UChicago Innovation Fest Event Spotlight: Fundraising from Venture Capitalists
Starting a company is hard. Getting venture funding for your company is even harder. That’s what we learned this week at the UChicago Innovation Fest sponsored event “Fundraising from Venture Capitalists.” The speakers featured:
- Kevin Willer (Booth ‘10), partner at Chicago Ventures, who served as moderator;
- Liz Kammel-Tilatti (Booth ‘13), founder and CEO of ZipFit Denim, a service to help men find perfect fitting jeans using smart algorithms with free tailoring and shipping;
- Aaron Dallek, Cofounder and CEO of Opternative, a telehelp-style platform working to provide the most convenient way to get a prescription from an optometrist for contacts and glasses, with exams taking less than 25 minutes with the digital prescription delivered in 24 hours or less;
- Jason Felger (Booth ‘10), CEO of Food Genius, a leading foodservice data provider supporting foodservice manufacturers, distributors, and operators with straightforward ways to interact with, manipulate, and extract value from messy foodservice data, which recently sold to U.S. Foods.
When did you decide to raise money for your idea and what were your first steps?
For Liz and Aaron, it was a lot about bootstrapping — putting in some of their own money, or taking very small angel investor checks. Aaron stressed that taking convertible notes allows you to take in small amounts of funding without having to do a multi-million dollar round, and that funding doesn’t value your company, it just sets terms for what money could be converted into equity down the road. For Jason, it was when his company went through TechStars, an accelerator for early-stage companies, and then working through 1871, a space that provides resources and consulting for Chicago area small business entrepreneurs including finance, loans, and venture capital information, that his company got its legs underneath them enough to take the next step. “Getting involved does bear fruit, and does a lot — particularly for technology — to bring a focus on you and help you know the investors before you show up on their doorstep to ask for money,” Jason said.
What were the tactics each panelist used when it came time to raise money for the first time?
For Aaron, it was pretty basic: “It’s not about how pretty the deck is, it’s about the content, it’s about the idea, it’s about the market size, it’s about the understanding of how venture or whoever you’re raising, the calculus at work.” He stressed that entrepreneurs need to prove that their business can work first, by building a prototype, testing on real people, and proving correlative values between our test and traditional way of doing an eye exam. For Liz, it was all about how potential investors could fit with her company, not necessarily the other way around. As a woman, she looks for more in her investors: If they have made 100 investments and all of those investments are in companies led by white men, they wouldn’t be the best match for her — she stressed that the real world of venture funding isn’t Shark Tank, and you should interview them just as much as they interview you. Jason looks at investors on a spectrum: Are you quite literally only looking for their capital then get them out of the way so you can run the business, or do they want to be in the business with you in a very engaged way? He stressed that you should think about that interaction with your investors and ask those questions on the front end.
How do you meet at possible funder?
All the panelists agreed on one important aspect of looking for funding: The warm introduction. You only need one or two good people to introduce you to the investor community in any city — no one takes cold emails, so you need an email introduction from someone in the network. The universal takeaway was that LinkedIn is your friend, and you should use it constantly. Liz made a very cool deal to fit and dress an NFL football team by reaching out through a LinkedIn connection, so you never know what could happen!
How do you find investors who fit your profile, and how do you go about profiling investors and who they invest in from a minority standpoint?
Liz reiterated that you should look to their websites and look at the companies they invest in, and look at founder profiles. Do your due diligence on them, too — if you’re talking with a potential investor, ask if they’ll intro you to other people who worked for. Aaron also suggested looking at it from the other way: Find an entrepreneur you like and go on CrunchBase — the leading database platform to discover innovative companies and the people behind them — and look them up.
How do you know when an accelerator is right for your company?
Jason stressed that there’s not a blanket answer, but there were two unknowns for his company that Techstars helped address: (1) Refining the business model, and (2) Confirming that the company is venture-backable. An accelerator helped him figure out those two unknowns — and while they can be expensive, you can always negotiate, and in fact, they expect you too.
How do you keep your investors up to date?
The audience member who asked this question explained giving updates always makes him so anxious that he feels like he’s about to puke! All the panelists emphasized to share the good, the bad, and the ugly, because investors need to know and they can help you. They don’t necessarily care if you did or didn’t make your goals, but they want and need to know why you did or didn’t — they aren’t in your business day-to-day like you are, and so explanations are key.
And finally, how do you know what percentage of your company to give away for the investment? How you make the decision about whether that’s a good deal or not?
For Liz, it was all about research. She looked at reports and data, but she stressed that it’s always a conversation, not just a number. Jason suggested using real-time insight into what the market is bearing, and recommended very strongly that you shouldn’t have the fixed perception about what you have to give away or what you’re willing to give away without doing due diligence yourself. Aaron ended with a simple observation: If you want to get down to the business of building a company, set your expectations lower. If you build the right company, you’ll find the right VC.
UChicago Innovation Fest, a three-week celebration of the University of Chicago’s entrepreneurial and innovative advances and solutions, kicks off May 12 and runs through June 2, with more than 35 sessions scheduled across the city and UChicago’s downtown and Hyde Park campuses. Join us to share big solutions to problems in Chicago and across the globe, find new collaborators, and rub shoulders with leaders in business, healthcare, tech, and social and environmental policy. Highlights of this year’s celebration include the 20th anniversary of the Polsky Center’s Edward L. Kaplan, ’71, New Venture Challenge, a behind-the-scenes look at life as an entrepreneur at the university’s Chicago Innovation Exchange, and events featuring faculty who are bringing groundbreaking advances out of the lab and classroom.
This annual festival is led by UChicago’s innovation leaders, including Arete, the Chicago Innovation Exchange, the Institute for Translational Medicine, the Polsky Center for Entrepreneurship and Innovation, the Social Enterprise Initiative, and UChicago Tech. Additional sponsors include UChicago Urban, UChicago Urban Labs, and the University of Chicago Harris School of Public Policy. Please join us for our next event!