Venture capital often not best option for entrepreneurs

When an entrepreneur pitches to venture capitalists, the word “no” often is already forming on their lips.

It’s very hard to get to “yes,” and there’s a good reason for that: Most of the companies funded by venture money fail.

If it all sounds bleak, it isn’t, said members of a panel at Wednesday’s “Accelerate the Heartland” entrepreneurship event at the Wichita Marriott.

The event featured local entrepreneurs, investors and entrepreneur support groups.

Entrepreneurs and venture capitalists working together can be exciting, rewarding and financially lucrative for both sides. But it’s important to be realistic, said Jeff Stowell, managing director of Salt Lake City-based Royal Street Ventures and an Augusta native.

“I had 968 offers, and I said no 966 times,” he said. “I’m in the business of saying no.

“But that’s different from wanting you to fail.”

He said half the companies he winds up backing fail. To keep from going out of business, he has to have a 1,000 percent return on the others.

That’s why venture capital funds are rare in most places. They’re not designed for the vast majority of businesses.

“If you are not a high-growth business, with no opportunity to make millions and millions of dollars, venture capital is not for you,” Stowell said.

The advantages of venture capital are many, for some companies. The venture capitalist takes equity rather than debt. If the company goes under, there’s no foreclosure.

And venture capitalists can provide important advice and connections. If the relationship and trust develops between the entrepreneur and the venture capitalist, the venture fund may fund the entrepreneur’s second, third or fourth company, said Jonathan George, a Wichita-based entrepreneur and panelist.

“Once you’re in the game, it’s a career,” George said.

George asked Stowell whether he would ever open an office in Wichita.

Stowell said Wichita has slow deal flow, but a community shouldn’t judge its success on whether it has a venture fund.

Instead, he said, it’s judged based on whether it has good companies that solve problems.

This story was originally published October 5, 2016 at 6:41 PM with the headline "Venture capital often not best option for entrepreneurs."