In honor of Small Business Week, Inc. reporters deployed to several cities where they spent one day talking to owners and entrepreneurs in a particular sector about their challenges.
Investors everywhere favor people they know. After all part of their job is to mitigate risk. But in smaller markets, where there are usually only a few sizable venture capital firms, that favoritism starts to feel like an old boys' club, limiting opportunities for first-time founders. Until recently that problem was especially acute in Austin where one firm, Austin Ventures, dominated the local VC market, until its dissolution two years ago. The pool is wider now, but the insiders-only challenge persists.
Rob Taylor exemplifies the kind of leader who succeeds in Austin's funding environment: a guy with a great track record. Taylor rolled into town six years ago and took the helm of a company called BlackLocus, which had recently raised $2.5 million from Silverton Partners (an Austin Ventures spinoff) and a Houston firm called Mercury Fund. About a year later the company raised another round from Silverton and Mercury and then sold itself to Home Depot, where it is now a sort of internal innovation lab. Not two years after arriving in Austin Taylor had already provided a handsome payday for an important VC firm.
Today Taylor is CEO of Convey, which makes software to help retailers with shipping logistics, Thanks to his pedigree, Convey's fundraising has been relatively painless.
Taylor met Convey's founders when he was a mentor at the local TechStars. He fell in love with their idea and helped raise a $2 million seed round led, again, by Silverton. The founders brought him on to lead the company, and a year later he went back to Silverton to lead another $5 million round. "Based on the business traction we had, we would have struggled to get the valuation we did with a different firm," he says. "I was a known entity, and a big part of their strategy is to reinvest in their entrepreneurs."
Of course, finding a Rob Taylor to run your company isn't a viable or even attractive option for many entrepreneurs. But there's reason to hope that circumstances will improve more and more quickly. David Altounian, a professor of entrepreneurship in Austin who has studied the difficulty of fundraising there, determined that a network effect takes hold as the number of funding sources increases in a city. As more investors operate in Austin, the amount of money invested will increase by greater and greater leaps. It's starting to happen -- but it's early.