I recently posted that I went to a Rockies Venture Club meeting. The main event of the evening was a panel discussing the state of technology financing in Colorado. The panel included Seth Levine of Mobius Ventures, Gary Held of CTEK, and Alice Kotrlick, Colorado Office of Economic Development and International Trade.
I won't bore you with a synopsis of the evening, but the panelists made a couple of points that I thought were significant.
Seth spoke a little about the cost of starting a Web 2.0 company. Part of why he mentioned this is because I had just pitched SharedPlan as such a company. It has been a bit of a challenge to estimate how much cash we will actually need, so I was keenly interested in these comments. He first stated that enterprise software companies always require $25 million got get going; that's just what they cost. (Salesforce spent about $50 million before generating positive cash flow.) However, the social network dynamics of Web 2.0 let those companies have significantly smaller marketing budgets than traditional companies. Seth stated that these characteristics might mean that they need $8-10 million, rather than $25 million. Sharedplan has some social aspects, since we're building online project communities, but it's difficult to predict the benefits of communal viral activity on our cash flow.
Gary also made an interesting point. He started by describing the growth of organized angel investor groups like CTEK, stating that there are something like 90 of them nationwide now. But then he went into the funding success rates of those who pitch to these groups. Nationwide, the average less than 2%, and West Coast Angels, probably the best known of these groups, last year examined over 600 investment opportunities, but only funded 3. Gary was quite proud that CTEK funded 5% of the companies they saw in the last year. I find those numbers remarkably low. Are there really that many problematic startups out there, or is the process broken?