Sunday, February 28, 2016

You have to look beyond your backyard

Recently there as been a lively debate about the lack of funding in Texas. It's actually not a new debate but rather an ongoing dialog between entrepreneurs and investors.  Entrepreneurs feel that funding is scarce in Texas compared to other parts of the country.  Investors counter that they would invest more and more often if the deals were further along and better prepared.

The debate is not new.  It comes up every year.  The solution is to change the way fund raising is handled.  It's no longer in your backyard.  You must have a national focus on your fund raise from day one.

When I was the director the Central Texas Angel Network we had just restarted the formal angel community in Austin.  The previous group, the Capital Network had gone out as they were tied to the dot com world and when that went away, they went away with it.

At that time, it was a great boost to have a formal angel group in Austin so central Texas entrepreneurs could raise money in their own backyard, so to speak.  It worked for awhile.  When we started, we had 15-20 deals on each round of which 4 would receive presentation slots and 2 would get funding on average.

As the years progressed two things happened.  First, the number of deals grew.  Today it's not unusual to see 75 to 100 deals considering CTAN of which 4 will get to pitch to the membership and 2 will get checks.  The funding rate is higher because there are more members, but fundamentally, entrepreneurs looking for funding have a 2% chance of getting it from the group.

Daunting odds.

The second thing that happened is that crowdfunding came into its own.  After several years of debate and government (in)activity, the rules are starting to change.  It's now possible to raise from non-accredited investors as well as from accredited investors who are not in your backyard.  At CTAN, we all gathered at the Headliners club in downtown Austin to see the live pitches.  With crowdfunding, one can source angels from across the country if not further because the pitches are on-line.  The tools are improving and the entrepreneur's ability to use those tools are increasing.

The world of angel investing is going vertical.  The chance that an angel investor interested in your particular application (mobile apps, enterprise software, consumer product good, etc) is in your backyard is shrinking.  To reach an investor interested in your stage and type of deal, you much reach across the country.

Crowdfunding is how you do that.  By placing your deal online angel investors can now find you.  You can now reach angel investors from a broader area.

It's helpful to have some support from your local area, but from day one entrepreneurs should have a national perspective on their fundraise.  If you have a real business (not just an idea) you probably have an investor out there who would be interested in your deal.  He's just no longer in your backyard.

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