Venture capital is still available for high-potential tech start-ups
Houston is a great place to start a technology company.
Basic and applied sciences and technology is abundant from the city's
Talent is plentiful. The cost of living is one of the very lowest of all major
The business of funding
True, the days of getting funding simply from an idea scribbled on a napkin with dot.com as the suffix have gone the way of the dinosaur. But for those technology companies that stick to the fundamentals, base the company on sound business principals, assemble a strong management team and can prove market validation, the opportunities abound.
Even with the market slowdown,
Venture capitalists invest in companies in which they feel they can gain a very sizable return on their investment. This is especially true in a turned down economy. VCs don't stop investing when the market is soft; they are merely much more selective. What has changed is a return to tradition. The dot.com blip notwithstanding, the same funding paths and fundamentals that were in place in the 1990s are still valid today.
Traditionally, an entrepreneur receives start-up and seed capital from friends and family — a decision based more on emotion than on knowledge-based due diligence or a demand to see a huge return on an investment. The investment is in the individual more so than the company or technology itself.
However, many of those investors who had been responsible for early seed capital have recently seen their own personal portfolios significantly diminished by the stock market tumble. They, like a traditional VC, are scrutinizing to whom they bequeath their available assets.
Ready for funding
In whatever stage an emerging technology company may be, several questions should be answered before the search for capital commences, including:
- "People invest in people." Is there strong management in place?
- Is the technology truly disruptive?
- Protection of intellectual capital. Is a patent in place or at least pending?
- Revenue as proof of concept. Does the company have paying and repeat customers? Is management aware of the worldwide revenue potential and/or limitations?
- References. Can the company/management provide not only business references, but customer references as well?
- Exit strategy. Is there an opportunity to provide a liquidity and a return on investment to investors?
Venture capitalists receive scores — if not hundreds — of business plans each week. Without a personal reference or introduction, an unsolicited business plan receives scant attention, regardless of how good the idea might be, because VCs routinely receive so many strongly recommended plans. The key to securing an appointment with a VC is to align the company with organizations or individuals known for providing quality candidates.
Many technology companies spend so much time chasing VC money that they frequently forget to investigate the many sources of federal funding available.
The Department of Defense, National Science Foundation, Small Business Administration, National Institutes of Health and the Department of Energy, to mention a few, all have programs designed to assist early-stage technology companies.
Through the Small Business Innovative Research program, the government provides approximately $1 billion annually to small businesses for early-stage research and development projects. Each year, 11 federal agencies are required to participate in the SBIR program and allocate a portion of their multimillion-dollar research and development funds to distribute as grants.
Additionally, the Small Business Technology Transfer program pairs small businesses with nonprofit research institution partners in order to combine entrepreneurial ideas with high-tech research efforts. The STTR program awards individual companies up to $500,000 for research and development. As with the SBIR, it is funded from a portion of the budgets from five governmental agencies.
Such governmental programs can provide young technology companies the money and time needed to offer proof of concept.
Applying for governmental grants is both an art and a science, as the application process is involved and lengthy. If the application states that the description must be 200 words or less, comply exactly with the instructions. Often a summary of 202 words will result in a rejection letter. Information on how to apply for these programs can be found on most of the agency's Web sites, or by contacting
Partnering with a nonprofit accelerator such as the
Paul Frison is president and CEO of the Houston Technology Center, a nonprofit business accelerator helping Houston generate a new, vibrant economy in key technology sectors, including energy, information technology, life sciences and NASA-originated technologies.