Saying no to VCs

Vivek Wadhwa is a Wall Street veteran who cringes when the Silicon Valley suits known as venture capitalists call with a good deal.

Vivek Wadhwa is a Wall Street veteran who cringes when the Silicon Valley suits known as venture capitalists call with a good deal

The CEO of Cary, N.C.-based Relativity Technologies said that his software firm has met every milestone set for it, that it did better in 2000 than in 1999, and that he wants to take it public, but not in this stock market.

How do you reject a VC?YES

"I get a phone call from VCs every three to four weeks and they want to know if I would consider another round of financing," Wadhwa said in an interview. "But the valuations are significantly lower than 50 percent below what we had expectation."

His one word, two-syllable response is scatological. "Why take the cut in valuation when we have done very well in building up value in the company?" Wadhwa asked. "They don't even know what we are worth."

He said that Relativity did $9 million in 2000 and should double that this year. It has 165 employees and is hiring, he said.

Wadhwa knows of one company that gave up one third of its equity for $5 million and, with the encouragement of venture capitalists, spent money "like there was no tomorrow". One year later when it tried to raise more money, it had to give up 50 percent of its equity for another $5 million.

"You can become employees of the venture capitalists in less than a year after putting in all your blood, sweat and the life savings you have built," he warned. "Virtually every technology company is in this squeeze. When a founder is not the owner but the employee of the VCs, the incentive is gone."

Receivable financing from banks that cater to technology companies can be a less expensive alternative, he said.

Relativity's RescueWare software automates the conversion of legacy applications to Java, C++, and Visual Basic and integrates with Web servers and middleware. Its Knowledge Mining product analyses COBOL to identify, extract and turn business rules and workflow so they can run on Internet application platforms. The software runs on Windows NT 2000. IBM uses it with its WebSphere platform

Relativity has received funding from Intel, Noro-Moseley Partners, the Wakefield Group, and NIIT, an Indian software company.

Wadhwa founded Relativity in February 1997 after leaving Seer Technologies, a 1990 spin-off from First Boston (now Credit Suisse First Boston). Seer had a few years success selling programming tools in the middle 1990s before imploding. "It was very, very painful," said Wadhwa, who was one of Seer's founders and its chief technology officer. "It was a big lesson."

Enough to make him want to be his own boss and not give away his company.