May 23–KANSAS CITY, Mo. — The brutal bear market seems to have erased the classic entrepreneurial dream of quick stock-market riches.

At least, that’s the conclusion you could draw after hearing 20 startup companies appeal for money Thursday at the InvestMidwest Venture Capital Forum.

Most of the presenters tried to catch venture capitalists’ attention with talk of an “exit strategy” or possible “liquidity event.” With few exceptions, they said selling to a larger company was the likely way for them and their investors to cash out.

David Lazenby, president of ScenarioNow in Chesterfield, told potential investors that he expects to build the maker of financial-planning software from $500,000 in sales this year to $52 million in five years — and then sell out to a larger software or publishing firm.

“Our exit strategy is simple: It is acquisition,” said Victoria Gonzalez, chief operating officer of Graphic Surgery LLC in Creve Coeur.

Only two of the 20 companies even mentioned the possibility of an initial public stock offering. Dan Didier, president of CytoGenomics Inc. of Maryland Heights, said his bio-informatics company would be poised for either an IPO or a buyout in two years, “depending on the market.”

Daniel Flynn, chief executive of Deciphera Inc. in Lawrence, Kan., displayed a chart projecting an IPO in 2008.

The IPO market has slowed from a flood in 1999 and 2000 to less than a trickle today. But buyouts also have become rare, several venture capitalists in the audience noted.

“I think you’re hearing more hope than reality,” said Mark Mendel, managing director of RiverVest Venture Partners in Clayton.

Venture capitalists, of course, are well aware of the possible ways to profit from an investment. But the talk of quick buyouts does send an important message.

“What you’re looking for is that companies understand the nature of the deal,” Mendel said. “When money goes in, it is supposed to come back out.”

Money isn’t going into early-stage companies in nearly the quantity that it was a couple of years ago. Venture capital investments have fallen by more than two-thirds over the last three years.

But statistics couldn’t dampen the spirits of the entrepreneurs who took the stage Thursday, each making a 10-minute pitch to the 50 or so venture capitalists in an audience of about 240 people.

The 20 companies, seven of which are from St. Louis, hope to attract investments totaling more than $80 million.

After the conference, entrepreneurs were satisfied with even small victories. Lazenby said he was pleased to come away with the names of two possible investors and a banking firm that is a potential customer.

He and others also came away with three words of hope from Patricia Cloherty, the conference’s luncheon speaker. Cloherty, a 34-year veteran of the venture-capital industry, recalled how tough it was to invest in the 1970s, when the stock market was in a slump and inflation was in double digits.

But companies launched in those tough times tended to be survivors. Her examples were the three words of hope: Apple, Intel and FedEx.

—–

To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com.

(c) 2003, St. Louis Post-Dispatch. Distributed by Knight Ridder/Tribune Business News.

AAPL, INTC, FDX,

May 21–Bob Lozano raised millions of dollars for his first company, Paylinx Corp., during the Internet boom. Times have changed, but he’s not too worried about funding his second venture, TsunamiResearch.

Lozano is one of 20 entrepreneurs who are going, hat in hand, to Thursday’s InvestMidwest Venture Capital Forum in Kansas City. They’ll face an audience that’s smaller and less flush with cash than in years past. But Lozano thinks it’s an audience that will value his experience and his focused business plan.

“Because we’ve built a successful company before, we can at least get venture capitalists to return our calls, and we’ve even started getting some cold calls,” Lozano said. “That didn’t happen before.”

Tsunami, a 14-employee company in Creve Coeur, makes software that ties ordinary computers together into a “hive.” It’s less expensive and more reliable than a typical server-client network, the company says, and is suited for a company’s most processing-intensive, mission-critical applications.

For the last couple of weeks, Lozano has been rehearsing the 10-minute sales pitch that he’ll make at InvestMidwest, an annual showcase for promising startup companies from Missouri and surrounding states. He hopes to raise $3 million this year to launch a marketing effort for the HiveCreator software.

But venture capitalists aren’t parting with their money easily these days. In the first quarter of this year, they invested just $3.8 billion in U.S. companies, according to the MoneyTree survey by PricewaterhouseCoopers and the National Venture Capital Association. That was down 41 percent from last year’s first quarter, and is the lowest quarterly total in nearly six years.

Chris Walsh, an organizer of the conference, expects more than 50 venture capitalists to hear the presentations in Kansas City. That would be a slight increase over last year, but well below the 100-plus who attended in 2000 and 2001.

“It’s symptomatic of the market right now,” she said. “Venture capital firms have cut their travel budgets.” Also, she said, InvestMidwest is competing with similar conferences this week in Georgia and Texas.

But Mark Mendel, a managing director of RiverVest Venture Partners in Clayton, said the investment opportunities being presented this year look better than ever. Organizers sifted through more than 100 applications to choose the 20 presenters, and Mendel helped screen the health-care companies.

“It’s been steady progress in the quality of the companies,” he said.

Robert Calcaterra, president of the Nidus Center for Scientific Enterprise in Creve Coeur, says that even with lower attendance, a regional venture-capital forum does a lot of good. “It showcases that we have deals that are worthwhile, and that gets around by word of mouth,” he said.

Four companies from Nidus, an incubator for life-sciences companies, presented at InvestMidwest last year, and all four have obtained funding. One of Nidus’ tenants, Graphic Surgery LLC, is presenting this year.

InvestMidwest rotates annually between St. Louis and Kansas City, and this is the first year the host city hasn’t provided a majority of the companies seeking money. Seven of the presenters are from the St. Louis area, six from Kansas City and seven from other cities in Arkansas, Kansas, Nebraska and Oklahoma.

When the forum returns to St. Louis next year, organizers are hoping to tie in with a much larger audience. BIO, the national biotechnology organization, sponsored the Springboard Midwest venture-capital forum in Chicago last month, and the group had talked about rotating it among various cities.

Some folks within BIO want to keep the meeting in Chicago next year, but if the group sticks to its original rotation plan, St. Louis is a strong candidate to get the 2004 forum. It could be paired with InvestMidwest, organizers say, perhaps in a two-day format that would let InvestMidwest focus on non-life-sciences companies.

E-mail: [email protected]

—–

To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com.

(c) 2003, St. Louis Post-Dispatch. Distributed by Knight Ridder/Tribune Business News.