Investors on the West and East coasts have lost millions of dollars the last couple of years on technology companies which had an idea, but didn't know how to use it to actually make money.
Some of these aimless companies were lucky and made hundreds of millions of dollars, but more lost it all, causing the market to dry up. The ripples were felt even in the Midwest.
Investors are a little more wary these days when it comes to start-up technology companies, so it's important to show that you have a solid, proven business plan.
"The first thing we needed to show our investors is how they could make money," says Stephen McHale, CEO of Everstream, an application service provider that allows businesses to deliver targeted rich media content and advertisements over the Internet and wireless devices. "Once we could show them that not only would it not cost them anything, but it could make them money, that really got their attention."
At the Northeast Ohio Software Association's second Seed Capital Initiative, McHale and the CEOs of other rapidly-growing technology start-ups in Cleveland shared advice and war stories about raising capital in the marketplace after the investment feeding frenzy.
Here are a few of things they've learned.
Once the plan is in place, it's important to find investors who know something about your field. If the idea is very high-tech or complex, it's unlikely there will be investors who are experts; however, a knowledgeable investor will add much more value to the company than someone just looking for a dividend.
"There's nothing better than getting an e-mail from an angel (investor) that has information that actually pertains to my business that I can go follow up on," says Ken Applebaum, CEO of Embedded Planet, which provides software and hardware platforms for manufacturers and developers of embedded systems.
The economy is not driven by steel and widgets anymore, it's about ideas and information. For both investors and entrepreneurs, networking is the key to finding out about opportunities to grow a company. Internet chat rooms, list servers and Web sites are also ways to network, so don't forsake them to concentrate solely on traditional face-to-face methods.
"Networking is what this whole technology business is all about," Applebaum says. "You will find other people out there who can add value."
The founders of many of start-ups left behind their steady 8 to 5 jobs with handsome salaries, benefits and corporate perks. To say goodbye to all that and go out on your own requires tremendous passion and a complete devotion to the idea, not just the desire to get rich, says Rebecca Braun, CEO of SupplierInsight, an online qualification and ratings guide of industrial suppliers engaged in digital procurement.
"It is raw passion that pulls you through to the final stretch that gets you funding," Braun says. "I know it happens all the time in all walks of life, but I can't fail to mention this step because I think it's the one thing that absolutely pulled us through to getting funding." How to reach: Everstream, (440) 498-8899 or www.everstream.com; Embedded Planet, (440) 646-0077 or www.embeddedplanet.com; SupplierInsight, (216) 781-1100 or www.supplierinsight.com
Morgan Lewis (firstname.lastname@example.org) is a reporter with SBN.