What I learned at the Texas Venture Growth Forum

What I learned at the Texas Venture Growth Forum

Last week, TEN in partnership with Hermes Investment held its first conference called the Texas Venture Growth Forum.  The event was targeted to match Texas companies with > $5M in revenue with Series B investors from the venture capital and private equity markets.  Currently, there’s no true Series B or later stage funding in Texas.  Companies must fly to the west coast and east coast to meet investors.   The conference showcased Jason Villalba, a state legislator and the efforts he is making to reseed the venture capital community in Texas.

In the 1990s, the Venture Community was strong in Austin.  We had over 30 VC firms here and there was a panel of three to five VCs going on almost weekly in which the panelists discussed their criteria for investment.   The Dot Com crash took out most of those groups and when the dust settled what came back in their place were angel investors.  Angels rose in popularity because startups no longer needed $5M to start a company – they needed only $500K.  While some VCs remained in place, most exited the industry and found something else to do.  Today, in 2015, venture capital is making a comeback because companies who started after the Dot Com crash (or survived it) have not grown to a position that they need $5M to $10M or more in funding and angels and angel groups are not in a position to provide it.   The Series B and beyond belongs to the venture capital world.

In the Texas Venture Growth Forum, the gap in funding for Series B was highlighted. While most entrepreneurs know the gap exists, it was helpful to have David Altounian of the Austin Technology Council provide some deep dive research from the ATC Capital Study they recently completed.  The data analytics sponsor for the event, Pitchbook, also chimed in with their report which you can see at this link. 

While we all know there’s a shortage of capital, the next question to answer is what to do about it.  It’s clear from the data that we need to recruit more funding by launching new funds here and recruiting existing funds outside of Texas to focus on this area.   The other lesson I learned is that Texas companies should take a national approach to their fund raise from the beginning.  Even California companies don’t raise all their funding from California. They have to go outside for a substantial portion (albeit less than Texas) of their funding too.

Best regards,

Hall T.

Robyn Metcalfe Talks about the Food+City Challenge Prize

Robyn Metcalfe Talks about the Food+City Challenge Prize

Where are you from originally?  

California

What university did you go to?  

Received a BA in American Studies from The University of Michigan and a MA and PhD from Boston University in History. 

What brought you to Austin? 

Positions for Bob (my husband) & myself at the University of Texas

What is your group’s mission? 

True to our original mission as the Food Lab at UT, we provide awareness of food issues, encourage and motivate food system research, and provide support for those exploring and experimenting. This mission has simply broadened its wings as Food+City. A platform for bold exploration of the global food system, we provoke fresh perspectives on the realities of how we feed cities, and inspire action. We aim to raise awareness of the opportunities for improvement in our food systems and uncover insights that will shape how we make our world sustainable. We’ll explore how food moves around the world, the surprising complexity of distribution, how politics, economics, and trade create (and thwart) food crises, and much, much more.

What need does it fulfill? 

Despite growing interest in food topics, there is a lack of awareness and understanding around the systems and processes that feed our cities, and the ways those impact sustainability. We must bring that awareness and understanding, and harness the zeal of our communities to inspire, discover, and share the ideas that will improve our global food system. We’re going to uncover what’s missing in our current food systems and raise up the people addressing those needs. We’ll do so by challenging and testing all assumptions, beliefs, and technologies, and including you squarely in the process.

What exactly does it bring to startups? 

Food+City provides startups with resources to expand their visions. By entering into events such as the Food+City Challenge Prize, startups are eligible for money prizes (totaling $50,000), but the process is much deeper than seed money. The process pairs contestants with industry mentors to who guide the strengthening of business plans and the development of prototypes for 13 weeks.

What type of startup would benefit from your group? 

We accept applications from every kind of startup focused on food and/or food tech. Businesses or ideas of particular interest include the following objectives: lessen food waste; increase the supply of affordable and nutritious food; provide food that meets personalized health needs; improve the transport and distribution of food into and through urban populations around the globe; utilize new storage materials and processes that minimize waste. Students and professionals alike are encouraged to apply.

