Title	Forum: Capital flows but with strings
Date:	5/21/2000
Author:	Maria Zate
Source:	Santa Barbara News Press

The dot-com bubble may have burst, but there's still plenty of funding out there for start-ups with a good idea and a solid business plan mapping a road to profit.

That was the prevailing message at the fifth annual Central Coast Venture Forum held last week at the Bacara Resort in Santa Barbara.

More than 300 people attended the event that plays matchmaker to promising start-ups and deep-pocket investors.

"In the last several years there were lots of investments made. Unfortunately, many of those investments weren't based on companies making a profit," said conference attendee Harinder Dhillon, of SoftPages in Milpitas. "But good ideas are still getting funding."

The money bag, however, comes with new strings attached. Gone are the days when investors blindly threw money at companies rushing to jump on the Internet bandwagon. The new rules emphasize going back to basics. High-tech hype is out. Business 101 is in.

Investors -- whether they are corporations like Compaq and Intel, or venture capital firms -- are now requiring start-ups to show an impressive business plan as well as a great new product or service.

"Start-ups need to have a business model because venture capitalists don't fund science projects," said Lisa Farr, president of Santa Barbara-based Occam Networks Inc., and a speaker at the forum.

Unfortunately, many investors in the past few years did give millions to companies that showed little evidence of gaining paying customers to stay afloat.

Harold Enright, a vice president at Compaq, said those days are gone.

"The dot-com bust was a result of a frenzied gold rush. If you had an idea where you could draw eyeballs (traffic to a Web site), the stock market would pay for that," he said. "But that period is over. It was a unique event that won't occur again in our lifetime."

Last year, Compaq invested $500 million in more than 60 minor equity investment deals, the company reported. Compaq wasn't alone in handing out the cash.

Corporate venture capital reached $16.5 billion last year, according to research firm Venture Economics. It had escalated from $8.6 billion in 1999, and $1.1 billion in 1997. That compares with corporate venture activity which ranged from $85 million to $542 million annually from 1980 to 1996.

Overall, the venture capital sector this year is expected to decline to about half the levels of 2000, with corporate funding off proportionately, according to Venture Economics.

"Venture capitalists are more cautious now. There's an expectation for a company to have a reasonable business model and a well-thought out plan. The business fundamentals are returning," said Enright, who lived in Santa Barbara for seven years in the 1980s while working at Wavefront Technology.

Nearly 30 companies were invited to participate in the forum this year, but only 12 were given the chance to make a formal 10-minute presentation to investors.

Forum organizers said nearly $50 million was raised by companies attending the event in 2000, an increase from the $40 million raised at the 1999 event.

Brian Burns, a conference attendee and partner at Ironwood Capital LLC, in Phoenix, Ariz., said he was interested in several of the presenting companies, though he had not yet made any decision about which companies he "wanted to write a check to."

"There's much more competition for the deals that are gold-plated opportunities," Burns said.

Enright at Compaq agreed.

"The amount of money available for funding is still substantial," he said. "But there's probably more money available than there are good opportunities."