Panel at university discuss how start-ups gain funding
By: Alex Gennis
To secure funding for their venture, entrepreneurs must have a strong belief in and a clear vision for their venture that targets a specific market, said three entrepreneurs and investors in technology start-ups at a Princeton University panel last week.
Bill Martin, Ken Kay, and Mario Casabona shared their insights and experiences of founding and investing in technology start-ups with a group of Princeton students and community members gathered in Princeton’s Bowen Hall on May 8.
"You need to have a coherent message targeting a specific market with a product targeting that market," said Mr. Kay, the chairman of Mt. Laurel-based Jumpstart, an angel network that invests in early-stage technology companies.
Because of the inherently risky nature of investing in start-ups, the quality of the entrepreneur is fundamental to deciding whether or not to invest in the venture.
"For me the quality of the entrepreneur is the most important factor," said Mr. Martin, co-founder of Indie Research, a Princeton-based independent research company. "I want to see a person who has done this before."
The three entrepreneurs agreed that angel investors, who use their own capital to fund start-ups, may offer some advantages over funding provided by venture capitalists.
"Angel investing allows you to leverage other people’s energy, high expectations, and ideas," said Mr. Casabona, the president of Cedar Grove-based Casabona Ventures, a venture capital firm.
Angel investing has become more important because venture capitalists have started to turn away from early-stage ventures, Mr. Kay said. "We don’t have specific rates of return that we target unlike venture capitalists," he said. "Not having a certain rate of return target allows us to be more patient."
The close relationship of an angel investor with the entrepreneur is a very important asset for the entrepreneur, Mr. Kay added.
"We invest our own money. It becomes a very personal relationship between the entrepreneur and the angel," he said. "Once (the angel investors) put the money in, they would like to spend some time to advise the company. That personal relationship is of tremendous value to the entrepreneur."
Unlike venture capitalists, angel investors focus on niche ideas that can grow rapidly.
"Angels are not blown over by an idea that claims to be the next Google because they know that a lot more capital would be required to get to that level," Mr. Kay said. "Many (angel investors) prefer opportunities that can take companies with a small amount of capital to a high level."
The ability to anticipate future problems and mistakes is an important quality for an early-stage entrepreneur.
"(A venture) always takes a longer time and requires more capital than you expect," Mr. Martin said. "It is so important to have realistic expectations and to write in a margin for error."
A focus on cash flow is one of the keys to ensure sustainable growth for the venture.
"Besides knowing your customer you need to know who your accounts payable person is," Mr. Casabona said. "Cash flow is the biggest problem you can have."
The three entrepreneurs also emphasized that young entrepreneurs have an advantage.
"It is easier to start a company when you don’t have kids or don’t have a mortgage," Mr. Martin said.
Above all, the entrepreneurs said that they became angel investors because it is fun, even if not always profitable.
"We don’t do it just for the rate of return." Mr. Kay said. "There is some element of gambling, risk-taking, and just having fun."