Angels and demons: Four great ways to fund your venture
I’m not talking about the bestselling mystery-thriller about the Vatican. I'm referring to what an entrepreneur deals with in funding a business, which is tougher than ever.
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 U.S., and 50,000 by angel investors. VCs look at around 400 companies for every one in which they invest; angels look at 40,” says David Rose, CEO of gust.com, an online 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 $550 million coming from 125 different venture capital funds. Over 80 percent of those funds came from out of state,” says James Linfield, Managing Partner, Cooley LLP, a top global law firm with offices in Broomfield, at the recent Venture Capital in the Rockies (VCIR) 2013 Winter conference.
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:
- 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.
Four Practical Pointers for Funding Your Venture.
Find the Angels or Invest in a Startup. Attend the Rockies Venture Club’s annual Angel Capital Summit conference tomorrow and Wednesday. Entrepreneurs, you might find an angel. Angels, you can learn how to be a better investor and find a deal. Register now at: www.AngelCapitalSummit.com. This year’s conference kicks 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 speech, and up to 35 of Colorado’s hottest startups will be pitching to investors.
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-described 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 more than 800 graduate companies and part-time programs operating in 40 cities. Register for the next Denver program by April 14 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. Coming soon: 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 conferences in Colorado. 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 bringing the Angel Capital Group to Colorado, says it's a mistake to assume you need to raise funds. "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?’ If the dog is not eating the dog food, you are fooling yourself, and it is a dream that you can raise money."
Seeking to fund your business? Attract more angels and avoid the demons!