“If You’re Off the VCs’ Beaten Path”
Companies outside the high-tech hubs can have a tough time attracting investors
by Karen E. Klein

Q: I run a small software company that develops e-business and enterprise solutions. We are preparing for a second round of investment and would like to get the attention of venture-capital firms outside of Iceland. Do you have any advice?

– H.S., Iceland

A: Venture capital — cash for equity — is catching on around the world. Europe’s VC business has grown rapidly, thanks to new stock-market venues for young tech companies and an emerging entrepreneurial culture. U.S. VC firms are opening offices in London and on the Continent. Still, small companies in isolated areas — be it Iceland or Iowa — face the same problem. The motherlode of capital goes to the major high-tech and investment hubs. As a rule, VCs don’t sink money into high-risk companies that are too far away to be monitored. Your chances of prevailing over a local applicant are slim unless you can demonstrate the singular advantages of your product — or your location.

An unusual venue can be a plus. A striking (and controversial) example is DeCode Genetics, a venture-funded company based in Iceland that has been mapping the Icelandic genome, using the island’s homogeneous population and remarkable genealogical records. Granted, its case is unusual, but if you have a strong reason to be where you are, emphasize it.

“You’ll never get around the fact that you’re based in Iceland. So why not focus on it, and explain up-front how great a place it is do what you’re doing?” suggests Miles Stuchin, president and founder of Access Capital, a New York City-based financial-services boutique. Access has funded companies based in Ireland and Bombay. In both cases, the entrepreneurs presented their locations in positive terms, emphasizing to investors that their labor forces were well-trained, articulate, and educated. “Their reasons for having operations in those locations were compelling,” Stuchin says.

When you approach investors — in the U.S. or Europe, venture capitalists or angels — assume that they know nothing about Iceland. Teach them about its growth prospects and business conditions. Is it an open, capital-hungry market, poised to take full advantage of Europe’s rapidly expanding Internet user base? Could your company be the next Nokia? Is Iceland your market or just a home base? Is there a cost advantage to being based there? Your proposal will appear more attractive if the economics make sense.

If you can’t sell investors on your location, consider forming a joint venture with a software company in Europe or the U.S. Or do a stock swap, then raise capital jointly, stressing the benefits of the relationship, suggests Lori King, CEO of NVST.COM, a financing and private equity firm based in Bellevue, Wash. Stuchin points out that you might want to establish an office in the area where your investors are likely to be located — not just to drum up money but to do real business.

If a joint venture or an overseas office would be overkill at this stage, find an experienced intermediary to be your agent in the region where you’re prospecting. An investment banker, a public-relations specialist, a lawyer, or an accountant could play this role. The person should help you identify which VC firms would be most receptive to your plan and introduce you to them. Give your intermediary a prepared presentation and product samples, which he or she can show to potential investors.

Face Time
Even with a representative, you’ll need to make the rounds in person. For all the talk of virtual global communities, personal contact can still make or break a deal. Sending an unsolicited business plan or posting it on a Web site probably won’t do you much good. “I can’t think of any we’ve ever done,” Stuchin says of deals that come in unsolicited. “Most of them just get deleted,” he says.

Go to relevant conferences, trade shows, and exhibitions, advises Maria Chiang, Access Capital’s marketing director. “Try to make a presentation at some of these conferences where people will be interested in what you’re doing and what you have to say,” she says. “Even if you’re not invited to present, go and network so you can get your business plan out to as many people as possible.”