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The Racer’s Edge

In her free time Tiffany McVeety likes to sail. But don’t picture this five foot, six inch native of the “Land of 1,000 Lakes” being pushed by a gentle summer breeze. Instead, zoom in on a grueling 22-hour endurance race on a small racing boat (along with nine others) in an international sailing regatta.

Tiffany’s experience as a venture capital consultant plays out along much the same lines. Not simply content to live the life of an ordinary CFO, Tiffany is helping her clients navigate along venture capital’s jagged shoreline, charting a course through the rough waters of early stage development for broadband and telecommunication companies (among others), and performing due diligence that will predict the best-of-breed candidates for investor organizations like Washington’s exclusively women-backed Seraph Capital. For those other companies, the ones who fail, there may still be a lifeline that Tiffany can throw their way on a daring rescue mission, reacquiring the technology patents that have been locked away inside a bank’s vault.

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We caught up with Mrs. McVeety back on dry land and had the chance to quench our thirst for the kind of insights she could provide our readers.

Seattle24x7: Tiffany, is it true you were employee #1 at Terabeam Networks?
McVeety:
In ’97, after doing some non-profit fundraising work in the educational sector, (including securing a $4.1 million grant for the Seattle Public Schools – Ed.), I was the very first consultant and employee, after Greg Amadon, for Terabeam Networks. Working for a founder of a new Telco in town, I learned how to put together a board of directors and a board of advisors, how to write a term sheet, and how to go after investors.

Seattle 24×7: You’re also a member of Seraph Capital?
McVeety:
I’m on the screening committee of Seraph Capital, a unique Washington-based organization of 125 accredited women investors, one of just two women angel groups in the country.

I’ve been on their Screening Committee for around a year, looking at 30 or so deals a month. I’m also on the Education committee where we’re putting together curriculum to teach women investors how to perform due diligence. How to insure that if they do decide to become an angel investor that they’re making the right choice, that they’re looking at a company that fits within their risk parameters.

Seattle 24×7: Thirty deals a month seems like a fairly brisk pace?
McVeety:
There’s still good deal flow out there. There’s actually better deal flow than there used to be because there was so much noise in the market. There were so many companies seeking funding that really should not have been companies — either they weren’t ready or they were merely products. So the deals that we’re seeing are sometimes very interesting. Many of them are follow on financing. People who are thinking, uh-oh, our VCs aren’t helping us out, we’ve taken a haircut on our valuation and now we’re going back to angels. You get some good deals on some really unique technology.

Seattle 24×7: How do you feel Seattle VC’s have fared in the downturn of the Internet economy?
McVeety:
If you look at the venture capital community as a whole, their return on investment over this past year, they’re down 90%. They’ve had a really rough time. Early stage investors were burned the most.

Seattle 24×7: That’s hit hardest in Seattle?
McVeety:
Probably. We have a developing financial market and community and a number of our VC’s focus on early-stage companies. The exciting part is that allows them to identify very early stage ventures and get in, set the valuation, and work with these companies, and mold them and guide them. Well, these early stage companies were then invested in by the “Internet Capital Groups” of the world on their second, third and fourth rounds, at valuations and sums of money that were outrageous. The larger VC’s expected their portfolio companies to spend the money rather quickly. Their desire was for their portfolio companies to either be acquired or have an initial public offering within eighteen to twenty-four months.

What happened when these companies crashed and burned is that these early stage investors, the investors we have here in Seattle, really got the bad end of the deal. They had good intentions. They did all the hand-holding. Alexander Hutton has a great method of nurturing their executives, Guide Ventures does the same thing. But the bigger guys came in and forced the start-ups to move fast and furious toward an exit. We all know what happened next. Some local VC’s and angels are now back to square one working with the founders to recapture the technology and vision that interested the Seattle investors in the first place.

Seattle 24×7: And VC capital is still the life blood for these early goers?
McVeety:
The VC community has an incredible say in which companies are going to survive and which aren’t. In these last months, VCs were forced to decide which of their portfolio companies they were going to continue to support into the future, and which they weren’t.

Seattle 24×7: Do any of the orphaned companies stand any chance of survival ?
McVeety:
Some of them do. It really depends on their management team, the additional time needed to secure customers and in some instances, time to complete a product. In some cases, it is in the best interest of the early investors, including angels, to re-invest in order to help drive the company forward. In other instances, it can be putting good money after bad. Seraph Capital is seeing more deals that were dropped by larger VC’s and are now back to square one – the angel community. There are a handful of companies out there that are really worth taking a look at.

Seattle 24×7: How can they find the funds?
McVeety:
There are a couple of companies in town that are looking to do those sorts of deals. For example, eFund, Jeff Canin’s company, was an early stage fund but now they’re doing LBO’s in the wireless space. So they’re looking for wireless technologies — the juicy berries out there. Investors with the knowledge-base and manpower can go out and identify the technology and take it over.

Seattle 24×7: But can you just walk into an Imperial Bank or a Silicon Valley Bank and check out the patents they are holding?
McVeety:
With one of my most recent clients that was part of my job — to go back to Imperial Bank and reacquire some of the technology they wanted from a former company. That was my introduction to the fact that there was this technology that these banks were sitting on that was secured as collateral and they want to get something for it — namely cash — or the ability to capitalize on its making it into the marketplace.

Seattle 24×7: How do you attach a value to that technology and determine its worth?
McVeety:
A lot of it is just like valuing a company, running very traditional valuation models and performing due diligence like looking at comparative technologies that public companies own , comparative products that have matured more in the marketplace. Sometimes it means putting together a technical due diligence team to evaluate whether the technology is worth it or not, whether the patent is worth something.

Seattle 24×7: You’re on a rescue mission to recapture technology…but for how much?
McVeety:
Pennies on the dollar….if a company has not yet filed for bankruptcy. Once you file for bankruptcy, the assets become very difficult to reacquire. But bankruptcy can cost $500,000. A lot of these early stage ventures didn’t necessarily have the money to shut down correctly. So these smaller companies with these emerging technologies that are held in appellate courts or by banks, well, it’s an interesting space. There’s a unique opportunity there to try and revitalize what some brilliant engineers have created.

Seattle24x7: Thanks, Tiffany. Let’s hope for clearer sailing ahead.