Bill Baumel Speaks on Growth Equity Funds at 3 Rivers Venture Fair
Ohio Innovation Fund Managing Director Bill Baumel spoke as a panelist at the 3 Rivers Venture Fair on April 2, 2019. As one of the nation’s premier venture conferences, 3RVF attracted investors and innovators from across the country to network and learn.
In his panel discussing growth equity, Bill lent his expertise on a variety of relevant topics, including the different stages of company growth and their corresponding funding sources. Below, Bill shares his thoughts on what entrepreneurs and investors should expect in each funding stage.
Startup companies mature through three primary phases: seed stage, early stage venture and growth stage. Each stage brings its own areas of focus, challenges and investor types, so it’s important to understand how to maneuver in each phase:
Seed stage: Entrepreneurs are selling promise, coolness, and potential to investors, who are often times fellow techies or successful entrepreneurs. The main questions these investors ask include whether they like the entrepreneur, believe in the market, and if there is product uniqueness or coolness.
Early stage venture: The priority in this stage lies in continuing to enhance the product offering, building out the team, determining the best product/market fit for the application–which application in what vertical market target. The startup is focused on increasing its customer base, while building a sales process/funnel that is able to support $1-2 million in sales per quarter. At this stage, many VCs are “product” people. They understand both technology and the markets in which they are investing. They will be looking at everything from the team, intellectual property, development schedules, problem you are solving, nature of product (must-have versus nice-to-have), market size/growth, your offering versus the competition’s, and financial projections, including revenue growth, gross margin, and cash needs.
Growth stage: By this stage, the company’s team should be in place, and any holes in the team should be identified with actions in place to resolve. The product should be well baked, although there may be some potential product additions on the drawing board. Product positioning is established, and measurable marketing programs and target markets and verticals therein are well understood. It’s all about scaling from $5 to $10 million in revenue to $50 and $100 million plus. A large portion of the funds will go toward sales and marketing, with some product additions, to accelerate customer growth. Investors will be focused on operations and finance, so ensure that your projections are rock solid; they’re investing in the company’s growth reflected in these projections. Unlike seed and traditional venture, which are more local as they work day to day with their companies, growth stage venture funds will travel to where the company is at–coming from out of state or even internationally for the quarterly board meetings.
Overall, entrepreneurs should have a concise and impactful one or two-liner that explains what the company does and why it is so important. Additionally, remember that strategic partners are another key validation point for growth investors, sales channels and likely acquirer.