Star­tups get­ting in­vest­ments here, but gaps mean they must look else­where for fund­ing

Richmond Times-Dispatch Weekend - - FRONT PAGE - BY JOHN REID BLACK­WELL

For startup com­pa­nies, the quest for money to trans­form an idea into a busi­ness, and then build it into a sus­tain­able ven­ture, is of­ten a per­pet­ual process.

“It is the en­tre­pre­neur’s chal­lenge of build­ing the busi­ness and rais­ing the money at the same time,” said Richard Kelly, co-founder and CEO of Nu­triati, a Hen­rico Coun­ty­based com­pany that makes non­al­ler­genic, high­nu­tri­ent food in­gre­di­ents.

Since it was founded in 2013, the com­pany has been through sev­eral rounds of rais­ing money, in­volv­ing an­gel in­vestors, a lo­cal ven­ture cap­i­tal

firm, then na­tional and even in­ter­na­tional part­ners and in­vestors.

“When do you start rais­ing money? Right af­ter you close your last round,” Kelly said.

For Tem­per­pack, a Rich­mond-based com­pany that makes sus­tain­able pack­ag­ing for ship­ping per­ish­able goods, it took sev­eral months of work, travel and meet­ings with nu­mer­ous in­vestors be­fore the com­pany closed on a $10 mil­lion cap­i­tal raise in July 2017 to help it ex­pand its busi­ness op­er­a­tions.

“It was in­tense — a round like that is al­ways a lot of work,” said Brian Pow­ers, the co-CEO and a co­founder of the com­pany, which started out as a small garage-based busi­ness in Mary­land in 2014 be­fore mov­ing to Rich­mond in 2015.

The in­vest­ment has trans­lated into jobs in the Rich­mond re­gion. In April, Tem­per­pack moved its man­u­fac­tur­ing from a 44,000-square-foot plant on Castle­wood Road in South Rich­mond to a 130,000-square-foot plant at 4447 Carolina Ave. in east­ern Hen­rico. It plans to hire 140 new em­ploy­ees on top of the 55 full-time em­ploy­ees and about 300 hourly per­son­nel it al­ready em­ploys.

The com­pany’s de­ci­sion to come to Rich­mond to build its busi­ness op­er­a­tions proved to be the right one both for find­ing space and staff and for find­ing in­vestors, Pow­ers said. “Rich­mond lends it­self well for com­pa­nies with a phys­i­cal com­po­nent,” he said, re­fer­ring to the man­u­fac­tur­ing of a ma­te­rial prod­uct.

“It was clearly where we should be, so that was a good sign with in­vestors,” he said.

Much of that fund­ing for Nu­triati and Tem­per­pack has come from in­vest­ment groups or in­sti­tu­tions out­side Vir­ginia, which is the case with most startup com­pa­nies when they reach the point of need­ing larger sums of cap­i­tal.

But the com­pa­nies also have ben­e­fited from lo­cal an­gel in­vestors — those who are will­ing to take the risk of put­ting money into a ven­ture at its ear­li­est stages, when the risk of fail­ure is high.

An­gel in­vestors also have helped back RoundTrip, an­other lo­cal startup that has de­vel­oped a soft­ware tool that en­ables pa­tients to book trips to and from med­i­cal care ap­point­ments.

In March, the startup re­ceived $1.9 mil­lion in an ini­tial seed round of fi­nanc­ing from four key in­sti­tu­tional in­vestors — all out­side of the area — as well as from in­di­vid­ual in­vestors in­clud­ing sev­eral from the Rich­mond re­gion.

It took about five months to com­plete that round, said Mark Switaj, a co-founder and CEO of RoundTrip.

“Rais­ing money is never easy,” he said.

“We’ve reached out to in­vestors in Rich­mond, and we are proud to say that we did re­ceive cap­i­tal from in­vestors in Rich­mond,” he said, adding that RoundTrip — which has some staff in Rich­mond and some in Philadel­phia — has had an over­all fa­vor­able ex­pe­ri­ence as a Rich­mond startup.

“The pos­i­tive en­ergy is un­matched,” he said.

“I can 100 per­cent tell you this has cre­ated jobs in Rich­mond as a re­sult,” Switaj said. The com­pany em­ploys 24 peo­ple and is ex­pect­ing to add more as it works to ex­pand its busi­ness.

