March 1, 2012

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VCs are Getting Out of the Early Stage Funding Game

Tom Haraldsen

March 1, 2012

“If [a new company] can show revenue traction, maybe a VC will get involved to help with expansion,” Richards says. “But with a trickle of revenue, those companies aren’t going to get it.”

Bertoch says another frustration for him is home-grown talent that goes untapped.

“The country is loaded with technology in universities, labs and among technicians that will never see the light of day,” he says. “About 90 percent of technologies at universities are sitting on the shelves. I see great ideas that will never make it to market, because the team just can’t make it happen. One of the things I’ve learned in my career is to never fall in love with the technology alone.”

He said the walls of venture capitalists “are papered with great ideas from those with no training or education.” More than 600,000 new businesses are started in the country each year, and with only a 50 percent success rate after four years, a lot of ideas never realize their potential.

“Venture capitalists like to deploy amounts in the $8-20 million range,” he says. “If you’re a little company that’s likely to eventually be sold, it may not meet the investor’s expectations. It takes too much time and involves too much maintenance.”

Still, more than $20 billion was put into play by VCs in 2010, many by “guys who’ve been in the game a long time and know how to play,” Bertoch says. “That trend will probably continue in the future.” 

Mentorship-driven Accelerators
So what do you do if you have a great idea, don’t need a few million bucks to get your business started, but still need an infusion of kick-off capital? One alternative is turning to “accelerators” that can provide much-needed mentoring and services—and perhaps capital—at low cost or no cost.

One such company is Utah-based BoomStartup, ranked among the top 15 such companies in the nation by Tech Cocktail, an online site that lists emerging technology and startup events and news.

The purpose of BoomStartup, according to the company’s website, “is to help great tech ideas find an optimal business model, create a minimal viable product that is revenue-ready, execute into revenue generation and then make connections to customers and investors.” The goal is that once entrepreneurs complete a summer program of classes, their businesses will warrant investment from angel investors, venture capitalists and banks.

Like all accelerators, BoomStartup focuses on three areas: funding, mentorship and connections for new businesses.

“Unfortunately, for a time, incubators and accelerators had a bad reputation,” says John Richards, co-founder of BoomStartup. “In 2007, TechStars Network was started in Boulder, Colo. to help entrepreneurs with exactly the kind of startup capital they’ve had the hardest time getting. We are part of that network and launched BoomStartup in 2010.”

Richards and his partner in the business, Rob Kunz, saw 60 percent of their program’s 2010 “graduates” get funding from angel investors. Last year’s class has had about a 50 percent funding success rate. Applications for this year’s classes are being accepted, though only a handful will get in, on the company’s website, www.boomstartup.com. 

“We’re limited to about 10,” Richards says, “and we usually have about 200 applicants.”          

 

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