Category Archives: Funding

15% is Bigger than Zero

We are big fans of bootstrapping here at Tech-Rx! Not only does it allow you to maintain direction for your company and focus on the product, but it delays the need for outside investors as long as possible. Every time you trade cash for company equity, you are decreasing your amount of ownership in the company you built from the ground up. But at one point you are going to need outside funding if you are planning to grow (unless you have a hefty inheritance in your back pocket). Continue reading

No on General Solicitation

Eight days ago, the fundraising scene was changed when the ban on general solicitation was lifted. For the first time in eighty years, small businesses can now raise funds publicly. Under the new 506c rule, companies who file Form D with the SEC can solicit to the general public. However, no one is restricted to filing Form D if they want to raise money. There is the option of doing it the old fashion way!

Here at Tech-Rx, we are sticking to our time-tested and trusted 506b. There are several reasons we are not jumping the boat, the chief reason being that the alternative is quite onerous. Our first turn-off with Title II of the JOBS Act is that companies are required to take dramatic steps to verify investor accreditation. Investors in 506c deals will need to provide private documents such as tax returns or broker forms to companies they are interested in supporting in order to prove their accredited investor status. I don’t know about you but I try not to make it a habit to release such private information, especially with no guarantee of privacy.  (Does anyone else smell unwarranted government intrusion into personal matters?)

Our second turnoff is from the standpoint of the company. Companies are required to submit details to the SEC 15 days prior to general solicitation. Do you know anyone who has their presentation materials ready two weeks in advance? It is unheard of!

Lastly, failure to follow strict protocol will result in a one year ban from fundraising. In other words, certain death. A year is a long time in the early stages of a company and a year without funding is even longer.

Amidst all of the craziness of the new rules of engagement, we want to assure you that Tech-Rx is sticking to the traditional methods of fundraising through our accredited investor network.

What are your thoughts on general solicitation? Have you ran across any issues with the new rules?

-Steve Hogan, Managing Partner, Tech-Rx

 

Where’s the Next Silicon Valley?

Israel, Copenhagen, New York — the list goes on and on! While forecasting the location of the next Silicon Valley is becoming quite the fad, we argue it is a fruitless endeavor to make such forecasts. What Makes Silicon Valley Unique The ingredients that make Silicon Valley so unique to Silicon Valley are impossible to replicate. Most notoriously is the culture. Silicon Valley’s culture is most known for it’s eternal optimism, innovative vision, relentless drive and a flair to risk it all. Without a complementary ecosystem to support this unparalleled culture, none of the technological innovations that hailed from the area would have been possible. Silicon Valley’s Replacement is Online As our convergence with the Internet continues, it is becoming easier and easier to create communities online. While it may be difficult to replicate Silicon Valley in physical locations around the world, it may be more successful to do so online. With the emergence of complex and easy to use collaboration tools and the ability to create and find community online, it is more feasible to for like-minded individuals to find each and work together on creating something new. 10 High-Tech Hot Spots If you don’t care about the unique characteristics that make Silicon Valley irreplaceable and you’d just like to know where you will find the next hubbub of tech, we understand. In fact, it makes more sense to pontificate where are the strongest tech hotspots will be situated. Below is the list you are looking for:
  • Washington, D.C.
  • Riverside, CA
  • San Antonio, TX
  • Baltimore, MD
  • Raleigh, NC
  • Las Vegas, NV
  • Salt Lake City, UT
  • Houston, TX
  • Seattle, WA
  • Jacksonville, FL
We even found this neat infographic here for additional high-tech hot spots. Note that we stayed domestic in our list, but would love to hear your thoughts on international high-tech hot spots — Israel, London, Bangalore, etc. What are your thoughts on the “Next Silicon Valley”? Any other high-tech hot spots that you see on the horizon? -Nikki Griggs, Business and Marketing Associate, Tech-Rx

AngelList Fires Back On SEC

You may have noticed AngelList’s call to action against the latest SEC JOBS Act ruling. AngelList agrees with our initial assessment of the ruling but read on for their deeper analysis of how the law will affect startups. AngelList proposes that the JOBS Act will defeat their original goal of public fundraising for startups. Reason being that the new rules will be so difficult to follow that startups will solely raise money privately. And with so many startups fundraising privately, they are lowering their chances of raising any money at all. Or they could always find the cash somewhere that is not tracked by the SEC, but does it really need to get to that point? We agree with AngelList that the JOBS Act will result in unintended consequence such as spelling out the failure of thousands of startups – as a result, further stunting American job growth. We agree that what is called for in the JOBS Act is simply unfeasible. We agree with AngelList’s proposed ideas on how to go about investment tracking. The SEC is looking for feedback on potential consequences of their proposed rules. Share your opinion now as there are only 9 days left to comment! What do you think could be possible negative consequences as a result of the JOBS Act? Share your comments here. -Nikki Griggs, Business and Marketing Associate, Tech-Rx

Bloomberg Business Week Talks About Tech-Rx

These types of posts are becoming alarmingly common! It is becoming more and more obvious that Venture Capital is not able to further fund all the startups that were angel-funded, resulting in a lot of stranded good technology. Read the entire article here. “Last week, Andreessen Horowitz co-founder Ben Horowitz wrote in Fortune that in the current climate for raising venture capital, startup founders should swallow their pride and embrace the “down round.” That is, founders running out of cash may need to raise more capital at lower valuations than in previous fundraising rounds:

“Hoping that the fundraising climate will change before you die is a bad strategy because a dwindling cash balance will make it even more difficult to raise money than it already is, so even in a steady climate, your prospects will dim. You need to figure out how to stop the bleeding, as it is too late to prevent it from starting. Eating s— is horrible, but is far better than suicide.”

Herewith, more musings on investors’ appetite for startups in peril from around the Web: Wired’s Ryan Tate found fodder in Horowitz’s column, noting in a piece on the “screams of crushed startups” that Silicon Valley is walking into the business end of the Series A crunch. In recent years angel investing has increased, helping more startups launch. The pool of venture capital available to those companies hasn’t kept pace. Thus situations like the one described on the blog My Startup Has 30 Days to Live, and thus this nugget from Tate’s piece:

“At least one firm, Freestyle Capital, is setting up a bridge program to help early stage startups reach their next investment round, with the bridge investing up to $1 million into sufficiently promising companies so they have more time to find new investors.”

That sounds like what Reuters blogger Felix Salmon meant when he took note of a “very, very new market” in “distressed startup opportunities.” Salmon was also writing in response to Horowitz’s column, though the distressed startup he had in mind was the subject of another article, this one by David Segal in the New York Times. That piece was about an entrepreneur who gave up equity in his company in return for help combating a patent troll. Maybe Salmon overstates how new the phenomenon is. This week, PandoDaily’s Erin Griffith profiled a startup investor named Steve Hogan, whose firm, Tech-Rx, sounds a lot like a private equity turnaround shop:

“This isn’t about creating the next Facebook (FB). Once a company reaches him, it has already missed that opportunity. No, the ultimate goal for each situation is to sell the fixed-up companies in two to five years. The fact that this plan includes minting a solid return for his network of angel investors doesn’t hurt the cause, either. If successful, he’ll achieve at three-times to five-times return in that time frame.”