In honor of Venture Atlanta’s ten year anniversary, we are featuring the thought leadership of incredible coaches and sponsors who help bring the event to life year after year. Recently, we had the chance to sit down with Square 1 Bank’s Ned Hill, bringing over 25 years of experience as an operator, consultant and investor in technology companies, to share his startup funding expertise with you.
Step One: Determine the RIGHT Type of Funding
It’s no secret - starting a business is expensive, and most early stage startups are in need of capital to get their big idea out into the world. Raising funds can be a tricky endeavor to navigate for entrepreneurs, so today, we’re taking you to the other side of the funding equation to understand exactly what top investors are looking for.
Q: How can entrepreneurs determine what the right type of funding is for their business?
When it comes to equity, I sometimes joke that the right type of investor is one willing to write a check. But in reality, it’s more complicated than that. The right type of funding depends on a number of factors:
- Where is the company in its development?
- How much capital does the company need to hit its next set of key milestones?
- How large is the opportunity that the company is pursuing?
- What are the competitive dynamics of its space?
- Is the company looking for a true partner and are they willing to give up some level of control?
- What type of outcome is the entrepreneur seeking?
For instance, a VC investor could be appropriate if the startup’s market opportunity is very large (at least $1B market is a rule of thumb) and the entrepreneur is driving toward a large exit (via IPO or large M&A). VC’s need large exits in a reasonable timeframe in order to deliver the necessary returns to their investors. If a company is earlier in its development, the market is smaller, or the entrepreneur wants to preserve the option to sell the company early, likely at a value lower than what would likely be acceptable to a VC investor, then angel funding could be more appropriate.
“The bottom line is that when you raise equity capital, you are taking on a partner…so you’d better feel comfortable with each other and have aligned visions, goals and expectations.”
From a debt perspective, the key is finding a lender who understands your business and what it is like to be an entrepreneur - including the thrills and trials that come with it. A great lender should serve as a partner with the ability to add value beyond capital, be nimble when needed; have an understanding of your specific growth challenges, and be willing to work through the tough times that will inevitably come along.
Q: How should a startup think about debt versus equity financing?
Both debt and equity financing can be highly valuable means of financing a startup, but they play different roles. To be clear, the risk profiles for debt and equity are different because the potential payoffs to issuers of debt and equity are vastly different. Since the potential payoff to equity investors is high if the company is successful, the model for equity investors affords them the ability to lose their money on any given investment. Debt lenders don’t have that large upside with no luxury to make up for losers with winners.
Therefore, at the earliest stages, entrepreneurs who want to raise capital (beyond bootstrapping) really need to bring on equity partners – whether that is friends and family money, angel investment, or venture capital. Debt becomes a good compliment for strong equity investment in order to help accelerate growth or perhaps extend a well-performing start-up’s runway prior to another round of equity financing.
What advice do you have for local startups seeking funding?
“Have faith in what you’re doing and be persistent. The top trait for any entrepreneur is grit!”
On a more tactical level, entrepreneurs should understand their business enough to be able to articulate to potential investors what key value-creation milestones can be achieved for what amount of investment capital. If you’re asking for $2 million, great. But be prepared to answer the question, “What could you get done for $1 million?” Lastly, be realistic when assessing your company’s development and seek the right investors to help you reach your goals.
How has the Atlanta funding scene evolved?
As a VC turned venture-banker, I have been actively involved in many markets that are growing their technology startup ecosystems. One common theme is the desire for more investment capital — and Atlanta is no different. I am very enthusiastic about the wide variety of investors that are active in the Atlanta market, including a large number of active angel investors, angel groups, small and medium local VCs, the more established local venture firms, and a significant number of out-of-region venture firms. Atlanta has gone through cycles in the past and, I’m sure, will in the future - but it seems we now have a number of key ingredients that will help us sustain our positive momentum through those cycles, including a strong and entrepreneurial-minded talent pool and successful entrepreneurs who are recycling both their talents and the capital.
“At the end of the day, smart money finds good deals.”
We need to continue to provide the support and opportunities to showcase our best deals – something that Venture Atlanta helps fulfill each year.
Step Two: Get Connected to Funds
Seeking the right type of funding increases an entrepreneur's chances of locking down the right type of investors. Use our “Your Go-To Guide for Navigating Atlanta’s Startup Ecosystem” to help guide you. Or, apply now for Venture Atlanta 2017 - you have nothing to lose and capital to gain.
Sponsor Spotlight: Square 1 Bank
How long has Square 1 Bank been involved with Venture Atlanta?
We’ve been sponsoring the event for the past 10 years. We love Venture Atlanta because it gives us as the committee members exposure to the most impressive entrepreneurs and the startups they’re growing - even those who don’t get selected.
Why did Square 1 Bank get involved in the first place?
Given we were started and are headquartered in the Southeast, partnering with Venture Atlanta is a natural fit for us. Venture Atlanta sponsorship allows us to help support the Atlanta tech startup ecosystem that showcases many of the most promising entrepreneurs and startups in the region. The coaching and feedback process is highly valuable to them and certainly to us as sponsors. It’s something I personally enjoy immensely. I love engaging with the many passionate entrepreneurs.
What are the top services you provide for local startups?
Square 1 Bank is solely focused on serving and partnering with startup and growth-stage tech and life-science companies. We truly are entrepreneurs for entrepreneurs. We provide all the traditional banking services for startups (checking accounts, credit cards, treasury management) as well as venture debt to help entrepreneurs grow their companies. Because we work exclusively with startups, we also are proud to provide our entrepreneurs with access to a vast network of venture investors, corporate relationships, talent and other resources.
What do you feel Venture Atlanta has done for the community?
Venture Atlanta is an annual highlight, helping raise Atlanta’s profile as a strong (and getting stronger) startup ecosystem. By effectively showcasing many of our best early and growth stage companies, it has attracted both local and non-local investors… creating a positive, reinforcing cycle that serves our community well.