Despite concerns about the economy, entrepreneurs can still find seed money. However, an expert says venture capitalists no longer can be won over by a unique product.
"There is going to be a different process," said Stanley E. Pratt, a founding general partner of Abbott Capital Management, an investment adviser firm based in New York. "Not everybody should be financed just because they have a good idea."
Instead, Pratt said investors will be looking harder at whether the entrepreneurs have extensive experience in the area in which they are either trying to sell a product or provide a service.
"It's going to be a matter of management, management, management. Management is really more important than the product. What we want people to tell us is that what they are going to do in the future is what they did well in the past," Pratt told about 80 venture capitalists and corporate investors attending Maryland's Venture Fair held this week at Stouffer Harborplace Hotel.
The two-day fair was sponsored by Alex. Brown Inc., Coopers & Lybrand, 30 venture capital firms and the Maryland Department of Economic and Employment Development.
About 50 entrepreneurs from the mid-Atlantic region attended the fair looking for money from venture capitalists and corporate investors.
Among the group was Jean and William Dorsey.
If the Dorseys have their way, police officers all over the country will be able to catch parking ticket scofflaws with a hand-held computer, which is capable of storing up to half a million license plate numbers and other identification information.
The 4-pound computer is their baby and the basis for Polysoft Systems Corp. The company was founded by this husband and wife team in New York in 1984. They moved Polysoft from Manhattan to Baltimore in 1987.
Polysoft's marketing niches, the couple say, are local and
regional municipalities, university campuses, hospital parking facilities, and airports.
In fact, the entrepreneurs dream of tapping into what they believe is a multi-billion market niche. However, their dream venture needs to be capitalized. Jean Dorsey said Polysoft needs about $1.5 million to effectively market the hand-held computer, which he engineered.
"Most companies start asking themselves 'will I have to go after venture capital money' but the odds are 1000 to 1 that they will get any seed money," William Dorsey said.
But a year after making their first sale to the Camden, N.J. Parking Authority, the couple have begun to beat the odds.
Polysoft has an investment commitment from Zero Stage capital, a Baltimore-based seed capital fund, which has already invested money in the company. Although the couple would not disclose the amount of the investment, they said Zero Stage has pledged a significant amount of capital. Zero Stage is also working to bring other investors in.
The state has also agreed to give the company a $50,000 grant as part of its newly set-up Venture Capital Trust Fund, the couple said.
The Dorseys started Polysoft with an initial investment of $5,000 and got the rest of the start-up capital from friends and relatives. In all they've spent about $700,000 in research and development. But they've tapped out their network of individual investors and have begun the long, hard road to finding money from venture capitalists or corporate investors.
That's not an impossible feat, according to Bharat R. Patel, managing director for Wang Development & Investment Corp., based in Maine.
"Venture capital money is never going to dry up," said Patel, whose corporate investment company is interested in investing in Polysoft.
In addition to a piece of technology that potentially could help local and state governments increase revenues, the Dorseys have a solid management background, Patel said.
William Dorsey worked six years for IBM as a consultant and a senior trainer for management and development. He's also worked for the Tandy Corp. For more than 10 years he taught logic at the New York School for Social Research.
Jean Dorsey worked for eight years as marketing manager for word processing systems for the Olivetti Corp. of America. She also worked for IBM in investor relations and marketing and was a computer systems manager for the City of New York in its Department of Sanitation. In that capacity she managed a yearly budget of $11 million.
"Unless you are inventing something like the hula hoop, building a better product does not guarantee sales," said William Dorsey. "A successful venture these days requires a very broad and knowledgeable background."