What was the most challenging aspect of starting up the initiative?

Defining the focus of our food challenge prize.  The word “food” means just that, food. We wanted to include all food-related startups, like those engaged in packaging, food processing, growing, etc. We’re making progress on defining our field of innovation, but it’s still a work in progress.

What advice do you have for entrepreneurs?

Think carefully about what problem you’re solving and whether your business is more of a social enterprise than a for-profit business. Many food-related entrepreneurs are drawn to solving social problems related to food; those endeavors aren’t particularly suited to for-profit models.

What Austin-based resource have you found to be the most helpful and why? 

It’s tough to select just one.  The student organization at UT, The Food Studies Project, has provided us with ideas, enthusiasm, and a connection to the Austin student community.

Two Key Elements of a Crowdlending Campaign

The key to success is having a compelling presentation and getting the word out to as many people as possible.

Let’s start with the presentation. You need to provide a simple, well-organized explanation of your business. The things that are requested are things you already know – what is your business, how you would use the proceeds of the offering, simple financial information, the people behind your business, and the risks related to the business and the offering. You already know all of this. Your potential investors need to know it too, so they can make an educated choice on weather to invest, or not to invest in your loan. Securities laws require certain kind of information as well, since essentially what you are doing is issuing “mini securities” under the Texas intrastate crowdfunding exemption.  All this could get somewhat confusing, but a good crowdlending platform should provide you with organized and straightforward instructions.

The second step is to get as many people as possible to take a look at your project.  This would be a time consuming task if you had to make the presentation personally.  But, you don't.  All you need to do is to interest people in taking a look at your project on line.  Use personal contacts, email lists, daily customer contacts, social media, whatever means will get the simple message to as many people as possible.  “You know me and my business. I am raising money to expand.  I am conducting an offering at “Your URL”.

You can crowdfund your loan in Texas on Texas Lendoor.  Your company must be registered in Texas, and you can only raise money from Texas residents.

Bank loan v.s. crowdfunded loan. What is the difference?

Bank loan v.s. crowdfunded loan. What is the difference? by Lendoor

Both loans will get you the funds to grow your business, but the process of securing those funds is very different. The resulting obligation would likely be very different too.

Different process

For a bank loan expect to spend most of your time on paperwork and collecting documentation, then waiting for response. Your personal credit score would almost certainly be checked.

For a crowdfunded loan, most of your effort will go into finding the people that will invest in your loan. You would have to spend time preparing your campaign as well. Your credit score will not be checked, since your friends and family would be the judge of your credit worthiness, not a credit algorithm.

Different obligation

A bank loan is typically secured by assets of the company, or by personal assets. It is almost always personally guaranteed by the business owner. A crowdfunded loan is unsecured and without quarantine by the owner. If you are able to crowdfund a loan, your company will have better financial flexibility.

Loans for Start-Ups?

Banks don’t usually lend to start ups, especially if you don’t have personal or business asset to offer as a collateral. If you have a solid business idea and people that believe in you, you could raise the money for your start up even if your only assets are your business plan and your reputation.

Crowdfunded loans with benefits

There could be a number of additional benefits that come with a crowdfunded loan:

·         Customer loyalty. Your customers could be literally “invested” in your business’ success. 

·         “Word of mouth” advertising. Investors are naturally great advocates for a business. 

·         Buzz factor. A crowdfunding campaign may increase visibility and create buzz about your company in your community.

Where can you crowdfund a loan in Texas?

You have to set up your crowdfunding campaign on a Texas registered crowdfunding portal. There are currently only two registered portals that specialize in debt, and they are quite different: Lendoor and NextSeed.  Lendoor is the only platform that works with start ups and does not require credit check. 

Jessica Shortall talks about Texas Competes and LGBT Issues in Entrepreneurship

Jessica Shortall talks about Texas Competes and LGBT Issues in Entrepreneurship

Where are you from originally?

