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Thinking of a 'Not-Com'? There's Hope Out There--and Venture Capitalists Too

March 29, 2000|JUAN HOVEY

Does a business need the "dot-com" glamour of the Internet to get venture capital? Is the "not-com" company out of luck?

The answer to those questions may surprise you. If you run an "old-economy" business, you may well wonder about your chances of getting venture capital to grow your operations. The testimony of many a business owner who tries is that, no matter how attractive your prospects, you can't get the attention of a venture capitalist without dot-com glamour.

The reality, however, is that although dot-com glamour helps, it--as a mathematician might say--is neither a necessary nor a sufficient condition when seeking venture capital. Not all venture capitalists chase dot-com companies, however much it seems otherwise. Some prefer the not-com, nuts-and-bolts, old-economy businesses that form the backbone of the economy of Southern California--and if you want proof, talk to the folks who run Lightwave Systems Inc. in Carpinteria.

By training, Christopher Willcox, the company's founder, is a luthier--a maker of stringed instruments such as the guitar, behind which lies a technology very nearly as old as Western civilization itself. Willcox is also a tinkerer who began wondering two decades ago how he might improve the magnetic pickups commonly used to amplify the sound of, for example, the bass guitar in your teenager's favorite rock band.

Willcox calls the progeny of that effort--an optical pickup that uses infrared light and a transducer to translate the motion of a vibrating string into an electric impulse capable of amplification--the first real advance in the reproduction of the sound of stringed instruments since the invention of the magnetic pickup seven decades ago.

The technology behind Willcox's optical pickup is sophisticated, but Lightwave Systems is not a dot-com company, even though it has its own Web site (http://www.lightwave-systems.com). It makes not software but a product you can touch and see, and it targets customers who create one of the oldest of human arts, music, in a marketplace worth millions, not billions, of dollars. Lightwave Systems, in short, is a nuts-and-bolts business like thousands of others in Southern California, and as such you might expect it to have no chance of getting outside capital.

You would be wrong. As detailed in this space in recent weeks, Southern California has suddenly become a magnet for venture capital, with at least 19 venture capital firms here seeking to invest about $3.4 billion in the next two to three years. Most of that money backs "new-economy" start-ups and early-stage companies, to be sure, but some goes to nuts-and-bolts businesses such as Lightwave Systems.

Now, make no mistake here: $3.4 billion is a big number, but venture capitalists don't throw money at any business, whatever its provenance. If you need venture capital, you must work for it. And if you run a not-com company, you must work very hard for it.

"We're not a dot-com company, and I worried that that would be a problem," says Michelle Gysan, Lightwave Systems' marketing vice president and the leader of its campaign to obtain outside financing. "But many investors are disenchanted with the unpredictable nature of Internet business. They're more comfortable investing in bricks-and-mortar industries," Gysan says.

"We're a bricks-and-mortar industry that hasn't seen a major technological advance in decades--and since we have one, it gives us an edge," she says.

During the last five years, Lightwave Systems raised $1.7 million for product development, and Gysan recently raised $700,000 as part of a $2.2-million financing effort to take the optical pickup to market. A lawyer by training and, as she puts it, "a closet singer," Gysan became an entrepreneur just out of college, founding one company processing loans for mortgage lenders and another designing lender web sites.

When she went to work for Lightwave Systems last fall, her first task was to revise the company's business plan, in particular to focus its marketing strategy.

"The original plan was brief, in keeping with the belief that business plans have to be short," Gysan says. "I think the opposite is true. Investors look to see if management has a definite strategy to grow the company, and that means a business plan that addresses the obstacles to success and the strategies to overcome them.

"So I tackled the what-ifs."

Among other things, she detailed 15 specific marketing objectives, setting a timetable week by week and month by month. She researched demographic and purchasing trends among guitar makers and their customers, and she crafted a solid argument as to how the cycles in that marketplace should make the Lightwave Systems optical pickup a good bet.

She and her sales and marketing team took the optical pickup to a trade show in Los Angeles in January. And she began networking among musicians, guitar manufacturers, and music-industry people in a disciplined effort to get the Lightwave Systems plan in front of people with money.

For the not-com business, Gysan says, the key to success is to look for investors not bedazzled by the glamour of the new-economy start-up and show them a focused business plan describing your opportunity in the clearest possible way. It's not easy to raise outside capital if you run a nuts-and-bolts business, but it's not impossible, either.

"We're selling and shipping product now, and that's a critical factor for investors," Gysan says. "We have replacement technology in an established marketplace. That's also very appealing to investors. So let the fun begin."

Juan Hovey can be reached at (805) 492-7909 or at jhovey@gte.net.

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