Square One DSM Surveys the Future of Local Startup Funding
Local Investment Experts Discuss Funding
"I guess the answer is to talk about money if you want to pack the place," remarked Mike Colwell, Executive Director of Square One DSM, making the observation that the February edition of Startup Stories had drawn a record crowd. And talk about money was precisely what Colwell had in mind to do, gathering a panel of local investment experts representing the gamut from angels to institutional venture capitalists.
"We are here to discuss the mixed messages we've all seen and heard, with some saying angel investment is up and others predicting venture capital in decline and with clear evidence that valuations are trending downward," explained Colwell by way of introducing his guests. Joining Colwell was JD Geneser, Senior Partner at LWBJ, representing the entire range of investments, Matt Busick of River Glen Private Capital, a VC investor of private capital, Sheldon Ohringer, an entrepreneur and angel investor and Eric Lohmeier of NCP Investment Banking, representing a more institutional perspective.
Colwell, himself an angel investor and co-founder of Plains Angels, led the questioning initially with the balance of the questions coming from the audience composed of a diverse group including entrepreneurs, bankers, angels and potential investors.
Disruption in Investment Funding
By way of background, Lohmeier offered that for several years prior to mid-2015 a decent company would not face great difficulty in raising money. "As that cycle has changed it has become very much a different market and the investor is much more discerning now," he offered. "I think you'll see a lot of picking and choosing between existing portfolio companies rather than looking for the next Twitter."
With the pending downward valuation of the Unicorns, (recent high profile startups valued north of $1 billion) some would see VC availability eroding. Busick offered the personal opinion that this would not be the case. "The primary investors in those funds are large institutional entities and are really well diversified with tons of money, and like everything else will go through a cycle, I don't think they will go away. Remember, they are in these funds because it fits in the broader aspect of their investment allocation," he reasoned.
Bottom line, particularly with a local perspective, Geneser offered, "Good deals get funded, we've seen it and we are living it right now." Geneser and Colwell both listing numerous local success stories achieved in recent months in Greater Des Moines (DSM).
This idea whose time has not and may not come in the eyes of the panelists drew fairly universal disdain as a serious source of funding for legitimate startups largely due to the countless complications that could arise from the large number of investors as well as the generally messy foundation it provided for future cap tables. Lohmeier sees it as a recipe for disaster with some potential but without sufficient infrastructure. Geneser sees the need for changes and further regulations fearing that otherwise it might become the wild wild west.
Iowa Versus the Coasts
Lohmeier qualified his remarks concerning the shift in markets observing that Iowa tends to lag behind and that a window may remain before institutional investment tightens here. "Our highs aren't as high here, but then our lows aren't as low," added Colwell. Further observing that deal flow in Iowa is down as many previous entrepreneurs have returned to the post-recession workforce.
The common denominators among companies successful at raising capital.
Geneser identified a disruptive idea in conjunction with a tireless and passionate founder. Ohringer expanded upon that offering, "I don't know if we are looking for billion dollar ideas around here, but we are looking for big ideas. Equal to that however, I'm looking at the management team, without any doubt it is all about the management team to me." Confessing that his operations background shaped his convictions he argued that a great management team can execute a poor idea, but a poor management team can't even execute a great idea.
Tips for Those Considering Investing
"Don't do it," quipped Busick with a smile, just as quickly recanting the comment and offering two suggestions. "Invest money that you can lose and invest it as a part of your portfolio that supports your core goals," he suggested. Geneser added that you should not do it alone, seek the counsel of those with experience, offering Ohringer as a potential lunch date.
Colwell and Ohringer advise both to seek investments nearby and in a field where you can make a contribution as angel investment is more hands on than just providing some venture capital and it can be consuming.
Be prepared to be all in, the panel was in agreement, and while it does not need to be a full time job, it does need to be a significant hobby.
It would seem for entrepreneurs and investors alike in Iowa, 2016 remains ripe with opportunity for those with passion and commitment, welcome news in that crowded room.