Pete Stewart

President/CEO/Co-founder, TraceSecurity

Be careful ?how you raise money?

Serial entrepreneur Pete Stewart was coming off three big successes in the late 1990s. His next, most powerful learning experience came out of what might be his greatest misfire.

“DirectWeb by far was the biggest turning point for me,” he says.

In the years just before the tech bubble burst, the industry culture was all about flipping a company or taking it public, and if you had an intriguing idea and some management experience, money wasn't hard to come by. Stewart and a friend had a simple pitch: give away free computers to anyone who buys a subscription for Internet access. The plan sounds silly in hindsight, but IBM, which was getting out of the computer retail business, liked the concept enough to get involved, and DirectWeb was born.

In a sign of the times, Stewart and his partner raised $21 million in one meeting with a group of Microsoft representatives who ran a hedge fund. Stewart had nine PowerPoint slides and a pro forma that said the company would lose $200 million before turning a profit.

The company had plenty of flash, great commercials and a big call center in Baton Rouge. But Stewart says they spent too much time with investment bankers.

“We just got caught up drinking our own wine or smoking our own dope,” he says. “We never paid attention to what the customer in the market was looking for. This was all about selling our equity. That's just wrong.”

At the time, AOL was a dominant force in the industry, and Stewart says it paid Dell and Gateway not to work with DirectWeb. IBM and the other investors lost patience and pulled the plug within two years.

“We're here to build a real company long-term,” he says, stating the lesson learned from DirectWeb that applies to his current business, TraceSecurity. “Out of that, we'll see what comes.”

When Stewart and Jim Stickley founded Trace-Security, which provides cloud-based security, security compliance and risk management solutions, in 2004, they were careful about how they raised money. Stewart says they turned down a lot of potential investors while collecting $13 million in capital from Louisiana-based sources.

“I wanted investors who were in it to create a real business,” he says. The board of directors also was carefully assembled with the same mind-set.

Venture capitalists still call several times a week, but Stewart doesn't need their money. To those who say you can't raise money to build a tech business in Louisiana, he suggests putting in a job application with The Shaw Group.

“Yes, it's hard,” he says. “Yes, that means you have to give equity in your company, which is like your baby. You have to give up control. So what? Would you rather own 25% of something that's worth something, or would you rather own 100% of nothing?”

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