Wednesday, May 25, 2011

How I See It

It's time to innovate in providing access to startup capital

By Carl Stjernfeldt, general partner at Castile Ventures

Economic indicators tell us the economy is rebounding. Massachusetts relies on innovation and new companies to supply new high-paying jobs. Boston does have a concentration of repeat entrepreneurs, ideas, world-class universities and access to startup capital. But how many startups is enough to ensure Massachusetts’ leadership in tech innovation and the resulting economic health and jobs that implies?

As we continue the slow recovery, we must marshal our strengths to nurture genius and industry here, and I know the capital is there to support it. Mobile is a great example. Some claim Boston has lost the mobile and social media waves to the West Coast. Well, according to the mobile cluster of the Mass Technology Leadership Council there are more than 400 mobile startups employing 30,000 people in Massachusetts. We are sitting on a strong knowledge base of carrier and enterprise infrastructure, and the next generation of media and content-related expertise. Not only has Boston shined in the traditional area of infrastructure (such as Starent), but we have also produced some of the early and leading companies in mobile advertising (Third Screen, Quattro, et al).

Mobile is definitely an area where we will see the next generation of battle-tested entrepreneurs who successfully transition their companies through acquisition or IPO, and then rejoin the fray by repeating the process. 

Still, we must work to improve access to startup capital. To use a seasonal metaphor, if we can get more at-bats, we have a greater chance of winning the pennant.
Access to capital has always been a challenge for entrepreneurs and likely always will be. However, there are angles that make it less so today:

1) The ability to leverage one’s network, using tools such as LinkedIn, allows entrepreneurs to easily get in touch with the venture community. No one (in high tech) is more than 2 degrees away from most members of the venture community. The venture world is also striving to be more accessible through initiatives such as CriticalMass (http://criticalmassne.com/).

2) The capital efficiency of many new business models allows for more results to be achieved with less money. This means that the entrepreneur can often generate proof points before approaching venture firms and seek less funding.

3) The well-documented issue of gap financing can be solved with the active encouragement of the universities. The Deshpande Center at MIT is an unparalleled success story of how a limited amount of money can go a long way in allowing professors and graduate student to take revolutionary ideas and develop them into entities that are ready for investment.

4) The ability to network more effectively in combination with capital-efficient business models puts the angel community in a great spot. Successful entrepreneurs, following in the footsteps of their “West Coast brethren,” are becoming more active as angels — contributing money and experience to fledging startups.

5) Based on a tradition of business plan competitions like the MIT $100k, we are now seeing another expansion of the concept with MassChallenge, a broader-based competition that already has created outstanding graduates.

So, how can we realize the full potential that we have here in Massachusetts? We need to innovate in our use of new networking tools and behavior that connect startups to capital. We will need to re-double our efforts to ensure that foreign nationals don’t graduate from our universities and take their ideas home. And finally those of us who invest need to take advantage of the fact that the evolution of technology and the efficiency of early stage investment provides opportunities to diffuse risk and create greater potential rewards for entrepreneurs, investors and job seekers.

 

Carl Stjernfeldt is a Trustee of MassTLC. This is the third of 12 articles outlining the MassTLC 2020 Challenge — creating 100,000 new technology jobs by 2020.