Venture Capital Summit V:
Ohio has made great strides toward becoming entrepreneurially friendly, but there remains much work to be done in that area. Government funding, while attractive, should never be your first option. And innovation will drive the recovery from the current economic downturn, just as it always has.
Those were among some of the main themes to emerge from OVA's fifth-annual Venture Capital Summit, held February 25th at Corporate College East.
"Ohio has clearly vaulted into the top ten states for entrepreneurship. It took the concerted effort of a lot of people," said OVA president Jonathan Murray, in an opening address. "We are truly on the cusp of turning the corner, from being a backward-looking industrial state, to being a forward-looking 21st-century economy."
Keynote speaker Dave Berkus, a veteran serial entrepreneur, angel investor and author of Extending the Runway, gave a brief history lesson of past economic cycles and the bubbles they sometimes created. While some investors of course lost money when these bubbles burst, they set the stage for many others to prosper, and also became the foundation for general innovation throughout the economy, he said.
Berkus pointed to the tech crash of a decade ago as an example. It left many technology investors in tatters and much office space empty, with powerful computer servers less in demand, thus fetching only a shadow of the prices they previously commanded. But those lower costs also set the stage for the next economic boom, in the middle of the last decade. "Many entrepreneurs, including many of my companies, took advantage of that, and built companies for very small amounts of money, that could never have been built, other than that bubble having burst...It's the entrepreneur that understands there are cycles and countercycles, and sometimes it's during the countercycles that create the right time to play."
With billions of dollars in federal stimulus funding still being distributed, the subject of targeting government funding for early stage ventures came up. A panel of experienced entrepreneurs agreed that that funding source can be attractive, given how non-dilutive it is. At the same time, it can be slow to secure and sometimes falls through entirely at the last minute, and thus should never be the main funding source. Said Ed Tromczynski: "You can burn up a lot of jet fuel trying to go after government funding...but as a second or third source, it's pretty interesting."
Serial entrepreneur Sam Gerace, now the CEO of Veritix, a digital ticketing company, argued that it pays to be highly targeted in seeking VC help. "The typical mistake entrepreneurs make is thinking there's such a thing as a VC or an angel. Each of them has areas of expertise...Find a firm that is ideal for you, in terms of your area of expertise or the stage of the firm, and target a partner, not the firm. Find a person who's particularly expert in what you do, who you believe will be a receptive party. Because ultimately a person at a firm, whether it's an organized angel group or a venture capital firm, will end up being your advocate to the rest of the body."
On the other side of the funding equation, Early State Partners' Managing Partner Jim Petras suggested that would-be entrepreneurs shouldn't take their business plans quite so literally. During a panel of fellow VCs, he explained that "to us, detailed business plans and financial forecasts are nothing more than a thought process. The numbers are going to change, but the thought process won't."
A few other highlights from the Summit:
- "Part of the new reality is that professional funding is coming in later and later," said R.K. Khosla, a CEO in residence at BioEnterprise.
- With the economy still so challenging and liquidity events now so much slower to arrive than in the past, many funders are taking more of a Missouri approach (a reference to its motto as "the show me state") than a Silicon Valley approach, said ESP's Jim Petras.
- When presenting your business plan to a VC, it's not a good sign if you're not prompting a lot of questions, said clean energy guru Richard Steubi. And don't deflect questions by saying you'll address them later in the presentation. "It suggests a degree of rigidity and inflexibility, and a good entrepreneur has to be able to roll with the changes."
- No matter how good your plan is, you shouldn't necessarily expect to draw VC investment after the first presentation. Draper Triangle Venture's Mike Stubler noted that his group tends to invest only after a long series of discussions with an entrepreneur. "We have even had deals where we monitored for two or three years before we invested."
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Webcast produced by Mike Sutyak, The Entrepreneurial Learning Initiative.
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