December 1, 2011

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Utah Business Staff

December 1, 2011

To Adam’s point, we don’t have companies that get to $100 or $200 million and create 30 or 50 people that then want to go out and start something and be an executive again. We create three, and they become Josh James who becomes his own venture fund. So we create these little pockets of wealth and that’s who the venture funds here back. They back the same two or three guys. You end up with a small ecosystem of folks who can get funded.

You can have the best idea come out of a student group at the University of Utah, but if they don’t have a relationship with somebody, they’re not going to get funded and they’re not going to be able to find that angel who exited a Fusion-io and who wants to come in and be a CEO because there just aren’t that many of them floating around. At the most, we can encourage companies to grow, to get to the point where they have options, whether that’s going public or selling for $100 million and creating 50 new entrepreneurs. The more we can get folks to be willing to double down on their own bets, the more we’re going to advance the whole ecosystem forward rather than look for those early exits.

McNALLY: We have very few venture capital companies here in Utah. As a result, we don’t have the depth within those organizations to address the needs of the companies around this table. There is expertise in certain areas, but not others.

The greater problem is that we don’t have great seed funding sources to proliferate those ideas early on. As we talk about creation of new organizations and cultivating new ideas, pretty much to do it these days you have to have already done a deal to have the capital to go in. I personally had to seed fund our deal and wring the risk out on my own dollar.

Now, think about if we had some way to accelerate brilliant entrepreneurs, like all of us were the first time around, and accelerate those deals—how much more powerful that would be rather than waiting for every one of us to exit and our staff to exit to go on and do the next deal.

What we are missing is that original vision of the Fund of Funds to be able to seed fund and help entrepreneurs who are willing to put everything on the line—we need a way to help to bet on entrepreneurs.

NEWMAN: I have heard this “good deal” analogy 50 times in the last year. If you think about it, the definition of a good deal is totally relative in this state. In other markets a good deal is a great company, a great potential. A good deal here means getting the terms you wanted. I have seen investors here kill more companies than produce them. At this point, a good deal is, “I want your first born, I want pre-money valuation.” You’re going to have a hard time raising your next round of capital because you’re going to have 40 percent of your company already taken by the angels who can’t re-up for the next round.

I was on a plane two weeks ago, and the group in front of me was from one of the local venture groups. They’re like, “Oh, yeah, we passed on you guys. Didn’t really like the deal that much. Are you guys even still around?” I’m like, “Yes, we raised $8 million in capital. We just added Apple as a client.” The reason those guys passed is because they wanted 40-something percent in the first round, with the terms of more coverage, more control.

So the definition of a good deal isn’t based on it being a good company or good potential. The definition of a good deal is, “What sort of deal can I get personally to enrich my own pockets before building the company?”

SLOVIK: We have been talking about funding, and obviously that’s essential to entrepreneurs, but there’s another piece to it, which is that entrepreneurs are starving for some mentorship and guidance from people who don’t want anything in return. If you’re a potential investor, then the entrepreneur always knows, “This is not exactly an objective person I am dealing with. Whatever guidance they are giving me might be because they want something in return.”

I have just recently started making myself available with Wayne Brown Institute, and I must have had 20 people ask me, “Would you be willing to take a lunch with me? I just want to bounce some ideas off you.” And it actually helped when I said, “Listen, I don’t invest in restaurants or whatever, but I’ll be glad to sit with you and give you some advice.” They need that.

This is something that we as a community can help with—find a way to give an hour a month to take one of these guys to lunch, or let them take you to lunch, without asking for anything in return so they know it’s unbiased help.

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