Original Article via Phoenix Business Journal
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Arizona and the Valley have an ongoing challenge with venture capital — the problem is there’s still a lack of it. What’s missing, at least now, are more people who want to fund innovative startups flourishing around the Valley.
That said, there is a growing number of venture capital and angel investors throughout the state, but more needs to be done.
New groups, such as the Arizona Founders Fund, have formed to help early-stage tech companies raise seed funding while other groups, such as the PHX East Valley Angel Investor Initiative, are working to grow the angel investor pool. Others want to make connections to the people who can get access to capital.
Those involved in the angel and venture community in the Valley shared their thoughts about getting growing startups in front of those with the money during a March 8 roundtable hosted by the Phoenix Business Journal. The conversation focused on how to move beyond thinking there’s not enough money to getting companies ready to secure funding.
“I think the argument about there’s not enough capital in Arizona is a distraction,” said Jim Goulka, managing director of Phoenix-based Arizona Tech Investors, a 90-member angel investor group. “Because if there’s a good company, it will find capital.”
Increased effort
For several years there has been an increased effort to bring the entrepreneurial community together through various events such as Phx Startup Week, Venture Madness, Street Pitch and other local pitching opportunities, and collaboration between local venture and angel investor groups.
About 20 local technology leaders and investors have joined forces since 2016 as part of the Arizona Founders Fund to invest in local technology companies. The fund has invested in six local startups, and the plan is to raise enough capital to invest in 20 Arizona startups by the end of the first quarter of 2019, said Romi Dhillon, founder and managing director of the early-stage fund.
“The Arizona tech community today is more engaged than it was two years ago, and I bet it will be even better five years down the road,” Dhillon said. “The companies we look at now, versus 18 months ago, they are much more informed about their markets and their competition.”
Micah Miranda, economic development director for the city of Chandler, said he’s excited to see the evolution of the Valley’s angel investment community, which has for years been dominated by real estate investors adverse to putting their money behind tech ventures.
“We shouldn’t be trying to compare ourselves to Silicon Valley,” Miranda said. “We are showing what it means to be an angel and venture capital investor.”
Finding the out-of-towners
Scott Kelly, founder and CEO of Phoenix-based Black Dog Venture Partners, which invests in local startups and hosts regular FundingPost events to bring out-of-town investors to Arizona, said while he’s had some luck bringing investors to the Valley, more needs to be done.
“There’s a lot of events about building a community,” Kelly said. “There’s mentorship. There’s training. We’ve done a lot of practice. But there’s not enough opportunities for entrepreneurs to get in front of investors in volume.
Tallwave Capital principal Nate Mortensen said there is plenty of talent in the Valley’s entrepreneur community. He pointed to the Scottsdale-based venture firm’s first event in January 2017 that helped Chandler fraud prevention software firm Emailage Corp. raise $10 million in a Series B round in August.
“Arizona produces a lot of talent,” Mortensen said. “Currently we don’t have enough opportunity for all that talent to maximize its potential. So we will lose some top performers. How do we then bring them back after they have been seasoned?”
Tallwave Capital, founded in 2014 with a $13.15 million investment fund, has completed 19 investments, about half of which are in Arizona.
It has done deals with 43 other venture firms across the U.S., and its strategy is to build more connectivity back to Arizona to bring more outside capital to do deals here.
“There’s a lot of interest in Arizona because it’s cheaper to do business, it’s more pro-business,” Mortensen said. “There’s also a lot of funds and former venture capitalists that say don’t change what you’re doing in Arizona.”
Chandler-based Kadima.Ventures co-founder and CEO Tim Wales said his group hosted an Innovation Fair in January at Westworld, bringing more than 400 investors to the Valley to meet with more than 100 companies. He said the event produced four term sheets.
“If we continue to work together and collaborate, we’re going to drive various initiatives,” Wales said.
The fifth annual Venture Madness startup competition held in January in downtown Phoenix was another opportunity to bring in out-of-town and local investors with promising startups.
Making connections
ATI’s Goulka said he now knows more than 25 different VC firms from the recent Venture Madness conference that his angel group can turn to when their startups are looking for money.
“The nature of collaboration is getting to know more and more people, regardless of where they have their offices,” Goulka said.
The local community has done a good job of getting companies ready for angels and first-round investments, but many companies aren’t ready to take the next leap, Goulka said.
“Investors are hunters,” Goulka said. “If there’s no game, the hunters are going to go somewhere there is game. Hunters are looking for the biggest game to hunt. It all starts with the companies.”
Phoenix-based Hool Coury Law, which works with high-growth companies and investors has its Partner Michael Hool saying making connections is key to the region’s growth in funding companies. He’s worked to connect Arizona State University with San Mateo, California-based Draper University, founded by Silicon Valley venture capitalist Tim Draper in 2012.
“The more we can plug our entrepreneurs into those types of things is great,” Hool said.
