Tips for getting venture capital from those who know: investors

If your company is early stage and you believe you’re ready to pursue equity backing, talk first with angel groups.

“It’s a good way to break in and practice your pitch,” said Evan MacQueen of Washington, D.C.-based Core Capital Partners. “And then find the VCs,” he added.

That was one takeaway from a panel of regionally based venture capitalists and angel investors at Baltimore Innovation Week’s “Ask a VC: Venture Capital 101,” held at north Baltimore’s DLA Piper.

For MacQueen, the key for entrepreneurs looking for angel or VC investment is to talk to as many people as possible. “Also get as much advice from as many people as possible and then take everyone’s advice with a grain of salt,” he said. “Remember all investors talk to each other — so at the end of a meeting leverage their networks to get other introductions for your company.”

If you can get grants, customer money, bootstrap, if you’re credit cards have enough credit limit, that’s all going to be cheaper than taking VC money.

Brett Topche, managing director of MentorTech Ventures, a seed-stage fund connected to the University of Pennsylvania, said VC funds typically make investments in roughly one percent of the companies they consider. “That’s why I can’t stress enough how important introductions are,” said Topche. “Anything you can do to get a leg up and stand out from the other 99 percent is enormously important. One of the best things you can do is get an introduction from someone the VC knows and trusts.”

Topche says it’s important for entrepreneurs to know that VCs and angel investors are highly networked — “you have to be to have this job,” he said.

“There are about a million different paths to get to any given VC and a warm introduction is infinitely better than cold calling a VC, emailing, clicking to submit a business plan on their site,” Topche said. “So much of this is about relationship-building and credibility — especially at seed stage. All we have to bet on is you.”

An entrepreneur — no matter what their product is or whether they’re pursuing angel or VC backing — should avoid pitching their product as if the investors are the consumers, said Kelly Keenan Trumpbour, founder of Baltimore’s See Jane Invest, which helps women entrepreneurs launch companies with social impact missions.

The exciting thing about the current market is VCs are starting to invest in lots of locations.

“If you don’t talk to us as investors — especially early stage — you’re out,” she said.

Trumpbour added that entrepreneurs also tend to “make the mistake of not clarifying where their exit strategy exists if it exists at all. It’s half art, but we want to trust you.”

The panel, hosted by Ron Schmelzer, founder of Baltimore-based TechBreakfast, comes at a heady time in the equity investing industry. With interest rates still low and signs that the overall economy may be on the uptick, venture investing may be on a path to return to its pre-recession glory days.

In Q2 2014 alone, venture investing in the U.S. reached $13 billion — the most in any one quarter since Q1 2001, according to the MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association.

“We’re back in a boom time for VC,” said Erik Pages, president of EntreWorks Consulting, a Washington, D.C.-based firm that helps municipalities, including Baltimore, build entrepreneurial economies. “The exciting thing about the current market is VCs are starting to invest in lots of locations rather than just the traditional areas like Silicon Valley.”

So much of this is about relationship-building and credibility — especially at seed stage.

No matter the times, though, entrepreneurs need to understand the differences between angel and VC investing and know what’s right for their companies.

“The unspoken word is VC is the most expensive money you can get for your business,” said TEDCO Executive Director Rob Rosenbaum, the state of Maryland’s early-stage investment arm. “If you can get non-diluted capital, if you can get grants, customer money, bootstrap, if you’re credit cards have enough credit limit, that’s all going to be cheaper than taking VC money. So do all those things before you come to anyone of us.”

The clock is ticking. Left to right: Jason Sydow (QuestMark Partners), Brett Topche (MentorTech Ventures), Evan MacQueen (Core Capital Partners), Kelly Keenan Trumpbour (See Jane Invest), Rob Rosenbaum (TEDCO). (Photo by Ken Berlack)