Live from the Startup Mixology Conference – The Realities of Funding

June 16, 2011

2:09 pm

What does it take to successfully raise capital in a dismal economy?  We got to hear from 6 experts on just that topic, all of whom have impressive backgrounds:

David Steinberg, CEO of SnappCloud, acted as mediator.  He has over 30 years of high-tech leadership experience; most recently, he was CEO of one of the most successful cloud companies through its founding and sale to Symantec for $124M in 2008.  He also serves as an advisor to Core Capital Partners, a Washington, DC based venture capital firm, and sits on several corporate and non-profit Boards’ of Directors.

Jill Stelfox, who is CFO and leads Corporate Development at the Binary Group, has bought and sold dozens of companies, raised over fifty million dollars in venture capital and returned over 1000X to investors.

Daniel Odio, CEO and CoFounder of Socialize, Inc., has been on the tech scene for years in industries ranging from real estate to computer servers and mobile phones.

Christopher Schroeder, CEO and Board Member, HealthCentral, is an investor and advisor for a series of technology start-ups and funds ranging from news and media, education, social networks and marketing.

Bobby Ocampo, Associate at VC firm Grotech Ventures, focuses primarily on investment opportunities in software, internet and digital media, communications, and IT services.

John May is Managing Partner at New Vantage Group, which has organized five angel investing organizations in the Washington, D.C. area since 1999, placing funds into more than 50 companies.

The first question: Why is everyone so cranky?  (Not entrepreneurs, investors!)

The joke was that both groups think they’re gods; however, they’re actually very similar: both have to find funding.

John May said most startups either don’t need money or don’t deserve it.  Last year, there were only 1,000 transactions between investors and startups.  Bobby Ocampo chimed in to agree with John, and he added that most funding is totally below the radar.  Again, John said most startups, including those on the Inc. Magazine 500, are bootstrapped.

Jill said to use your money carefully when/if you do raise capital.  People will work for less to work on something awesome.

David pointed out that the number of VCs has dropped over the past decade, during which time there has been a shift to private equity.  There is less money out there.  However, during the first quarter of 2011, venture funds raised the most money since 2001.  So things are looking up.

Daniel said that you don’t need to raise a lot of money to do something significant, so don’t rely on that to launch.  Chris chimed in to say that there is always money for good ideas – even during these last 2 years.

Next question: What’s the investor mood like?

Chris said that investors are much more interested in the startups he meets with; he wants to know their motivations and ideas first, because he is investing in people.

A lot of external factors have disrupted returns that has nothing to do with startups or investors.  Look into small venture funds, state seed funds, structured angel groups, super angel groups, and super structured angel groups.  These are the smaller players, who invest $250k, not $2.5k, and they are worth meeting.

David asked if there was money, and Bobby said, yes, absolutely.  John added that money is not a problem.

New question: Is less more?

David started out with an example: ESPN had very few resources, and that led to their culture, look, and success.

Go to VCs to scale, not to start, Daniel said.  Chris and Jill said a shortage of money keeps you super-focused.

Question 4: How much equity do you need in a second round?  How are startup valuations going?

John said startup valuations is a black art.  You need to show investors that you will grow, but it is typical to give up around 25% of your company.

Daniel said you’re only as good as your 2nd term sheet, and let the market set your valuation.  He also warned against doing convertible notes, as the interests of the investors and the startup are not aligned.  If you are super serious about growing a billion-dollar company, you need to be in Silicon Valley.

Jill said it is much harder here in DC.  She put together a group of mentors/angel investors, all entrepreneurs, to create that funding community here, but it is hard and slow-going.  Chris agreed: ecosystems are important.

And then we were out of time, which is too bad – no time for a Q&A!

 

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Monika Jansen is a writer and editor who is happiest pounding out blog posts, newsletters, website content, and other materials. Follow her at: @monikacjansen

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