RoundTrip is one of more than 30 Rich­mon­darea startup com­pa­nies that have par­tic­i­pated in Light­house Labs, a non­profit busi­ness ac­cel­er­a­tor that pro­vides men­tor­ing for lo­cal star­tups and can also serve as a con­duit to meet po­ten­tial in­vestors.

It par­tic­i­pated in last fall’s Light­house Labs co­hort, win­ning the top award and re­ceiv­ing a $5,000 grant.

In 2017, star­tups in the Rich­mond area raised around $250 mil­lion, ac­cord­ing to data col­lected by Ac­ti­va­tion Cap­i­tal, a non­profit that pro­motes the Rich­mond re­gion’s en­tre­pre­neur­ial en­vi­ron­ment.

About two-thirds of that was grant funds, or an­gel in­vestors, or early-stage ven­ture cap­i­tal fund­ing. The ma­jor­ity of the fund­ing came from sources out­side of the re­gion and state.

Star­tups typ­i­cally raise money in stages, from “boot­strap­ping” early on by re­ly­ing on per­sonal sav­ings, credit cards and the gen­eros­ity of friends and fam­ily, to rais­ing money from an­gel in­vestors who can help push a busi­ness with some trac­tion and rev­enue fur­ther along in its de­vel­op­ment. With promis­ing growth, star­tups can then go to ven­ture cap­i­tal firms for seed fund­ing and larger in­vest­ments.

The lo­cal ven­ture firm NRV has been ac­tive in fund­ing star­tups in Rich­mond and across Vir­ginia that are still “early stage” but have shown trac­tion.

For in­stance, NRV took the lead in help­ing Nu­triati raise a $1.5 mil­lion Se­ries A round of fund­ing. Last year, NRV as­sem­bled a $33 mil­lion in­vest­ment fund, called its Early-Stage Growth Fund, with money raised from 83 in­vestors across Vir­ginia, to in­vest in promis­ing ven­tures.

NRV — for­merly known as New Rich­mond Ven­tures — was cre­ated in 2011 by a group of Rich­mond-area busi­ness­men in­clud­ing for­mer Ukrop’s Su­per Mar­kets Inc. Chair­man and CEO James E. “Jim” Ukrop.

At a later stage of growth, com­pa­nies can also turn to ven­ture cap­i­tal firms such as Rich­mond’s Har­bert Growth Part­ners, which has in­vested in lo­cal ven­tures such as med­i­cal prod­ucts maker Kaléo Pharma Inc. and health ser­vices provider En­vera Health Inc. Har­bert typ­i­cally in­vests in busi­nesses that have al­ready raised cap­i­tal be­fore, and that are show­ing growth of 50 to 100 per­cent per year.

The avail­abil­ity of money in a re­gion for star­tups at each stage of de­vel­op­ment is of­ten re­ferred to as the “cap­i­tal stack.”

Rich­mond has of­ten been per­ceived as lack­ing a well-de­vel­oped cap­i­tal stack com­pared to many of its peer cities.

But Car­rie Roth, CEO of Ac­ti­va­tion Cap­i­tal and of the Vir­ginia Bio+Tech Park in down­town Rich­mond, noted that a re­port last year by en­tre­pre­neur Chris Heivly, co-founder of Mapquest, ac­tu­ally iden­ti­fied ac­cess to fi­nan­cial cap­i­tal as one of the re­gion’s top strengths.

“You hear folks say we don’t have enough cap­i­tal here, but we have a ma­ture cap­i­tal stack,” Roth said.

There are, how­ever, “cer­tain gaps” in the stack where star­tups can fal­ter for lack of ac­cess to in­vestors, said Mary Doswell, a re­tired ex­ec­u­tive with Do­min­ion En­ergy and founder of Doswell Strate­gic Con­sult­ing Ser­vices who serves on the Vir­ginia Bio+Tech Author­ity Part­ner­ship.

“This is the dan­ger area — it is that mid­dle ground where they don’t have enough to hold on,” Doswell said.

Light­house Labs is in­creas­ing its ca­pac­ity to sup­port early-stage star­tups, said Dan My­ers, who re­cently be­came manag­ing di­rec­tor of the or­ga­ni­za­tion.

But most of the fund­ing for startup com­pa­nies will likely con­tinue to come from out of state, he said. Cit­ing in­dus­try re­search, My­ers said Vir­ginia ranked fourth among states in terms of in­vest­ment dol­lar ac­tiv­ity in 2016, 10th in 2017 and 15th in the first quar­ter of 2018.

Ef­forts are un­der­way to help star­tups get fund­ing in the ear­li­est stages of de­vel­op­ment.

