• by Michael Kubin , May 9, 2001

We spent the last several months raising money for our company; not an easy task in this environment, let me assure you. But the process, proctologic though it may be, produced its memorable moments.

My favorite took place on a sunny afternoon in our not-so-luxurious offices. Our management team had gathered to meet with the managing director of a prestigious venture fund, a man who had shown rare knowledge and insight into our industry. We made it through our 'dog and pony' relatively unscathed, only taking the occasional hit in the form of a "We'll have to get back to you on that" question.

By the end of the hour we were feeling pretty good; our business plan had survived the VC's scrutiny. As he sat back to ruminate upon what he had seen, the room fell completely quiet. It occurred to me that had he chosen to sit there for hours-even days-we would have had no choice but to accompany him in his reverie. But luckily he took only a few minutes to make this pronouncement:

"You know, 99% of all Web-based companies aren't going to survive the next couple of years."

Complete, stunned silence.

How do you respond to that?

My partner, always seeking clarity, asked "Do you really mean a lower figure like 75%, and are exaggerating to make your point?"

"No, I really mean 99%," said the financier.

More stunned silence.

A random thought crept into my head: if 49 states were wiped out, that would only represent 98% of the Union. 99% is worse than that.

At some point we figured out that we weren't hearing good news, at least insofar as our raising money from this particular individual was concerned. So we asked for the rationale behind his conclusion.

It came from his firm belief that 99% of all Web-based companies have no business being IN business: management teams unseasoned, business plans flawed, cash reserves low. And all in the face of an economy that's dropping faster than a hooker's underwear at a Tailhook convention.

"So what's the way out?" someone asked.

"Additional financing isn't the answer," said the banker, "that only prolongs the agony. First point: today's Web-based companies must reassess their business plans to make sure they make sense. Which means that the company MUST be able to make money, and fast. Staying too long with a failed idea is the surest way to oblivion. The fuse is very short these days, and venture capitalists with stables of investments are shooting their ponies.

"Second point: since cash is scarce, it must be conserved. Only put money against people, systems, and activities that will assist you in generating revenue. Virtually everything else is an unaffordable luxury.

"Third point: be creative in identifying and soliciting intelligent strategic partnerships. That means companies that will help you sell. Perhaps your can form reselling agreements with other companies that have a marketing infrastructure already in place in your industry. Or companies with whom you can jointly produce your product, thus eliminating overlapping overhead."

The VC had to go. We left the meeting cowed but enlightened.

- Michael Kubin is co-CEO of Evaliant, formerly Leading Web Advertisers - http://www.evaliant.net - one of the web's most powerful sources for online ad data. He may be reached at mkubin@evaliant.net