Edward L. “Ned” Lilly Jr. wants to take OpenMFG LLC, a software company in Norfolk, to the next level.

The company has developed software that helps small manufacturers, with revenues under $50 million a year, manage their manufacturing, distribution and finance operations. Lilly figures that OpenMFG has about 300,000 potential customers in the United States.

OpenMFG’s goal is $50 million in revenue over the next five years.

To get there, Lilly and Jeffrey S. Lyon, co-founder of the company and the program’s creator, need $3 million to $5 million to invest in building out the company.

Capital from family members and individuals helped OpenMFG get off the ground. Now, Lilly is reaching out to institutional lenders through venture-capital events, where hundreds of potential investors gather in one room.

Last week, Lilly spent five minutes pitching his product to about 400 participants at a venture-capital forum in Richmond sponsored by the National Business Incubators Association.

That was the dress rehearsal, Lilly said.

The big performance goes on Tuesday at the Mid-Atlantic Venture Association’s “Capital Connection” in Baltimore.

More than 800 people attend the latter event annually. They include representatives of 126 venture-capital firms with a combined $10 billion under management.

Lilly and Jeffrey Phillips, OpenMFG’s vice president of sales and marketing, will have eight minutes to win over an audience of investors. They will also have a networking booth for potential investors to visit during the two-day event.

About half of the 51 companies selected to present at the Capital Connection last year succeeded in raising money, a total of $105 million so far. One presenting company was acquired for $20 million.

“Historically, $2.3 billion has been raised over 13 years of the Connection,” said Stacey Sweeney, a spokeswoman for the Mid- Atlantic Venture Association. “2002 was one of the highest years.”

Nationally, however, venture-capital investing has fallen sharply since 2001 after the technology stock bubble burst.

Total investments were down $500 million in the first quarter of 2003 from $4.3 billion the prior quarter, according to the Money Tree Survey conducted by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

About 103 fewer companies received funding in this year’s first quarter, compared to the previous quarter. Although software remained the leading industry, with 166 companies receiving $790 million in funding, investments in that segment dropped 13 percent. First-time financing also tumbled, but early-stage investing stayed steady. Investing in the mid-Atlantic region also remained flat.

“Flat is good when the rest of the nation is on a decline,” said Julia Spicer, executive director of the Mid-Atlantic Venture Association. “It’s still a tough market.”

Despite the challenge, Lilly remains positive about his chances. So far, he is talking to about 10 potential investors.

“As far as we go, all the feedback I’m getting says we’re passing the tests,” he said.

He also believes his product has an edge.

Most enterprise resource planning applications, the software programs his company sells, have been built to meet the needs of large manufacturers.

The high-end ERP programs, from companies such as Oracle and SAP, can cost too much for smaller manufacturers.

ERP systems include planning, inventory management, engineering, order processing, manufacturing, purchasing, accounting, finance, human resources and other business management solutions. The systems can take up to a year to fully deploy, cost more than $200,000 and sometimes force a company to change its operations to accommodate the program.

While running his own ERP consulting firm three years ago, Lyon noticed these trends. So, he started adding code for OpenMFG’s ERP application to open-source software, freely available programs and codes that are developed by programmers around the world.

Meanwhile, Lilly was co-founding Great Bridge LLC, then a subsidiary of Landmark Communications Inc., parent company of The Virginian-Pilot. Great Bridge also worked on open-source business software. When Great Bridge folded in 2001, Lilly joined Lyon. The two spent the first part of 2002 kicking tires, so to speak, to determine the size and stability of the company’s market. They raised enough money to hire three people to finish up the product, and launched it last October.

Instead of putting a large number of programmers on staff to continually upgrade the system, OpenMFG makes the software’s source code available to 13 “open partners.” The partners are both salespeople, who persuade small manufacturers to sign up for OpenMFG’s software, and programmers, who can enhance the ERP to fit a particular business.

The open partners receive an average commission of 30 percent on the $20,000 annual site license. They also charge the manufacturer for the time spent installing the system. The implementation could take a little more than three weeks.

Open-source programming and a contracted sales force keep costs low, Lilly said. And, venture-capital investors like that idea.

If the venture capitalists at the Richmond and Baltimore events pass on the investment opportunity, OpenMFG has a third chance to woo a pavilion of investors at a third investment conference, in Wilmington, Del., in June.

Reach Deborah Markham at 446-2033 or deborah.markham(AT)pilotonline.com