Lessons for Ann Arbor startups seeking venture capital investments: Don't spend much
For Ann Arbor entrepreneurs, securing venture capital investments is already supremely difficult in an environment where investors are skittish about doling out dollars to even the most promising of startup companies.
Investors are only willing to bet on companies that have laid out a business model in which capital efficiency takes center stage.
Augment Ventures founder Sonali Vijayavargiya
Startups are used to doing a lot with a little — but that reality is even more pronounced today. Don't expect it to change anytime soon.
Look no further than a new Ann Arbor-based venture capital firm called Augment Ventures, founded by local startup adviser Sonali Vijayavargiya.
Vijayavargiya, who is aiming to raise $20 million for investments and has already finished her first round of financing toward that goal, said she plans to focus her investment strategy on startups in the information technology and clean tech markets.
"Within these two sectors, my interest really is to look for companies that have a capital-efficient model — that is, they require less capital to get to an exit," Vijayavargiya said, using a term that refers to a sale or initial public offering of a company.
Next, she said she's also looking for "companies that have a global opportunity, a really big market."
For information technology, her model is commonplace. Many software companies can get started with very few resources, develop a product, commercialize it and start reaping sales before a large capital investment is even necessary. Take Ann Arbor-based Mobiata, for example, which was sold in late 2010 to Expedia despite never even accepting venture capital investment.
But the phrase "capital efficiency" is rarely used to describe alternative energy. Startups pursuing the wind, solar and battery markets typically require enormous amounts of capital to get off the ground, which has scared off many private investors.
But Vijayavargiya said she's confident she can find clean-tech investments that fit her parameters. She said she envisions opportunities in materials technology, smart grid and software that contributes toward the development of renewable energy.
Among the startups Vijayavargiya has advised are Ann Arbor area clean-tech firms Adaptive Materials, Danotek Motion Technologies and Accio Energy.
Fuel cell firm Adaptive Materials, which never accepted outside investment, lived off of a steady influx of military funding and was acquired in December by United Kingdom giant Ultra Electronics, which is expanding Adaptive Materials' Pittsfield Township production capacity.
But Accio and Danotek are more traditional clean-tech firms. Danotek's technology, which improves the operational efficiency of wind turbines, attracted millions in funding from a variety of clean energy investors.
Accio, an early-stage startup developing motionless wind energy technology, secured $1.9 million in VC funding earlier this year. As the company's technology develops, though, it will surely need tens of millions to pivot into manufacturing — if it even reaches that scale.
Vijayavargiya said she would "definitely explore" the prospect of investing in Accio.
But overall, Augment Ventures should be expected to funnel most of its investments toward early-stage companies that won't need much cash to get to market.
The company, in fact, has already made its first investment. The firm contributed an undisclosed amount toward San Francisco-based Aperia Technologies. Now, Aperia is considering investing in a new production operation in Michigan, where it would manufacture its automatic tire inflation device.
"There's going to be jobs, there's going to be tax revenue, so I'm excited about it," she said.
As long as it stays capital efficient.
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
shepard145
Mon, Aug 29, 2011 : 8:38 p.m.
I didn't write the piece but based on what's written it sounds like some people question how qualified she is to judge investments of other people's money and may have a rather sophomoric understanding of the forces that influence her choices. The alternate fuels you refer to are uneconomical and will be rejected by the market as foolish subsidies are withdrawn - which is already happening. We are trying to help you avoid a lot of disappointment in the future.
DeeDee
Mon, Aug 29, 2011 : 8:08 p.m.
Wow, why is there so much reflexive negativity towards an entrepreneur working hard to improve the business climate for Michigan start up job creators in a very difficult time? You don't have to believe in climate change to know that an ever increasing global population is using ever increasing amounts of fossil fuel, and that additional sources like renewables can be valuable contributors to the global fuel mix! Sonali has helped over a dozen local start ups get their business plans written, obtain early stage funding and improve their product development. She's a great asset to the entrepreneurial community. There's nothing wrong with going to your kid' soccer games AND starting your own business - I've done it myself. And since Sonali's business is helping to seed others that's even better for our community and state, she should be applauded.
Jen Baird
Mon, Aug 29, 2011 : 1:42 p.m.
Sonali has been involved in investing and capital raising for quite a while. Her bio on her website (<a href="http://www.augmentventures.com)" rel='nofollow'>www.augmentventures.com)</a> spells out her background: Sonali has over 15 years experience in Project Finance, Investment Banking and Venture Investing. She works closely with early stage companies, nurturing and developing them from proof of concept to final IPO or strategic sale. She has advised entrepreneurs and technologists in a number of different industries: Alternative Energy, IT, Automotive and Life Sciences. Her perceptive insight into technologies and business models for early stage companies has helped shape commercial success for her clients. Sonali's global work experience has given her a keen eye for leveraging economic and regional efficiencies to develop profitable cross border alliances among companies operating in different sectors. Prior to launching Augment Ventures in January 2011, Sonali founded in 2005 a venture advisory practice, Augment Capital, where she provided strategic advice to many seed and early stage companies in CleanTech and IT. She has successfully helped her clients position their start-ups to secure over $20 million dollars in funding. These companies have further raised over $60 million in follow-on funding through national and international venture funds. Some of her successful clients include: Accuri Cytometers, AMI, Danotek Motion Technologies, Global Energy Conversion and NRG Dynamix. Prior to forming Augment in 2005, Sonali worked in Mumbai with organizations such as PricewaterhouseCoopers, Industrial Development Bank of India and Edelweiss Capital where she raised over $100 million for her clients and advised start-up companies from incorporation to fund raising to successful listing. She holds an M.B.A. from the Symbiosis Institute of Business Management and a Bachelor of Science in Statistics from Fergusson College both in Pune, India. She is a recipient of Leaders and Innovators award by Grant Thornton.
shepard145
Sun, Aug 28, 2011 : 1:56 p.m.
