Rick Brimacomb is Founder of Brimacomb and Associates, a consulting firm focused on strategy, corporate development and fundraising for early-stage companies. The motto is “grow or die” and the firm works with startups from napkin through 5-10-15m in revenue. With two decades of experience in capital markets-from investment banking/research to VC partner-he’s a past president of the Minnesota Venture Capital Association and has been party to over 100 funding transactions.
As a member of MOJO/MN, Mr. Brimacomb is a born and raised Minnesotan with a personal interest in seeing Minnesota’s entrepreneurs and early stage companies proliferate.
Join us for a conversation about raising capital in today’s market. Below is an outline of the takeaways:
Who is a good fit for investment capital?
- Hyper-growth oriented ventures with logarithmic growth curve. An early stage investor wants 5-10x (plus) return in short period of time
- Sizeable opportunities. Early stage investors are not interested in small markets or lifestyle operations.
What’s the difference between three different types of investors-Friends & Family, Angel Investor and Venture Capitalist?
- Friends and Family are usually the first resort; pros are cheapest money and loosest terms. Cons include lack of sophistication and conflict potential.
- Angels are typically less focused on specific return and more on the person/company-compared to professional investors (VC’s) who know that they need to generate serious returns (30-100% IRR). Angels are likely to have been through the entrepreneurial journey at least once prior.
- Venture Capital/Institutional Capital is comprised of professional investors with specific expectations. The diligence process is stricter, the expectations are specfic and there’s more strings that come associated with this form of capital. While they can be of greater challenge to work with, they can (generally) add the most value and can move largest amounts of capital.
What are some other potential sources of capital?
- Creative capital can come from suppliers, customers and other specialty financing arrangements.
From a bird’s eye view, what are you seeing in the market?
- In 2001 there was 100billion in VC which has shrunk down to 16-17 billion. Increasingly concentrated capital is going for bigger opportunities which has adversely affected angel investors at the same time.
- IPO market is unhealthy due to government regulations and financial barriers to entry. The IPO market is an indicator of what’s happening (or not) with Angels/VC’s.
- In Minnesota, bulk of Venture Capital goes to medial device/life sciences. IT/Software is at relative disadvantage, in part, to this. Our laurel, high performance computing, has “gone by the wayside”.
- On average, 2% of national capital goes into North Central Region (MN, NE, ND, SD, IA, WI); relative to the population (per capita), Minnesota is above average.
Is raising money an art or a science?
- Both; entrepreneurs focus heavily on the science and should think more about the art.
What are the four P’s of raising venture capital?
- People – what’s your background & how strong is the team?
- Product – how different/better is the product? Market changing ideas are exciting, 10% better isn’t.
- Potential – quantify and qualify the market
- Predictability – VC’s want to invest capital in something that will take off and they want a replicatable system that can stamp out a product over and over.
What other recommendations would you have for tech entrepreneurs?
- Develop the relationships before you need the money
- Become a subject matter expert (white papers, trade groups, affiliations)
- Raising capital is a numbers game that requires serious time, effort and hard work-keep at it.
What are some milestones that early stage investors seek?
- #1-Customers and revenue. Has any money changed hands-are the lights on or off?
- What’s the type of customer? is the customers an innovator/early adopter?
- Are you addressing a narrow niche or broader market problem?
- How complete is the product? When is it going to market?
What are your thoughts on customer acquisition?
- When selling customers, know the difference between explicit and implicit needs:
- The explicit is the “harder” side of the sale – the explicit is the obvious need and should solve a painful problem to the degree that they will pay you to fix it.
- The implicit is a “softer” side of the sale – what are the dynamics of changing behaviors? How does the industry buy? Who makes the purchasing decisions? What are the entrenched obstacles?
Anything else you would like to mention?
- In the end, more entrepreneurs should shoot higher and address bigger opportunities. Something we could do better as a community would be to focus on larger scale problems with bigger market opportunities