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Struggling for investors
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September 22, 1999: 2:45 p.m. ET
Not every dot-com gets the green, and the chase for cash runs long and steep
By the Applegate Group
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NEW YORK (CNNfn) - At the end of an exhausting day at the first annual Northeast Venture Conference, a glitch in a computer cable caused a delay before Kathleen Hynes, founder of PartsBAY.com, could present her business plan.
PartsBAY.com, based in Hagerstown, Md., was one of 56 fledgling companies that paid $995, plus expenses, to present their dreams to potential investors.
The event, sponsored by AlleyCat News, a magazine covering the "Silicon Alley" region of lower Manhattan, was considered a big success, with about 600 people attending the lively, two-day meeting.
Hynes, the last presenter of the day, had just 25 minutes to convince potential investors to consider investing in PartsBAY.com. She was already stressed out because a server crash prevented her from seeing her revised Power Point presentation until a few hours before she presented it.
While she rushed to Dulles Airport to catch a flight, PartsBAY.com's chief operating officer, Dan Eichinger, drove an hour in the opposite direction to pick up the presentation, which was on a CD-ROM taped to the marketing firm's door.
Taking a "no guts, no glory" approach, Hynes stood up at the morning question-and-answer session and asked the panel of venture capitalists how to pique their interest in her firm.
"I knew I had to do something bold to get myself noticed," said Hynes, a former sales director for Mary Kay cosmetics, whose battle to build her company has been uphill all the way.
She has rewritten her business plan 28 times, and has file cabinets filled with rejection letters. Yet, things started looking up when her company switched from a consumer to a business-to-business model a few months ago.
Solid idea, big market
PartsBAY.com aims to change how vehicle fleet managers purchase replacement and maintenance parts from their vendors and suppliers. The service is targeted at the $220-billion universe of municipalities, public utilities, school districts, universities and transportation companies.
PartsBAY.com plans to build customized databases that would allow fleet managers to search online for the parts they need, find the vendor with the best price and make the purchase. The service would link fleet managers with suppliers who can guarantee fast delivery, thus reducing the amount of time that disabled vehicles like ambulances, police cars, buses and snowplows are out of service.
Hynes said it would also cut back on the amount of time fleet managers spend on the phone tracking down available parts, allow them to auction off their own excess parts, and give them "point and click" access to the maintenance records of their vehicles.
Hynes, founder and acting president, learned about fleet-vehicle maintenance by "getting greasy in the service garages."
Money guys don't get it
Although her exhaustive market research has earned the support and endorsement of key players in the auto and fleet management industries, she can't seem to attract venture capital. She's already invested $1 million of her own money, and needs millions more.
According to their presentation overview, the company wants to sell $50-million worth of preferred stock.
"It's what the industry needs. We saw the potential right away," said Paul Lauria, vice president of DMG-Maximus in Rockville, Md., one of the largest fleet maintenance firms in the country and an equity partner in the venture.
"We're allowing you to get the best price on every transaction," Lauria said in a phone interview. "It takes competitive bidding to the ultimate degree."
Hynes has been busy pitching PartsBAY.com to Ford Motors, Mitsubishi, AutoValue, Daimler Chrysler and Pep Boys. But she said the corporations won't put money into the deal until PartsBAY.com proves itself.
"They say, 'It's a brilliant idea, go make it work, and come back to us,' " Hynes said.
While auto industry gets the concept, the money guys apparently don't.
"I have a double-drawer file cabinet, four drawers high, filled with rejections," Hynes said.
Worse still, said Eichinger, is that the "no's" come in without explanations. "They won't tell you why they said no," he said.
Frustration, not capital, builds
Throughout the AlleyCat conference, venture capitalists said they were looking for business-to-business e-commerce companies targeting giant markets. The founders of PartsBAY.com are convinced their site fits this model, only adding to Hynes' growing frustration.
"I am so sick of meeting 28-year-old CEOs on their third round of financing," said Hynes, after listening to the smug young founder of an online business who bragged about having $23 million in the bank.
"I have a business that provides a real service, that wasn't invented to be a dot-com," Hynes said. "I'm not selling air, I'm contributing to the economy, and the revenue potential is tremendous. Yet, I'm not funded, and iVillage (a women-oriented Web site) is."
Lack of industry experience hinders
Hynes said she's willing to step aside if her investors want her to, although she has business experience. Prior to founding PartsBAY.com, Hynes spent 11 years as one of the top producers for Mary Kay cosmetics. COO Eichinger has a technical and computer background.
"Investors look at me and see a woman who sold mascara," she said. But she has worked hard to develop an experienced management team. PartsBAY's vice president, Robert Bruchey, mayor of Hagerstown, Md., is a veteran auto salesman and fleet manager.
Still, investors say they lack auto-industry experience, and refuse to fund them.
"Auto parts are not sexy to investors," says George Apostolakos, vice president of Robbins Gioia Inc., a PartsBAY partner.
As a 40-something mother of two teenage daughters, Hynes has been riding the entrepreneurial roller coaster since 1997. That year, she insisted that her husband, a top executive with a paper mill company, who was earning about $200,000 a year, take a much-needed family vacation. On the day the family arrived at Disney World, he suffered a massive stroke.
"I knew he would never work again," she said. "I had two teenage daughters and a giant Victorian house in an historic district. I had to find a way to replace that income."
Keeping the faith
Despite the challenges of managing a struggling new business, Hynes said she is not willing to give up. She took $1.2 million from the family's stock portfolio, and invested it in PartsBAY.com.
"We decided to invest in me instead of Phillip Morris," she said in a series of interviews conducted during her day at the conference.
When the computer began working again, Hynes launched into her presentation.
"I am willing to step aside for a CEO who will inspire investor confidence," she told the group of venture capitalists and other entrepreneurs.
The questions they asked were tough. ("You want tough questions," said an observer who watched dozens of presentations throughout the day. He said she was one of the strongest presenters. "If they aren't asking tough questions, they're not interested.")
By lunch time the next day, Hynes had already been networking, working the room, and lining up more meetings. Eichinger said after the prior day's presentation, he was "cautiously optimistic," but the bubble burst when the cell phone rang. Two venture firms they met with had already made their decisions, and the answer was "no."
"I know this can work, I know this will get funded. I'm not going away," said Hynes, undaunted as she and her partner rushed out to catch a flight back to D.C.
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