This is part 2 of our recap of Innovate Raleigh Summit 2018. The Summit brings together a lot of creative and innovative minds to discuss the future of the Triangle with regard to entrepreneurship and inclusion.
We attended a few sessions and wanted to share a few things that we learned:
The Future of Funding in Raleigh and Beyond
I had the pleasure of sitting in on the session “The Future of Finance” with the panel led by Jon Hayes, Founder, and CEO, RewardStock. Jon is a Raleigh native who will actually be appearing on ABC’s Shark Tank this Sunday, November 18th! His startup is an automated travel service that will use reward points to help you plan your next vacation at a fraction of the cost. David Gardner, Founder and Managing Partner of Cofounders Capital, Aalok Kanani, Director at Capital Coalition, and Representative Cynthia Ball, of the North Carolina General Assembly sat on the panel and shared their diverse and insightful views on the future on funding in Raleigh and North Carolina as well around the country.
I was somewhat shocked to find that while Raleigh provides an environment that fosters a community for start-ups (like the awesome conference) the legislation in place in NC does not, at least as far funding goes. Representative Ball was very candid when asked about it. According to the panel, our area is losing our best and brightest to other locations in the country that provide better funding options for start-ups. For example, many are heading down to Atlanta, GA to participate in programs such as Engage. I learned it’s up to us to speak to legislation about change and in the meantime find solutions that keep funding coming into Raleigh.
Funding Struggles for Start-Ups
The world of funding for start-ups is fairly new to me, and the panel was a great introduction. One of the biggest problems for start-ups is getting the initial term sheet written. A term sheet is a non-binding agreement setting forth the basic terms and conditions under which an investment will be made. It serves as the template to develop further, more detailed legal documents. A bad term sheet could be detrimental for both the start-up and the investor. Seed funds are also difficult for start-ups to procure. To acquire seed funding it sometimes requires a start-up to have a prototype of their product or software or already have some user engagement. Without initial funding that could be difficult to do. The phrase “you need money, to make money” comes to mind here. Start-ups need capital and beta customers to succeed, and sometimes the capital needs to come first.
Alternatives to VC Funding
Aalok suggests CRAG Funding, as an alternative to VC funds. Community Recreation Assistance Grant, or CRAG Funding, is to help offset the core costs of delivering recreation in communities. Opportunity Zones were another suggestion by Aalok. An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Both of these types of funding serves to help minorities and women and other start-ups who can’t get funding through VC.
If you’re looking for investors who are going to be more patient while you grow, David suggests that start-ups pursue mainstream investing, like crowdfunding. It is the best way to draw patient investors and help invest in your community at the same time. Crowdfunding allows you to raise small amounts of money from a large number of people. One of the main benefits of crowdfunding versus VC is that crowdfunding opens up neglected markets to individual investors. VC tend to go after high tech companies, leaving the customer sector unable to generate funds.
I left the session focused mainly on what was lacking here in NC, but quickly shifted my thinking to what can be done about what is lacking. There are so many opportunities for the large business owners and companies to invest back into the community by helping start-ups and keeping our people at home. By banding together to challenge legislation or even starting VC groups here in NC, it can help start-ups and the community as a whole continue to grow.
More on Innovate Raleigh
See what our Founder/CEO, Brian, learned about growing a city in part 3 of our recap: