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Home > Nanotechnology Columns > Xanofi > Funding Your Nano Startup

Miles Wright
CEO
Xanofi

Abstract:
our country has well-defined areas where there's just more money and opportunities for new technology companies. States like Texas, Ohio, and even Oklahoma seem to be outpacing my home state of North Carolina when it comes to political leaders realizing the critical importance of seed stage companies in the lifecycle of job creation.

So what are your options if you don't live in Silicon Valley? What are the pros and cons of different strategies that help to minimize under-capitalization?

August 24th, 2011

Funding Your Nano Startup

I was whining recently at a Texas conference about the challenge of finding seed funding for nano startups. Everyone's heard the same complaints - grant funding is too slow and unpredictable, angel funds are difficult to penetrate and my relatives/friends are tapped out.

"Where you from?" the guy in the next booth asked. I replied that Xanofi started in the Research Triangle Park region of North Carolina. He laughed. "You don't know what hard is until you try a startup in Waxahachie!"

My booth neighbor had a good point - our country has well-defined areas where there's just more money and opportunities for new technology companies. In his state of Texas, for instance, the Texas Emerging Technology Fund is a tremendous resource that already has a strong track record of both attracting other capital and creating jobs, and they fund pre-revenue ventures. States like Texas, Ohio, and even Oklahoma seem to be outpacing my home state of North Carolina when it comes to political leaders realizing the critical importance of seed stage companies in the lifecycle of job creation.

So what are your options if you don't live in Silicon Valley? What are the pros and cons of different strategies that help to minimize under-capitalization?

Unfortunately, there is no one method - no algorithm - for optimal funding. What I can share are some of the options and my general thoughts on each. At Xanofi, we launched with a one year proof of concept round to be followed by a Series B commercialization round. While most of the startups lately seem to favor grant funding (or more precisely have to settle for it), we intentionally did not seek early grants to get us into business. My general problem with relying just on grants to get started is that companies tend to languish and just subsist - it's virtually impossible to execute against a strategic plan when your fund comes in small, infrequent dollops.

Most folks in the tech world focus on SBIR/STTR funding along with local, perhaps university-related, grants. To get started, most of these are $100K or small and the cycle to receive them runs around 6 months. North Carolina is one of the progressive states that matches SBIR funds with state dollars to achieve higher impact. There are numerous good websites that can overview grant funding opportunities - the bigger question is whether this tactic becomes your primary or secondary source of support. At Xanofi, we like to think of grants as turning our hamburger into steak.

While some people don't like to raise money from friends and family, I believe nano companies have a better shot at survival if you can build a network of interested individuals; and it's not just about the money. It also will bode well for you down the road when there are other funding rounds - if you can demonstrate success, you're likely not starting at zero each round. Building a team of early evangelists for your technology helps in several ways, from opening corporate doors to simply having support through the rollercoaster of the first year. If you have the ability to raise a few hundred thousand through contacts, it's a huge benefit.

Some companies rely on early corporate partnerships for startup……I've witnessed both the highs and lows of this approach. At it's worst, early partnerships lock you out of markets and devalues your company because of exclusive relationships. While in the short term it feels good to be under the wing of a Fortune 100 company, it will become frustrating when you later realize you're getting a dime for a dollar in value. Your best advice in establishing these relationships is to recruit some grey hair to sit on your side of the table - experience goes a long, long way in crafting these agreements.

As a lean development proponent, the option I always like the best is to fund your company by finding something to sell. Start small and trickle your way into the market if you must, or find an early sub-licensing opportunity that gives up some of your potential markets in exchange for non-dilutive funding. This approach takes great focus on getting to the market with something real, and doesn't always set up well for all technologies.

The final, and most important, advice I give new entrepreneurs about fundraising is the following - focus on building your network. If you're intentional about telling your story to at least 4-5 new people each week, and you've built the mechanisms for your partners to do the same, funding opportunities can open up. It sounds simple but I'm always surprised at how many startups have no plan for extending their network of people - there are many excellent free or cheap tools to make this happen so there's no excuse! Excellent !

Visit www.xanofi.com to keep up with what Xanofi is up to.

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