October 30, 2001 - Finding Success in Today’s
Venture Climate
by
Bill Snow
Raising venture capital is a
difficult proposition in any economic climate. But, with the slowdown of the
economy and the uncertainty of a post-September 11 world, entrepreneurs
currently face more daunting challenges than ever.
To be attractive to possible
venture capitalist investment, it is generally accepted that a company must
have: 1) a strong management team, 2) impressive technology, 3) a compelling
story, 4) existing and scaleable sales channels and 5) a previous investment.
VCs rarely invest in pure startups in today’s economic climate.
Privately held Sonic Telecom of
Chantilly,
VA is an international provider of “bandwidth of demand.” In other words, Sonic
offers video conferencing and TV content distribution products. For those of you
unfamiliar with Sonic Telecom, if you watch Jay Leno or Tom Brokaw, you are
watching these programs (and many others) through Sonic Telecom’s broadband
network. This company is a prime example of successful fundraising in a
difficult climate.
Find the Right Investors at the
Right Time
Despite the
impressive resumes of its founders (upper management at various
telecommunications companies), Sonic did not go to VCs with a mere business
plan; they put up $300,000 of their own money to start the company. Then, angels
who previously invested in other telecommunications deals were brought in to
finance the second round. Finally, traditional venture capitalists and strategic
investors, including Broadwing (NYSE: BRW), General DataComm (NYSE: GDC), MasTec,
Inc. (NYSE: MTZ), HSBC (NYSE: HBC) and Saudi Cable, were brought in to finance
the third round.
Have a Hook -- Build Assets and
Solve Problems
Sonic’s asset is
its network for transmitting broadcast quality digital video through broadband
“pipes.” Satellite transmission has a number of limitations: The technology
behind the broadcast is analog, bandwidth is limited and sending a signal 23,000
miles into space (and back to earth), even at the speed of sound, results in a
slight lag.
Sonic’s product
boasts an all-digital network that provides more bandwidth and, because of
shorter broadcast distances, almost completely eliminates lag. Sonic further
differentiates itself by charging “by the byte.” In other words, pricing is not
fixed; clients only pay for what they use.
Close Deals, Book Sales
Sonic is able to
differentiate itself from many other capital seekers because Sonic has actual,
paying customers. In addition to the Leno and Brokaw shows, other Sonic clients
include ABC, CNN, CBS, Fox News, Univision, Lifetime and RTL-TV (Germany). If
you watched the Democratic or Republican national conventions on Fox last year,
you watched them with the help of Sonic’s network.
Compile a
World-Class Management Team
The biographies of Sonic’s
management team read like a who’s who of industry experts. As a press release
explains: “The company’s senior management has extensive experience in
telecommunications, having held senior positions in engineering and marketing
with MCI, WorldCom (NASDAQ: WCOM), Sprint, (NYSE: FON), Perot Systems (NYSE:
PER) and EDS (NYSE: EDS).” Sonic’s Board of Directors also includes former
congressman Joe Kennedy and former Reagan advisor Art Laffer.
Persistence, Doggedness and
Reality
And guess what? Despite all of
these impressive accomplishments, Sonic still faced hurdles with its capital
raising. With slowing markets, Sonic needed to obtain a $3.5 million convertible
bridge loan from past investors to tide it over until the funding round was
closed. In July, the round was completed when Saudi Cable invested the last $7
million in a $25 million round.
Conclusion
Sonic Telecom
obviously has a leg up on its competition -- a world-class management team, a
scaleable product, existing sales and a product that solves a real market need.
Sonic’s president and CEO, Todd Ruelle, probably said it best in a recent
article: “Specialization
fosters success in a competitive environment. Even in today's market, investors
appreciate companies that deliver a clear benefit to customers.”
Special thanks to
Sonic Telecom co-founder, Santiago Testa, for his assistance with this piece.
About the author
Bill Snow runs this site. If you haven't figured that out yet, I can't
help you. |