You’re running an early stage software company and you’re looking for cash in the wake of the dot-com crash. The economy’s in a recession and it’s after Sept. 11. Would you be optimistic about your prospects for raising $10 million in venture capital?
That’s the environment in which Smart Ops Inc., a company that makes software for supply chain management and inventory optimization and sells to Fortune 1000 companies including Caterpillar and Giant Eagle, found itself.
It isn’t an Internet company, but venture investors had lost their appetite for technology companies just about the time Smart Ops decided bootstrapping wasn’t going to allow it to grow, says SmartOps vice president of business development A.J. Brohinsky. Ultimately, the company landed funding from local venture fund Adams Capital Management last fall, but not before rolling out its plan to several VCs and getting term sheets from three.
Here’s what Smart Ops did over a six-month period in its successful bid for venture funding:
* Put together a business plan designed to land financing and put it through test runs in front of people who would ask tough questions. “You find that in talking with investors, there are about 10 questions they ask,” Brohinsky says.
* Created “pull” for itself by making the investment community aware of its presence and attracting inquiries from VCs. “Make sure they’ve heard of you,” says Brohinsky, “that you’ve got some traction in the market.”
* Secured term sheets from potential investors. Says Brohinsky: “Nothing affects value like having alternatives.”
* Did due diligence on potential equity partners. Choosing one, Brohinsky says, “is more serious than choosing a spouse.”
Brohinsky says SmartOps encountered some potential VCs that looked at the plan and feigned interest simply to see what they could learn from the business plan. And potential investors will never say no quickly.
“There’s no benefit to them to say they’re not interested,” Brohinsky says.
Brohinsky says meetings with potential investors tend to be straightforward, nuts-and-bolts encounters, but that in SmartOps’ case, a little emotion played a key role. A factor Brohinsky cites as critical was the participation of the company’s founder and CEO, Shridhar Tayur, who didn’t hide his passion for the company and its product.
“Frankly, I think his style proves to be the better one,” says Brohinsky. How to reach: SmartOps, www.smartops.com, Adams Capital, www.acm.com