ANGELS AND DEMONS: How to Fund Your Venture
May 30, 2013
I’m not talking about the bestselling mystery-thriller book / film involving the Vatican. I am referring to what an entrepreneur deals with in funding a business. While it is harder than ever, at least in Colorado, to find the funds, it is worth it since businesses produce jobs, pay taxes, create products and services, train their workforce, return value to investors, and provide a meaningful pursuit of passionate purpose.
Sources of Funding
“There are several million “startups” that are formed each year. In very general terms, roughly 1,500 startups get funded by venture capitalists in the US, and 50,000 by angel investors. VCs look at around 400 companies for every one in which they invest; angels look at 40,” states David Rose, CEO of gust.com, an on-line community connecting investors with deals. Angels are high net-worth individuals who are often sophisticated, accredited investors interested in early-stage private equity or debt investment in emerging firms with great potential.
“Around 90 Colorado firms were funded by VCs in 2012 with approximately $550M coming from 125 different venture capital funds. Over 80% of those funds came from out of state,” stated James Linfield, Managing Partner, Cooley LLP, a top global law firm, at the recent VCIR (Venture Capital in the Rockies) 2013 Winter conference co-hosted by Rocky Mountain Venture Capital Association and KPMG.
This annual conference in Beaver Creek was kicked off by Colorado Governor Hickenlooper, who is himself a successful entrepreneur. VCIR brought together carefully preselected emerging growth entrepreneurs, venture capitalists (VCs), and service providers for networking, company pitches, education, partying, and skiing. Mike Bearup, Managing Partner of KPMG, a leading accounting and audit firm that helps run VCIR, reported that there were over 250 conference registrants showing there is no lack of interest in funding ventures.
What happens to the other firms that don’t get VC or Angel funding? They may die or they may get funded from other options such as:
- Sales. This is the best and easiest approach. Just sell more. No need to get diluted or worry about dissatisfied ‘demon’ investors.
- Founder’s Capital. Prepare, save, and dip into your own pockets.
- Sweat Equity. Staff members work for equity instead of cash to keep burn rate low and to get a piece of the action.
- Friends and Family. These people believe in you and want you to succeed. They make an emotional decision to invest.
- Government Grants such as SBIR. Contact the Small Business Administration (SBA) and your local SBDC (Small Business Development Center) as a first step.
- Strategic Partners. These firms need what you have and will fund you in exchange for early use of your product. They may eventually acquire your firm.
- Bank Lending and other financial vehicles. Check with your local banker. They might even be an SBA lender.
- Crowdfunding. Let the masses fund your project or venture online.
Four Practical Pointers to Funding Your Venture.
- Find the Angels or Invest in a Start-up. The Rockies Venture Club’s annual Angel Capital Summit conference was held on March 19 and 20, 2013. Entrepreneurs were there seeking investors. Angels were there learning how to be a better investor and seeking deals. This year’s conference kicked off with a live interview with David Cohen of Techstars , Jon Nordmark, former CEO and co-founder of eBags and currently CEO of UsingMiles gives the Day 2 keynote lunch speech, and up to 35 of Colorado’s hottest startups will be pitching to investors. Be on the look-out for other valuable gatherings.
- Get help. Are you an aspiring entrepreneur? Get involved in one of the many programs to help you succeed. For example, The Founder’s Institute, self claimed as the World's Largest Startup Accelerator, has a mission to "Globalize Silicon Valley" and help founders build enduring technology companies. It is working with over 800 graduate companies and part-time programs operating in 40 cities. Register for the next Denver program by April 14, 2013 at http://fi.co/
- Surround Yourself with Other Hot Entrepreneurs. Colorado has some cool conferences where innovation lives – learn as much as you can. Each Fall there is the annual Defrag Conference (now with its Blur addition) which explores enterprise collaboration, social media and big data. At the November 2012 Blur conference, I learned all about 3-D printing. This is really cool and is changing how products are designed! Coming soon is Glue Conference (http://www.gluecon.com/2013/ ) in Broomfield from May 22 and 23, 2013. Learn how developers, architects, administrators, and integrators are solving the web application integration problem-set. Or check out the many other technology and innovation conferences. These will inspire you and provide a means to connect with other potential partners, investors, and customers.
- Bootstrap. Vic Ahmed, successful business man and founder of Innovation Pavilion (http://ipcentennial.com/), an ecosystem for entrepreneurs which is now bringing the Angel Capital Group to Colorado, advises, “It is a mistake to assume you need to raise funds. You lose control and there are consequences of raising money. Try to bootstrap your firm. Cut your team and increase your runway. If you still need outside funds, ask, ‘Do you really have a high growth company? Can you achieve hockey stick growth?’ If the dog is not eating the dog food, you are fooling yourself and it is a dream that you can raise money. Fundraising can take all of a CEO’s time, time you can spend building your business. If you decide to take in outside money, know thy investor. You will sleep better at night and reduce your stress.”
Seeking to fund your business? Attract more angels and avoid the demons!
Theresa M. Szczurek (www.tmsworld.com; www.pursuitofpassionatepurpose.com; www.radishsystems.com)