eMerge Americas Conference - Miami, 5 May 2014
If the participation at the eMerge Americas Conference is any indication, the entrepreneurial environment in Miami and South Florida is hot, hot, hot.
I led a discussion with over 200 entrepreneurs, investors and advisors together with Claudia Fan Munce - Managing Director of IBM Venture Capital Group, and Alberto Yepez - Managing Director of Trident Capital. The theme was "The Right Money at the Right Time". (Watch all the eMerge Summit sessions here.)
The chart below was used as a basis for our discussion. Simply put, too often entrepreneurs don't seek the right kind of capital for the stage of their business. This is a shame because it's a waste of valuable time and energy for those trying to fund their company.
We discussed the role of angels in funding startups, noting that only 3% of VC money went into startups in 2013 in the US. The discussion also focused on the importance of choosing angels (and any investor) not only for their money but also for their expertise and the network that they can bring to the benefit of the entrepreneur/company.
Additionally, we noted the value in structuring the angel deal correctly - often using a convertible note that defers the valuation discussion until the first (or next) round of institutional VC money.
Alberto indicated that when he looks at later stage deals on behalf of Trident Capital, he likes to see certain things:
- A large market opportunity
- A strong go to market strategy
- A defensible IP position
- A quality team
- Presence or interest of other capable investors
According to Claudia, the growth in corporate venture capital over the last few years reflects that corporations need to access external innovation quickly. She noted that given enough time corporations could develop most of the necessary innovations in house, but that the advantage high-growth entrepreneurs bring is speed to market.
She finds that they like to invest after institutional VCs have already participated. This is so they can leverage the diligence that such investors have done and to ensure that there will be additional continuing financial support for the company.
I presented some of our research data which shows that while up to 40% of companies have taken corporate VC investment, in less than 5% of cases did that corporate VC investor become the ultimate acquirer.
How, then, should entrepreneurs determine the right amount of money they need to raise in a round?
While the statistics show that the median length of time between rounds is about 17 months in the US, the most important factor is clear: the amount of money needed to achieve important milestones that would justify an inflection in company valuation.