January 08, 2001, 10:15 AM — This past April, many thought striking it rich with loads of dot-com stock options had become a fond memory, as the NASDAQ went into a tailspin. But market observers claim there are still plenty of opportunities in the world of hot dot-com startups. However, this time around it's best to take a closer look at which companies have a better chance of surviving the next Wall Street shake-up than others. And the best way to do that is to play venture capitalist. "Pretend you're an investor, not an employee," says Roger King, an executive with RagingMouse.com, an IT staffing company in Sausalito, Calif.
So where do you look for advice? Venture capitalists review thousands of business plans each year and have perfected the art of reading between the lines, knowing which companies are more likely to succeed and survive. A recent report by Barron's revealed that more than 51 Internet companies may run out of cash in the next year. So looking for a company that will be around for the long haul is crucial.
It's no secret that common sense prevails in making a good decision. But there are several points VCs single out for those looking to join the next Yahoo!. First, look for a strong and experienced management team. Next, make sure the new company has a service or product that addresses a real demand in the market. And, be sure it has a clearly defined competitive edge. It's also good to know who the investors are: Steve Jobs would be a more compelling investor than the founder's aunt, for example.
Once you've identified a company, start looking for the competitive edge. George Zachary, a general partner with Mohr Davidow Ventures in Menlo Park, Calif., looks for a company with a "barrier of entry so cool the company could become a monopoly." And barriers of entry can be anything from a series of patents on a product or technology to strategic alliances. With about 80 percent of startups failing, Zachary has to be extremely selective when he reviews an entrepreneur's business plan. In his four-and-a-half years as a venture capitalist, he has reviewed over 8,000 plans and funded only nine companies. Ask your potential employer for a copy of the company's business plan, typically reserved for top management. And if the employer balks, ask for the executive summary.