Just the other day a young company returned from a meeting with a VC. "So, how did it go?" I asked nervously, afraid to hear the answer. "They have money. All they want to see is sales, profits, cash flow positive, and they’ll give us what we need…but at a low valuation." Of course, if you have sales, profits and cash flow, you wouldn’t need a VC, but could find other alternative financing vehicles where ownership will not be as heavily diluted. VCs, rightfully so, are proceeding very cautiously these days and the real problem for VCs is how to reduce risk when investing in emerging companies. We may have a way to solve this problem…
The problem is greater now because the pendulum has swung too much to the other side. Before the dot-com crash, the VC money was flowing freely and some VC funds were almost negligent in passing out money, but now they’ve shifted completely too far to the other side. The pendulum will once again shift back, but never to the level where it once was.
What the VCs really want is to reduce risk with continued upside potential. It’s a difficult formula, but we’ve discovered at least one approach to satisfy the new demands of VCs -- the VITAL program, which will be launched on June 10, 2002.
VITAL is an acronym, of course, standing for Virginia Israel Tech Alliance, a program developed by the Virginia Tech Corporate Research Center (VTCRC) in cooperation with the VIAB (Virginia Israel Advisory Board). It will really be a win-win-win situation for everyone. Not only will it attract cutting edge technology to Virginia, the program will also offer young (post-incubator) Israeli companies a vehicle for expanding to the U.S., with Virginia serving as its "gateway to America".
Remember the problem we were referring to above -- VITAL promises to help solve this problem. VCs and financial institutions are assured of a lower risk approach, yet with an incredible amount of upside potential.
Virginia Tech’s CRC (Corporate Research Center) is the backbone of the program. It’s a separate "for profit" entity closely tied with Virginia Tech, which is among the leading high tech academic institutions in the U.S. (#4 in patents among U.S. universities without a medical school). The CRC has its own sprawling campus consisting of 17 buildings, almost 2,000 employees, its own private airport and 105 companies. It continues to expand at a rate of 10 percent a year with only a 1 percent corporate failure rate per year – remember, we talked about lowering risk!
Most importantly, the CRC brings together a supportive infrastructure, the vast resources of the University, its extensive network throughout Virginia and the Washington D.C. region, and its special connections with a group of VCs. The result: a cost effective and high impact program for emerging companies in Israel that are interested in developing a corporate presence in the U.S. The selection process for admitting Israeli companies to the program is rigorous, but once an Israeli company is selected to participate in the VITAL program, the company will have a strong chance of succeeding.
The importance to the VC community is clear: VITAL will offer a nurturing infrastructure that provides day-to-day support and business opportunities to emerging companies, all in an environment that maximizes opportunities for success and greatly reduces risk to the VCs.
What’s even better is that part of the VITAL launch will involve 15 pre-selected Israeli companies who will be invited to the CRC for a 3-day VITAL summit on August 19-21, 2002. During the Summit, Israeli companies will make presentations to a special group of VCs who may be able to offer funding. These Israeli companies will also have the opportunity to hold intensive discussions with executives of the Corporate Research Center, and local service providers on ways to jump-start their businesses as they begin to make inroads into the U.S. market. With the exception of the airfare, the CRC will pay for most of the hosting costs. Pre-launch inquiries should be sent to Ralph Robbins at robbins@VitalVa.com.
