Piggy Bank and Businessman

In Austin, new entrepreneurs often struggle to get cash, especially that early investment to fuel their startups from inception to billion dollar ventures.

Austin is also known for bootstrapping.

But lately, a number of venture capital firms have launched big funds here and others from Silicon Valley, Houston and Boston have offices here or regularly travel to Austin to hunt for good investments.

Last Tuesday, Lowenstein Sandler and ATX Factory, hosted VentureCrushATX to give startups advice on preparing their company for an investment. A panel discussion featured advice from Adam Marcus, general partner of OpenView Venture Partners, based in Boston, and L.K. Pryzant, senior analyst with Mercury Fund, an early stage investment fund based in Houston. Kathi Rawnsley, partner with Lowenstein Sandler, moderated the discussion.

About 100 people from the Austin technology community attended the gathering held at ATX Factory. Here’s 10 takeaways from the event.

  1. It’s hard to get venture capital. Marcus said his firm receives 185,000 pitches in its database and shifts through all that to find about 5,000 companies that someone from the firm contacts and it’s narrowed down to about 40 companies they meet with and then ultimately, they invest in four to five companies each year.
  2. What do they look for to make an investment? Reoccurring revenue, customer retention, growth with ability to scale and become a multi-billion-dollar company, Marcus said.
  3. Don’t just talk to the VC partners. It’s important to talk to associates and analysts, Marcus said. Partners in a VC firm don’t have time to meet with everyone and associates and analysts are often the first line of communication with a firm. At the end of the day, it’s about getting the junior people excited about the profile of the company so they refer it to a partner, Marcus said.
  4. Startups in Austin need to get their brand noticed by the coasts by participating in leadership activities, Pryzant said. There is a lot of hype in Silicon Valley, she said. But that doesn’t mean those companies have better metrics or better teams than they have here, she said.
  5. In Austin, entrepreneurs are more transparent and less full of shit, Marcus said. But the entrepreneurs here need to have more bravado and present their ideas bigger, he said. There’s a balance between being obnoxiously audacious and being a little more ambitious with your goals, Marcus said. The middle of the country is modest to a fault sometimes, he said. A $4 million to $5 million annual revenue run rate company in Austin needs to be able to tell a story about how they can get that to $3 billion or $4 billion, he said. It’s all about how you pitch your story and get people really excited about it, he said.
  6. Entrepreneurs also need to understand the VC firm they pitch to and what they invest in and what their expectations are, Marcus said. For example, his company has a $300 million fund. If they invest $10 million, and they get $50 million return, they are happy. If they get a $100 million return they are jumping up and down and you’ll probably get a car, he said.
  7. Who you pick as your VC partner is extremely important because if you get a big name to invest in the company early on and not in follow on rounds, everyone will wonder why they are not investing, Marcus said. Also, if things go sideways, some firms in Silicon Valley cut off the entrepreneurs. They stop returning phone calls and attending board meetings, he said. “If they think you are no longer a winner, you’re kind of dead to them,” he said.
  8. There’s a lot of hype in Silicon Valley. A startup company valued at more than $1 billion isn’t really a unicorn, Marcus said. Most unicorns will be sold for pennies on the dollar, he said.
  9. It isn’t always all about the team. The team in place is not as important as whether the entrepreneur can express the vision so they can recruit good people, Marcus said.
  10. Make sure when pitch you can tell how you are going to spend the money you raise, Marcus said. Building a company is really hard, he said. You are not going to get everything right, But you have to have a plan. You can’t just act like you’re just throwing something against the wall and hoping it will work.