Roger Cohen has a famous name and a common problem—raising venture funds for his startup.
Cohen, a lawyer who’s worked on some big local public offerings and dad of figure skater and Olympic silver medalist Sasha Cohen, has been seeking investors to piece together a $3 million cash infusion for his software company.
It’s a big change for a guy who’s held posts at Brobeck, Phleger & Harrison LLP and Dorsey & Whitney LLP, where during the heady days he and other lawyers did one massive public offering per month.
“It was so much fun,” he said. “We were like drunk sailors on payday.”
Those public offerings included those for San Clemente’s Sunstone Hotel Investors Inc. and now defunct New Century Financial Corp. of Irvine.
Of course, things are much changed now with a skeptical eye turned toward those coming to investors with their palms out.
“Now the nuns are in charge of the money and they are whacking us on the wrist,” he said.
Cohen is founder and chief executive of Irvine-based VeriComply Inc., which sells software that helps companies manage legal documents by putting them in a secure, organized database.
The software allows documents to be easily retrieved by chief financial officers, auditors and lawyers when they are needed for deals or legal issues.
History
Cohen got into software development after spending more than four years on a debt restructuring for a company that required the gathering of some 5,000 loan documents.
He helped develop a document identification system to track the library of files.
Cohen and a few others initially funded VeriComply.
The venture round it’s now seeking is set to be spent on hiring and growing the company, which has around a dozen workers.
“I’m a firm believer in not asking for people’s money unless I can give it back,” he said.
He said he’s had a tough time winning over venture capitalists. So VeriComply has broadened its funding search, Cohen said.
“We are fishing in three different pools for money,” he said. “In today’s market, that’s a prudent way to go about it.”
Cohen said he’s looking primarily at angel and wealthy investors.
Some see angel investors playing a bigger role in business as traditional venture capital firms nurse existing investments during the drought for public offerings that’s just now beginning to subside.
“What we are seeing is more angel investment,” said Erik Ekstrom, partner at the technology, media and telecommunications practice of Deloitte & Touche LLP in Costa Mesa. “Instead of the first round being a venture capital series A round, a lot of times it’s a smaller angel round.”
Traditional venture rounds still are tough to come by since the darkest days of the credit crunch, Ekstrom said.
Most recent deals have been follow-on rounds not involving first timers.
“I don’t think a whole lot has changed,” Ekstrom said. “For startups, the story is the same as last year. That is, entrepreneurs still need to have a very solid game plan, a team in place and the technology developed to attract any kind of investment.”
These days, potential investors demand a lot from startups.
They want to see a solid business model, revenue coming in and proof that the company can “scale,” or get big fast and continue to grow.
“I don’t think we are anywhere near the days of old, when just an idea would get funded,” Deloitte’s Ekstrom said.
Angel investors will invest in startups that are able to “tie dollars to milestones,” said Stewart Roberts, Orange County president of the Tech Coast Angels, a loose coalition of nearly 300 angel investors.
“There is a stress on milestones,” he said. “Angels are looking to remove risk from the equation and they want to know how that money will be spent.”
Roberts has seen a pickup in angel deals, which typically total less than $5 million.
“We are seeing a resurgence in deal activity and in the number of deals going into due diligence,” Roberts said. “We have 25 new members in the past 12 months in Orange County alone.”
Roberts’ best advice for young companies looking for some angel love: “Do your homework and use a substantial amount of your own capital involved in the project before you come looking for ours.”
VeriComply’s Cohen waited to seek out funding until the company had some legs.
It’s on the third version of its software and has big customers, including Wells Fargo & Co., closet and cabinet maker California Closets Co. and NWP Services Corp., which helps property managers do utility metering and billing.
“We have proven the model and we have paying customers,” Cohen said. “There’s nothing like having paying customers to validate that you have created something that people want.”