I grew up in northern New Jersey, in a tiny town called Chester.

What university did you go to?

I did my undergraduate degree in art history at Wake Forest University in North Carolina, and my MBA at Oxford University in the UK, with a focus on social entrepreneurship.

What brought you to North Texas?

Family and opportunity. My husband and I spent six years in Austin. We moved to Dallas in 2014 to bring our family (we have two small children) closer to his family. We also wanted a bigger market for him to grow his architectural practice.

What is your group’s mission?

Texas Competes is the first statewide coalition making the economic case for Texas to become welcoming and inclusive to lesbian, gay, bisexual, and transgender (LGBT) people. We exist to give voice to the competitive interests of businesses and economic development leaders in the areas of talent, entrepreneurship, corporate relocation, and travel and tourism. All of these pillars of economic competitiveness are being influenced by state brands on LGBT issue.

What need does it fulfill?

In 2015 and beyond, we are seeing talented workers, entrepreneurs, corporations, and conventions make decisions – decisions that have real economic impact – based on how states, municipalities, and workplaces treat LGBT people. We’ve seen it play out in Indiana and Arizona and Louisiana, where anti-LGBT legislation resulted in economic fallout to the tune of hundreds of millions of dollars. We hear it from HR leaders – that they feel a competitive disadvantage for the best talent, because Millennials in particular – gay and straight – are making decisions about where to live and work in part based on how LGBT people are treated. We see the data, too. As just one example: Millennials will be 75% of the American workforce by 2030, and 79% of non-LGBT Millennials want employment non-discrimination for LGBT workers. More than 70% of them favor marriage equality. The Detroit Chamber of Commerce found that 40% of Michigan college grads are leaving the state, and 38% of this “brain drain” is going to more LGBT-friendly areas. This group of people is making real economic decisions based on how LGBT people are treated, and that decision-making process matters to business competitiveness.

There is real, data-driven economic interest here, and it has too often gotten lost in the very emotional language more typical to LGBT issues. Businesses have the right and responsibility to protect their own competitive advantage. The Texas Competes pledge, which does not cost anything and does not require businesses to actively lobby, creates a unified business voice on this topic. As of June 2015, more than 320 Texas businesses, including 18 Fortune 500 companies, dozens of start-ups and venture-backed firms, and several chambers of commerce have signed the pledge.

What exactly does it bring to startups?

The Texas Competes pledge provides entrepreneurs with a voice to protect their own competitiveness in the war for talent and resources. When businesses large and small speak up on this issue in terms of economic growth, lawmakers pay attention. We saw more than 20 anti-LGBT bills die in the 2015 Texas legislative session – more than in any session in any state in U.S. history. Most lege-watchers credit the business voices on LGBT issues for this historic shift – examples in the press include http://www.cnbc.com/id/102726428 and http://www.huffingtonpost.com/tyler-curry/the-free-market-economics-of-lgbt-equality-in-texas_b_7497020.html. Businesses have the power to shift Texas’ brand on this issue – and that will translate directly into greater competitiveness to lure the very best people to the state.

What type of startup would benefit from your group?

Any startup that wants to be able to recruit the best talent to live and work in the state would benefit from adding its voice to the Texas Competes coalition, via our pledge at www.texascompetes.org. It’s free. It takes about a minute. And it is changing the way LGBT issues are viewed in this state, in a massive way.

What was the most challenging aspect of starting up the initiative?

The most challenging aspect of getting going was the “this is Texas” perception. Our core group of entrepreneurs and business executives, who drafted the pledge, were told again and again that “this is Texas” and such an initiative would never get off the ground. What we found, in fact, was a deep and wide desire to speak up on this issue, and many concerns that Texas’ anti-LGBT brand would be a competitive risk going forward. We have seen incredible appetite from among the business community!

What advice do you have for entrepreneurs?

I have always defined entrepreneurship as punching above one’s weight: figuring out how to leverage limited resources into much bigger aims, appearing bigger than one is (also known as “fake it till you make it”), and laying intelligent groundwork, systems, and operations for the toughest challenge of all: growth beyond one’s wildest expectations.

