As the Venture Association of New Jersey prepares for its Spring Entrepreneurs Expo and Elevator Pitch Olympics to be held next month, who better to speak to the current monthly luncheon than Mario Casabona who is one of the most active individuals in the entrepreneurial community in New Jersey. Both successful entrepreneur and active angel investor, Mario spoke on “How to Find an Investor in a Hot Startup Market”. In his words, “My objective is to identify a variety of funding channels such as Accelerators, Angels, and Crowd Funding, all of which can make a difference to Entrepreneurs in these challenging times.”
Mario founded the first technology accelerator in New Jersey, TechLaunch.com, which graduated its inaugural class of entrepreneurs last fall. Formed as a limited partnership with a partial investment by the New Jersey EDA and two for one matching dollars of angel funds raised by Mario, TechLaunch.com is Mario’s primary focus, following the end of his tenure as Chairman of Jumpstart New Jersey Angel Network. Having just vetted over 80 applicants for its second accelerator class down to a select group, while also raising another round of funds specifically to fund this group, Mario shared, “raising funds is no easy task”.
As he explained, the accelerator provides seed capital which is the very earliest stage of funding for a startup and therefore has the most risk. Funds placed into a startup are near the very beginning when the startup may be just an idea or in the midst of building a prototyperight there after “founders, families and fools money”. Following the model set by TechStars and Y Combinator, the goal of the accelerator is to move the startup into commercialization more quickly-by providing funds, mentorship, co-working space, pitch coaching and access to a greater pool of future investors. Typically, the participants have exchanged about 8% to 10% of equity for funds, resources, and a 16 week 24×7 business training program that hopefully prepares them for future investors and possibly higher valuations.
Mario came with statistics to paint a picture of the angel landscape. 67% of angel groups funding is between $150k to $500k per deal.* The average pre-money valuation is $2.5 million. The big industries for investment are Internet, Healthcare and Telecom Mobile. Most investing is via equity, though roughly 14% is done via convertible debt. Mario’s philosophy, “if you cannot agree upon the valuation, takes less funds and move through some key milestones that will justify the valuation to the angels”. This point was open for discussion, as Jay Trien, President of VANJ, noted that if the fund raising market turns south, this could potentially leave a good venture without well needed funds, “I have seen it happen”.
Mario provided the selection criteria for angel investors, most of whom are early stage and pre-revenuenot seed stage as those in the accelerator:
- Product or Service Need Demonstrated
- Business Plan in place
- Experienced Management
- Prototype or Beta
- IP Strategy existing that is a sustainable advantage
- Realistic valuations & exit strategy
- Geographically within a drive of the angel’s location
- Funding needs for initial and subsequent funding
The presentation concluded with a discussion of Crowd Funding which Mario seemed to be a fan ofthough key legislation still has not been writtenand there was some concern that the new structure would also be a breeding ground for litigation. He felt that angels are more comfortable with this financing vehicle that emerged out of the Obama JOBS act than venture capital; but he also foresaw complications in the funding process by having so many more investors involved early on that would make later VC funding more difficult.
The luncheon discussion set the stage for next month’s Entrepreneurs Expo & Elevator Pitch Olympics where entrepreneurs present short pitches to a panel of angel and venture capital investors who judge on quality of presentation and fundability of venture. The Venture Association of New Jersey is the longest running venue in New Jersey for entrepreneurs to find funding. The pitching contest is usually lively and brings out a broad range of the entrepreneurial community in New Jersey.
* 2012 Angel Capital Association (ACA) Confidence Report
