The New Rules for Venture FundingBy John H. Capobianco Let’s face it: 2008 was a lousy year to seek venture capital. 2009 isn’t lookingso hot, either. Of course, there are exceptions to the rule. Some companies didbuck the current economic downturn to attract new funding, and they are helping todefine the new rules for venture funding. Bottom line, the new rules for funding look a lot like the old rules, only moreso. In other words, the fundamentals — mission, management, market — don’t change.Executing on the fundamentals, however, requires greater degrees of creativity,ingenuity, and mastery than ever before, something best illustrated by example. My company, Lumigent Technologies, Inc., recently secured $6 million in fundingfrom North Bridge Venture Partners. Granted, GRC — the market we address — hasemerged as a hot-button issue in the face of the global financial meltdown and theObama administration’s subsequent focus on regulatory reform. But North Bridgeinvested in us based on fundamentals, not on current events. Set long-term mission, short-term focus. GRC is all the rage today. Tomorrow,maybe not. Will your company survive when the spotlight moves on to the nexttechnology darling? Lumigent has positioned itself to take advantage of currentGRC news as well as long-term GRC concerns. The company’s mission is to help CFOs,CIOs, controllers, and other business executives reduce the cost of meeting GRCrequirements for their primary business applications. Think compliance reportingand other processes typically done by hand. Lumigent automates these manualprocesses to significantly reduce their costs. Today, Lumigent is focused on compliance because that’s the biggest, mostconsistent pain point for regulated companies. Compliance reaches a level ofcertainty typically reserved for death and taxes: Companies must demonstrate theircompliance with applicable regulations. This is year-in, year-out work thatdoesn’t make news, but it makes markets and money. And when those companiesexperience similar pain in their risk and governance processes, Lumigent canexpand its focus to address the risk and governance components of its mission. Manage and be manageable. Strong leadership may be an obvious funding requirement.Less obvious is the ability to follow. Venture capitalists want to activelypartner with entrepreneurs wherever appropriate. That means providing strategicguidance and sharing operating experience, industry specific knowledge, team-building skills, and an in-depth understanding of both private and publicfinancings. And VCs want to leverage their broad network of industry experts,current and past portfolio companies, and most importantly, the people who builtthem. When a management team has decades of experience, the momentum of accumulatedknowledge must be tempered with a degree of humility. As Lumigent president andCEO, I’ve done everything from COBOL and Assembler Language programming with punchcards to leading corporate acquisitions and IPOs. And I’ve assembled an executiveteam with similar bona fides, in technology and in building successful enterprisesoftware companies. Sure, the Lumigent team is full of top dogs, but we are notabove taking direction and advice from more experienced advisors. Move up the stack whenever possible. No matter where you sit in your overallmarket, moving up the stack can be as simple as discovering what your customersare doing with your technology and finding ways to do it better and/or more cost-effectively. Moving up the stack lets a company leverage its core IP while openingthe doors to larger, more lucrative markets.
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Received this in an email this morning. John makes some good points on how Lumigent positioned itself for strength.