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Wednesday, 7 June, 2000, 13:02 GMT 14:02 UK
From boffin to entrepreneur
Readers of the business pages may be under the illusion that it is easy to raise cash to launch an internet start-up.
In a world where fresh faced 19 year olds seem to become millionaires without ever leaving their bedrooms, how difficult can it be?
Very difficult, says one disillusioned entrepreneur, still struggling to find cash for his bright idea.
He says it is who you know not what you know that determines if you get cash, while venture capitalists maintain that a good business plan and management team will open doors.
Searching the web
Fed up with the inaccuracy of many web search engines, computer consultant Tony Herstell wanted to see if he could improve on them.
It took him three months to realise he had created a product that he could sell - one that he claims allows searches without a web browser. He then started to look for money. His target was £150,000 to cover staff costs and the initial launch, planned for September.
His first stop was venture capitalists but he quickly found they had bigger fish to fry.
With limited time to scrutinise deals and a certain amount of money to invest, they opt for bigger deals.
"They were all too busy looking at big deals to be bothered about small deals," he said. "I wanted to borrow a sensible amount so I could get launched and not be crippled by huge interest payments."
First Tuesday - which puts entrepreneurs in touch with venture capitalists - admits this is a problem.
"There is something known as the venture gap. The more money that goes into venture capitalism per se, the greater the pressure to raise the minimum amount of investment," admitted First Tuesday's co-founder John Browning.
For deals worth less than £100,000, it is worth seeking out a business angel first, a spokeswoman for the British Venture Capital Association added.
But she says there are still about 23 venture capitalists in the UK, which will look at small deals.
Around half of the 1,358 deals done last year - at a total cost of £7.8bn - were worth less than £200,000, she adds.
Salesmen vs. boffins
If venture capitalists aren't put off by the piddling size of your deal, the next step is putting together a business plan that will wow them.
Tony Herstell admits that his technical background did not equip him to write a good business plan.
"A lot of entrepreneurship is salesmanship. There is a mystique about the genius in the garage," First Tuesday's John Browning said.
While investors may not understand the technology behind a product, they will quickly warm to a management team who can sell its business potential.
But Tony Herstell questions the importance of having a management team on board at this stage of the game. "I don't see why I should cripple my company paying very high management fees, when at this stage it is pure development of a technical product," he said.
Friends of friends
The turning point for Mr Herstell came when through his wife's interest in horse dressage, he met Wayne Channon.
An investor in start-up companies, Mr Channon had set up and run Ilion plc, a networking and communications distributor company, since sold to Landis Group.
"He ripped my business plan apart and put it back together again," Tony Herstell admitted.
Wayne's name opened doors for him. "Once I use Wayne's name, people take me seriously," he said.
He is now talking to investors, who - thanks to Wayne's re-writing of his business plan and his presence on the board - are interested in providing cash.
So it just a case of who you know?
"At the end of the day it is meeting the right people. ..there is a lot of that. If you have contacts and these contacts have connections, they can get you into places you wouldn't get into otherwise," Wayne Channon admitted.
First Tuesday's John Browning added: "It is based on relationships and you are more likely to trust your brother's friend than someone you met on the street."
Poor presentation and lack of contacts can mean that " countless products never make it to market," Wayne Channon said.
Herstell's portal project
Tony Herstell's intention now is to fund the company until its September launch.
He will run the business in a portakabin, paying his staff out of his own pocket and surviving on hardware on loan from Sun.
"I have risked everything," he said. "I anticipated not raising a penny and still it was going to launch, come hell or high water. If you start something like this you have got to be prepared to see it through."
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