So you've got an idea for a better mousetrap, but you need money to get it to market. What do you do?
According to entrepreneurs and investors in startup companies, here's the plan: Pray for angels.
Financing from "angel investors" -- mainly rich folks with money to invest -- is a crucial source for capital for high-tech entrepreneurs.
But to get this financing, you need to develop a working prototype and put it in the hands of potential customers, according to people who invest in startups.
Investors are happiest when they see customers itching to buy. A little revenue also does a lot to boost your chances.
If you're the nuts-and-bolts type (or the software or science type), you'll have to get a businessman involved. Investors want business and marketing skills in the ventures they back.
Next, pray to the "angels" that they will shower you with investment money -- in trade for a stake in your business, of course.
That's pretty much what Nathan Pettyjohn of St. Louis did in 2008. Pettyjohn, 30 at the time, was in the retailing business. He'd watched customers wander clueless through stores, unable to find what they wanted.
Why isn't there a smartphone application for that? he thought. So he started Aisle411, a service for mobile phones that can guide shoppers directly to the item they're looking for in the store.
He interested a couple of partners with software backgrounds, and they went to work. Their problem: "very little money," says Pettyjohn. They tapped their own savings, and raised money from family and friends. It was enough to pay for a marketing study to determine what customers wanted.
Then Pettyjohn did two things that investors like to see: He got other businesses interested in his product. The Ace Hardware chain and a supermarket chain in Springfield, Mo., signed on and provided inventory data for their stores.
Next, he partnered with an experienced entrepreneur, Matthew Kulig, co-founder of the Clayton computer security firm Global Velocity.
That got Pettyjohn ready to meet the angels.
Angels are mainly wealthy people, although investment companies, state development agencies and universities sometimes pitch in. St. Louis University, for instance, is devoting $1 million from its endowment to the "Billiken Angels" group that invests in entrepreneurs with a SLU connection.
Angels invest in startups. Their bigger cousins, venture capital firms, come in later after a firm is better established and needs money to grow. Both hope to cash out big when entrepreneurial firms issue stock to the public or sell out to larger companies.
Angels know that half their investments will fail, and they hope to make it up by big profits from the other half. The long-term return for angel capital is 10 percent, which is only slightly better than the stock market.
The good news is that St. Louis is growing more angels.
"The real growth is in the angel funding area," says Jerome Katz, professor of entrepreneurship at St. Louis University and director of the Billiken Angel Network.
Angels work alone or form groups to screen investments for members. Besides the Billiken group, St. Louis has the Arch Angels. The FinServe Tech Angels invest in financial services technology.
Capital Innovators just launched a program to "accelerate" five fledgling entrepreneurs at a time, handing them $50,000 each, office space and mentoring over a 12-week period in St. Louis. They were chosen from 165 applications.
Most Popular Stories
- SpaceX's Satellite Launch Is 'Game-Changer'
- Reid Confident Congress to Pass Immigration Bill
- Maui Visitor Killed in Shark Attack
- Donors Abandon GOP Over Gun Stance
- Mexico: 'Extremely Dangerous' Radioactive Material Stolen
- CEOs More Optimistic About Economy, Hiring
- Climate Change Early Warning System Urged
- Private Sector Employment Surges by 215,000 Jobs
- Calif. Likes Christie, Says Tea Party's a Drag
- Newtown 911 Tapes Being Released Today