TEACHING & LEARNING
Custom Builder Has
Designs on Future
Powers of Concentration: Wharton's Undergraduate Entrepreneurs
OUTREACH
Between
a Rocket and a Hard Place
Faces of Wharton Entrepreneurship
RESEARCH
The Vanishing $7 Billion:
An Options Approach to Corporate R&D
2002 Philadelphia 100 Find High Growth in Downturn
Outreach
Between a Rocket and a Hard Place
As part of the gala weekend celebration marking the opening of the Wharton School's new academic center, Jon M. Huntsman Hall, a panel of Wharton alumni entrepreneurs and venture capitalists convened to discuss opportunities within the limits of tight capital.
Entrepreneurs today are caught between opportunities created by rapid, discontinuous change and the constraints of tight capital markets, said Raffi Amit, academic director of the Goergen Entrepreneurial Management Programs, in his welcoming remarks at a panel on entrepreneurship. The panel was part of the gala celebration marking the opening of the Wharton School's new academic center, Jon M. Huntsman Hall and included an expert panel and an audience of Wharton alumni.
Like the discontinuities of electricity or national transportation systems, today's technologies such as the Internet and biosciences have created tremendous opportunities. "Each discontinuity leads to a phenomenal economic growth and new opportunities," said Amit to start the session. "I believe today we are living in this period again. There are unprecedented opportunities for entrepreneurs in existing market spaces and new market spaces. Yet we are living in very difficult capital markets."
A Funding Gap
Patience is a virtue in this environment. "A big part of what you have to do in today's environment is wait," said Jeffrey Babin, managing director and founder of Antiphony Partners LLC, a firm that consults to entrepreneurs. "Investors have taken a giant step to the right. They are investing in later stages. We have a huge funding gap in the early stages now. This requires entrepreneurs to be more resourceful. You have to figure out how to reach the next step with the money at hand."
Venture capitalist Tami Fratis, managing director of Phoenician Ventures, LP, compared investing in ventures to placing bets in a horse race. "The jockey is the entrepreneur and the horse is the company racing around the track," she said. "A lot of races are closed today for bad weather."
There are still plenty of opportunities. She said it is a recent myth that new firms need millions in venture capital to get started. This was only true to some extent from 1999 to late 2000. "It has always been difficult to get venture funding," she said.
Doing More With Less
Chad Gomes, a 2001 Wharton graduate who founded Advanced Angling Concepts, said he and other entrepreneurs have leveraged networks, partnerships and other resources to do more with less. Advanced Angling makes a "next generation bass fishing lure," which uses reverse propulsion to help anglers catch more fish.
Building the business without a lot of capital required creative bootstrapping and hooking some big partners on the idea. Instead of going after venture funding, the company leveraged relationships with well-established firms. It forged a partnership with a major manufacturer of fishing lures to give it access to the company's clients. It used a letter of intent from a major infomercial firm to help secure funding.
As a company that came out of Wharton's Venture Initiation Program, Gomes was also able to tap into Wharton's network advisors, investors and service providers, and the halo of the school's reputation helped sign up his first accounts. In addition to Wharton's resources, the company has used resources in the Philadelphia community such as the city chamber of commerce and Small Business Development Centers. For example, the Bucknell SBDC offered free prototyping for their product.
"Building relationships is critical," he said. "Leverage the network. Leverage friends and family. Don't bring in venture capital until you are ready, not when you are desperate."
Focus on Fundamentals
Barry Lyngard, President and CEO of technology firm SenorPad Systems, spent five months shopping a business plan to venture capitalists and angel investors. When he and his partners had burned through all but a week's worth of cash, the funding finally came through.
He stressed that the business planning and the plan need to be rock solid. "You can't cheat on the process," he said. "There are a lot of things that are uncontrollable, but you need to surround yourself with the best management team you can. This costs money, but they may agree to defer payments until you raise capital." And he learned to be persistent. "You'll see dozens of VCs who will not return your calls and not tell you why. They think you are crazy, but that may be what the definition of an entrepreneur is."
Personal Rewards
There is much more
to entrepreneurship than receiving a fat check from a venture capitalist.
When Ellen Yin opened Fork Restaurant and Bar in Philadelphia five years
ago after working in consulting, there was little money to be found. Investors
knew that one in five restaurants fails in the first year. Four other
restaurants founded in the same neighborhood as Fork are no longer in
business today. After knocking at the door of almost every bank, she finally
received $150,000 in bank financing to get started.
While she rarely has a day off, it doesn't matter. "I don't care,"
she said. "I love it. I go there every day and feel refreshed."
She paused and added with a smile, "That's a lie, I can't say that."
There are constant challenges, from finding financing to dealing with
competition from imitators to hiring waiters and waitresses. Even so,
building a successful restaurant is well worth the effort. "It is
a dream come true," she said.
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