Startup world: Finding funds, advice
[caption id="attachment_101432" align="alignright" width="320"] Lindsay Austin, SoCo Nexus chairman and an active investor with North Bay Angels[/caption]
ROHNERT PARK -- Want to invest money in a startup in hopes of a big payoff when the company goes public? Good luck with that. Investing in startups is not for the faint-of-heart or for those who want their money back inside of a decade.
Lindsay Austin, a former executive of several technology companies that used lasers, including Uniphase, is chairman of SoCo Nexus, a startup incubator located in Rohnert Park’s Sonoma Mountain Village, and has been on the board for six years. Mr. Austin is also a member of North Bay Angels, a group of about 50 accredited investors who make at least $200,000 a year as individuals, or $300,000 as couples, or have investment assets of $1 million apart from their homes.
“What are the right kinds of companies to start in Sonoma County? It’s not Silicon Valley,” Mr. Austin said. “It took awhile to figure out the success formula.” Initially they sought tech companies with intellectual property that could get to $25 million in sales in five years. There weren’t enough such companies.
“We rebranded as SoCo Nexus” about two years ago “to be more inclusive,” he said, embracing “makers” not just in technology, but medicine, food, cosmetics and other industries. “If you can grow your company to $1 million or $5 million in five years, that’s OK,” he said. “You don’t need to have intellectual property. It’s certainly desired, and will increase your chances of getting funding.”
They look for entrepreneurs with a decent business plan and the tenacity to grow a business. “Let’s create a robust community -- an ecosystem -- for entrepreneurs,” he said. Startup companies that need capital to build products usually struggle to obtain bank loans, and instead must attract venture funding from investors willing to stomach high risk.
North Bay Angels has turnover of five to 10 members each year. “Once you have made a number of investments,” he said, “it takes a long time to exit. People fill up their portfolios with angel deals, and they want to sit and wait, and harvest that over the next 10 to 15 years. There’s a natural churn.”
New crowdfunding legislation may open up venture funding for much smaller investors, he said, noting that Sausalito-based Breakaway Funding seeks to capitalize on that emerging market. Breakaway Funding was founded by Kim Kaselionis, formerly president of Circle Bank before it was acquired in 2012 by Umpqua Bank.
The problem with crowdfunding is that “I would want to invest in a company that has gone through due diligence,” Mr. Austin said. Some crowdfunding is almost charitable, he said. “You’re not looking for a return.” He expects to see more oversight of crowdfunding by the Securities and Exchange Commission.
“One of the benefits of North Bay Angels is you get to see all the best deals,” already vetted by a selection team of investors who test each funding candidate for viability. They talk to customers, check code, look at cash flow, inventory costs. “There’s a lot of lunatic fringe out there,” he said. “It safeguards being blindsided. What happens if you don’t quite meet the revenue for a quarter, then what? How resilient is this plan? Is it hanging by a thread?”