Editor’s note: In December 1999 Knowledge at Wharton published Anatomy of a Start-up, Part 1: The Climb Begins. The article described how Richard L. Thompson and Lawrence G. Braitman, co-founders of Flycast Communications, an Internet-based advertising firm, teamed up with Wharton professor Arie P. Schinnar in October to launch E*Entity, a business accelerator that helps jump-start fledgling Internet businesses. This is the second part of a series that will follow E*Entity in its evolution.

One of the toughest things about starting a new business is defining its mission. Equally difficult is the act of writing its mission statement—a handful of words that state, simply and clearly, the company’s reason for being. For Larry G. Braitman, Arie P. Schinnar and Richard L. Thompson, this was one of their first challenges in launching E*Entity. They knew that they wanted a business accelerator, whose goal would be to help Internet ventures go from concept to market as rapidly as possible. But this still begged two key questions: What was E*Entity’s mission? And how would it differ from that of competitors playing in the same arena?

After a good deal of discussion, Braitman, Schinnar and Thompson finally arrived at a common mission statement that they prepared to unveil in late January. E*Entity, they decided, would be a seed stage investment fund that would focus on Internet and e-commerce ventures coming out of the university environment. “Some entrepreneurs and businesses coming out of top schools are ready to hit the ground running,” says Thompson. “They don’t need or desire the coddling of an ’incubator’ environment. We will provide venture financing, coaching and contacts to assist such companies, but for the most part we expect them to grow quickly and stand on their own feet.”

At least three factors persuaded Braitman, Schinnar and Thompson to define E*Entity’s mission the way they did. First, they recognized that “the quality and maturity of ventures being hatched in university settings is getting stronger and stronger,” says Braitman. For example, Google, a search-engine company launched by Stanford students, last year landed $25 million in venture funding. Second, Braitman’s and Thompson’s own experience with Flycast Communications, whose business plan was written on the University of Pennsylvania campus, convinced them that ventures coming out of schools could be potentially successful. After all, Flycast Communications was sold to CMGI, a Massachusetts-based investment firm, for some $740 million in September 1999.

The third factor was the need for E*Entity to differentiate itself from rivals. Established incubators and accelerators such as IdeaLab and Garage.com have long been trying to lure entrepreneurs, while more entrants are now starting to enter the field. “We see major consulting firms like McKinsey entering this business,” says Schinnar. “Redleaf has launched a digital incubator, as opposed to a physical one, exemplified as eCompanies. Digital Ventures, another firm, seeks to develop an incubator that will cater to the international market. We felt the need to differentiate ourselves in this emerging market.”

So how will E*Entity set itself apart? “We focus exclusively on Internet ventures originating at leading business and engineering schools,” says Schinnar. In addition to concentrating on universities, Braitman and Thompson clarify that E*Entity will not suit every entrepreneur’s needs. “If a venture team wants to work under a larger umbrella—and or be an intrapreneur within a larger organization—then that is the way it should go,” says Thompson. “Entrepreneurs have choices, which is a good thing. Entrepreneurs should talk to multiple investors and consider multiple models, and then choose the one that feels right. What we are looking for are the most mature businesses and entrepreneurs that can go to market quickly and be highly successful.”

Thompson and his colleagues have taken several steps to spread the word that E*Entity is open for business. For starters, they have set their sights on two business schools—Wharton at the University of Pennsylvania and Stern at New York University—as initial targets. Negotiations are underway with a third school on the west coast to set up shop there. Braitman, Schinnar and Thompson have also earmarked $1 million each per school to fund ventures. E*Entity plans to invest between $250,000 and $1 million in start-up firms that have high growth potential.

By the middle of January, Braitman, Schinnar and Thompson had met with a dozen aspiring venture teams eager to get started in business. “We are not looking for 40-page business plans,” says Thompson, who says E*Entity has recruited a second-year MBA student in each school to serve as a venture partner. The venture partner’s job will be to facilitate the application and selection process.

The process works fairly simply. Once the potential entrepreneurs have submitted a three-page business plan summary, E*Entity evaluates it, sets up a series of face-to-face meetings and presentations, and identifies opportunities where there might be a good fit. “This culminates in the presentation of a term sheet and hopefully in an investment,” explains Braitman.

Is E*Entity looking for ventures in a specific industry? In view of their background in Internet advertising, Thompson and Braitman believe those are areas where they have the most experience. “We focus on ad-commerce,” jokes Thompson, coining a term and describing it as a field that integrates advertising, commerce and publishing. “These are areas where we are particularly strong.” Schinnar clarifies that although the schools where E*Entity operates have business plan competitions, the firm is careful to act independently of that educational process.

Braitman, Schinnar and Thompson say they look for at least three crucial ingredients as they pore through business-plan summaries. The most important is passion and commitment. “We want people who believe that what they are doing will change the world, and that nothing will stop them,” says Braitman. By implication, people who demonstrate lack of commitment by taking on full-time jobs in the hope that they can run the business in their spare time automatically raise a red flag.

Secondly, E*Entity looks for a coherent plan of how the entrepreneurs plan to execute their vision. “We are not looking for business concepts,” Braitman says. “That is an interesting exercise. But we are after businesses that have real operating goals.” Adds Schinnar: “It’s hard within a university setting to step from an academic exercise to an actual, executable plan. Students go through many motions in their classrooms where the end is a well-formulated idea. But that is not a venture.”

The third ingredient is a big market opportunity. “Some entrepreneurs may want to build a small business, but that’s not what we are looking for,” says Thompson. “We are looking for something that can be huge.” How huge? “It’s got to be able to go to $100 million in revenues.”

Even as they go about interviewing candidates for E*Entity’s maiden investment, Braitman, Schinnar and Thompson are learning important lessons about themselves. The most significant change they have had to make is learning to think as investors. This means they must restrain their own imagination and fight the tendency to create a vision on behalf of the entrepreneurs they are interviewing. “Investors are not visionaries; they are validators,” says Thompson. “That’s what we have to remind ourselves. Will we bet on the right people or on our own visions? If we bet on our visions, we’ll be in trouble.”

Note to readers: The founders of E*Entity are eager to get feedback from Knowledge@ Wharton readers about the issues their company faces. What kind of ventures should they consider funding? E-mail your suggestions to knowledge@wharton.upenn.edu.