The beach was full of creative energy on Monday night for Connecting Things’ event centered on getting the capital needed for a new business. Born out of the idea that makers need a place where they can share, learn, and start collaborations that feed their skills and passions, Connecting Things is a monthly event series in Orange County and Brooklyn with a goal that attendees leave with a new perspective or meet new people. Moderated by Jason Lankow, CEO of Visage, the event brought together a panel of experts from the venture capital community. When asked about the goals of the evening, Lankow shared, “we want to help the local tech and creative community understand what the characteristics are for a company that is ready or in an ideal place for obtaining VC funding. We brought in some of SoCal’s finest on the VC front such as Marc Averitt, Director of Okapi Venture Capital, Eva Ho, Angel Investor and General Partner at Susa Ventures, and Marc Hemeon, CEO, and Founder of Design, Inc. who recently raised capital. We want to draw out some of their most candid feedback and honest perspectives on what it takes to secure funding. Also, we hope this event helps some people realize VC funding may not be the right option and there are alternative ways to build a business outside of this model as well.”
Lankow started the panel by exploring what companies should pursue VC funding. Averitt mentioned that VC funding is a suitable option when a company does not have access to traditional capital. He also prefaced that there is a considerable amount of effort and luck involved to receive funding this way. Ho shared VC funding is only one option among many. She emphasized that VC funding is a good choice when the goal is a company worth hundreds of millions of dollars because VCs have a specific return profile to meet the demands of their stakeholders. For this reason, many businesses do not fall into this category. Regarding alternative sources of funding where VCs would not be the right choice, Ho recommended startups raise money from their network, crowdfunding, or small business loans which are providing more options. From the perspective of a person raising money, Hemeon shared that an unwavering belief in your business coupled with resiliency to adversity and rejection is crucial.
On the topic of how to prepare before engaging VCs, Ho shared that a warm referral and researching the firm’s profile and portfolio will lead to a warmer reception during the conversation. Averitt shared his intentions when he began with Okapi to meet with every candidate until he realized that he needed a filtering mechanism given the volume of inquiries. With over 500-600 emails, 20 voice mails, and several text messages a day, he is unable to respond to all of them. Lankow added that seeking out CEOs and founders of companies in a VCs portfolio and getting their feedback working with the fund can provide invaluable insight as to whether it would be the right fit. Hemeon shared that funds want to work with people they know well and beyond what is shared in a single conversation or pitch deck. For that reason, he suggested having conversations with investors and building relationships long before any discussion about money takes place.
Lankow continued the conversation by asking Ho and Averitt about the stakeholders they report to and how that influences the decision-making process for VCs. Ho shared that once she identifies a company to fund, she must then pitch to investors who want a specific type of return. Averitt added that since the desired return is relative to each fund and since portfolio companies will vary in their outcomes, those that do succeed are crucial to keeping a fund alive and providing a favorable return to investors. Both entrepreneurs themselves, they both shared that being resilient and not to internalize rejection are critical. From the time a VC writes a check to a startup to the time of liquidity, it could take ten to fifteen years, and it needs to be the right match for a successful funding relationship to occur.
The event concluded by highlighting what main factors made the panelists agree to fund a company. Averitt shared that passion, persistence, and perspective was crucial given the difficulty in building and running a company. A team needs to know when to push forward and when to take a day off to recharge and get perspective. Ho shared that the best companies she has seen have always been good storytellers who have a meaningful and relatable purpose. For seed investment, Ho discouraged startups from talking about IPOs or exits since they would not know how the business could change at that point. Hemeon shared that despite facing numerous accounts of rejection while trying to raise money, he received valuable feedback from each investor he met with along with introductions to other funding candidates who ended up being the right fit. All panelists agreed that investors need to be emotionally committed before they can be financially committed.