VENTURE CAPITAL IN ORANGE COUNTY : The Middlemen : Consultants Find Profits Greasing the Wheels Between Business and Capital
A cadre of middlemen serving both entrepreneurs and venture capital firms has evolved in Orange County, and those looking for financing usually must hook into the network to find out how to get needed cash.
After all, there’s no category in the Yellow Pages for venture capitalists.
Major accounting firms, especially Arthur Young & Co., have created special divisions to help entrepreneurs, and such local law firms as Rutan & Tucker and Stradling, Yocca, Carlson & Rauth devote part of their business to creating new businesses.
Often the middlemen reduce their professional fees for new companies to foster ongoing business relationships that will provide them with more work later as the companies grow.
Some, like Arthur Young, have set up divisions dedicated to entrepreneurial services. Partners in Arthur Young said theirs is the only accounting firm in Orange County that can tap into the Venture Capital Hotline, a computerized data base that includes more than 1,400 venture capital sources nationwide.
Through networks such as the Orange Coast Venture Group or the Orange County Venture Forum, middlemen put on luncheons and dinners for entrepreneurs--who usually pay their own way. Speakers, ranging from venture capitalists to successful business executives, give nuts-and-bolts advice and share war stories about their fights to attract capital.
In recent years, another layer of go-betweens--management consultants--has proliferated to help entrepreneurs form business plans, put together management teams, retain lawyers and accountants and, most importantly, find venture capital to push the companies into high gear.
Consultants say they fill an essential niche because entrepreneurs often are too inexperienced in business dealings and because better presentations are needed today to attract ever-cautious venture capitalists, who already are shying away from embryonic companies.
“The more prepared entrepreneurs are, the better their chances are of raising capital--and also of keeping more of their companies,” said Walter W. Cruttenden III, whose Newport Beach investment banking firm operates the Irvine Technology Fund, a venture capital pool.
“There’s plenty of capital available, but the criteria are so stringent,” Cruttenden said. “To meet that criteria means you need top-notch management, proprietary products and companies that serve a rapidly growing market.”
But venture capitalists, who generally dislike interference from any middlemen, claim consultants serve little useful purpose and simply take what little cash entrepreneurs have or, worse, take small slices of the companies.
“Venture capitalists, as a rule, have their own management teams and don’t want us involved,” said Russell B. Seely of Santa Ana, himself a consultant who now runs an Azusa company. “Besides, the standard management consultant is a guy who couldn’t make it in business anyway. I just call myself a businessman now.”
Critics argue that consultants simply do a job, take their fees and get out. But Michael A. Reagan, a Costa Mesa consultant, counters that good consultants nurture and coach firms through all the hurdles until venture capitalists jump into the picture.
“My experience is that you have to spend a fair amount of time to really understand a company, its people and its products,” Reagan said. “You can’t do that just by filling a board seat.”
In fact, he contends, most other middlemen take fees on a project basis--fixing an accounting system or finding a chief financial officer--and get out.
Regardless of any backbiting, Reagan, Cruttenden and others in the venture industry agree that when a great idea comes along, they all work together to make the company successful.
