THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, March 16, 1996 TAG: 9603160344
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Medium: 69 lines
It began three months ago with a conversation about several economic difficulties facing Hampton Roads.
By last week, the topic had evolved into one possible solution: an exchange that matches local entrepreneurs with sources of start-up financing.
During a legal seminar earlier this year, Charles Payne and C. Edward Russell Jr. agreed that it wasn't a scarcity of interested investors that held back some promising business ventures in the region.
Instead, it was the inability of local entrepreneurs to find the right investors.
``There's a lot more local money available than people realize,'' said Payne, a senior partner in the Norfolk law firm Payne Gates Farthing & Radd P.C. ``But only people who were very well-connected knew where it was.''
``Many venture-capital `angels' don't want to live out their business lives in public,'' Payne said.
He and Russell, a partner with the Norfolk law firm of Kaufman & Canoles P.C., eventually formed a steering committee with a dozen others in the local business community for a Virginia Venture Capital Forum.
The forum's 52 charter members met for the first time Tuesday in Virginia Beach. The group, said Payne, expects to gather six times a year to exchange ideas and listen to presentations on financing start-up businesses. In addition, the members hope to develop a database of potential investors.
However, the nonprofit organization will not provide any financing on its own, Payne and Russell said.
For owners of fledgling businesses, finding the initial financing is crucial. Banks and other lenders often peg the size of their loans to the amount of capital an enterprise has already raised.
With the rapid consolidation of commercial banks, finding alternative sources of financing has become important for start-up businesses, Russell said. Many banks in the region, he said, have been less interested in lending even modest amounts to small businesses.
``They don't want their loan officers having to police a half-million-dollar loan,'' said Russell. Instead, the banks would rather make much larger loans that require less administration.
Sources of venture capital range from wealthy individuals to small-business investment companies, investment banks and pension funds.
These investors are willing to take above-average risks if they see an opportunity to earn higher-than-average returns on the capital they provide. Often, they demand an ownership stake in exchange for their investment.
In addition to building a network for bringing together owners of start-up companies with prospective investors and lenders, organizers expect the forum to advise entrepreneurs about the array of available financing, Russell said.
Too often, entrepreneurs don't realize how restricting the use of venture capital can be. Venture capitalists look for businesses that have managers with demonstrated skills and a product or service that can generate rapid growth.
But if they invest in a business that fails to meet their expectations, venture capitalist won't hesitate to replace the management and dictate how the company will be run.
If promising local enterprises succeed at finding the financing they need through the forum, the group's members are likely to generate additional business for their firms.
However, their intent is to spur economic activity in Hampton Roads at a time when it hasn't been robust, Russell and Payne said. by CNB