When Roman Staněk and Radovan Janeček, co-founders of software company Systinet, started their business in 2000, they had enough experience to know that the financing options for expansion were limited.

The entrepreneurs needed an investor who would be willing to provide a hefty loan to a startup with little history. Venture capital was the obvious option.

"A bank wouldn't have made such a loan," Janeček said. "Venture capitalists share your risks but get higher yields if the company is a success."

A year later, the company got approximately $25 million (595 million Kč) from a group of venture capital investors. A venture capitalist lends a company money in exchange for a stake in the business and expects a return of between 15 percent to 30 percent when it exits the investment, usually within five years.

During its first round of financing in 2001, Systinet received $2.3 million from a group of investors that included 3TS Capital Partners, and in February 2002 got $21 million from Warburg Pincus.

This January the investors sold their stakes in Prague-based Systinet for a combined $105 million.

In spite of success stories such as Systinet's, venture capital remains an underestimated and underutilized source of financing for companies in the Czech Republic, most of which still look to banks, according to experts.

"Classic financing, including a bank loan, is still the most popular form of financing among Czech companies," said Peter Dajko, investment manager at Arca Capital.

Management first

Awareness about venture capital is lowest among companies located outside of Prague, but even entrepreneurs in the capital city are skeptical because they're reluctant to hand over stakes in their businesses to outside investors, Dajko said.

According to finance experts, however, a high percentage of interesting projects created by companies without histories have no chance of getting bank loans. That's because banks want to see at least three years of balance sheets, collateral and evidence of enough cash flow to repay the debt.

Venture capitalists, on the other hand, are more willing to take on risk, judging an investment based on an evaluation of its business plan and the management who will be executing it.

"A venture capital company makes a decision whether to enter a project based on its impression of the management," Dajko said.

In the case of Systinet, the investors pointed out that that they were impressed by the background and character of 35-year-old Staněk, who had managed to sell his previous software company, NetBeans, to Sun Microsystems.

"The key factor for our decision to invest was the personality and profile of Systinet's founder, Roman Staněk, and the team of excellent developers around him," Jiří Beneš, investment director at 3TS, said in a written response to questions.

Janeček said investors also judged Systinet on the merits of its business plan, which included lower overhead expenses than other projects, most of which came from North America, that sought venture capital.

"By that time, we had a large community of clients," he said, which was an indication that their money was a success.

Up to 90 percent of the company's customers were banks and telecommunications companies in the United States. The company also had clients in Britain and Germany, but still needed extra money to fund expansion.

Saving the day

Keravit, an Ostrava-based producer of industrial ceramics, is another example of a venture capital success story. A former division of iron-producer Vítkovice železárny a strojírny, Keravit was slated for liquidation in 1992.

The management decided to save the operation through a buyout, but couldn't find a bank to lend a hand.

"Getting money was the biggest problem," company director Luděk Vícha said. "When banks saw we were in the red, they wouldn't even take a look at our business plan."

Vícha said he and his three colleagues got lucky. In 1995, they heard about a venture capital fund called Regionální podnikové fondy that took a personal approach to their plan. After evaluating 200 business plans, the fund chose five, including Keravit's.

"We got their decision two weeks after having submitted our application," Vícha said.