"....efforts at producing renewable energy economically is vitally important to the future of the world as fossil fuel sources become scarce and depletion is the rule." Depletion is the what now? Probably without even knowing it, you and many politicians have become central planning socialists like our president. As our ability to grow more and more food at lower prices over time has confounded the eugenics dummies, so has the discovery of more and more oil reserves over time. In the next several HUNDRED years, oil will be available in stages so while we may have only 200 years of cheap oil left, new oil fields are discovered all the time. After that oil is used, oil that is more expensive to extract and refine will take it's place, increasing cost. It's hard for rational people to imagine a world without oil but that day will come – maybe 400 years from now. Long before then, normal market forces will find it's best, most economical replacement. THAT DAY IS NOT TODAY. One of the more annoying characteristics in a long list of annoying characteristics of my generation of Americans is our apparent need to be SPECIAL. We must identify every potential problem, make it our own, come up with absurd solutions and force them on the market (central planning socialism). When the "solution" (bio-diesel, ethanol, wind, solar, etc.) hits the market, it flops because the market has no use for a solution to a problem that exists only in the stupid heads of activists, the press and pandering politicians. The result of this arrogant stupidity is a huge amount of wasted taxpayer dollars, vastly less efficient economy and lower standard of living for the middle class. As always, the poor and lower middle class are hit the hardest hit. The market is the rule - all else is expensive fantasy.
Veracity
Sun, Aug 28, 2011 : 1:56 a.m.
Now I wonder why she was the only venture capital entrepreneur selected to be interviewed. I am surprised that the article did not include a telephone number for those readers who may wish to invest with her.
Jen Baird
Mon, Aug 29, 2011 : 1:46 p.m.
Finding her is an easy Google exercise for anyone who might want to consider investing. You do have to be a qualified investor and she has to be careful about soliciting via the press which Nathan is clearly sensitive to. This type of article is quite helpful to the entrepreneurs out there who are interested in the philosophies of investors. Capital efficiency is certainly a common theme.
A2Woman
Sat, Aug 27, 2011 : 4:54 p.m.
The three of you raise very good questions. I don't have the answer to how much she has actually raised, or her background and training. What I do know is that she was a very close neighbor of mine for several years, until I moved to another neighborhood in A2. She was a stay-at-home mom while I lived in that subdivision; playdates, carpool, PTO, etc.
Veracity
Sat, Aug 27, 2011 : 3:20 p.m.
Even if climate change were a sham, which it is not, efforts at producing renewable energy economically is vitally important to the future of the world as fossil fuel sources become scarce and depletion is the rule. Unfortunately, the article does not describe Sonali Vijayavargiya's background and training that support her ability to make cogent investment decisions involving millions of dollars. Is she sole proprietor of the firm?
shepard145
Sat, Aug 27, 2011 : 4:22 p.m.
Climate change? As when 2/3 of the earth was covered by an ice sheet 18,000 years ago and now is not? Climate change is obvious to a child. The fraud comes about when anyone claims that if Michigan businesses and residents pay high enough energy bills that earth will get colder. ...another words Michigan utility buyers control the earth's weather. So stupid it's hard to comprehend that even incompetent Jenny Granholm has wasted BILLIONS of OUR dollars assuming this nonsense was fact. Neither you or anyone has any evidence this is anything but fraud on a massive scale. ....and Sonali wants her investors to join the sinking ship. Did someone mention her qualifications?
shepard145
Sat, Aug 27, 2011 : 2:04 p.m.
She thinks "clean tech", a sector, fueled by the human controlled global weather fraud, criminally stupid energy generation mandates (that need to be repealed immediately) and wasted taxpayer subsidies rather then a viable market is half of her cutting edge strategy? Really? How many abandoned ethanol plants do her investors own? Her approach is similar to funding a mortgage broker start up in 1995 - it's here today but when reality finally catches up to the fantasy, the game is over. INVESTORS BEWARE.
Somewhat Concerned
Sat, Aug 27, 2011 : 12:35 p.m.
A basic, obvious question: exactly how much money has she actually raised in that first round? Her goal is $20 million, but without telling us how she actually has raised, the story could be misleading because that number could be much lower than the one number you included. If she refuses to reveal the amount she actually has in hand, perhaps she is trying to mislead people in order to lure them in, and you might be helping her. There is no legal reason she can't tell you. You might want to dig harder before you offer publicity to someone who is trying to raise money.