Yasine Armstrong, Associate, Flywheel Ventures

Entrepreneurs with an idea for a product or startup company are often concerned about revealing information until they are far enough along that others can’t copy them. The concern is reasonable; the economy is globally competitive and entrepreneurs are looking to protect any edge they have.

One tool entrepreneurs often use is the nondisclosure agreement, or NDA. Nondisclosure agreements protect against the release of proprietary information and trade secrets. They are commonly used when outside technical expertise is required, when sensitive work must be outsourced, or when discussing the potential sale of the business.

Continue reading →

Paul F. Goblet, Financial Advisor, NM SBIC

The state legislature created the New Mexico Small Business Investment Corp. (NMSBIC) in 2001 to support the state’s small businesses and help communities by providing capital in the form of loans or equity investments. This move to invest a small portion of the State’s Severance Tax Permanent Fund into the state’s economy was made at a time of economic prosperity, but the pool of investment capital it created is even more vital in today’s economy.

Continue reading →

Paul Goblet, Financial Advisor, NM SBIC

When the New Mexico Small Business Investment Corp. formed in 2001, its founders envisioned the organization directly owning minority stakes in a large number of small New Mexico businesses that had received federal loans from the Small Business Administration or U.S. Department of Agriculture. While this seemed like a good idea at the time, it was a challenge to implement.

After several amendments to the founding statute, the NMSBIC formed cooperative agreements with professional capital and service providers, which the organization considered better qualified and staffed to make equity investments.

Continue reading →

John Chavez, President, New Mexico Angels (at time of writing)

Because they’re investing their own money, angel investors are picky about the ventures they bet on. Of the 80 deals reviewed by the New Mexico Angels in 2008, only four were funded.

One of these was Santa Fe-based Vista Therapeutics, which is developing nanotechnology tools that can help medical professionals make accurate and relatively inexpensive assessments of organ damage. The company received an additional $1 million in March.

Biotechnology companies like Vista Therapeutics receive about 18 percent of all angel investments, according to a November 2007 Kauffman Foundation poll of 86 North American angel investor groups. Other industries favored by angel investors include software (19 percent), business products and services (16 percent), consumer products and services (15 percent), hardware (12 percent) and media/entertainment (7 percent).

Continue reading →

Scott Caruso, Partner, Flywheel Ventures

In the wake of a financial crisis that spread quickly from Wall Street to the rest of the world, many small businesses are finding traditional funding sources, including debt financing, harder to secure. Many entrepreneurs are consequently turning to venture capitalists to finance the growth of their businesses.

The decision to seek venture capital is a strategic one that requires thought and planning. Venture capitalists generally invest in high-growth companies that have potential to create a sizable return. Venture capital isn’t for everyone, but it’s ideal for companies aiming to acquire a large market share in their industries until they can be acquired by a bigger player or go public.

When looking for venture capital, it’s critical to target a firm whose mission and goals align with your own and to understand the firm’s economics and investment patterns. Doing this important legwork before seeking venture-capital funding will allow you to be more efficient and successful in achieving your funding goals.

Sizing up the venture-capital alternatives: The first step is to qualify the firms you plan to approach, beginning with fund size, the clearest indicator of a firm’s investment strategy. A firm that operates a $50 million fund might make investments between $2 million and $5 million, while a $500 million fund might make investments in the range of $15 million to $20 million. Understanding the amount of capital a firm is willing to invest helps you determine if it can meet your funding needs.
Continue reading →

Paul F. Goblet, Financial Advisor, NM SBIC

Mention professional equity capital in New Mexico, and technology start-ups typically come to mind. That’s because most private equity investments target technology-transfer opportunities emerging from universities and national laboratories based in the state.

With the support of the New Mexico Private Equity Investment Program, more than $350 million in capital has been committed to 22 funds that directly benefit New Mexico businesses, typically in the technology sector in the Albuquerque area. But how do non-technology entrepreneurs or entrepreneurs outside of Albuquerque get their businesses going, especially in an unstable and unpredictable economy?

Help begins at home

Realizing that business ideas exist outside of Albuquerque and the technology sector, the New Mexico legislature in 2000 created the New Mexico Small Business Investment Corporation to focus on financing small businesses. Originally funded with $10 million from the Severance Tax Permanent Fund, it has swelled to more than $87 million thanks to subsequent commitments.

Continue reading →

Tom Stephenson, Managing General Partner, Verge Fund

Raising equity capital for your business never happens in a vacuum. External forces inevitably affect when and how and where you hunt for investors, just as they affect your decision about how much money you’ll need to support your company for a few years until you start showing a profit.

External forces include the financing market — the universe of people and institutions that constitute funding sources for your company — as well as the larger business market in which you operate. Understanding these forces will help you develop a strategy for fundraising.

Beware the bubble

Pure financial investors are in the game to make the most money they can from their investment in your company. But even they can make mistakes and act impulsively.

Investors have no more insight than you do into how a market or an individual company will evolve. They, too, can misread the economic signs and underestimate or overestimate the market appeal of a particular product or service. Their fallibility is one reason why certain market segments get “hot” and others get “cold.”
Continue reading →