What local-based resource have you found to be the most helpful and why?

Our Texas Competes mission and pledge have traveled the fastest and widest via nodes and networks. Chambers of Commerce sharing what we do with their membership, incubators and investors sharing with their startups, individual business leaders sharing with their industry or business associations. We would welcome your readers doing the same – sharing www.texascompetes.org with nodes and networks that can exponentially increase the awareness of this opportunity in every corner of the state. You can also find us on social at www.facebook.com/texascompetes and @txcompetes on twitter!

Jonathan Blackburn of the Texas Pace Authority talks about the Pace Program

Jonathan Blackburn of the Texas Pace Authority talks about the Pace Program

Where are you from originally?

I grew up in Pensacola, Florida.

What university did you go to?

I attended Mississippi State University, graduating with a degree in Chemical Engineering, before studying at Duke and the University of Cambridge.

What is your group’s mission?

Our mission is to provide a new type of financing for energy and water efficiency upgrades to commercial property. The goal of the Texas PACE Authority (TPA) is to administer and promote Texas’ Property Assessed Clean Energy (PACE) programs for the purpose of helping property owners utilize economically sound energy and water improvements for their properties.

What need does it fulfill?

The biggest barrier to investment in upgrading buildings is in how to pay for the improvements. PACE financing solves many of the problems that have kept our infrastructure from being equipped with new energy efficient technologies.

PACE financing lets you put in energy efficiency measures and simultaneously increase your bottom line. The goals of the TPA help Texan property owners save money on energy and water bills by being more efficient and environmentally friendly with their resource consumption.

What exactly does it bring to startups?

The TPA allows for increased investment in property retrofits and new energy savings technologies in the state of Texas. For startups, this means that if your company has a technology product with a long payback, or if you have trouble convincing property owners of the financial case for your product, PACE will enable you to do more business. This increased latitude for finance opens the door for startups to enter the market and work with property owners, contractors, and lenders to facilitate and aid the property retrofitting process.

What type of startup would benefit from your group?

Startups related to real estate, construction and property retrofits, clean energy, and finance would benefit from the TPA. PACE financing can be used for energy and water efficiency technologies; if your business is in that space, PACE could benefit you.

What was the most challenging aspect of starting up the initiative?

Working to ensure that the TPA is the unified PACE administrator for the entirety of Texas is a challenging task, but also a necessary one. That is because the TPA, as a Texan non-profit with an emphasis on open market-based approaches to energy finance, is the best positioned administrator to keep prices and fees as low as possible for Texan property owners.

There are 254 counties in Texas, and adopting a PACE program requires a local government resolution. We’re now open in Travis County, and hope to have a couple of more big announcements by the end of the year.

What advice do you have for entrepreneurs?

In the clean energy space, you have to be focused on economics as much as technology. The market will decide which technologies win out, and that decision comes down to the financial bottom line. You have to make sure you can present a sound business case as well as a technology case if you’re going to convince someone to invest in your technology. I work with a lot of engineers and contractors who are really good at selling projects in terms of kWh saved, but really, they should be selling projects in terms of $ saved.

What resource have you found to be the most helpful and why?

Various organizations have been helpful to the development and support of the TPA, including but not limited to Austin Energy, the State Energy Conservation Office, the Environmental Defense Fund, and the US Green Buildings Council. These groups, and more, believe that PACE loans are an important mechanism for the modernization of Texas’ properties, and as such are willing to lend their support, guidance, and resources – that is why they have been the most helpful.

Sloan Foster talks about IdealAsset

Sloan Foster talks about IdealAsset

Where are you from originally?

Lompoc, California – a little coastal town north of Santa Barbara. Lompoc is home to Vandenberg Air Force base where the military and now private companies launch missiles.

What university did you go to?

Central Washington University where I majored in Business and Marketing.

What brought you to Austin?

