If you wanted to know how to find money for your green-tech or clean-energy venture, a meeting held in May at Rutgers was where you wanted to be.
The meeting, introduced by Rutgers EcoComplex director Serpil Guran and moderated by American Entrepreneurship Today publisher Jeanne Gray, featured an entertaining presentation by Greg Olsen, a New Jersey tech entrepreneur turned angel investor with GHO Ventures (Princeton).
Olsen once spent time as a private citizen on the International Space Station, using some of the proceeds from a successful exit to finance his trip. He gave plenty of entrepreneurship advice and also showed slides from his amazing adventure in space.
The event also included a panel made up of an investor, an accountant, an entrepreneur and a banker, who gave advice to the entrepreneurs in the audience. Here are some takeaways from the panel discussion.
Jim Gunton, founder and managing partner of Tech Council Ventures (New Brunswick), an early-stage and expansion-stage venture capital company that sometimes invests in clean-tech startups, said:
- It’s important for startups to have “skin in the game,” which means that you have your own personal money or your best friend’s money invested in your company. Then you’ll be more motivated to be successful.
- This is a terrific time to raise money. “I haven’t seen a climate so encouraging in a long time.”
- Money from friends and family and angel investors is available for when you are first getting started and are raising a few hundred thousand dollars.
- A Series A round is the first institutional money (VC investment) in a company. It used to be around $1 to $2 million. Now it’s sometimes around $5 million. Sometimes, individuals in angel networks will collectively put several million dollars into a company, so the lines between angel rounds and institutional Series A rounds are blurring.
- You want to try to figure out who your most likely investor will be. Professionals like lawyers, accountants and bankers can refer you to the right people. “Frankly, in this day and age, you can easily use Google to search for institutional investors.”
- Also, to find investors, attend industry conferences, and “you’ll run into people who share your interests in that category.”
Richard A. Cleaveland, a partner at EisnerAmper (Iselin), an accounting advisory firm, focuses on preparing early-stage clean-tech companies for fundraising. He said:
- Companies in this sector are diverse. “They all are very different in their financing needs, how they go about raising capital, and how much capital they need to raise.”
- Accountants can help startup founders think through how much money they will need and how that money can be staged in tranches over time to match when they are going to use it.
- Entrepreneurs often have to raise multiple rounds of capital, and they need to plan this out.
- Accountants can also help structure the deals from a tax or flexibility standpoint.
- For the valuation of the company, accountants can help founders think through their assumptions and expenses.
- Due diligence is the process investors go through to qualify a company for investment. “If you are doing an ‘A round,’ there is less due diligence around the financials and more around the technology and the team and other aspects of the company.” Enterprises at the growth stage have to do a lot more financial due diligence.
- Accountants can help prepare companies for their due diligence when they are receiving an investment.
Govi V. Rao, an entrepreneur, is president and CEO of Noveda Technologies (Bridgewater), which he has run for eight years. The company recently survived a market downturn and is in a restart mode, Rao said. His advice is:
- You need resilience to raise money from friends and family, angel rounds, and VCs. “I actually have scars to show.”
- New Jersey has an amazing ecosystem for tech companies, including the New Jersey Tech Council and Tech Council Ventures, he said.
- There is a lot of capital available, but if you don’t have a plan and you don’t focus, it becomes very challenging. “It’s very easy to go from discussion to discussion, and in three years find out you didn’t raise any money.”
- If you have a roadmap of where you think the business is going, you can fill in when you think you’ll need to bring in equipment or people, and then you can start bringing in either debt or equity.
- Angel investors bring more than money. They bring strategic advice. They also provide you with the guidance to take the company to the next level.
- When you are going for funding, investors will ask for financial and other pertinent information. It takes a lot of work to create that information, but if you do it once, you can set it up in a data room and provide access to the information whenever you want to.
- You also have to give investors access to your customers because they will want to talk to them.
Deby Findley, vice president and Small Business Administration (SBA) lender at Fulton Bank said:
- Fulton offers SBA loans for startups, but they’re not easy to acquire.
- Founders need a detailed business plan and explainable projections that are realistic.
- Be prepared for personal guarantees, and if you “have equity in a house, we will ask that a mortgage be placed on that.”
- Projections are one of the most important items needed in a loan package.
- “It seems that nobody will give me assumptions. I have to ask for them several times.” An assumption is basically a customer contract for a sale. “We want to see those contracts; it’s the key to getting your loan approved in this early stage because you don’t have historical data.”
- “The bottom line at the end of 12 months should not be $700,000. You don’t need lending if you are able to acquire $700,000 by the end of month 12. Your projections need to be realistic.”
- Owners should take a salary. It’s a red flag when they don’t. “The SBA recognizes that you must live and that you need some income from your business.”
- For short-term needs you want a credit line and for long-term needs you want a loan.
- If you own 20 percent or more of the business, you will be required to have a personal guarantee. If you put a house up and it’s jointly owned by your spouse, the spouse will be asked for a limited guarantee, as well.