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Technology makes a comeback: fizzling dotcoms were last year's news. Now, technology gets back to basics. B.E.'s experts discuss how you can find the capital to fund your venture. (Tech Forum).

LAST YEAR, DOTCOM IMPLOSIONS, SCARCE VENTURE FINANCING, and the Internet bust were the buzzwords in the technology industry. Now, the roller coaster ride is winding down, as entrepreneurs from Silicon Valley to the Alley get back to business basics. Gone are the stories of multimillion-dollar financing for startups like or Venture capitalists are not just looking for good ideas but also for winning business plans, a solid team, and vision.

So how do African Americans figure into the discussion of venture capitalists, startups, and the technology industry as a whole? Plenty. African American entrepreneurs who have been in the trenches and those who are now starting tech firms stand to gain significantly from this refocusing. This year, BLACK ENTERPRISE traveled to California to meet with entrepreneurs, venture capitalists, and CEOs of tech firms to find out just where the opportunities are--and how entrepreneurs can cash in on their ideas. BE'S panel of experts include: Michael Fields, managing member of NewVista Capital and chairman of the Fields Group, Omar Wasow, director of; iron Cadet, co-founder and CEO of Bayview Systems; Virginia Walker, executive vice president and CFO of OSE Systems; Stephan Adams, founder of Adamation; Frank Green, managing member of NewVista Capital; Juanita Lott, founder and CEO of Bridgestream; Kim Folsom, founder and CEO of SeminarSource; and Lewis Byrd, general partner at Opportunity Capital Partners.

BLACK ENTERPRISE: Where does the tech industry stand today? What is the difference between now and, say, two years ago?

MICHAEL FIELDS: The last few years, 1998 to 2000, it was a bubble; it was unlike anything that has ever occurred and I doubt will occur in the future. A lot of entrepreneurs have an expectation that the financing of their business is still going to be done the way it was done in the bubble. And in that bubble, part of [your MBA thesis] was to write this business plan. You took it to a couple of guys; they gave you $30 million. You started the company, and six months later it was worth $100 million. Two years later, you were getting valuations of $200 million and your personal net worth on paper looked in the tens of millions of dollars. That happened to a lot of people. Most of them are looking for jobs now.

FRANK GREENE: Information technology in this country is a massive industry, a trillion-dollar industry. It slowed down some last year, but it is still over a trillion dollars. Maybe it is growing at 6% or 7%, not 30%. But 6% or 7% of a trillion is a lot of money. Folks get their perspectives distorted about the size of technology. The Internet doesn't make a business. The Internet is a tool that is going to be used in enterprises all over the place, all over the world. But it is just that; it is a tool, not the business.

VIRGINIA WALKER: High tech can drive an economy; it is here to stay. The Internet may be something that is transitioning, but high tech innovation is what this country is about, and we all need to find different ways in which we can participate in that.

OMAR WASOW: I think one other [difference] between two years ago and now is that there was a moment in the dotcom hysteria when you could think of a really accessible, consumer-friendly idea and try to raise money around it. But what we saw was that it was the technology-driven companies that succeeded. If you are thinking of starting up a business, it is a lot of fun to say, "I have this idea that is consumer friendly. Let's go raise money." It is a lot harder to do something that optimizes a very small part of a whole back-end infrastructure, but that, in many cases, is where the real opportunities are.

B.E.: What does an entrepreneur have to do to attract capital in today's economic environment?

FIELDS: I think the first thing a new entrepreneur needs to deal with is that this is not 1999. This is 2002. And you have to prove your value proposition, prove your ability to get to market, actually show examples of it. I have seen a lot of business plans and individuals that will come and say, "OK, I'm starting my business. I've got this great idea; this is a world beater Internet strategy, and I need $20 million." We're not in that world today.

STEPHAN ADAMS: I found that creating value is not just for my customers but also for larger companies. Can our company, with the funding and the pockets that my investors have, make this into a billion-dollar company? No way. But I believe that the solutions that we're providing, someone larger can [do this]. So now when I look at product development, I don't look at product as a whizbang-thing. I view it more like, "This has value in the marketplace. This has value to a company like Hewlett-Packard. I can put this product into the marketplace."

WALKER: One of the other things I think that entrepreneurs, or would-be entrepreneurs, need is a significant dose of honesty. You need some people who will say, "This idea that you have sounds great in your head, but have you validated it anywhere?" Or, "How you are going to come at it?" You just need somebody to really be straight with you.

GREENE: You've got to figure out how you get a relationship with somebody who is controlling money to want to invest in your business. The business plan may or may not help you raise money, but the relationship with a partner and a venture fund [can].

LEWIS BYRD: I think different markets accept different things. Three years ago ideas were getting funded. In today's environment, it's well-rounded businesses [that get funding]. I think for us, what differentiates one company from another, are basic things: great management, great market opportunity, great products, great strategy. There's no magic wand here. It comes down to hard work, communication, and some sweat. In today's environment, there is a premium on basic things like customers and revenue.

JUANITA LOTT: One of the things that we have not really figured out how to do is to spend time with entrepreneurs who have great ideas. There is a whole skill set around being an entrepreneur, raising money, developing a marketing strategy--those aren't things that you wake up one morning and suddenly know how to do. A lot of these kind of networking communities that are mentoring groups are giving their time to help those young folks that are coming behind them. We are not as effective and structured around that part of entrepreneurship as it relates to African Americans. And that's not about giving access to people who don't have a strong value proposition. That's about those of us who have gone a certain ways down this road, making it a point to spend time with those who want to make this journey, and helping them into the pipeline.

B.E.: So how do African American entrepreneurs get into that pipeline to build these relationships, particularly when many venture capitalists are shying away from early-stage firms?

