Stories of Technology, Innovation, & Entrepreneurship in the Southeast

By Tom Ballard, Chief Alliance Officer, PYA

In a exactly a week, the fourth and final program in the latest “Rise and Grind” series will be held in the Seminar Room of the Joint Institute for Advanced Materials on the University of Tennessee (UT) Research Park at Cherokee Farm. The April 9 session, focused on “Debt-Based Capital,” will run from 4:30 to 6 p.m. To register, click here.

The entire series has been focused on access to capital for a start-up entrepreneur including the most recent one that featured a panel discussing equity. Participants were Grady Vanderhoofven, President and Chief Executive Officer (CEO) of Three Roots Capital, series co-sponsor; Geoff Robson, Co-Founder of The Lighthouse Fund; and John Bruck, member of Queen City Angels (QCA) in Cincinnati.

During the give and take discussion on equity as a source of capital, we made note of a number of relevant points that should be noted and understood by entrepreneurs looking for funding.

• Bruck suggested that “an angel investment makes the most sense for your first step” for most entrepreneurs.
• Citing the differences between venture capital and private equity, Vanderhoofven said that “PE is not a logical source for start-ups.”
• “We look for technology where research is completed and derisked,” Bruck said in terms of the type of early stage investment that QCA typically makes. The start-up “might have a patent pending but might not have revenue.”
• For growth stage investments, Vanderhoofven said desrisking is also a consideration, but it shifts away from the technology mainly to more on the execution side – optimizing the product, scaling and growing the business, and sales and marketing prowess.
• Robson said The Lighthouse Fund looks for three things in every deal – an opportunity that fits its investment profile as described on the webpage, an identifiable resource to whom the executive can be referred for help if necessary, and the quality of the management team.
• Vanderhoofven echoed those points with a few others – there are both a clear and verified market opportunity and a committed leader with absolute integrity.
• Bruck also agreed with his colleagues but added two more points – the investment opportunity should have the potential for a 10x return, and the team must be coachable.
• At the other end, what are the “showstoppers” that make a deal a dud? Bruck started the discussion with two – lack of a realistic understanding of the market and the competitive landscape and any tension within the management team. Robson agreed with those and added two of his own – the skills sets of the CEO as a leader and the critical importance of the fit of the intellectual property, business model and go-to-market strategy. Vanderhoofven also endorsed what his fellow panelists said, reinforced the integrity point, and added lack of responsiveness as a real deal-breaker for him.
• During a question and answer session, the panelists generally dismissed virtual currencies for now. “QCA has a group studying it,” Bruck said. “We don’t know enough about it,” Robson observed. “Also, it’s still unregulated, and there’s no guidance from the SEC (Securities and Exchange Commission).”
• On the overall topic of capital availability, Vanderhoofven described it as a complicated topic, saying, “We do have an access to capital issue.” Robson reiterated what many have heard him say in the past: “I don’t subscribe to the theory there is not money here, but I do subscribe to the fact that it might not be the right money.”

“Rise and Grind” is a joint effort of Three Roots Capital and the UT Research Foundation.

---