JumpStart: IdeaExchange Blog

If you are an entrepreneur and are currently raising equity capital — check out the upcoming JumpStart Angel Fair. The fair will be held on Tuesday, October 26th from 11:30am to 4pm at the Wolstein Center in Cleveland. Over 100 angel investors are expected to attend, and all participants will be invited to attend JumpStart’s Annual Community Meeting taking place immediately following from 3:30pm to 6pm.

If you are interested, complete the online application form by 5pm on September 10th. A selection committee made up of investors and entrepreneurial support professionals from around the state will review the applications and select 12 companies to present. Companies will be notified the week of September 20th of their status.

As part of the day’s events, selected companies will take part in the Entrepreneur Showcase at JumpStart’s Annual Meeting to continue their conversations with investors, speak with other entrepreneurs, and share their company stories with other event attendees.

The last Angel Fair we hosted attracted over 100 angel investors and presenting companies went on to raise over $11 million in equity capital. We expect to have the same great turnout (if not better) at this year’s Fair and are excited about once again bringing our state’s most promising company opportunities and serious angel investors together in one room.

This is a great forum to showcase your company and pitch to an audience of qualified angel investors. Make sure to fill out your application today!

Kerri Breen is the Vice President of External Finance for JumpStart Ventures and works directly with our portfolio companies to secure additional growth capital. Kerri brings experience in capital markets, banking, public and private offerings of debt and equity securities, corporate mergers and acquisitions, and real estate asset dispositions. Kerri received her MBA with a focus on finance from the Weatherhead School of Management and her BA in marketing from Ohio State University.

It’s been exciting to see a groundswell of activity in Washington focused on encouraging entrepreneurship and innovation (such as the creation of the National Advisory Council on Innovation and Entrepreneurship, of which Ray is a member). 

The most recent example that I noticed was legislation introduced that would provide a 25% tax credit for angel investors who invest in small or early-stage businesses that have received SBIR (Small Business Innovation Research) grants. The investment, which would be limited to half the size of the SBIR grant, would require a holding period of at least three years. Even though a three year investment is typically within the exit expectations for any angel investor (on the early side, in many cases), it’s nice to see legislation structured that reflects an understanding of the need for long-term investment. I also like to see incentives in place to encourage private investment when federal dollars are already being invested.

Apparently this bill (called The Innovation Technologies Investment Incentive Act) was based on the best practice learning of a biotech tax credit available in Maryland which has helped small, young biotech companies raise $50 million in investment. I also noticed one of the legislators sponsoring the bill was new Congressman and successful entrepreneur Jared Polis, the founder of Proflowers.com and Bluemountain.com (both of which had multimillion dollar exits) and represent one of the country’s hottest new entrepreneurial hubs: Boulder, Colorado.  

Another piece of legislation based on best practices…the Business Incubation Promotion Act, introduced in September of 2009 with the intent of encouraging and funding the establishment of more business incubators. Now let’s get that out of committee!

Cathy Belk is the Chief Relationship Officer of JumpStart. She specializes in branding, marketing communications, and business and relationship management. She brings 16+ years of experience in a variety of marketing and business roles, but gets her energy from working daily with entrepreneurs and their growing companies.

If you are an entrepreneur that is looking for investment capital to grow your startup, it is easy to get excited when a potential investor asks for your business plan. And why not? This angel investor or venture capitalist may be able to provide just what you need to make your dream a reality.

Before you get too excited, take a breath. Bear in mind that you are intending to enter into a business relationship with an investor and just as you would qualify any potential business partner it is also important to qualify your investor. There are several things to consider before you start handing over the requested documents like your business plan, financial statements, etc.

Were you referred? If they were recommended to you by someone you trust or are a known investor in your region, chances are they are a reputable investor. Even so, take precautions — read on.

Do the research. You need to do your own due diligence to be certain that you are dealing with a reputable investor. What are the steps you can take to do this?

1. Ask the investors to provide their information first. Ask about their business including their full contact information and physical address. Have them tell you about their investment interests, process, and expectations.
2. Verify the legitimacy of the financial organization. Try contacting the Better Business Bureau (www.bbb.org) or the Federal Trade Commission (www.ftc.gov) about their practice.
3. Request references of people they have invested in previously, and then call these references to discuss their experience.
4. Conduct business with a firm in your own country, especially if you have difficulty verifying the legitimacy of foreign investors. In many cases, though not all, investors want to invest in businesses that are located near them because this allows for better oversight of the investment and relationship.
5. Never provide personal information before receiving paperwork or pay upfront for a loan application review.
6. As you begin to form a relationship, engage an attorney that is capable of adequately representing your interests.

Know the odds. Did you know that for approximately every 100 business plans that an angel investor gets, they pursue maybe 10 for a further conversation, conduct their own due diligence on 3-4, and invest in 1-2? The odds are small that that investor is going to invest in your business.

