By LAURA LOREK
Founder of Silicon Hills News
He sketched out his plans for TreeHouse during a ski trip with some friends in Boulder, Colorado. A few years later he left his investment banking job to launch TreeHouse in South Austin in October of 2011. He also raised $8.5 million from 50 angel investors and capital investment firms to turn that napkin into a reality.
Loomis, now managing partner of Quiver Capital Group, learned a lot in the process. He shared his experiences and advice on Thursday at a Spectrum event put on by the Texas State Small Business Development Center held at Norton Rose Fulbright’s downtown Austin office.
Loomis spoke with a panel of experts on fundraising for entrepreneurs. The other speakers included Michele Skelding, senior vice president global technology and innovation for the Austin Chamber, J. Richard Johnson, a certified business advisor with Texas State’s SBDC, Ann Benolken, a partner with Norton Rose Fulbright, Chris Shonk, managing director of Liahona Ventures and Morgan Flager, partner with Silverton Partners.
Loomis advised entrepreneurs to create a “bad-ass pitch deck.”
“It’s going to be really hard to raise money if you’re not inspiring someone,” he said.
The first time Loomis pitched his company his pitch deck did not impress his audience and neither did his clothes. He pitched his idea to a former Miss Oklahoma, the inventor of the marshmallow canon and the inventor of Musinex. One investor wrote him a $3,000 check and told him to go to Nordstrom to buy some new clothes. They did not invest in his business.
He advised entrepreneurs to get their idea on paper, create a pitch deck and start getting feedback on it.
Loomis also bought a list of the 6,000 richest people in the U.S. complete with addresses and phone numbers. It didn’t help him raise money, though. It’s easy to find high net worth individuals but it’s hard to build a relationship with them.
“Raising money is a little like getting married,” he said. “You don’t ask someone to marry you on the first date.”
The vast majority of companies seeking funding don’t get it, Loomis said.
“I needed to learn how to raise friends, not cash,” he said.
Out of 100 potential investors, 25 would show interest and maybe 10 would invest, Loomis said.
He recalled how he got invited to a billionaire’s house on Park Ave in New York. He wore his new Nordstrom clothes. When he walked into the house, Loomis asked the man about his artwork and if it was from a local artist. The paintings were original Rembrandts. Loomis got nervous and embarrassed. So he dove into his PowerPoint presentation and began to pitch his company. He looked up and noticed the guy wasn’t interested at all. He shut everything down and said to him, why don’t we just talk. The guy said good because I was about to throw you out of my house.
It’s important to know when to ditch the prepared remarks, he said.
Loomis also sent his potential investors hand written notes. With one investor, he sent him a note on his anniversary. The guy was so impressed with his thoughtfulness, he wrote him a $250,000 check.
“Delight them with something unexpected,” Loomis said.
Getting venture capital is tough.
Venture capitalists look for high margin businesses that are growing quickly, said Morgan Flager, partner with Silverton Partners. The company runs two $75 million funds in Austin, which make between 30 to 35 investments each over the fund’s lifetime which lasts from ten to twelve years.
“We have to have outcomes that give us $20 million to $30 million in proceeds,” Flager said. “A lot of people don’t necessarily understand how that economic model works.”
Silverton Partners has made 25 investments in Austin ranging from two guys and a dog to a $75 million company, Flager said. He advised companies to go as long as possible before raising venture funding.
Benolken with Norton Rose Fulbright also advised startups to get their records in order before seeking financing.
“Get dressed for the party before you go,” Benolken said. “Don’t go with one shoe on.”
If a company doesn’t have written contracts and other records then it could kill a deal, she said. She also advised startups to review any offers with a lawyer before signing if they claim to be non-binding. Even emails with employees promising equity can be binding, she said.