Inside Entrepreneurship: Widen scope when seeking venture funding

Q: I have a company that is launching a mobile-phone service to provide information services for travelers to Japan and eventually other countries. What U.S. venture funds should I approach for money? What about mobile-phone companies? Do they invest in startups?

A.R., Osaka, Japan

A: I think it's great that a young company with a global service perspective appreciates that venture funds are equally opportunistic. Many large U.S. funds are sending investment managers across many time zones to find their next big deal.

To answer your question, yes, various mobile-phone manufacturers and cellular service providers invest in promising companies and technologies through their own venture funds or corporate investment offices. Research T-Ventures of America, Motorola Ventures, Verizon Media Ventures and Nokia Growth Partners. Also check out Eastven and BlueRun Ventures, which have close relationships with Ericsson and Nokia, respectively.

But just as fast as I mention these funds, I have to caution against pursing a narrow range of candidates. Sure, it sounds easy to target a few funds that seem to be a perfect match for your company. However, entrepreneurs who count too much on the successful outcome of a few solicitations usually end up empty-handed. Successful venture funding requires aggressive pursuit of dozens of targets all at the same time.

Not very long ago, I helped a company develop its solicitation strategy for a $10 million-plus expansion stage financing. More than 75 funds initially were identified that fit the company's plans for growth, industry and specific funding requirements. After the initial executive summary delivery and follow-up conversations with venture fund partners, the field narrowed significantly. Management held serious discussions with only about 15 funds. And the number of funds that made investment proposals dropped to just three. Although this all seems like a lot of work, (and it is) the company is now sitting on a big bank account.

Timing matters. Entrepreneurs who pitch even the very best deals can't count on key decision makers to be available at the time entrepreneurs ask for attention. Some funds can be distracted by other fund activities or simply back out because they fear the competition.

Here are some strategies to help you expand your solicitation list:

Target U.S. funds that have offices in Japan. Visit the Web sites of Constellation Ventures, Mitsui & Co. Venture Partners, Worldview Technology Partners, Entrepia Ventures and Defta Partners. Even if some of these funds may not invest in startups today, they may be viable candidates for subsequent round financings.

Research co-investment funds. As you research venture funds, pay attention to their lists of "portfolio" company investments. Visit the Web sites of these companies for names of other venture funding providers. Most early stage companies post funding clues in the "partners" or "board of directors" sections of their Web sites.

Ask venture professionals for recommendations. Most venture fund staff members know the venture community well and are helpful to entrepreneurs who ask for guidance in a mature way.

Lastly, if you decide to approach larger funds with more than $100 million under management, expect the fund managers to challenge you on your target market size. You'll have to demonstrate that paying customer demand for your services is large enough to warrant serious investment consideration.