“How To Raise Investment Seed Capital” At Venture Association New Jersey Meeting
Monday, March 26, 2012 • 3:25pm
The regular monthly meeting of the Venture Association New Jersey (www.vanj.com) was held on Tuesday, March 20, at the Marriott Hanover, Whippany, NJ. The presentation was a panel discussion, moderated by Frank Graziano, Managing Partner, Monmouth Venture Partners (www.fjgraziano.com), on the topic of, “Seed-Stage Investment: How to Get That First Round of Outside Capital.” The panelists were Brian Cohen, New York Angels (www.newyorkangels.com); William Dioguardi, Chairman & CEO, Four Springs Capital (www.fscap.net); Heather Gilchrist, VP Investments, RAK Tech Fund (www.angel.co/rak-tech-fund); and Aaron Price, NJ Tech Meetup (www.meetup.com/njtech) and DFJ/Gotham Ventures (www.dfjgotham.com). Biographies of the Moderator and all four Panelists can be found on the VANJ website at www.vanj.com.
Graziano initiated the discussion by asking the panelists for a definition of the term “seed-stage company” and a description of its characteristics. “I would define it as a company seeking an investment of $250 thousand to $1 million,” offered Price. “It should be either pre-revenue with management having a proven track record or, even better, have begun generating actual revenues.”
Gilchrist defined the term to mean, “An early stage company seeking an investment of $25 thousand to $50 thousand and, more importantly, looking for investors who can add value and not just put in cash.” Cohen agreed, adding that, “Regardless of the investment being sought, the venture must be scalable. If it’s not scalable, it’s not fundable,” he emphasized.
Graziano then asked the panelists to comment on the recent surge in seed-stage investing. “New York City is out of control,” Cohen insisted. “Valuations are totally unrealistic and there is too much bad money going after too many bad deals. It takes nine years to get your money out of an investment, and I see what I call ‘Angel Exhaustion’ setting in before then.”
Dioguardi agreed with only part of Cohen’s assessment. “During the past 90 days, smart money has begun to come back and the markets are becoming more realistic,” he observed. “I agree that investment in social media is out of control, but life sciences still offer some excellent opportunities.” Gilchrist disagreed, saying, “I see too many uninformed investors but there are still opportunities within social media if chosen carefully.” Price, on the other hand, commented, “From my standpoint, I see the excess of money as a good thing.”
A question from the audience prompted a discussion of Crowd Funding, or online solicitation of small amounts of cash from non-accredited investors. “I see it as more of a donation than an investment,” said Dioguardi. “It may open new opportunities to bring more money into the market, but we will only invest in companies that have already raised at least $500 thousand.”
“It’s like playing the lottery,” added Cohen. “The money could be better used for social purposes like feeding the hungry.” Gilchrist agreed. “Putting money into a startup without adding value doesn’t accomplish anything,” she said.
“Especially with Crowd Funding, money is available to both smart and not-so-smart entrepreneurs,” Graziano noted. “What can smart entrepreneurs do to set themselves apart from the crowd?”
“Get out of the office and talk to people,” Price responded. “Be honest, never lie, and talk to as many people as possible.” Cohen agreed. “Integrity is everything,” he said. “But be sure the people you’re talking to can write a check.”
“Even more important, do your homework and make sure they invest in your area,” cautioned Gilchrist. “If you’re looking to fund an internet company and they only invest in life sciences, you’re wasting everyone’s time. Entrepreneurs need to do as much due diligence as investors.”
Another question from the audience prompted a discussion of how much an entrepreneur should spend to impress a potential investor. “Spend nothing,” Price advised. “Just know your business inside and out.” Gilchrist agreed. “If you can’t attract an investment, you’re doing something wrong and you need to figure out what it is and fix it,” she said.
A member of the audience next asked the panel to define scalability. “It almost means going viral,” answered Cohen. “It’s a business where the marginal cost of adding another user is almost negligible,” added Gilchrist.
The final question from the audience involved paying to make a presentation. “You need to have a budget for fundraising to cover things like travel costs, but I look unfavorably at pay-to-present,” said Dioguardi. “It depends on why you’re doing it,” said Gilchrist. “It’s probably a poor way to raise money, but if you’re doing it to be educated, then it’s OK.”
“A good example is our Elevator Pitch Olympics,” said Jay Trien, Executive Director of VANJ. “The testimonials on the VANJ site tell how the Elevator Pitch Olympics have raised millions for exhibitors and many entrepreneurs have told us that the learning experience alone was well worth the entry fee. For more information and to view videos and pictures from past events, visit our website at www.vanj.com.”
April 24 Meeting to Focus on Intellectual Property
The next regularly scheduled VANJ meeting will be held on Tuesday, April 24. The featured speaker will be Susan Goldsmith, Esq., Partner, SorinRoyerCooper LLC (www.sorinroyercooper.com). Her topic will be Getting and Protecting Goodwill: Trademarks and Branding for the Web-Based Entrepreneur. The discussion will cover strength of marks, choosing a company or division name, choosing product names, buying domain names, what is cybersquatting, what to do if someone has a domain name you want, watching other types of usage by others and related topics.
Advance reservations can be made by calling Clara Stricchiola at (973) 631-5680, faxing (973) 984-9634 or e-mailing firstname.lastname@example.org and mailing a check ($35 for members, $55 for non-members) to VANJ, 26 Main Street, Chatham, NJ 07928-2402. Registration at the door is $75 after 12:00 Noon on Monday, April 23.