From the Trenches: Entrepreneurs Find Financial Roadblocks
As investor sentiment soured against “dot-coms” last spring, The Times talked with three people determined to start Internet businesses. One had quit work; two others had scaled back their day jobs to pursue e-business careers.
They knew the clock was ticking from the moment they dug in. Without outside financial support, they’d be out of business soon.
“In no more than two months, I’ll have a check written” from a venture capitalist, diesel mechanic Rudy Salazar said then. “Or, I’ll be throwing in the towel.”
Here is how the entrepreneurs have fared during the last eight months, a tumultuous time for e-commerce.
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When hardware engineer Randy Chung launched EdgeStream in August 1999 with $500,000 from family and friends, he promised them he wouldn’t use it unless the company had a fighting chance. So perhaps it is a healthy sign that Chung has depleted most of it.
Chung used the money to hire an executive staff and develop his technology for transmitting TV-quality video over the World Wide Web. He is close to signing a deal with a so-called angel investor willing to provide “at least quadruple” his initial investment, or $2 million, enough to bring EdgeStream’s technology to market, Chung believes. After the deal, Chung will own less than 50% of the company he founded.
“I’m going take a hit, but that’s OK,” he said. “I need investors and executive talent. It is part of the process.”
The former Conexant program manager has been through ups and downs. He almost threw in the towel after rumors surfaced about a company with similar technology. After two days of frantic checking, the rumor proved false.
“I learned not to jump to conclusions, not to overreact,” Chung said.
Chung, 48, had difficulty hiring people.
“Who to choose for different positions, that’s stressful,” said Chung, who kicked himself back to chief technology officer after hiring a chief executive. “Someone is going to be unhappy. I don’t like that.”
Chung’s biggest worry in starting the company was the looming cost of college tuition for his son, a junior at Aliso Viejo High School. His salary is half the $120,000 he earned at Conexant, which makes it tough to save for college.
But EdgeStream’s technology should reach the market by mid-2001 and begin paying off, he said. “I think we’ll do fine.”
Diesel Mechanic Retools Strategy
OK, he was wrong. Rudy Salazar hasn’t found investors willing to fund his business, FleetMechanic.com. But he hasn’t given up on his dot-com dream, either.
Salazar took out a $40,000 second-mortgage on the Fullerton home he shares with his mother to hire a Web site developer. After taking several bids--including one for $80,000--Salazar decided to do it himself.
So far, the 37-year-old has spent $18,000 on software programs, books, four personal computers, a market analysis and other professional services for his online business. It would track maintenance schedules, driver reports and other virtual paperwork for small fleet operators.
Working in a spare bedroom, he has completed a small test site and hopes to have a second-generation prototype ready by March. He boasts that he is the “most high-tech diesel guy around.”
Meanwhile, Salazar has scaled back his real-world business, Corporate Lube, to 24 from 40 customers in 1999. He expects to earn $35,000 this year from his one-man business, which maintains small truck fleets. That’s 27% less than his 1999 income of $48,000.
Besides picking up the rudiments of Web site development, Salazar is learning lessons about business. Early on, he hired a chief financial officer, whom he later concluded he didn’t need. Now Salazar is trying to unwind the contract.
And Salazar faces a potential conflict with one of his 25 domain names, FleetExchange. The company that operates a competing site called FleetXchange told Salazar the names are too similar.
Gerard Beenen, co-founder of Neodesic, the company that operates FleetXchange, said his firm is willing to buy Salazar’s name from him, but would take legal action if he uses it.
“It won’t devastate me if I lose [FleetExchange], but it is disheartening,” Salazar said.
His biggest lesson? “Forget chasing money and just get out there and do it,” he said. “Stop the fund-raising and build the prototype. If I had done that to start with, I would have saved four months.”
Pulling Up Stakes On a Worthy Endeavor
Roy Nwaisser hasn’t pulled the plug on Netraction’s Web site. But it is all that is left of the Internet advertising service, which closed in July.
“Clearing out the office was so hard, moving out the equipment and furniture. It was like cleaning out the apartment of a deceased relative,” said Nwaisser, 28, a USC graduate who had spent a year trying to make a go of the Los Angeles-based business.
“It is hard to pull the last plug,” he said, referring to the Web site that receives five to 10 hits weekly. “I don’t know who is checking it out.”
Nwaisser and his partner, USC classmate Hermann Eichholzer, kept the company going with their own funds, eventually investing $100,000 in it. For Nwaisser, that meant funneling a chunk of his paycheck from his other job as an IBM project manager.
In their efforts to raise capital, Nwaisser and his partner encountered what he called “a classic Chicken-and-the-egg problem.” Investors liked Netraction, but wanted it to hire experienced managers before they invested, Nwaisser said. But skilled executives demanded compensation that Netraction couldn’t pay without help from investors.
The company struck out with potential customers, as well, in part because it lacked the funds to develop the business and to market its service, Nwaisser said.
“We just didn’t see the light at the end of the tunnel,” he said. “At some point, you have to know when to call it quits.”
Nwaisser has no regrets and said the experience hasn’t hurt him in the marketplace. As a project manager at Santa Monica-based Intertainer, he has a comfortable salary and stock options in the company, which is developing video-on-demand technology.
“It is a welcome change of pace for now,” said Nwaisser, who may again start his own business one day. “It is nice to have a subset of problems that I only have to think about from 9 to 5, whereas at Netraction every problem was my problem 24/7.”