IBM hired me soon after the Tivoli merger to work in Business Development; so, we moved down from Dallas after spending five years there.

What is your group’s mission?

To insure the best innovation and intellectual property is put into the best, most capable companies to maximize that innovation’s global potential.

What need does it fulfill?

There is a vacuum in the buying/selling/licensing of brilliant innovation. The leading firms are essentially “privateering” the business to serve their own economic interests first – think non-practicing entities (aka: patent trolls); then, perhaps their client’s.

idealAsset is democratizing the business of transacting and takes no ownership in the patents and IP it sources.

There are millions of patents and other protected innovations in the world today that are sitting idle and/or eventually abandoned simply because they were invented in the “wrong” company – one that doesn’t want to maximize its value.

There is no solution, in any country, attempting to match these idle innovations with the most capable organizations. That’s where we come in.

  

What exactly does it bring to startups?

IdealAsset brings the ability for start-ups to efficiently source or exhaust off brilliant IP. By aggregating the world’s available Innovation and Intellectual Property and a vast community of IP buyers, idealAsset creates an affordable and accessible solution for the entire Innovation community – from individual inventor to the largest global Innovation holders.

Further, by allowing start-ups an efficient means to acquire patents they have the opportunity to shortcut the risk and process of pursuing their own patents and usually at a cost point well below what they would have spend in their own pursuits. Prosecuting a net new patent application through to issuance can take years and cost more than $25,000 apiece.

What type of startup would benefit from your group?

Start-ups that must rely on IP as a means to operate in a competitive market space. We tend to work with technology, bioscience and medical device start-ups as they tend to be operating in crowded spaces with many well financed incumbents.

What was the most challenging aspect of starting up the initiative?

The biggest challenge has been socializing an entirely new approach to a mature and slow moving industry that has an incumbency of middlemen with little to no incentive for significant change. That and quieting the raucous rhetoric around the need for massive Patent legislation reform by the largest technology firms. The truth is by allowing the market for commercializing IP and patents to mature on its own much of the current day issues with patent trolls and their operating models will wane as new innovation like idealAsset takes hold and obviates that business model.

What advice do you have for entrepreneurs?

Most entrepreneurs recognize the need to protect their ideas – through patenting, or copyright or simply trade secret efforts (keeping their secret sauce, well, secret).  That said they look at this effort as a tactical effort with a specific start/stop timeframe.  Investors tend to “check the box” with asking if start-ups have protected their ideas.

Innovation and intellectual property is a cornerstone strategy to any eager start-up’s success.

Markets are dynamic, R&D expenditures in the US are nearly $2.0 Trillion, yes with a “T” so people and corporations are inventing all day, every day.  Keeping tabs on innovation and new ideas should be as routine as your quarterly financials; finding and partnering with IP service providers can help keep a successful start-up out of (operating) trouble for years to come.

What Austin-based resource have you found to be the most helpful and why?

1)    

           There is a very experienced ecosystem of IP service providers to help entrepreneurs and start-ups with their IP initiatives – IP centric law firms, investors, commercialization partners: Dubois, Bryant, Campbell for IP prosecution, AcclaimIP for patent assessment and analytics, dozens of IP brokers with access to the world’s best IP from leading corporations.

2)     Outsource development firms like Calavista Software – which I have used in 3 of my last start-ups. While they appear slightly more expensive than hiring your own internal development team – they have vast project/start-up experience and their development success rate (on time/on budget/as envisioned product) exceeds 90%; 100% for my companies.  They are simply a more capital efficient expenditure when weighing FCS risk to cost ratios.

Is Crowdlending better for small business then Crowdfunding?

Depends. What is the stage of your business?

Crowdfunding may be good to get a business concept started, but Crowdlending is better for growing it. Crowdlending will help you raise more money faster, once the market demand is established and the business model is proven.

Why?

Simply put, Crowdlending helps you get a loan, not a gift. You pay back the money with interest, rather then provide rewards to supporters.

Let’s take Jenny for an example.

