Demystifying Access to Capital for All Early Stage Science and Tech Entrepreneurs
Summary: More than 30 investors pledged to increase access to capital for science and tech entrepreneurs from diverse backgrounds, including by sharing tips for raising funds.
Today we shared highlights of the President’s work to stimulate and support entrepreneurship in America over the last eight years. Entrepreneurship is a key driver of economic growth and job creation and supporting our science and technology entrepreneurs, particularly ensuring entrepreneurs from all backgrounds and geographies have a shot to build and grow science and tech companies, is critical to ensuring we as a Nation continue to lead on innovation.
One of the critical pieces of many science and tech entrepreneurs’ journey is raising the capital needed to get an invention or innovation to market or a business off the ground. Yet for many science and tech entrepreneurs, especially first-time entrepreneurs, the process can be daunting and filled with new language, networks, and procedures. This week, a group of more than 30 organizations who fund and support early stage science and tech entrepreneurs came together to pledge to create more transparency and inclusiveness in their funding practices. These organizations represent more than 11,000 investors deploying more than $800 million in early stage science and technology investment dollars across the country. We talked to several investors who signed the pledge to get their best advice for science and tech entrepreneurs going through the fundraising journey as they launch and grow their companies. Read on for their tips and advice.
And if you’re an investor, we encourage you to share your tips and advice publicly as well so that more science and tech entrepreneurs from all backgrounds can take their best shot at growing and launching their companies.
Build Your Network
Many of the science and tech investors we heard from shared that funding opportunities generally come together based on a personal connection rather than a cold email, which means that building and growing your network is a key step in seeking investment capital. For entrepreneurs who aren’t already plugged into the investment ecosystem when they have their idea or launch their venture, networking can become a significant part of your job as a founder. Liz Roberts of MassMutual Foundation-supported Valley Venture Mentors suggested that science and tech entrepreneurs consider finding “a great, inclusive incubator or accelerator program that will help you build your network” and “will get you exposure to mentors and investors who can help your venture grow.” Kerri Beers of TechStars urged tech entrepreneurs to participate in meetups and events “in their local community” that are targeted at entrepreneurs in order to grow their exposure and connections. Diane Henry of Rogue Capital Advisors described this as “spending time in the natural habitat of investors.”
Henry urged science and tech entrepreneurs to “do their homework” since many investors publicly share what they invest in, and won’t even consider pitches that don’t conform to their focus areas. Nick Moran at New Stack Ventures advised that, as they go about networking with potential investors, science and tech entrepreneurs also “cut through the noise” by figuring out what they have in common with potential investors and connecting on those personal interests to make themselves more memorable. Aaron Walker from Camelback Ventures shared that he sees what entrepreneurs are talking about on social media and pays special attention when his organization is mentioned, often leading to companies and entrepreneurs ending up “on our prospect list.”
There are some very well-known science and tech investors out there, but they represent only the tip of the iceberg when it comes to access to capital. Rather than focusing on the small subset of investors you’ve heard of already, Tamra Johnson of 79 Studios pointed out that “there are a lot of people who care about bringing capital to diverse founders, and your time will be better spent getting to know them than trying to change organizations and institutions that have been in place for decades.”
Leverage Your Network
Once you’ve built your network and identified who you might want to meet with, it’s time to leverage your network to help make connections. Angela Lee of 37 Angels advised finding “connections you have in common” with that person on social media and then “make it really easy for your network to help you” by pre-writing introduction emails and being very clear about why you are asking for help to make the connection. Several investors mentioned that large percentages of their portfolio companies came through network connections and recommendations. Investors also pointed out that they look to accelerators and incubators to discover talent and companies that might be outside of their personal network.
Do Your Homework
It’s not just the ‘who’ but the ‘what’ of the deal that matters, too. Understanding term sheets can be challenging and you don’t want to be at a disadvantage when you’re at the negotiating table. Before raising money, Jonathan Towers from Arctaris Royalty Partners suggested science and tech entrepreneurs who are less familiar with finance consider “taking a course at their local community college, joining an entrepreneurial networking group, or asking private equity or venture capitalists in their region for coffee” so that they are best equipped to negotiate good terms.
Once you’re in conversations with investors that are a good fit for your science or technology company, it’s time to think through the mechanics of the deal. Early financing is rarely the last round of financing that a science or tech entrepreneur needs when growing a company. While raising a round at a startup it can be hard to think ahead to how things will look a year or two down the line when your company might only be a year or two old. But Lee cautioned: “Ask for enough money to get to the next round of financing.” Not doing so means “less of a marketing budget to go after customers, and less of a buffer if you get it wrong (and guess what: 93 percent of successful companies pivot). Ask for enough to get you through 18-24 months.”
These tips are only the tip of the iceberg! Building and growing a science or technology company is extremely hard work. As the President said when he proclaimed November National Entrepreneurship Month, we’re so excited to “celebrate the entrepreneurs who serve their communities and bolster our economy, and we pledge our support for them in their pursuit of the ideas and innovations of tomorrow.” If you’re an entrepreneur or considering starting a science or technology company, we’re rooting for you!
Laura Weidman Powers is a Senior Policy Advisor to the U.S. Chief Technology Officer in the Office of Science and Technology Policy