback. When a fund says they don't do military or government deals, they may be saying that they don't have inhouse experience in complex government bidding. VC's like to contribute more than money to an investment. They want to participate in strategic discussions even open doors to new customers. You should want this from your investment partner too.

Because your company is generating revenues and profits, there are other kinds of fund targets who might like to play ball with you. In addition to venture funds, look for funds described as "private equity."

It is true that private equity funds "swing for the fences." Your business plan has to match their performance expectations to get past first base.

They look for fast growing companies to (i) invest in like a venture fund; (ii) buy outright but let management continue to run the company; or (iii) combine with one of their other existing investments, often called "portfolio companies" to create a more substantial company.

Private equity and venture funds that are knowledgeable about the workings of government often have Beltway locations. Visit the web sites of Core Capital and Paladin Homeland Security Fund in Washington, DC. Also research Trident Venture Partners, First Analysis, Carlyle Group's venture fund, SAIC's corporate venture fund, and In-Q-Tel, the CIA's venture fund. Many of these funds employ retired military officials as fund advisors.

Another research tactic is to identify funds that have co-invested with any of these firms on other military or government-oriented transactions. You'll frequently find these extra fund names at a portfolio company's web site listed under "About Us" or "Press Releases" or "Management and Board of Directors."

Again, don't give up. Just take a little more care in your set up, so you are well positioned to score the big dollars. You can do it!

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