Entrepreneurial solution: Mentoring

By Carolyn Kessel
and David Marcus

Essex County Newspapers

ROCKPORT _ Nearly every new idea needs money and business experience to get it off the ground, and venture capital gives wings to hundreds of successful startups every year.

Venture capital funds participate in management and often finance fledgling businesses. But even the most wary entrepreneurs quickly find that the venture-capital coin has a dark side: The financiers often take control of a successful company long before the founders are willing to give it up.

That's because the venture capitalist sees a return on his investment only after the company goes public or sells out to another firm. Either path can create a series of events that sweeps along _ or sweeps away _ the founders.

The process delights those whose goal is to start a business, develop it quickly and sell out in a year or 18 months. But it's a big problem for founders who want to stay at the helm.

Alec Dingee, an entrepreneur since the mid-1950s and venture capitalist for more than 20 years, thinks a relatively simple process of mentoring could be the solution for entrepreneurs who need management help but want to maintain ownership of their businesses.

And management help, he says, is more important than ever.

All this information ("You can pick up Newsweek and learn how to start a company") means that no idea stays secret _ or even very new _ for long.

"Companies I might have been able to start in the '60s wouldn't have a chance today," Dingee says. "Your idea doesn't stay your idea for long. You don't have that luxury of being able to make a mistake."

Dingee has begun talking with MIT, his alma mater, about a concept in which MIT alumni would mentor the management of new businesses operating in industries with which they had experience.

The ground rules: The mentors would invest time, advice and instruction in matters like strategic thinking, marketing, staffing and making contacts, but they'd invest no money. In fact, they wouldn't be compensated at all, working simply for the love of the sport. Later, if the mentor wanted to invest, he could put money into the business after the company had found another mentor.

That sounds incongrous, considering the mentors would be offering hard-earned knowledge designed to help someone else make millions. But Dingee says the entrepreneurial spirit soars on a good challenge, and besides, most of the mentors will already have enough money so that they can spend some time on an interesting startup just for the fun of it.

He envisions a group that might help between 20 and 50 ventures at a time and doesn't think there would be any trouble finding volunteers.

"You're saying, `This system has been very good to me and I want to give something back.'

"They'd do it for the fun of developing a logical strategy for a given situation," he says. "It's great fun because you're moving all these pieces around; intellectual property, people, financing."

There would be an advantage for MIT as well.

"We're trying to increase the educational breadth of MIT, and improve the image of MIT as an innovator, which may help in recruiting students and faculty and increase the potential donor base," Dingee says.

Dingee is now the chairman of Kortec, Inc., which is located at the Cummings Center in Beverly and makes co-injection systems for plastics molding. The technology, which molds two types of plastics at the same time, has applications in a wide variety of industries.

The challenges are great, even at the smallest companies, which must decide whether to manufacture locally, subcontract part or outsource everything, perhaps overseas.

The legal issues in establishing and running a company are more complex than ever. Even hiring has changed.

"Using the Internet to hire people makes the process both easier and more competitive, but always faster," Dingee says.

Dingee is now the chairman of Kortec, Inc., which is located at the Cummings Center in Beverly and makes co-injection systems for plastics molding. The technology, which molds two types of plastics at the same time, has applications in a wide variety of industries.

He learned the value of intellectual property in one of his early venture capital projects, at Nexebit, a company that invented a new type of switch router.

"That was very, very exciting. We got 18 patents," Dingee said. Nexebit's technology attracted Lucent, which bought the small company.

Many entrepreneurs fail to obtain patents and risk their companies to copycat competitors, Dingee says. A mentor can help the fledgling CEO avoid that trap, even though patents are time-consuming and expensive to get.

"Patents, trademarks and intellectual property have become more important than ever," Dingee says. "If you've protected your intellectual property your competitors can't steal as much."

Even though Dingee sees the mentoring model's advantages for many companies, he also appreciates the value of the traditional venture capital fund.

"Venture capital is doing a super thing," he says. "It's a catalyst and a lubricant. It makes the whole economy grow faster."

But putting your company in the hands of a venture capital fund can easily change the business rules, he says.

"It's a different game. One of the rules may be if you haven't run a company before, the venture capital fund will insist that you can't be the CEO. You might be the chief technology officer, but they might think it wise to bring someone else in to actually run the company, particularly in the fastest-moving fields. That presents a problem in some cases.

"Everybody wants funding but not everybody wants the help that goes with it," Dingee says.

In addition, he says, venture capital funds typically push their companies to grow very quickly. They can push so hard sometimes that even a good idea can fail.

"A venture capital fund may have a portfolio of 10 businesses, and needs to have only one big success to look really good; not every company has to be a winner, so the fund may take a lot of risks. But the entrepreneur who has only one business to benefit from may be encouraged into taking a higher risk than he wants to take when he accepts venture capital."

Since the mentor feels no pressure to return a large equity investment, he can help develop the skills the company's founder will need to keep control of the company later on, when the firm looks for additional financing.

The mentor can help the entrepreneur position his business plan to effectively raise investment money. For instance, "There's nothing glamorous about injection molding," Dingee says, referring to the company of which he is now chairman. "But there is something glamorous about a process that does something that no other process can do in a competitive way, and that's what you need to present."

For Dingee, the mentor's investment helps to build businesses by building businesspeople.

"The most important element is goal-setting," Dingee says. "I try to show people that this is just like things they've already done _ it just has more dimensions. It's a matter of using your mind to find new ways to solve problems."