Better Business Podcast EPISODE 9
Funding Options for Entrepreneurs
Guests: Jeanette Miller, assistant clinical professor of entrepreneurship and associate director of the Farrell Center for Corporate Innovation and Entrepreneurship, and Charles Callahan ’68 Mgmt, managing partner, Triangle Venture Partners LLC
Funding for new entrepreneurs has quickly dried up. Over the final quarter of 2022, startup investments in North America declined by more than 60% compared to the same period in 2021, according to a Crunchbase report. Recession fears and a softening tech stock market appear to be the primary drivers.
To better understand how we got here, Charles Callahan, managing partner at Triangle Venture Partners LLC, says we need to expand our focus to include the last decade. For much of this period, “there was lots of capital available,” he says.
“Venture capitalists were encouraged, if not ordered, to put that money to work,” Callahan says. “So, they invested wherever and whenever they could. And their hit rates, if you will, didn’t appreciably suffer for it.”
As a result, many new entrepreneurs “got the impression that capital was easy to raise, that the bar was low, and that as long as they had a good idea and a PowerPoint deck and were willing to make the sacrifices to get in front of venture partners, ultimately, they would get funded,” he says.
In reality, venture capitalists were never that liberal with their investments, not for the vast majority of new entrepreneurs, at least. And when, in the first quarter of 2022, the stock market started to decline as mortgage rates and interest rates increased, venture capitalists reacted abruptly, effectively putting an end to the “free money” era, as Callahan describes it.
He predicts the situation may remain as is for at least another year. It isn’t as dire as it seems at first glance, however.
Just a few years ago, it was unfathomable that an entrepreneur would try to get a new product off the ground without an investment from a venture capitalist, Callahan says. But in the time since, alternate streams of capital have cropped up, which has made entrepreneurs less dependent on the whims of venture capitalists.
Jeanette Miller, associate clinical professor of entrepreneurship and associate director of the Farrell Center for Corporate Innovation and Entrepreneurship, says her graduate students are attempting to grow their concepts as much as they can “organically” before exploring their options among these new investment alternatives.
“The savvy entrepreneurs understand — particularly the first-time entrepreneurs — they don’t necessarily want to take venture capital until they have to,” Callahan says.
Of course, the unspoken fact is that capital investment has, like so much of business, operated largely as a boys’ club. In other words, it’s been significantly easier for men to obtain funding for their ventures than it has been for women.
Miller, for one, is optimistic the system is gradually becoming more inclusive.
“[I] sit on an impact investing fund’s board, and what’s really exciting is it’s a global investment fund and the majority of all their investments are female-led,” she says. “Unfortunately, it’s global and not as much in the U.S., but this fund is part of a larger trend. Many large investment groups are now putting a portion toward ESG [environment, social, and governance] causes, and that encourages me a lot.”