In Oc­to­ber 2015, lo­cal en­trepreneurs Brad Cum­mings and Will Lov­ing formed CVA An­gels, a net­work of ac­cred­ited in­vestors in cen­tral Vir­ginia who could be those “an­gel” in­vestors that back ven­tures in the early stages of de­vel­op­ment. Cum­mings said they formed the net­work af­ter notic­ing there was not an or­ga­nized way in cen­tral Vir­ginia to bring to­gether star­tups and po­ten­tial in­vestors.

“Ev­ery time we found out about a com­pany that was look­ing for fund­ing, we sent out an email to this group, which started at about 150 peo­ple,” Cum­mings said. There are now about 280 in­vestors in the group.

Cum­mings es­ti­mated that CVA An­gels has in­vested be­tween $3 mil­lion and $4 mil­lion in about 31 com­pa­nies in cen­tral Vir­ginia, or an av­er­age of more than $100,000 per com­pany. Re­cently, the group has started host­ing monthly “in-per­son” meet­ings at the 1717 In­no­va­tion Cen­ter, a new startup in­cu­ba­tor in Rich­mond’s Shockoe Bot­tom, where star­tups can pitch their busi­nesses to po­ten­tial in­vestors.

“There is no short­age of com­pa­nies that are look­ing for cap­i­tal, so we will con­tinue do­ing it monthly,” Cum­mings said. “The ex­cit­ing part of that is not just go­ing to be in­di­vid­ual com­pa­nies get­ting funded, but cre­at­ing more of a sense of com­mu­nity not just in Rich­mond but around cen­tral Vir­ginia.”

Some star­tups go a more non­tra­di­tional route to rais­ing money.

For in­stance, Heidi Drauschak and Sam Big­gio, both re­cent grad­u­ates of the Univer­sity of Rich­mond School of Law, are us­ing the crowd­fund­ing plat­form Kick­starter to raise money for their new ven­ture, CrowdLobby, which is it­self de­signed as a crowd­fund­ing site where peo­ple can con­trib­ute money to hire lob­by­ists for po­lit­i­cal is­sues. The Kick­starter cam­paign, which started Satur­day, aims to raise $35,000 to help build a new ver­sion of the CrowdLobby web plat­form.

“I think that crowd­fund­ing gives you a very in­ter­est­ing op­por­tu­nity to raise funds by build­ing a com­mu­nity at the same time,” Drauschak said. “You get the funds you need, in ad­di­tion to a com­mu­nity of peo­ple that care about what you are do­ing, that be­lieve in it and have ex­pressed an in­ter­est in be­ing part of it.”

If the ven­ture de­cides to seek out pri­vate fund­ing later on, it can show in­vestors that it has built a com­mu­nity of sup­port­ers, Big­gio said.

Jamie Chris­tensen, a Rich­mond en­tre­pre­neur and pres­i­dent and co-founder of the startup com­pany Out­door Ac­cess, said there are plenty of fund­ing op­tions for star­tups in the re­gion. “But you need to cast a very wide net, and it may

mean cast­ing that net out­side of Rich­mond.”

Boot­strap­ping for as long as pos­si­ble also is un­der­rated, he said. Many star­tups try to go for out­side fund­ing too soon. “The time to raise out­side cap­i­tal is when you have built some­thing and taken it to mar­ket — even if in a small way — and found cus­tomers who think it is great,” he said.

Boot­strap­ping has been the strat­egy for more than two years for Ticket Spicket, a Hen­rico-based startup that has built an on­line ticket sales plat­form for high school ath­let­ics.

Rus­sell Hertzberg, the com­pany’s co-founder and CEO, said the ven­ture has drawn in­ter­est from in­vestors, but so far it has cho­sen not to take out­side in­vest­ments. “We re­ally have been fo­cused on grow­ing our own busi­ness,” he said.

“I think the en­tre­pre­neur­ial en­vi­ron­ment in Rich­mond is great,” he said. “We have had some great meet­ings [with po­ten­tial in­vestors].

“I don’t have any doubt that the fund­ing en­vi­ron­ment is def­i­nitely ca­pa­ble for what we would be look­ing for.”



Nu­triati’s Michael Spinelli and Ta­tum Nolde test items made from chick­pea flour at the com­pany’s Hen­rico County of­fice. Lo­cal ven­ture firm NRV has been ac­tive in fund­ing Nu­triati and other star­tups in Rich­mond and across Vir­ginia.








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