Entrepreneurs need influx of capital

Editor's note: This is the second of a two-part series examining how the region can develop capital for new ventures.

Jeff Sunderman helps entrepreneurs find money.

He works with commercial banks, angel groups, venture capital investors and a host of individuals whose net worth makes them prime candidates as investment partners for startups.

Sunderman, president and chief executive officer of Reno-based Sierra Capital Resources, also does a lot of hand-holding.

As the region moves to a more entrepreneurial economy, both investment capital and hand-holding will become increasingly important.

"We are the bridge between the entrepreneur and the capital markets," he says. "We probably get three companies a week who come to us seeking help to raise money and we've been pretty successful."

His firm just raised $1.2 million in equity and another $500,000 in debt financing for a client, a process that took considerable time and effort. It is a northern Nevada-based company, he says, but he would not reveal the name of the borrower or the lender.

"We never reveal the names of our lending sources of capital because, obviously, that's the value we have. But we do have a data base that is vast, far and wide," he says.

While acknowledging commercial banks are still a valuable resource, Sunderman says that the riskier the venture, the less likely a commercial lender will show much interest. Technology-based ventures especially those trying to move from the research laboratories to a revenue-based commercial operation are typically avoided by traditional lenders.

That is when the angel investor might be approached.

Bob Goff is a co-founder of the Sierra Angels based at Incline Village. His group is comprised of what he calls "semi-retired executives who have capital to invest. We all stay intellectually active and try to keep current about what is happening in the technology sector."

There is also a social component to invest-ing in new startups, Goff says. "A lot of our people want to help some of these young people out. We want to do some good with our money." But he cautions that angel groups such as his are not interested in investing in ideas.

"We invest in the business and we need some evidence that the idea will not only work, but that there is a market for it, a market that can likely be sustained," Goff says.

Sierra Angels is the only angel-stage investment group in the region. But that's not a big issue for financing specialists such as Sunderman.

"We do work with several angel groups and venture capital groups in California, and do a fair amount of startup financing here in northern Nevada," he says.

His clients have learned patience with early-stage investors.

"When a VC or an Angel group says no to a request, they are not really saying no," he says. "They are saying not now. A lot of the time, they are waiting for you to grow your business into their requirements. For instance, they might say they need to see so much in sales, so much in net income and so forth before they will fund. Some may say, 'Give me a purchase order and show me if this will really sell. Then they see the purchase order and realize your business is for real."

Access to startup capital is the fundamental challenge facing future Nevada entrepreneurs, says Dave Archer, managing director of the Nevada Center for Entrepreneurship and Technology.

"There are so many different opportunities we have, so many ways to approach this. But it is clear that there is a great need to create an angel group in the Reno/Sparks area. The stage is set for the creation of one. It will be pursued this year because we know there are many people who live here who have a high net worth and, we believe, would be interested. We'll get it done. We absolutely will," he says.

Angel investors typically don't do it for the money, Archer says.

"The money is part of it, but what really motivates these angel members such as Bob Goff's group is the desire to give back through mentoring young people," he says. "Their advice is as valuable as the funding."

By creating one or more angel groups in the Truckee Meadows and connecting them to the research activities taking place at the Desert Research Institute and at the University of Nevada, Reno, the area can jump-start the next wave of business startups.

"While I was at Viacom Time Warner, I spent a lot of time reviewing business plans," Archer says. "These college kids here at UNR and other schools in the state are coming up with business plans that are probably better than 80 percent of those I saw in the corporate world. Even the undergrad stuff is incredible."

There is only one known Nevada-based venture capital organization. Called Nevada Ventures, it is run by a group headed by 1997 University of Nevada graduate Robb Smith.

He and his partners have already seeded $300,000 to start a nanoscience program at the university.

Nanotechnology gives scientists the ability to see new molecular particles on a scale once unimaginable and thus create new materials. That holds promise for unlimited sectors of the economy.

"It continues to be a field of interesting promise," says Smith. "We think it will play out over the next 20 or 30 years."

Smith's longer goal, however, is to teach young people from kindergarten through high school "to think entrepreneurially, to think about enterprise and their own creativity."

He then asks, "Why is the Silicon Valley such an innovative place? It wasn't because someone brought the ideas into the schools. It is because there was an environment there that brought innovation to the marketplace. The young people in school there today are the beneficiaries of what has been developed already. That's what we hope to develop here in northern Nevada.

"When you have success stories that in turn hire people into good paying jobs, their children will come up through a system where they will insist on that kind of educational growth and opportunity."

Tim Casey, director of the economic development institute at the University of Nevada, Reno, says research institutions are at the core of communities where business startups have been successful.

"We looked around the country at those communities that were successful in reinventing themselves," he says. "In each case, there was a connection with a research university. Just look at the University of California at San Diego, the University of Texas at Austin. Successful companies may not always be driven by those research institutions, but all were heavily involved. They provide researchers, the laboratories, faculty, students and so on."

Casey and Archer believe there is more the state of Nevada can do.

"A lot of states have funds to help out a lot of these startups," says Casey. "We have a constitutional prohibition against the state loaning money to private entities. I think there's probably a way around that because it places Nevada at a competitive disadvantage compared to Idaho, Utah, Oregon and others where those states do invest in startups."

Archer says he thinks one such funding source could come from the state's pension fund.

"I don't know if it might be done by setting up a fund or what, but it seems like a great opportunity to explore," he says.

There may also be help on the horizon coming from the federal government. A bill introduced in the Senate two months ago would provide up to a 25 percent tax credit for angel groups who invested up to $500,000 annually in a small business. Twenty one states presently have similar legislation on their books.

"That would really do a lot to help the formation of other angel groups here in Nevada," says Sierra Capital's Sunderman. "A tax credit is far better than amortization. It's dollar-for-dollar against taxable income. And investors do like that."