Editor’s note: Charlotte Beat is a regular feature on Wednesdays in Local Tech Wire. Jim Roberts founded FirstRound.org 2-1/2 years ago in an attempt to raise the intellectual capital of tech entrepreneurs in mid-tier cities in the Southeast. Charlotte is his home base, so he found it particularly irksome that entrepreneurs in the Queen City weren’t getting what he considers their fair share of venture capital.

He asked nine local VC firms why, and he used their answers to present a program, ‘Overcoming the Challenges of Local Funding,’ Tuesday night at The Light Factory. More than 70 people attended the event, which featured five speakers, each one addressing a weakness that, say the VC firms, many Charlotte startups share.

Those weaknesses, Robert says, are:

  • Unrealistic valuations
  • Burn rate
  • Lack of focus in strategic planning
  • Poor investment presentations
  • Lack of management experience

Focus on customers

Leroy Davis, managing director of Decision Point International, began the evening by addressing valuation drivers in a cautious market. He said that current valuations are close to historic levels, and that the dot-com boom was an aberration.

“Today, valuation drivers for mergers and acquisitions are all about customers,” Davis said. “People want to know about your sales model, hear references from your customer base, and learn how many of your products can be cross-sold with their existing ones. They want to see long-term contracts and recurring revenue.”

Decision Point sees a brighter future, Davis said at the end of his talk. “People are still taking their time to think about deals, but we think the tide is changing, and we are optimistic about the last two quarters of 2002,” he explained.

Improving cash flow

Kathryn Jehle of Tatum CFO Partners LLP gave tips on turning negative cash flow into a positive one, thus reducing burn rate. She has 25 years in the financial end of business, including stints as CFO of a publicly owned software firm and a start-up pharmaceutical company.

Jehle told attendees that when they spend investors’ money to keep in mind they are diluting their ownership and spending their own money at an accelerated rate. She also suggested that when buying capital equipment, to scrape up the money for it rather than using long-term leasing contracts. Jehle also said startups shouldn’t hold off on paying vendors -. dnd don’t forget to pay payroll taxes.

When asked why she focused her comments on cash flow rather than tax benefits, she chuckled.

“People who are worried about cash flow are usually losing money, so they’re getting plenty of tax deductions,” she responded. “Stay focused on cash flow.”

The need for planning

Angelina Corbet, president of The Mobius Company, said that without a strategic plan, every decision a business makes is made by the seat of its pants. A strategic plan helps clarify a company’s direction, establishes priorities, develops a coherent and defensible basis for decision-making, and enables it to deal with rapidly changing circumstances.

Corbet gave an overview of the components of a strategic plan, starting with research on a firm’s current status and its strengths, weaknesses, opportunities and threats. Next, she said, develop a vision of what the firm will look like when it’s successful, followed by a concise and memorable statement of what the company does, or its mission. Strategies describe how employees will accomplish the mission and achieve the vision. Goals and action items further refine the process, she added.

“You need to stay focused on where you’re going in your thinking, in your speaking and in your writing — all your words,” Corbet said.

Making better presentations

Roberts gave tips on investor presentations, describing 12 slides, or types of information, that should be included in every presentation. They includes information on the market’s potential, company services and products, a comprehensive analysis of the competition, biographies of the management team, client testimonials, and what the company needs and why. He also recommended an overview and summary slide, which reiterate the main points of the presentation.

After three to six months of due diligence, the VC firm will give you an answer, Roberts said, but “don’t spend the money until the check is deposited.”

Finding the right people

Susan Jernigan of Sockwell Associates finished up the evening by discussing how start-ups can find experienced management. The approach needs to be both macro and micro. On the macro level, she said Charlotte needs to build a tech culture and recognize that technology must become central to the core of the city’s economic development efforts, particularly by taking actions to encourage the growth of home-grown companies.

“We need to turn away from the old-fashioned approach of recruiting big companies to locate here,” Jernigan said. “Small start-ups actually create more jobs, and they will stay here even when times are bad.”

When entrepreneurs are specifically looking for someone for their own company, Jernigan said it’s important they know when it is time to replace themselves, to be able to define what they want the new hire to do, to know where to look for them and how to attract them. It’s important, she added, that they share the entrepreneur’s passion.

The evening was co-sponsored by Northwestern Mutual and Goodmortgage.com.

Firstround: www.firstround.org