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Virginia Business// May 30, 2023//
Leaders from across Virginia’s entrepreneurial ecosystem discuss investing in new companies, challenges facing startups and advice for success.
CEO, Hot Technology Holdings LLC
Richmond
What do you look for when you’re investing in a startup?
The most important thing I look for when investing in a startup is the tenacity, drive, intelligence and character of the CEO or founder; the mission — does this resonate with us personally?; the viability of the idea; and the size of the market/industry.
What are the most important questions to ask of a startup before investing?
What is driving the founders to grow the company? The mission cannot be focused solely on financial success. Building a motivated, cohesive team dedicated to a shared mission around making the lives of others better — that is when truly great companies emerge. How are you different than your competitors? What is your recruiting strategy to hire the best talent, and what is your marketing strategy?
How many businesses have you invested in that have failed?
We have founded 10 companies since 1993, growing all of them with our own money. We did not take any outside investor funds. Of those 10, all became profitable, multimillion-dollar firms. Separately, I invested in 22 other early-stage companies during the last 15 years. These were companies that were not run by our group, and we had minority stakes in these ventures. Out of those investments, three of them failed. I look at over 300 investment opportunities annually, so our process is very selective.
What ripple effects are entrepreneurs seeing from the collapses of Silicon Valley Bank and Signature Bank in March?
I believe early-stage entrepreneurs are going to find capital more expensive, the time frame and effort to secure it more arduous, and a shift in focus from “grow at all costs” to a more balanced approach that values growth and profitability.
Managing director, Lighthouse Labs; Board member, Activation Capital
Richmond
What trends are you seeing in new companies?
Founders are becoming more creative in raising capital and focusing on building a sustainable business rather than growing fast. Also, the ethics of co-founders is becoming a much earlier focus than before.
What are the biggest challenges facing startups?
Startups face significant hurdles developing corporate and large potential client relationships. After that, talent and funding round out the “big three” of their challenges.
What’s something a company should consider before scaling up?
A company should consider whether or not they have the capability to scale. Do they have the systems and processes to handle the increased business? Do they have the right talent? Taking on large contracts that you can’t service can kill your business fairly quickly.
What advice would you share with companies looking to get into your cohorts?
Know the problem that you intend to spend the next five to seven years of your life solving. Your approach to that problem may evolve, but the problem is still there. Make sure that problem is big enough to make a business, not just a product — a product is different from a business. Funders fund businesses; rarely do they fund products.
Director, Regional Accelerator and Mentoring Program (RAMP); Vice president for entrepreneurial development, Verge
Roanoke
What trends are you seeing in new companies?
Our reach and focus are highly focused on technology and health and life science startups created in Southwest and Central Virginia. Startups in our region are often based on research and development that occurs in a cutting-edge laboratory. It is our great fortune to see more and larger collaborations occurring with the commercialization journeys that enable founders to access university, private company and public business tools and resources.
What are the biggest challenges facing startups?
Time and focus. In order to excel at anything, it requires a time commitment and focus that our social and professional environment does not readily foster. Collectively, our expectations are for founders to be many places at one time, and that overlaps with their creative and innovative personalities that are biased toward research and development. They are creators. Securing the right support to both identify and focus on the most profitable path to advance a startup is a significant challenge.
What’s something a company should consider before scaling up?
Supply chain. It probably goes without saying that supply chain disruptions have held up a lot of companies in terms of strategic growth. Identify key partners and backups, if possible, to enable your company to execute fully.
What advice would you share with companies looking to get into your cohorts?
Get to know us before you apply to RAMP. Reach out and set up a meeting or call. Ask us what we are seeking in a startup. We have a few ways you can engage in the startup community, including a 1:1 Pitch & Polish event held quarterly with regional business coaches and leaders who can offer feedback and connections.
CEO, CytoRecovery Inc.
Blacksburg
How do you know when to walk away from an idea?
Sony co-founder Akio Morita wrote in his memoirs that he followed his gut. I agree with this — study the concept rigorously, interview the principals, look at the eye contact, assess the level of their commitment to the concept, but in the end, trust your gut. If it doesn’t feel right, take a pass.
What is your biggest challenge as a startup?
In our case, the biggest challenge was learning how to manufacture the biochips that enable the cell separations. This took several years.
How did you overcome that?
Solving this was an important exercise in trial and error, patience and staying the course. We were unable to obtain the quality and scale of product we needed from any vendor, and so [we] undertook the manufacturing through internal R&D and process development, which has been very successful and now gives us the advantage of control over a critical product manufacturing process.
What is the most important or useful thing you have learned during the process of starting your company?
The importance of forming a strong and adaptable team
What advice would you share with other entrepreneurs?
Never give up. And remember that it is not the company with the most resources that wins, nor the company with the smartest people — it is the company that is the most adaptable.
What’s unique about the entrepreneurial ecosystem in your region?
The Blacksburg/Roanoke area is an excellent place to build a life science enterprise. This area offers strong institutional support, deep technology sectors and an available labor pool of smart young people with awesome work ethic — all the ingredients you need.
Chief investment officer and vice president, Virginia Innovation Partnership Corp.; Managing director, Virginia Venture Partners
Herndon
What do you look for when you’re investing in a startup?
At our very early stage of investment, we always say we are investing in three things — the team, the market and the tech. We are looking for a team and company that has a big idea and addresses a significant customer pain point.
What are the most important questions to consider before investing in a new company?
We want to know that we are working with high-integrity and committed individuals who have an exceptional knowledge of the market they are going after and are willing to listen to others — co-founders, investors, mentors and customers — along the entrepreneurial journey. This probably boils down to one fundamental question: What makes you and your team the right people to address the problem?
How do you know when you’ve gotten a return on your investment?
As we are a “double-bottom-line” fund — investing not only for investor and founder return, but for spillover economic development benefit for the commonwealth — we take a slightly different view of return than traditional financial investors. While we are concerned with cash ROI, we also consider things like job creation, new company formation, private capital mobilized and new industry development in our return calculus.
What challenges and/or opportunities are unique to the commonwealth for startups or funders?
One of the single greatest challenges we face as both early investors and agents of economic development lies in learning how to build on the unique attributes of diverse regions of the commonwealth — including legacy and nascent sectoral strengths — to foster economic outcomes that will grow and sustain Virginia’s future.
Executive director, Startup Virginia
Richmond
What are the biggest challenges facing startups?
While funding for early-stage startups has always been a challenge in Virginia, the recent banking difficulties and the stock market performance will make access to capital even more difficult. This is why entrepreneur support organizations, such as incubators and accelerators, and state resources from Virginia Innovation Partnership Corp. are so important. Once an idea has been validated, startups need to scale their operations to meet demand. When this occurs, hiring the right talent and implementing effective sales and marketing strategies are other challenges we see.
What’s something a company should consider before scaling?
Before scaling, it is vital to have completed a comprehensive customer discovery to ensure you’re meeting the right needs and evolving your product or service to meet market demand. Scaling a startup requires significant financial resources and a strong business model that includes a plan for operations, sales, customer service and acquiring talent. This should also be in place before fundraising so you can clearly communicate your growth strategies to prospective investors.
What advice would you share with companies looking to get into your cohorts?
Startup Virginia is a high-growth business incubator. To join our community, all you need is a great attitude and a high-growth business idea or model, which we describe as a business or idea that leverages technology, manufacturing or, in some instances, licensing/franchising to grow exponentially and have a large geographic impact. Once in our community, we provide programming based on your stage of business and leverage our network of founders, mentors and investors to support you along your startup journey.
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