SAN FRANCISCO–The days of winning millions in investment capital with an idea and a PowerPoint presentation may be gone forever, but there is still plenty of money out there for new online ventures, said a panel of investment specialists and beneficiaries who spoke during Inman News‘ Real Estate Connect 2004 conference Thursday.
The panel, “Investing in online real estate: Who is interested and why?” featured Michael Montgomery, president of Montgomery & Co. investment banking firm, as panel moderator.
Investors these days are looking for companies that already have one foot forward, panelists said. Klaus Kosh, of Kline Hawkes & Co., a private equity investment company that manages about $300 million in capital, said that online investing has “obviously gone through a tough time over the last couple of years,” but “there is still a lot of people out there with capital. I think there’s too many people out there with money, still.”
Benjamin Cukier, principal at FTVentures, said, “Now is still a great time for entrepreneurs to be raising capital.” But investors tend to have a wait-and-see, show-me-the-money mentality these days. The industry has generally shifted its focus from early-stage investing to later-stage investing, he said.
Stu Siegel, CEO of eNeighborhoods, said that building a business and making it operational should be the first priority for online business owners, even if it takes a lot of “sweat equity” to get it off the ground. Successful companies can be magnets for investment money, he said, which can be ironic. “Investors always seem to come when you don’t need the money.”
Consolidation and outsourcing plans – anything that shows investors the potential for greater business efficiencies and growth in revenue, can also attract investors, said Jeb Spencer, managing director of Tital Investment Partners. And for those business owners who are looking to get out of the business, “The more you can do to build up cash flow, the more attractive you’ll be in an exit,” he said.
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Consolidation isn’t always the answer to all problems, said Cukier, likening the merger of two troubled companies to “two drunks leaning together,” or “tying two rocks together” in hopes they will float.
Web startup companies tend to have an energy and a work ethic that still draws investors, Montgomery said. “You just don’t see that hunger in the old-line companies. The culture is rarely matched in aggressiveness. They are risk-takers.”
During a question-and-answer session, panelists weighed in on the pending IPO of the Google search site on the Internet. Not one panelist said he had plans to buy stock in Google.
Kosh said that while several Web search companies are very successful, “I still think that search is in its early stages. The real estate industry is still starting to learn about search,” he said.
For those newcomers to the online industry, they could have a tough time lining up financial commitments. Spencer suggested that company managers seek out letters of intent from prospective business partners, and bring those letters to the investment community.
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