Venture capital now looks for experience


Peter Bepler and Matt Voorhees started their tech company the dot-com way: over a keg of beer in a parking lot during alumni weekend at Kenyon College. But when it came time to expand the business, the pair needed more seasoned executives.

"We saw that this company had tremendous potential, and we needed to bring in experienced and proven leadership to fill that potential," said Bepler.

Enter Chief Executive Officer Dennis Hooks and Vice President of Sales Bart Hawe. With years of experience in the business world, Hooks and Hawe had just the know-how that Bepler, 28, and Voorhees, 30, needed for their 2-year-old Rockville-based online accounts payable outsourcing company, Anybill Financial Services Inc.

Experience was a prevailing theme yesterday at the Mid-Atlantic Venture Association's Capital Connection 2003, where start-ups seeking investments showcase their businesses for venture capitalists. Anybill Financial Services was one of 51 companies on display at the event at the Baltimore Marriott Waterfront hotel.

For new companies, funding is much harder to come by than it used to be. Investments were up slightly in the region during the first quarter, compared with the fourth quarter of last year, but the annual figures continued to decline.

Venture capitalists invested about $1.2 billion into companies in the Baltimore-Washington area in 2002, down from about $2.1 billion in 2001 and from about $5.8 billion in 2000, according to a PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree survey. Venture investments nationwide fell to $21.2 billion in 2002 from $40.7 billion in 2001, according to the survey.

So it was a buyers' market at yesterday's event, as investors browsed booths looking for growing businesses in well-defined marketplaces with customers, experienced management teams and - something unheard of just a few years ago - profits.

"My brethren have learned that some starry-eyed 26-year-old with an interesting idea is not the guy that you want to fund," said William Gust, a managing partner at Anthem Capital Management in Baltimore.

Charlie Scuilla, vice president of engineering for Herndon, Va.-based Secure Elements, knows that one of his company's major assets is its experienced management team. The group has worked together at other companies, and Secure Elements' founders came out of another successful tech company, he said.

At 54, Scuilla is the oldest member of the software company's management team. The youngest is 38.

"In the dot-com era, there were a lot bright, intelligent young people that came on the scene," the gray-haired Scuilla said from his company's booth yesterday. "I think as people get older, you tend to get a little wisdom."

Anura DeSilva is taking with him wisdom from one company that he heads - along with $1.5 million in funding - to start a second business. The chief executive of a Rockville software firm, DeSilva is leaving that company to head 3-month-old Care Systems Inc., which makes software to create nurses' schedules.

Care Systems' product is ready for launch, and DeSilva was looking for venture funding yesterday so that he can afford to hire a heavy-hitter for his marketing team and "explode the sales pipeline." But even with a product ready for market and a veteran businessman to lead the company, DeSilva, 55, said landing cash isn't as easy as it used to be.

"It's a lot harder than three years ago," DeSilva said. "However if you show a clear need and a good management team and a good sales approach, I think investors are looking to invest."

Indeed, investors from around the country who attended Capital Connection represent $15 billion of funding, said Patrick Kerins, a general partner at Timonium-based Grotech Capital Group and a co-chairman of the event.

While venture investments in the region have declined over the last two years, the numbers rose to $254.4 million during the first quarter of 2003 from $243.1 million during the fourth quarter of 2002, according to the survey.

The mood of the venture capital industry is far more realistic than the 1990s, but many described Capital Connection as upbeat. Investors were in "triage mode" a few years ago, working to salvage their portfolio companies, Gust said. Today, they said they can choose from higher quality companies that have been around longer and want to raise less money.

Oblicore Inc., a Germantown software company, raised about $12 million in 2000 - when venture capital was much easier to come by. The company is hoping to raise about $5 million to $7 million to grow. It already has revenue and customers and expects to be profitable this year, and CEO Yuval Boger believes those are the reasons the company was garnering attention from investors.

Or perhaps it was the company's booth, which was bare except for one white sign that read: "No Giveaways. Just LARGE PAYING Customers."

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