Some Investors Still See Value in Network Forums

Entrepreneurs looking for venture capital haven’t had it this tough in years.

With the stock market’s plunge and drastically faded prospects for many technology companies, venture capital firms are hunkering down, forgoing new investments in favor of conserving cash or trying to prop up companies they previously funded.

“The balance of power has shifted all the way, from highly in the entrepreneur’s favor back to the investors’,” said Joseph Marks, a managing partner at Smart Technology Ventures, a Los Angeles-based fund with $175 million in assets.

Still, some entrepreneurs are getting cash. Marks’ firm has made three new investments so far this year, he said.

Though falling attendance at venture networking events suggests that many would-be entrepreneurs are giving up on that idea as a way to link with investors, some venture capitalists say the affairs can be valuable forums.

Networking events are still important, Marks said. His fund has invested in several deals the firm learned about through such events, he said.

It can be “the first step in a relationship,” Marks said. “I enjoy meeting an entrepreneur face-to-face. Sometimes that means we get flooded with [ideas], but I continue to seek out these events.”

Besides investors, networking meetings often attract accountants, lawyers and other professionals who have services to offer entrepreneurs or who can provide referrals to investors, industry veterans note.

But Marks also encourages entrepreneurs to use other channels to reach potential investors. He and other venture capitalists say concise e-mail pitches still are welcome.

The e-mail should include a very brief explanation of the business, Marks said, and should address “what [business] space do they play in, what pain do they solve, and what do they expect to achieve with our money?”

Brad Jones, a partner with Redpoint Venture Capital in Los Angeles, a $1.25-billion fund, said he tries to attend key networking events.

Jones, one of Southern California’s most prominent venture capitalists, said he and his partners respond to every business plan they receive. However, if a plan comes with a referral from a known accountant, lawyer or executive recruiter, it gets higher priority, he said.

He discouraged entrepreneurs who attend networking events from handing out copies of their business plan to every venture capitalist in the room.

“It’s not very sophisticated. It looks like you aren’t selective about who you get your money from,” he said. “That’s a bad decision and it makes me think [the entrepreneur] might make other bad decisions.”