Startups get ready to woo investors
by John Yantis - Dec. 5, 2010 12:00 AM
The Arizona RepublicIf you want money from Paul Winandy, you better come with more than a just a good idea.
The managing director of the Arizona Technology Investor Forum reviewed applications from roughly 130 business startups this year. Eleven of them will present to his group, made up of about 50 angel investors who focus on early-stage technology funding in Arizona. Out of those 11, only three or four will actually receive capital.
"There are probably some other good companies in that mix that merit investment," Winandy said. "There's just not enough dollars to go around."
Winandy and other investors will be looking for the next great idea during the Invest Southwest Capital Conference this week in Scottsdale. Eleven companies will present at the three-day event that kicks off Wednesday in hopes of finding angel or venture-capital funding.
Arizona venture-capital investment was dismal during the most recent quarter, according to two reports, but experts caution against reading too much into the numbers because of similar declining numbers across the U.S. and region as well as funding that went unreported.
Just two companies in the state received financing during the third quarter for a total investment of $7 million, Dow Jones VentureSource said.
Another report, the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, said $13.9 million was invested in three Arizona companies during the quarter.
Venture capital is used to gauge the entrepreneurial strength of a region. Investors typically provide the funding in exchange for a stake in the companies. They hope recipients will be acquired by another company or go public at a later date, providing a big payoff for backers.
Frank Grimmelmann will be studying the companies at Invest Southwest closely to see how senior management teams come across given the short amount of time they have to pitch their firms.
"That's something you obviously don't see in the write-ups or summaries or even a business plan, but in today's market clearly management is a key indicator," said Grimmelmann, who became an active angel investor after moving to Arizona nine years ago.
About three years ago, after being involved in four high-tech startups, Winandy decided to he would focus more on investing in the state because of the scarce capital in the region for startups. He became involved in the Arizona Technology Investor Forum, where members are required to invest a minimum of $25,000 over two years.
"Over the last three years, we've invested more than $3.5 million in about 14 different startups," he said. "It's a drop in the bucket compared to what's needed in Arizona. But at least the group is active."
Winandy will be at Invest Southwest as an investor and as a presenter of a company called WebPT LLC, a Phoenix-based company that develops Web-based electronic medical records for physical therapists.
"At ATIF, we see a lot of deals come across our plate, pretty much everybody who is looking for money in the state," he said. "I must have seen 200 or 300 different companies over the last three years. Not one of them has ever attracted me to go back to an operating role until I saw WebPT."
As an angel investor looking at other companies, Winandy concentrates on what he knows: software. He looks for companies where a strong management team is already in place.
Then he wants to know if they've already built their product. Next, he determines if the company is generating revenue and whether its market will continue to grow.
"You can't just come with a concept and be a nice guy," he said. "That might work in Silicon Valley. But it doesn't work in Arizona. You have to find a way if you're an entrepreneur to take that idea and actually bring it into life. If you gotten that kind of traction, then it starts to become an interesting investment, or at least something to consider."
Invest Southwest is good for spotting trends in emerging companies, investor Ed Vanderslice said. He considers companies doing work in industries with potential for growth in the next five to 10 years.
"A lot of time when the economy is not doing very well, going all the way back to the Great Depression, that's quite often the time some of the great business concepts that get incubated and developed," said Vanderslice, a former Intel employee, said. "Generally, when things are going well, you don't generally have a lot of your best people out there trying to create something new."
He predicts green technology will be big, comparing its potential to the tech bubble of the 1990s.
"A lot will crash and burn early, but the survivors are potentially huge," Vanderslice said. "You've got Amazon.com and Google and a few other companies who have made it through all that to become industry giants 10 years later. What it really comes down to in green tech is having core technology, having some defensible technology as well as having the ability to address a very large market."
Vanderslice invests for himself, but he may also work with a company through mentoring or helping to define its strategic vision.
"I leave myself open to what the opportunity presents itself to be," he said. "I kind of backed away from the industry for a couple of years after leaving Intel. Now I've been looking at ways of re-engaging in the industry without going back into a corporate role again."
Grimmelmann, who has been in senior management positions and/or running his own company since he was 26, attends several capital conferences a year. His expertise is in health-care technology and finance.
"Sometimes it's a good experience and sometimes you wish you could rethink it," he said of investments.
He was invited to Invest Southwest and says those involved in Arizona venture and angel capital are a fairly tight circle of people who know who is actively investing.
He compares Invest Southwest to speed dating, where investors take a look at companies and get a feel for them initially. The meeting dictates what he's interested in and what he'll follow up on.
"The other thing the Invest Southwest conference does is allow you to network with other investors," Grimmelmann said. "There's a lot of power and strength in being able to know what other investors are doing and getting their perspectives."
Grimmelmann says he's a bit unusual in that often he'll take a proactive role in the companies he invests in. That allows him to bring his capital, experience and network of relationships to the deal.
Investments can come from angel groups locally or syndication across multiple groups in multiple states, Grimmelmann said.
"I think what we're increasingly seeing is the angel groups now take on investments that in past were funded by the venture-capital firms," Grimmelmann said. "The venture-capital firms are quite often looking for a later-stage or a larger investment in order to not have so many investments in their portfolio that don't make sense."
Reach the reporter john.yantis@arizonarepublic.com or 602-444-8280.
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Go for it !!
Thanks,
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