Two angels, a former Marine and a shark walked into a museum … and dished out some serious wisdom on how startups can think about getting funding.
For entrepreneurs with a dream, it is important to demystify the role that venture capital and angel investors could — but don’t necessarily need to — play in a path to a well-funded company. Being an entrepreneur looking for capital can feel like you’re swimming upstream — especially in the First State, which isn’t known as a VC hub. Fortunately, there is a tried-and-true structure to apply.
“Putting the Fun in Funding: Discover the Venture Capital Right Here in Delaware” boasted a panel rich with expertise on angel investing, entrepreneurship and venture capital. Moderated by Noah Olson, director of innovation of the Delaware Prosperity Partnership, this talk held at the Delaware History Museum was part of the New Castle County Chamber of Commerce’s Delaware Entrepreneurial Summit.
The big takeaways from the conversation:
Start off with a plan, a vision and a strategy
“Then, figure out who you need to connect with to validate those visions,” said Nicole Homer, cofounder of Middletown-based sportstech company Hx Innovations (and the former Marine on the panel). “Allow yourself to go through the fire, and allow yourself to be validated first before you ask for any money.”
Homer, who has pursued both traditional VC and crowdfunding, knows that once you start raising money, you don’t ever stop. Funds are allocated toward growth or R&D nearly immediately so with a high burn rate, being a fundraising founder doesn’t just screech to a halt after a seed round.
Homer first applied for contests and grants, raised from friends and family, then networked her way in with angel investors like David Liss of the Delaware Idea Club, where she puts the funds straight to work. There, she found a synergy between an angel network comprised of doctors who had relevant experience and could act as not only investors, but advisors.
Know the angel investor’s sweet spot
Liss started the Delaware Idea Club angel network by pooling funds from friends. He shared why angel investors are motivated: For his group in particular, it can be intellectually stimulating to evaluate businesses, and offers a way to diversify assets.
Neither becoming an angel investor or getting an angel investor is as simple as giving out money. It takes finding the right investors aligned with the interest and expertise to accelerate your company’s growth, and a lot of paper process to get the check written in the first place. You need income of over $200,000 as a single person or $300,000 as a couple to become an angel investor, but once the angel investor status is established you can reap capital gains tax benefits from investing in small businesses.
If you take venture capital, beware of the stakes
Pedro Moore is a venture capital advisor and founder of FundingFuel who has worked with Daymond John from “Shark Tank.” His advice: “If you take a VC’s money, there’s a warning label and an expectation you should be able to sell your company in a short amount of time.”
Mark Wdowik, president and CEO of new-to-Delaware East Carolina Angels, emphasized that VC funding isn’t the first step, nor is it a salve for running out of funding.
“Don’t wait until you’re out of money to raise money,” he said. VCs are looking for revenue and growth, so be ready to let numbers do the talking.
While today’s economic climate is slowing investments for many, it’s also dropping valuations for businesses. Ultimately, that means better deals for VCs and a competitive environment for founders. That means it’s more important than ever use your community as a resource — and what we know about Delaware is that it is, indeed, a community.
Get free money first
“Community capital can translate into financial capital,” Olson said. Where can an entrepreneur in Delaware start? Founders can start by looking to a few of these organizations:
- Startup 302 is a pitch competition that awards grant dollars (see: free money!) and focuses on communities that are often underserved when it comes to seeking out early stages of venture capital. Planning is underway for the 2023 edition of Startup 302.
- EDGE Grant runs twice a year in the spring and fall. There are two tracks: traditional entrepreneur up to $50,000 grant, and STEM which is up to a $100,000 grant.
- CAT Grant is a statewide grant program that attracts and retains life science businesses and sponsors three levels of grants. It encourages collaboration between academic innovators and entrepreneurs.
- SBIResource comes from federal resources, and Delaware has a great track record of companies receiving those grants. Delaware SBDC and Lou Dinetta, manager of technology business development, is a great connection to seek out if you are interested in an SBIR grant.
- The Delaware Technical Innovation Program supports SBIR. With SBIR you can apply to Phase I, and if you are accepted you can apply for Phase II and the state will provide a $50,000 bridge grant in between phases.
- Delaware State University and University of Delaware are involved in statewide efforts to promote entrepreneurship and access to capital for early-stage companies.
- Horn Diamond Challenge is a widely recognized international pitch competition for high school students out of UD, and
- Swim with the Sharks is the Emerging Enterprise Center’s annual pitch competition.