their return on investment,” he says.
ROUND TWO: BEYOND START-UP
Almost as soon as you’ve secured your first round of financing, it’s time to begin thinking about the next round and what milestones your company needs to meet to secure it. For Kim Folsom and SeminarSource that meant adding features and functions to the Website, signing key customers, filling out the management team and launching the product.
“As you’re forecasting your milestones, you also need to forecast your capital requirements for the next round and start spreading your story to people,” she says. To keep SeminarSource.com on track for success, Folsom raised $2.5 million in the second round from a mix of angels and professional venture capital funds from SynCom, a Silver Spring, Maryland-based minority-targeted private-equity firm. SynCom recently expanded its focus from communications properties to include technology start-ups such as Seminar Source, NetNoir and B2EMarkets.com. Folsom expects to raise $10 million to $15 million in a subsequent round and looks to have purely venture capital investment.
“When it was time for our second round, I knew we needed to get professional venture capitalists involved if I wanted to compete with the Lucents and Ciscos of the world, because of the additional credibility and resources they bring,” explains Dean Hamilton, CEO of CoSine Communications, which offers Internet service providers (ISPs) the ability to offer value-added services such as virtual private networks to their business customers.
For Hamilton, that meant using the $3 million in angel funding that he secured in November 1997 to set up the company and begin proving the market for his product. By August 1998 it was time to engage the professional venture capital community. “It took us nearly three months to close our second round despite the fact that CoSine had grown to 60 employees, proven its technology and had established customer contacts with companies like Qwest Communications to validate the market for the product,” says Hamilton, who gave venture capitalists the opportunity to inspect the technology with their own technical teams. In December of 1998, CoSine closed on a second round with $11 million in financing.
“Once we raised the second round, things started to change very rapidly for us,” says Hamilton, who raised $22.5 million in a third round from some of the top venture capital firms in the world.
The collective weight, expertise, connections and guidance of these professional firms has propelled CoSine to rarefied air. To date, CoSine has raised $94.5 million, including $60 million in a successive round in August 1999. “After you’ve raised a few rounds it becomes easy to do, because you have a network of people and companies to draw on,” says Hamilton. “It took three months to raise our second round of $11 million-and only one week to raise our last $60 million.”
Certainly raising venture capital is not easy. But for those who build their networks and learn the rules of the game, it can be a very productive experience. Expect to see more African American-owned companies having success in this arena. And