Few years ago Jenny was the first to offer Italian style espresso in her community. She put down 3 months of rent on a tiny space and funded the

purchase of a second hand espresso machine by offering free coffee, cookies, and T-shirts in exchange of donations from the first espresso enthusiasts.

Jenney’s Coffee Shag was a success. The line in the morning grew ever longer.

Jenney decided to expand into Jenny’s Coffee Shop.  But how much more cookies and coffee can anyone eat and drink?

Jenney launches a Crowdlending campaign instead.  She offers to borrow the money, promising to repay it on a schedule and with interest. Now, her friends and customers can help her out and earn interest on their capital, as well as enjoy a shorter line for their morning espresso. It is a win-win for everyone.

Where can you crowdfund a loan in Texas?

You have to set up your crowdfunding campaign on a Texas registered crowdfunding portal. There are currently only two registered portals that specialize in debt, and they are quite different: Lendoor and NextSeed. The first facilitates term loans, and the latter does revenue sharing loans.

Crowdlending in Texas--Can my small business get a loan?

What is Crowdlending?

Crowdlening is funding a small business loan by getting many people to lend small amount. These could be customers of the business, neighbors, friends, family or community members. Earning interest on your investment is even more compelling when you are helping people and businesses that are important to you.

Crowdlending became possible in Texas only recently through the implementation of the Texas intrastate crowdfunding exemption.

Who is it suitable for?

There are two things that you need to successfully crowdfund a loan: 1) a cash flow generating business (so you can pay back the loan), and 2) a large network of supporters that you can reach out to. That could be personal or business connections.  Thanks to the new regulations you can now leverage your network to raise growth capital for your business, instead of knocking on closed bank doors.

To crowdfund your loan your company must be registered in Texas.  You also can raise money only from Texas residents.

What does it involve?

If you want to crowdfund in Texas, you need to follow a few rules.

1.     Pick a portal

You have to set up your crowdfunding campaign on a Texas registered crowdfunding portal. There are currently only two registered portals that specialize in debt, and they are quite different: Lendoor and NextSeed.

2.     Povide information

Your crowdfunding campaign must contain certain information about your business and about your loan. While all the regulatory requirements may seem overwhelming, most portals will assist you with preparing your campaign.

3.     Crowdfund

This is by far the most important part of the process. The success of your loan is in your own hands, so be prepared to reach out to everyone you know. If you reach your target amount you will receive your loan. If not, all the pledges will be returned to investors. Remember, it is a loan, not a gift! This makes it more likely to fund. 

Viktoria Krane talks about Crowdlending -- Lendoor

Viktoria Krane talks about Crowdlending -- Lendoor

Where are you from originally?

I was born and raised in Bulgaria. I came to the US as a student almost 20 years ago.  Since then, I had lived and worked mostly in New York, but also spend couple of years in London, Hong Kong and LA.

What university did you go to?

University of Oklahoma. I’m a Sooner. Don’t hold it against me.

What brought you to Austin?

Crowdfunding. I came to Austin for the first ever Texas crowdfunding roundtable.

What is your group’s mission?

Our mission is to help start-ups and small businesses in Texas get crowdfunded loans from friends, customers and supporters — instead of bankers — with terms that work for both sides. 

What need does it fulfill?

Affordable growth capital is crucial but hard to secure for small business.

What exactly does it bring to startups?

Through technology, we re-invent and improve the traditional friends and family market for small business financing.  We make it more efficient, official, transparent, and automated, which is better for both sides.

What type of startup would benefit from your group?

A startup with strong social network and cashflow. If your are expecting sufficient cashflow to service a loan, you should consider crowdlending.

What was the most challenging aspect of starting up the initiative?

Perhaps educating people about crowdfunding. There is great deal of misunderstanding and confusion, especially with the new Texas rules.

What advice do you have for entrepreneurs?

Everything takes twice as long and cost twice as much. Plan accordingly.

What Austin-based resource have you found to be the most helpful and why?

TEN has been a great partner in Austin. Local knowledge is very important.