According to Winrock International, which has helped to foster more than $200 million of startup job growth in Arkansas since 2008, there are three main ingredients necessary to grow a thriving entrepreneurial ecosystem: talent, acceleration and access to capital.
Other key factors include large industry clusters, a thriving post-secondary university and a distance of less than one hour from one side of the talent pool to the other. Many of these factors are found in Acadiana, and those we lack can be built.
Finding talent is a process that requires a large volume of applicants screened for investment viability, which is defined differently by various investor groups. Some prefer only high-tech companies, local or state-based, with a track record and initial revenue, protected intellectual property, industry specific and a myriad of other pass/fail factors.
So where do you get initial advice for your Next Big Thing?
Besides friends, family and fortunetellers, there are several free choices throughout our region to lend professional advice. These include: the Small Business Development Center, the Manufacturing Extension Partnership of Louisiana, Acadiana Economic Development Committee leaders, LEDA’s Opportunity Machine and INNOV8 Acadiana. These groups and others actively help innovators vet ideas just like yours. If you have a health care
initiative, the LGMC Foundation is also a great choice to see if your idea is viable for investment.
OK, you keep getting “brilliant!” or “I want that now!” Now what?
Accelerating your business model by painstakingly challenging all the plan details is the critical next step. Formal acceleration often requires an initial investment in a host of professional services including marketing, accounting, engineering, distribution, packaging, legal, technological and more. The LEAN Method by Eric Reis suggests that you get to the stage of having a minimum viable product (think prototype or somewhat functional software) and then go directly to the people you think would buy and ask them to pre-purchase. Doug Hall’s Innovation Engineering, as taught by MEPOL, helps a company recognize then overcome “death threats” to Fail Fast/Fail Cheap. Getting someone in the know to tell you the truth about your idea, rather than lip service, is imperative. Serial entrepreneurs highly value when their great ideas are pivoted or killed.
So your idea gets the green light, but you have no money for acceleration. Now what?
At this stage, seed money, often less than $50,000, is commonly exchanged for a small portion of equity in your business. Various legal instruments, including convertible notes, are attractive to investors and entrepreneurs who struggle to valuate the worth of pre-revenue startups. Be careful how you negotiate at this precarious time of initial growth and seek legal advice to thoroughly understand what you are giving away and what is expected in return.
Access to “serious” capital beyond initial acceleration is never the issue.
Angel Funds and Angel Networks with a sweet spot of investing $150,000 to $1.5 million, according to INC Magazine, are salivating for viable, growth-oriented, accelerated businesses. The NO/LA Angels, one of the fastest-growing Angel groups in America with more than 110 members, for example, has already invested more than $2 million in deals since their inception less than 1.5 years ago. According to the group’s founder, Mike Eckert, NO/LA Angels invests in a portfolio of deals, knowing that of 10 invested companies, half will produce zero revenue, two will produce two times revenue or less, two will produce five times revenue and one will be a home run with 10 times revenue or more. Investors who follow proven investment strategies such as theirs on a national average will realize 25-35 percent return on investment. Yep.
Oh, and the few innovators who make investors rich do pretty well, too.
So how do you jump in and test the waters on your Next Big Thing?
The deadline has passed for the first Energy Innovator’s Pitch Competition at LAGCOE Oct. 29, but you may want to check it out anyway to get a feel for these local competitions. One pending option still available is the INNOV8 Acadiana Delta Regional Pitch Event being held Nov. 14 at the Picard Center during the INNOV8 Technology and Entrepreneurial Summit. That entry deadline is Oct. 30. Winners of that event will receive thousands of dollars in professional services, a chance to pitch in New Orleans during a huge regional conference in March, and most important can receive funding from active investors including NO/LA Angels plus local and other accredited investors.
Free pitch training will also happen at 5:30 p.m. Oct. 21 at LEDA’s Opportunity Machine in LITE, where resident entrepreneur and national pitch champion Joel Dawson will give free lessons on the ingredients necessary for a successful three-minute investor pitch.
The table is set. Join the conversation.
Pete Prados is director of INNOV8 Acadiana, a Community Foundation of Acadiana company, and co-owner of InventureWorks. He has helped innovators since 2011. Learn more at www.innov8acadiana.org.