You are viewing this article in the AnnArbor.com archives. For the latest breaking news and updates in Ann Arbor and the surrounding area, see MLive.com/ann-arbor
Posted on Thu, Oct 15, 2009 : 7:47 a.m.

Entrepreneurs jockey for capital amid economic crisis

By Nathan Bomey

The quest for capital inevitably conflicts with entrepreneurs' desire to preserve equity in a startup company.

The financial crisis, which has intensified entrepreneurs’ fight for cash, can lead to ill-advised decisions. That’s why Skip Simms, business acceleration manager director for Ann Arbor SPARK, said it’s imperative for entrepreneurs to stick to a strategy. Still, there’s no defined route to negotiating investment deals.

“It’s all art,” Simms said. “There is no template, there is no rule of thumb, there is no standard. Every deal is different. The whole negotiation is kind of a dance.”

That dance will be the focus of a panel discussion at the New Enterprise Forum’s monthly meeting tonight at SPARK Central office at 330 E. Liberty. The discussion, moderated by Simms, features Renaissance Venture Capital Fund manager Chris Rizik, Pixel Velocity CEO Eric Sieczka and Bodman attorney Timothy Damschroder.

Investors typically demand a slice of ownership in a company or interest payments in exchange for capital. Entrepreneurs can’t afford to give up too much equity or pay high interest rates, but they also can’t be too picky, Simms said.

“The investor always has options. The company doesn’t necessarily,” he said. “So at the end of the day the investor can say, 'OK, you don’t like what I’ve got,' (and) they’ll walk. An entrepreneur has to know that in advance - needs to prepare themselves for allowing that investor to walk, or here’s how much further I can bend and here’s how far I’m willing to go to get the investor to say yes.”

Private investors typically seek the highest potential rate of return. However, public economic development funds seek to reap decent financial returns in addition to proof that the funds will contribute to the region’s turnaround.

Simms, who leads the Michigan Pre-Seed Capital Fund, said investors need to shape their pitch according to their audience.

“If you’re getting money from a government entity, whether it be the 21st Century Jobs Fund, the MEDC, SPARK - and this applies anywhere in the country - those monies are really intended to help companies grow and expand. They are not out there to get a high return,” Simms said.

Contact AnnArbor.com’s Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter.