New Internet Venture Screens Start-Ups for Investors
Interesting article and concept...here's where I found it:
internetnews.com
[WASHINGTON--Reuters] Investing in private ventures isn't an easy task. Investors often hear about companies by word-of-mouth, or through investment clubs that bring rich individuals together to consider business opportunities.
Entrepreneurs often depend on their friends or family members for the thousands of dollars needed to get started and then network relentlessly to find larger backers.
This process is perhaps best established in Silicon Valley, home to hundreds of successful high-tech start-ups. But it's hard for the unknown or untested entrepreneur to break into these networks and find required funding.
Enter Garage.com, a Palo Alto, Calif., company that is trying to bring order to this process by screening start-ups and then matching the companies with investors.
"What we're trying to do--and this is even needed in Silicon Valley--is to make a very inefficient market a bit more efficient," said Craig Johnson, chairman of the Venture Law Group and a co-founder of Garage.com.
"Silicon Valley is a massive network of filters," he said, in which people suggest deals to wealthy investors and then investors pass them on to venture capital firms. What Garage.com is doing is helping to formalize that process on the Internet.
Garage.com is not the first to try this on the Net, but it is the latest and it has impressive backing. It also stands out because it plans to be a registered broker dealer, selling and taking stakes in the companies it screens.
Guy Kawasaki, best known as an evangelist and marketing maven for Apple Computer Inc., is the CEO on the project. Aside from his work at Apple, he helped start two companies, made a bit of money by investing in other start-ups and has written books.
Kawasaki had wanted to launch a Web site providing information on foreign cities to business travelers. But in a meeting last year, Johnson urged him to consider something else--a screening and matching service for start-up companies--and Garage.com was born.
The company's Web site has three levels, one of which is public. It offers information to entrepreneurs, ranging from articles by lawyers to a digest of relevant news.
But the real action occurs on two other levels.
In the "garage," entrepreneurs will get help refining their business plan and go through the screening process. If they make it through this level they graduate to the second private area known as "heaven," where investors get to kick the tires.
To avoid competing with established venture capital networks, Kawasaki emphasized that Garage.com will focus on start-ups that need a few hundred thousand dollars in seed capital. "We're literally looking for two guys or two gals in a garage," Kawasaki said.
Johnson said the Garage.com also will seek out companies that venture capital firms pass on, either because they were too small for them or needed too much hands-on work to get going.
Although they have attracted interest from established angels, they expect that the bulk of investors will be millionaires at technology companies who are looking for investment opportunities and want to help mentor companies.
Kawasaki said about 2,000 investors and 4,000 start-ups have expressed interest in the network. How many actually participate when it is up and running in September, however, is uncertain, especially among the companies.
"Of the ones that apply, only a select few will go to 'heaven' and the ones that do go will be damn good," Johnson said.
At least two companies are already helping to match investors and companies on the Internet, PriCap and Edie-online.
But Garage.com distinguishes itself by its vetting process, which Johnson said is especially important for investors who have little time. It also takes stakes in the companies that eventually win funding.
Kawasaki said Garage.com will receive 5 percent of the money a company raises through the service, as well as the right to buy 3 percent of the start-up company's stock at founders' prices.
For those who think the Net is about cutting out middlemen in a transaction--whether in books, stocks or airline tickets--Garage.com points to another trend: enhancing the role of the middleman.
Garage.com plays this role by making it easier for investors to find start-ups and start-ups to find investors. But its success will only be apparent once a company that has made it through its investment screens hits a home run. |
