Plugging the Funding Gap
Financial Executive – September 1, 2006 - Early-stage companies frequently find themselves unable to get venture capitalists interested in investing to get them to the next stage. Riding to the rescue are a group of specialists, advisors, “angel” investors and others.
For a variety of reasons, these sources say, the paucity of venture funding at this critical stage — known as Series A financing, where investors typically put up roughly $500,000 to $5 million — threatens to snuff out promising enterprises just as they begin to make progress. Without this crucial infusion of capital, says Tony Grover, managing director at RPM Ventures, a VC firm based in Ann Arbor, Mich., that focuses on early-stage investing, “Companies can end up in no-man’s-land.”
Finally, however, there are the hardy few — those stalwart venture capital firms that specialize in early-stage investments. “There is a capital gap, and we’re there filling it — but we’re very unusual,” says RPM’s Grover. He says the firm finds its investments by “walking the halls” of universities and developing contacts with top researchers and professors. Grover adds that his firm also maintains close ties to angel groups throughout the Midwest and co-invests with them.
Unlike later-stage investing, early-stage companies need more of a hands-on board, greater involvement and expertise. RPM, which specializes in finding companies developing the latest in automotive technology and chemical processes — key industries in the U.S. heartland — plays an important role in linking up its portfolio companies with heavy manufacturers.
“You have to roll up your sleeves and work pretty hard when you’re an early-stage investor,” Grover says. “Board members have to be there to help with strategy development. And if the CEO needs help with operational issues, you have to be an adviser and sounding board as well.”
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