Subject: [NEXTEL-1] Internet Invaders

From: Marcelrf <[email-masked]>
Date: Mon, 15 Mar 2004 01:26:29 -0500

Internet Invaders

Kennett Square not just for mushrooms anymore
Peter Key

Internet mania is about to sweep the serene and stately grounds of
Longwood Gardens and the DuPont Country Club.

Early Stage East '99 will hold its opening ceremonies at the Kennett
Square horticultural haven the evening of June 14 as a prelude to a
day of presentations and exhibits by companies seeking their first round
of equity funding.

The venture fair was a success last year, the first in which it targeted
young businesses. And its organizers expect it to be even bigger
this year, as more than 150 investors search for the next VerticalNet
among the 24 companies that will be making presentations and 18
that will showcase their stuff.

"The message to people who want to [attend] ... the fair is they've got
to do it right away," said Joseph Killackey, managing director of
Center City-based DVCRF Ventures, who is co-chairing the event with
Steven Hobman, a senior vice president with Blue Bell-based
Progress Bank.

Those who want to do that can visit the fair's Web site at
http://www.earlystageeast. org.

The reason for all the brouhaha? The incredible valuations attained by
Internet companies such as VerticalNet, the Horsham-based
operator of groups of industry-specific Web sites, which went public at
$16 a share earlier this year and was trading around $90 earlier
this week.

"You see a success story like that in this region and people say, `Hey,
geez, this is something we want to look at,'" Killackey said.

It's also something entrepreneurs want to emulate, and more than a few
at the fair are trying.

Fair organizers won't release the names of the presenting and exhibiting
companies until the event, but Killackey said close to half have
business models that involve the Internet.

Funding for those types of companies exploded in the first quarter of
this year, according to the most recent PricewaterhouseCoopers
Money Tree survey of venture-backed investments. Internet-related
companies received $1.84 billion in venture funding in the first
quarter, more than triple the $501 million they received in the same
quarter of last year. The number of Internet companies funded more
than doubled to 236 from 114.

"The Internet has the fastest growth rate of any category we've ever
tracked in the survey," James D. Atwell, managing partner of the
Venture Capital Practice in PricewaterhouseCoopers' Global Technology
Industry Group, said in a press release summarizing the survey.

Perhaps because of the short time many Internet companies have taken to
go from gestation to initial public offering, funding for young
companies is up, too. Of the 722 companies funded in the quarter, 44
percent were start-ups or early-stage firms. That category led all
categories in funding with $1.65 billion, which was 39 percent of the
$4.29 billion invested during the quarter.

Despite that, Hobman said Early Stage East is the only venture fair he
knows of for companies in the pre-funding stage.

Prior to last year, the fair was for Delaware companies of any stage of
development that were looking for equity funding. But David
Freschman of the Delaware Innovation Fund decided to change the focus to
early-stage companies and expand the geographic area to the
Eastern Seaboard from Boston to North Carolina.

The result was "a great event," said Ash Lilani, a senior vice president
with Silicon Valley Bank, which has been lending to
Philadelphia-area companies from its Maryland office. "Not only was it
well organized, but the quality of companies was incredible."

The process for selecting the presenters and exhibitors may have had
something to do with that. Hobman said it begins with nominations
from professional and nonprofit support organizations that work with
entrepreneurs, as well as venture capitalists. Nominated companies
are asked to submit business plans and about half do. Those are then
culled to find the companies that present and exhibit at the fair. This
year, about 200 companies were nominated and from 80 to 100 submitted
business plans.

Those that didn't submit business plans were missing the boat, according
to Anthony Wedo, chairman of Homes For Living Inc., a
Wilmington-based seller of home-decor items that received more than $1
million in funding within 90 days of exhibiting at last year's fair.

"This is the show to be at for small businesses," Wedo said.

Wedo said companies shouldn't expect to get funded at the fair, or even
as soon after it as his did. Instead, he said, they should go with
the idea of meeting a lot of possible financiers that they contact
afterwards.

They also should look for more from a funding source than just money.
They should make sure the funder shares their objectives for
their business.

"Companies should expect if they're looking to raise equity that they're
taking on a partner and creating a marriage that is one they're
going to have to live with for a very long period of time," Hobman said.

Additionally, early-stage companies should expect funders to want higher
returns than they would from deals involving more established
businesses. The Internet frenzy and ongoing bull market also have
boosted the returns expected by early-stage business financiers, but
those factors have increased the valuations that entrepreneurs can have
placed on their start-ups, too.

As for term of investment, Hobman said investors generally want to be
able to get out of a startup in five to seven years, unless the
company is an Internet business.

"There," he said, "the expectations are to see exit strategies a lot
quicker than five years."

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