Plugging the funding gap.

• Author: Sweeney, Paul
• Position: Venture capital - Frank Pirri of ProFind Inc.

If there is a "capital gap" facing emerging companies, Frank Pirri can probably describe it. Pirri is chief executive at ProFind Inc., a Chicago-area high-tech company whose software helps businesses sort through the blizzard of resumes from job applicants and pinpoint the best candidate for a particular job.

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As businesses learn about its product's potential for speeding up the hiring process, ProFind's software is becoming a hot commodity. Since ProFind inked a four-year deal with US Cellular in January 2005, Pirri says, the telecommunications company has already hired 1,000 employees using ProFind technology. In addition, ProFind now has 35 clients, among them Banco Popular, the largest bank in Puerto Rico (which has Chicago branches), and Playboy Enterprises.

Yet, says Pirri, the entire enterprise was nearly still-born. Although ProFind had snagged $1.3 million in "angel" investments--money from wealthy individuals who frequently are organized into investment pools--by early 2005 and could boast a dozen customers and $300,000 in revenues, it was stymied: venture capitalists were balking.

"In 2004 and early 2005," Pirri says, "we participated in three different venture-capital summit conferences." Such conferences are a kind of audition, he explains, "where you pay a modest fee of $500 to $1,500 and get 10 minutes to make a presentation in front of a group of venture capitalists." But there were no takers, he adds, "because of our youth as a company and because we didn't have enough brand-name clients to gain attention."

Eventually, ProFind got lucky. Pirri and his management team began working with Innovation Advisors, a boutique investment bank with offices in Boston, Chicago and New York that, among other things, assists technology companies in raising capital. Under its tutelage, and for an undisclosed fee, ProFind won $4.5 million in venture capital investments from Cincinnati-based River City Capital Funds and Velocity Equity Partners in Boston.

Pirri's experience is not unusual. A chorus of industry participants--including entrepreneurs, angel investors, industry analysts, investment bankers and the venture capital firms themselves--assert that, in the post-seed, post-bootstrapping phase of a company's development cycle, budding technology and life-sciences companies increasingly face a "capital gap."

For a variety of reasons, these sources say, the paucity of venture funding at this critical stage--known as Series A financing, where investors typically put up roughly $500,000 to $5 million--threatens to snuff out promising enterprises just as they begin to make progress. Without this crucial infusion of capital, says Tony Grover, managing director at RPM Ventures, a VC firm based in Ann Arbor, Mich., that focuses on early-stage investing, "Companies can end up in no-man's-land."

There are naysayers, of course. Don Dixon, managing director and founder of Trident...