Business

I love Indianapolis, but I find it a difficult place for emerging companies to raise capital through private placement offerings.  More established companies have less trouble, but earlier stage companies often are caught in a chicken/egg situation – they need capital to move to the next business stage, but private equity investors don’t want to invest until they are through that next stage.

Part of what makes Indiana so great is that we are very fiscally conservative. In fact we were one of only three States with a budget surplus in 2009.   Private equity investors in Indiana seem to be willing to accept lower expected returns for lower risk investment opportunities.  That does not bode well for early stage companies as seed stage and early round equity raise companies are often seen as too high risk for investment. 

There are some exceptions.  Gravity Ventures, for example, is a private equity fund that invests in emerging stage companies.  Also, Indianapolis is home of some angel investors and angel investment groups that are true patrons for the entrepreneur and have a passion for helping early stage companies.  But, we don’t have enough of these funds and investors to take care of all of the great companies that are started in this city.

This is why I travel as often as I do to California and New York – to build relationships with investors and investment groups that make investments in companies in emerging stages.  Coastal investors appear more risk tolerant than Indiana investors.  They are not foolish (their due diligence processes often greatly outweigh what I have seen in Indiana), but they are willing to take more investment risk in hopes for higher returns.  One particular CA investor this past week was telling me about a 40x return on a 4 1/2 year exit off of a $200k investment.  That is $200k to $8M in less than 5 years.  Key to such a high return was the investment at the seed stage.  Of course, what he is not telling me is that he hits 1 for 10 of good returns. 


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Other posts that may be of interest:

A World of Private Equity
Two Types of Violations in Private Equity Offerings
Rules of Funding
Entrepreneurial Law - Proof of Concept & Proof of Scale