So You Want To Be an Entrepreneur
From March 2005
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Thanks to tech giants Intel and HP, drawing high-tech talent to the region from all over the world, intellectual and venture capital is proliferating. However, a common sentiment in the startup community — fledging companies, funding sources and interested agencies and nonprofits — is that Sacramento startups need even stronger capital opportunities. And, they would benefit from an outside perception of a clear, definitive persona of the region to draw the executive and technical talent that fosters startup fever.
Ian Westberg is regional manager of DLA Piper Rudnick Gray Cary Venture Pipeline LLP, a subsidiary of the law firm. Led by non-lawyers with experience in technology, the internal pipeline group focuses on tomorrow by assisting startups in innovative, informal ways to foster the best interests of the local startup community. Westberg is bullish on Sacramento. He says, “The pump is primed. Several local companies have bootstrapped themselves to raise venture capital. We are working with many of them to make a launch at VCs this year.”
When seeking investors, Westberg warns, it is essential to find the right one. “When you are looking for an investor, look at it like a marriage. You’ll spend a lot of time with these people. It isn’t about money — it’s about smart money.”
Show Me the Money
The post-bust trend of VC firms is to favor later-stage companies over early-stage startups. In 2003, according to the National Venture Capital Association, VCs put 2 percent ($354 million) of their capital into 166 early-stage U.S. companies. Compared with 1998, when VCs invested $3.3 billion in 809 firms, it’s clear that VC firms are not the prime source of early-stage funding they once were. This correlates to a total annual investment in Sacramento startups at about $70 million.
Angels often fill the void. Many angels operate in groups, seeking not only a high return but an opportunity to roll up their sleeves and make a real contribution in their investments. The University of New Hampshire’s Center for Venture Research says that angel investors infused about $18.1 billion in 2003, into about 42,000 deals nationally. VC investment in 2003 was similar — $18.3 billion.
Most startups approach upward of 60 firms before funding occurs, so starting local is a great way to start practicing your pitch — you’ll be making a lot of them. American River Ventures, Capital Valley Ventures and DFJ Frontier are the most active firms in Sacramento. A typical VC firm sees about 2,000 business plans a year and funds five deals, making the odds about one in 400 that your company will be funded.
To up the odds, every CEO’s funding plan should include serious analysis of the funding habits of VCs throughout the United States,. Then approach those that show compatibility with their firm’s requirements, especially those VC firms a 90-minute drive away in San Francisco, Menlo Park and the critical mass of VC firms clustered on Sand Hill Road in Palo Alto. Also, funding seekers should work to get business plans into a partner’s hands some way other than FedEx, or to get an initial meeting some way other than a cold call. Ideas for contacts include mutual acquaintances or executives running companies already helped by a target VC firm.
Continued...
Ian Westberg is regional manager of DLA Piper Rudnick Gray Cary Venture Pipeline LLP, a subsidiary of the law firm. Led by non-lawyers with experience in technology, the internal pipeline group focuses on tomorrow by assisting startups in innovative, informal ways to foster the best interests of the local startup community. Westberg is bullish on Sacramento. He says, “The pump is primed. Several local companies have bootstrapped themselves to raise venture capital. We are working with many of them to make a launch at VCs this year.”
When seeking investors, Westberg warns, it is essential to find the right one. “When you are looking for an investor, look at it like a marriage. You’ll spend a lot of time with these people. It isn’t about money — it’s about smart money.”
Show Me the Money
The post-bust trend of VC firms is to favor later-stage companies over early-stage startups. In 2003, according to the National Venture Capital Association, VCs put 2 percent ($354 million) of their capital into 166 early-stage U.S. companies. Compared with 1998, when VCs invested $3.3 billion in 809 firms, it’s clear that VC firms are not the prime source of early-stage funding they once were. This correlates to a total annual investment in Sacramento startups at about $70 million.
Angels often fill the void. Many angels operate in groups, seeking not only a high return but an opportunity to roll up their sleeves and make a real contribution in their investments. The University of New Hampshire’s Center for Venture Research says that angel investors infused about $18.1 billion in 2003, into about 42,000 deals nationally. VC investment in 2003 was similar — $18.3 billion.
Most startups approach upward of 60 firms before funding occurs, so starting local is a great way to start practicing your pitch — you’ll be making a lot of them. American River Ventures, Capital Valley Ventures and DFJ Frontier are the most active firms in Sacramento. A typical VC firm sees about 2,000 business plans a year and funds five deals, making the odds about one in 400 that your company will be funded.
To up the odds, every CEO’s funding plan should include serious analysis of the funding habits of VCs throughout the United States,. Then approach those that show compatibility with their firm’s requirements, especially those VC firms a 90-minute drive away in San Francisco, Menlo Park and the critical mass of VC firms clustered on Sand Hill Road in Palo Alto. Also, funding seekers should work to get business plans into a partner’s hands some way other than FedEx, or to get an initial meeting some way other than a cold call. Ideas for contacts include mutual acquaintances or executives running companies already helped by a target VC firm.
Continued...
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