Protect your secret sauce. Most investors will not sign a NDA initially since they typically will pull in subject matter experts to consult during due diligence. If you are going to provide them documentation on your business, you need to be prepared to share the essence of your idea without giving away the secret to what makes it so special. Down the road, when both parties are confident that things will move forward, a NDA can be revisited.

Get it in writing. Any reputable investor will be willing to put what they are offering in writing. Do not accept a verbal offer.

Though there are fraudulent investors, do your best to not get discouraged. There are many legitimate financial sources available for starting your business. Explore your options and take your time. Whatever you do, don’t allow any investor to pressure you into committing to an investment before you are certain of their legitimacy.

These tips are not intended to be comprehensive, but merely serve as a guideline. 

Other websites that can help you:

• The Federal Trade Commission — www.ftc.gov
• The Better Business Bureau — Search for any scam reports made — http://www.bbb.org/us/Find-Business-Reviews/
• RipOff Report — A website made “by consumers, for consumers” — www.ripoffreport.com
• Scam Busters — Helps you protect yourself from clever scams online and offline — www.scambusters.org
• Complaints Board — Online database of complaints for bad and fraudulent business –http://www.complaintsboard.com/
• Consumer Fraud Reporting — Search for companies to see if complaints have been posted by other consumers — http://www.consumerfraudreporting.org/search.php
• Save & Invest — Tips and tricks to avoid scams, lists of common scams, enter the criteria of your situation into a “scam” meter for evaluation — http://www.saveandinvest.org/55Plus/Fraud/index.htm
• ScamXposer — Search for recommended and not recommended business opportunities — http://www.scamxposer.com/bizopp-reviews.html

Tiffan is the Vice President of IdeaCrossing, a free online community created by JumpStart, which connects entrepreneurs with the national resources necessary to grow their businesses. Tiffan has worked at several venture-backed startup technology companies and strategic marketing agencies in both Boston and Cleveland. Through her work, she has facilitated the necessary growth of early-stage companies.

Last month the Brookings Institute published a report, authored by Frank Samuel, called “Turning up the Heat: How Venture Capital Can Help Fuel the Economic Transformation of the Great Lakes Region.”  

The 54 page report makes the case for increasing the amount of pure venture capital in the Great Lakes region* as well as the amount of funding for those organizations that essentially “prime the pump” for VCs. For those of you who have read my blog posts you know that this topic is right up my alley, so I say “Right On!” to Frank and encourage the leaders in these states to read the report and take action.

For those of you who prefer the CliffsNotes version, here goes: The region in question has more than enough assets to support a vibrant venture eco-system — great university R&D**, quality graduates from top tier educational institutions***, a strong industrial base, and expertise in growth sectors such as biomedical and cleantech. Of all the venture capital raised in the U.S. approximately 40% is contributed by the Great Lakes region’s large public pension funds while the region only receives about 13% of that back in the form of investments. (Hmmm, does this seem fair?) Mr. Samuel’s proposal involves forming a fund-of-funds (with capital invested by Midwest pension funds) that will be invested in venture funds actively investing in the Midwest region. I love the idea and it makes tons of sense. More Midwest VC money = more Midwest deals funded = more Midwest economic growth = more Midwest employment = more Midwest prosperity.

The devil is always in the details, however. My guess is that the situation at present is a result of the average Midwestern pension fund manager claiming not to be able to find any “top tier” Midwestern-based venture funds to invest in. Most Midwest-based venture fund principals bristle at this complaint, but there’s some truth to it; there simply are not enough large VC funds in the Midwest with “top quartile” track records to absorb all of the money pension funds want to invest in this asset class.**** So, what’s the solution? I am sure there are several, but I can think of two at the moment. One, invest the money with a coastal firm only if it will open and staff a Midwest office (hint: Draper Fisher Jurvetson provides a great example of how to do this) and two, take some risks and invest in first time funds (something conservative pension fund investors have been historically loathe to do) as long as the principals at the fund can show they have experience successfully investing in and/or starting and exiting companies.

I hope this report creates momentum and cooperation among the leaders of these 12 states and, in turn, these leaders put pressure on the pension funds to invest in their own backyards (or put their money where their mouths are — pick your idiom). The benefits of a vibrant venture ecosystem are obvious (think Silicon Valley, Austin TX, etc.) and could be realized with a little bit of cooperation and whole lotta creativity.

* the Great Lakes region as defined in the report includes 12 states: Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, New York, Ohio, Pennsylvania, West Virginia, and Wisconsin

** 33% of all U.S. research and development dollars and 35% of all NIH research grants go to the Great Lakes region

*** who, historically, have fled to the coasts to look for work

**** most pension funds only want their investment to represent a small portion of the overall venture fund’s assets

Lynn-Ann Gries is the Chief Investment Officer of JumpStart Ventures. She previously worked in the investment banking departments at both McDonald Investments and Smith Barney (now part of Citigroup), and in the sales and trading area at Morgan Stanley. She received her MBA from New York University’s Stern School of Business and her BA in Economics from Smith College. She currently serves on the board of the Fund for the Future of Shaker Heights, the Great Lakes Science Center and Summer on the Cuyahoga (SOTC).