Here’s what some Iowa investors have to say about raising money

 

As we cover the Iowa and Midwest innovation community, we hear a lot of perspectives about the difficulties behind raising money, a lack of available capital or why investors choose not to invest.

So, to provide some insight into how investors evaluate deals, we asked some in Iowa three questions related to how they decide who or what to invest in and advice they would give to entrepreneurs seeking funds:

1. When you’re evaluating an investment, do you look to invest in riskier prospects or ones that have more stable traction?
2. What’s more important for you when looking at an investment: the people/team behind a startup, the product itself and its sale potential, or the market/industry the startup is in? What order of importance would you put these in?
3. What advice would you have for entrepreneurs looking to raise money? What would it take for a startup to convince you they were worth an investment?

Here’s what they each said, in their own words. Answers may be edited for conciseness or length.

This survey is not meant to represent the views of all investors and shouldn’t be viewed as a checklist to guarantee startups they’ll receive money. Instead, this is to provide a general sense of how some Iowa investors approach deals and the advice they have for entrepreneurs.

We’ve reached out to other investors and hope to include more views in the future.

Next Level Ventures – VC fund, $1 to $4M

(answers via Scott Hoekman)

Risk vs traction

“NLV looks for Iowa businesses which provide a great management team, innovation, at least $1M of sales, and a growth story.”

People, market or product

“All of the above are important, however, “people/team” ranks the highest. An investor has to have a good relationship with management and the team that builds the company.  A great team will pivot around product/market challenges making great decisions.”

Advice

“We would suggest six things:

• Consider selecting a handful of trusted advisors/mentors/board members who can assist you (these individuals likely could be some of your first investors).
• Find a lawyer who understands angel/VC investing and startup formation.
• Read ‘The Lean Startup‘” to consider how you should strategize about commercializing your product.
• Read ‘Venture Deals‘ for advice on dealing with term sheets and other legal docs.
• Try raising more equity than you think you need (it almost always takes more money and time than you believe).
• Watch and/or research ‘how to pitch a VC.'”

Tej Dhawan – angel, Plains Angels/Mango Seed Investments

Risk vs traction

“The more I personally know the entrepreneur, the riskier. The less I know them, the more I need to see product — market fit, team, customer traction, discovery and formality of operations.”

People, market or product

“All are important. Product/market fit, team and industry in that order.”

Advice

“The startup has to have shown goals they created, met, and progress since. An idea on its own is largely worthless in an investment presentation. Similarly, a technical team without a product that can be experienced seems suspect of achievement.

The statement about a billion dollar idea usually kills the deal. If the startup hasn’t taken a risk with their product, why would I.”

Prairie Crest Capital – early stage VC (ag-tech focus)

(answers via Mark White)

Risk vs. traction

“We invest in early stage companies in Ag Tech that have demonstrated a proof of concept of their solution … Ultimately, the company needs to demonstrate that their solution will work in a commercial application, and, preferably have demonstrated it in a commercial application, often known as a beta or minimally viable product test.”

People, market or product

“We view these issues as symbiotic rather than on a scale of relative importance. For us, the solution (product) and team fulfill conditions of necessity and sufficiency.  The solution, or product, must address a problem for which people will pay for, address a problem that is of sufficient scale that it will have a global market, technically work and demonstrate significant theoretical economies of scale.”

Advice

“First, consider your goals as a founder.  What kind of problem do you want to solve, what personal goals do you want to achieve from the business (satisfaction, holistic, financial), and what do each of the founders see as an end point.  There are different investors for every type of situation, from lifestyle businesses, to legacy businesses, to social ventures, to high growth potential solution focused enterprises.

As a venture capital investor, we focus on founders that wish to establish problem solving, sustainable, scalable commercial businesses that will have an exit at some point in order to leverage their solutions. We need that exit for our investors.”

Mike Colwell – angel, Plains Angels

Risk vs. traction

“I look for traction. I see idea-stage as too early unless there is a very experienced team that have successfully built and exited startups in the past.”

People, market or product

“I look at the people first, the market/industry potential second and the product last.”

Advice

“First, (entrepreneurs) have to impress me as being the right team. There is a lot involved in this, but it starts with team first, individuals second.

Second, they need to show traction. Even if they do not have an MVP, they need to show that the market will react with purchase intent.”

River Glen Private Capital/Venture Partners – VC and private equity

(answers via Matt Busick)

Risk vs. traction

“River Glen specializes in making seed stage investments (the former).”

People, market or product

“All of these attributes matter, and we rank them equally essential as seed investors.  If forced to rank them in order of importance, we’d respond as follows: product, sales potential, team, industry.

Product must offer its intended buyer at least a 10 times improvement over status quo.

Business must be able to grow to an enterprise value large enough for us to earn venture equity returns (40%+ annually) on our investment; thus, the company’s sales potential and  corresponding future enterprise value must be large enough to match such an outcome.

Teams must possess requisite knowledge, skills, and abilities given goals for the business, and also loads of soft skills like vision, grit and tenacity.

We prefer industries requiring relatively little capital to reach scale.”

Advice

“Conjure your innermost Stephen Covey.  Seek first to understand, then to be understood.

Be organized, punctual, and thankful.

Do what you say, say what you mean.

We’ll invest when a business crushes our scorecard!”

Matthew Patane is the managing editor and co-founder of Clay & Milk. Send him an email at mpatane@clayandmilk.com.