RON CADET: You can get into that pipeline by taking a look at the relationships you already have. Take a look at your own relationships, your friends and family. It is a cliche, but many good businesses were started with people just going to their uncles or members of their church. This is really the time to get back to the grass roots. Go to those people. You can sell them your ideas, raise a little bit of money, and then begin tapping into their networks.

LOTT: One of the most important skills for a startup entrepreneur is to have no fear in really working a network. And you have to be tenacious about it. There may be individuals that you don't have a close relationship with, but you know at least enough about to pick up a telephone and say, "This is who I am. This is what I'm doing. Give me 30 minutes to tell you about my business proposition and get feedback." What I have found is probably the people at the highest levels, and the ones you think are least accessible, are absolutely willing to give you some of their time.

KIM FOLSOM: You may need to change the network of people you spend time with to people who have done what you want to do. Because one thing that's evident to all of us [is that] we have all had experience. If someone asks, "How did you do this, and what would you do differently?" you are going to share that story with them. And that is critical, because there isn't enough of that done on an ongoing basis.

BYRD: Now is a great time, or probably the best time, for entrepreneurs of color to be raising capital. One reason is that there are many more people of color who are managing venture capital or private equity funds. And many more of those funds focused on technology, and that's, again, just a sign of the times. But there are probably at least 20 funds across the country managed by people of color. It is important to note that venture investors here in the Valley have become much more inclined to finance venture-backed companies run by people of color.

WALKER: I think that it is real important to understand what networking can do for you in this kind of situation. First of all, you do have to work the seven degrees because you don't know who is going to know whom. But the thing that you have to be most mindful of is you've got to give that person some substance. You've got to give them something to say about you to catch the attention of the person with the money.

B.E.: As entrepreneurs, when do you know to call it quits--whether it is selling the company, stepping aside as CEO or just saying, "This isn't working."

FOLSOM: You look at what is going to bring the best value to your shareholders. And it is having the company continue to grow. However, if it is going to continue to suck capital, it may be time to go.

With SeminarSource (and this is the third interesting opportunity we've had to sell), prior to getting financing I received two offers [while] we were going through our first round of financing. You look at where you are, where is your opportunity for growth, what is the best way for you to generate revenues and penetrate the marketplace. We looked at our ability to grow, and our ability to raise financing on our own. So for us [selling] was part of our financing strategy.

CADET: I think the ultimate model of knowing when to sell out is Mark Cuban of He got out at really the right time, but that's kind of an aberration because of the dotcom frenzy. But I think it is also a function of what your competitors are doing. How well capitalized are your competitors, and what is the long-range prospect for your technology?

LOTT: That's an interesting question because I think often the honest answer is someone taps you on the shoulder and suggests you need to consider that. Seriously.

WASOW: But that tap, sometimes, is a little harder than just a tap. The hard lesson I learned in my first company was I had three opportunities to sell, all of which I passed on because I thought something bigger and better was coming down the pike. And I was not making rational decisions. I was being kind of in love with the company I started, as opposed to being more mercenary.

B.E.: Are there barriers to entry for African Americans? How do we get beyond those barriers to succeed in technology?

BYRD: Venture capital, private equity is much talked about nationally, and certainly here in the Bay Area, but very few businesses that are out here today--if you look at the broad array of businesses--attract venture capital financing. So it has always been a very, very high hurdle. I think today, given the times that we are in, the hurdle has been raised a little bit, but I'll also say we have financed more new businesses in 2001 than probably in any year in our history. So, you know, I think that there are great opportunities out there.

FIELDS: Right now the whole technology sector is in a transformation. And those companies that know how to size themselves right--build the right kinds of solutions for business and personal use--are going to succeed. But there is a lot to overcome in order to accomplish that. As African Americans, having hard times and having to find a way to exist within a difficult environment is not foreign to us. And I think that those of us who are going to succeed through this time are going to be the ones that have fortitude and focus.

LOTT: I think technology is one of the fields that really in many ways is color-blind, which is an interesting thing to say. The reason I say that is because the bottom line, when you think about technology, is whether you can bring a product to the market that has high value. At the end of the day, if your product brings value, if your product can make a company more successful, I absolutely believe there is no reason that African Americans should see a barrier in getting that product to market. I think the opportunities that we need to have more of really relate to access to capital. That is an issue; it is an issue that's changing. I think as we get more access, you will see many, many more entrepreneurs stepping up to the plate. There is no question that many of my colleagues are as qualified as any individuals I have worked with in running companies and being successful. That's not the question. The question is access and opportunity, and there are a lot of great people out there with great ideas today. And I think we're going to start seeing some real inroads on the part of African Americans in the technology sector.

WALKER: I would have to say that I can't agree that venture money is color-blind. The money may be colorblind, but we don't have the same numbers of access opportunities. The odds are not on our side to get into that environment where you can put yourself, and your idea, out there. So, networking it is probably more important for us, and we have to be really innovative about it because we don't have enough natural opportunities to network and make that happen.

ADAMS: I think one of the errors of black businesses, in particular, is that we cater just to ourselves, or we cater to the market we think we can get access to. The global market is huge. One of the biggest excitements I ever had in business was my first trip to Japan. I walked into a random computer store and saw my product on the shelf, and saw someone pick up the. box. And they did not know a black company developed that product. That was one of the greatest joys I have ever had in business. I couldn't even read my own box, but it was sold on the shelves. It's about looking at a global marketplace.

(For more on the BE Venture Tech Forum, log on to www.blackenter
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Author:Donaldson, Sonya A.
Publication:Black Enterprise
Geographic Code:1USA
Date:Mar 1, 2002
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