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Look Far and Wide for Venture Funding

Marc Kramer

Some of you may have read The New York Times story "Angels Flee From Tech Startups" by Claire Miller. There is no question the number of angel investors has been reduced by the stock market crash. Every source of capital has been badly hammered because investment capital comes from stock riches and tax dollars.

Yet, there are organizations like the National Association of Seed and Venture Funds, led by Jim Jaffe, and the National Venture Capital Association, overseen by Mark Heesen, that are encouraging investing by working with the Obama administration and legislatures around the country.

Technology trade associations such as the New Jersey Technology Council, led by Maxine Ballen, are running capital conferences to bring together institutional and corporate venture capitalists and entrepreneurs.

I recently attended a New Jersey Technology Council conference where investors told the audience that investment dollars were flowing toward clean technology, energy, environmental and medical-records businesses. Where are investors? And what are they looking for?

Investors I have met at conferences have ranged from seed venture funds to corporate investors from companies like chemical giant BASF and General Electric(GE Quote). They said they are looking for the following:

• Corporate matches: Most large corporations either have venture capital or business development arms, which are looking for technologies that match their areas of expertise and distribution capabilities.
• Competitive advantages: This requirement has been a constant since kings and queens made investments in explorers to the New World.
• Government demand: The biggest pot of money is catering to government needs, so ventures focused on hot industries is critical for funding.
• Industry experience: Investors want managers who have deep industry experience and several successful ventures. Investors want to limit risk.
• Minimal capital: Minimal capital is relative to the industry, but investors, because of their own capital constraints, want companies that can get to profitability within two years.

The good news is that the return on investment that investors are expecting is a lot less than it used to be. The return used to be 10 times investment, but now four times has become acceptable. Where can you find access to capital? Here are three groups: angel network list, seed venture funds and state funding sources.

Other good sources are county economic development agencies, chambers of commerce and state departments of economic development. There are also good books on the subject, such as Financing Your Business Made Easy by Ralph Alterowitz and Jon Zonderman; Raising Venture Capital for the Serious Entrepreneur by Dermont Berkery; and Angel Financing for Entrepreneurs: Early-Stage Funding for Long-Term Success by Susan Preston.

Finally, speak with your accountant, banker and successful regional entrepreneurs who may be able to make introductions to funding sources. You probably will have to give up a lot more equity than you would like, but there are always people with capital for good ideas.