Securing venture capital remains central Indiana issue

Accountant Erin Eberly, a partner at Katz Sapper & Miller, told attendees at IBJ’s Technology Power Breakfast on March 9 that one of the biggest challenges local companies face is finding the capital they need to grow.

“They’re having to focus so much time and energy on raising capital that it takes away from what they’re really good at and growing their company,” she said.

Eberly was among six technology leaders and entrepreneurs who took part in the event at the JW Marriott. Fishers Mayor Scott Fadness, Doxly CEO Haley Altman, Pondurance co-founder Landon Lewis, One Click co-founder Angie Stocklin and Launch Fishers founder John Wechsler joined her.

Here are edited excerpts from the conversation, which was moderated by IBJ Managing Editor Lesley Weidenbener.

Weidenbener: Erin, could you talk a little bit about your clients’ need for venture capital?

Eberly: It’s one of the most daunting challenges that these companies face. Not only is the process of securing investment daunting, but I think really understanding just how long it takes to raise money and to close a round. And so financially, I think it’s important to really grasp how long of a runway those funds can provide for growth and operations, and then really, what does that cash burn-rate look like? And how long … before you have to go through another round?

Weidenbener: I’m curious, the entrepreneurs here—Angie, Landon, Haley—have you all experienced that?

Altman: So I’ve seen it from two different sides. I was an attorney for over 10 years and venture capital was kind of my specialty. I did it on the West Coast in Silicon Valley. … You could trip over a venture capitalist when I worked in Palo Alto, and here, it’s just a lot different.

I think I’ve seen over the time frame that I’ve been back in the Midwest, the amount of capital that’s come here is growing and our ability to attract capital outside of the state has improved.

[Doxly] had partnered with High Alpha, which is a venture studio, and they’ve done an incredible amount through Scott Dorsey and Kristian [Andersen], Mike Fitzgerald and Eric Tobias, in terms of helping to bring capital to Indiana. … There are so many people here that are connected to people by different degrees that can actually help raise capital.

Wechsler: We are seeing a lot of interest in [internet of things] investing. I hope everybody saw it yesterday—Allegion’s announcement. They announced a $50 million IoT fund. There are other major investors in Indiana that are shifting their focus into kind of that next wave. … We are seeing an influx, I think, of capital and it’s up to our entrepreneurs to go get their share of that.

Weidenbener: Angie or Landon, have you all turned outside for additional capital?

Lewis: So we have just recently started entertaining the idea of taking investments. This far, essentially all of the proceeds or seed funding has happened because our consulting and advisory business has been an investor and what really we have is kind of an incubated startup for 24/7 security monitoring.

Weidenbener: Angie, how has One Click benefited from being self-funded?

Stocklin: It really has allowed us to make our mistakes on our own. We kind of grew our business out of our house for the first year and a half. We didn’t have to answer to anyone, so we were able to grow at our own pace and make those mistakes without people breathing down your neck, which I think is a really interesting way to do it.

And so now that we’re kind of on our feet, we can continue to run off of our profit. It gives us an opportunity to take on additional capital if we need it at some point in time because we’re still the majority owners of our business. So I think it gives us a lot of flexibility. It’s allowed us to grow at our own pace, which is pretty cool.

Weidenbener: The Holcomb administration is about to launch the $250 million Next Level Fund. How big of a help do you all feel like that will be in terms of providing some funding? And can anybody weigh in on how important it is that a portion of that money stay here in Indiana?

Fadness: It's a big symbolic gesture that this administration is very interested in trying to understand the challenges of this ecosystem and trying to help in creative ways. Two, to your point about making sure that it has a local flavor, to make sure that the local entrepreneurs have opportunities, I think that is critical. So I think we should all be watching and making sure that that does occur.

And, finally, I think there’s great opportunities to leverage that money against other venture capital that would be interested to come in to Indiana to be a part of all of what everyone here is doing. If we execute it well, it could be certainly impactful to the ecosystem.

Wechsler: Related to the Next Level Fund and Hoosiers investing in Hoosiers, the problem that we need to solve is: We need to get that flywheel of this virtuous cycle of startup success and then reinvest. When our entrepreneurs are forced to go out of state to bring capital in to their companies, those ones that have great exits, where does that money go when they close? It all goes right back out and we’re left on the treadmill running again to go get more investment capital.

If we could see more of our older, of the legacy or what’s called traditional business owners, invest in our startup community … we would create more wealth in our community that would then spawn a couple thousand entrepreneurs to go do their next one after their company has gone public or sold.

Altman: The Next Level Fund is … a fund of funds, where it will invest in funds that will invest in Indiana and so it almost becomes like a match to the investments. So one of the things it can do is help bring capital in from other sources and we need capital wherever it is.

But I completely agree with John. … You know, Zylo just raised $9.3 million and the majority of it's coming from the west coast, and that's amazing that they were able to bring that in and do that large of a round. But if they're successful, that money will go out of the state. So how do we find more ways to have angel networks or funds or bring in fund managers that can collect people to invest here so that the Next Level Fund can invest in those funds?

So then you're furthering the impact of the money that's already in Indiana to match with Indiana money to go into Indiana companies. Then this really helps kind of create the cycle, just like John said. So you want to find as many ways to leverage the Next Level Fund with Indiana dollars to continue that growth.

Weidenbener: Erin, how do you counsel your clients about trying to figure out where to go get money that they need?

Eberly: It's really networking. It's really going to those who are experienced … surrounding themselves with good mentors that have these connections that can go out and talk, tell their story. Really focusing on what's available here within the community and getting people to believe in that. Having that connection to lots of people is really important.

Weidenbener: John, I was struck by something you said … about trying to find people who have money already, who have made money in Indiana, and reinvest in tech. How do you talk to people who didn't make their money in tech, people who have old money or people who founded companies that are non-tech related, how do you encourage them to think about investing in technology?

Wechsler: That's a great question. If we can solve that one, I think we're all going to jump up and down with joy. I think there are a couple things: One is you can talk about the way they innovated and the way they disrupted an industry at one point in time, because they did the same thing that we're doing today in the tech space. It's a little bit different, the software, the technology, the devices can be a little daunting if you're not a digital native or haven't grown up in that industry.

Number two is the portfolio theory, right? I mean by not investing in this you're almost irresponsible as an investor. But the idea is, you know, responsible investing means you invest across the spectrum of assets. I'm not saying you should go all in on this or Bitcoin or anything else, but a smart investment portfolio is one that includes a little bit of risk on some emerging technology.

I think the Next Level Fund is going to provide us a great bit of air cover to go out and say: Look, our state and our governor believes in this enough to invest our … road fund money in this to get a good return for our state. Maybe this is something you should look at, too. So I mean those are three ideas that I think might cater to a more traditional kind of legacy wealth investor.

Fadness: Where I'm optimistic about getting some of this money that's not traditionally in the technology vertical is that technology's everywhere now. … If you can articulate a story to a wealthy farmer about how technology's transforming their business, they'll have an easier conceptual leap to maybe get into that world. I think the fact that technology isn't a stand-alone island of industry vertical but rather is really horizontal across a lot of the industries where people have made significant resources … if we can sort of articulate how that solves problems we have a chance of bringing those people into this market.•