Seven Sources of Startup Capital

by Oct 5, 2020

Crossposted from the Hoosier Times

There are four ingredients to a healthy startup ecosystem: training, talent, cheerleading and capital. When we started The Mill almost two years ago, we were in large supply of positivity (who doesn’t love Bloomington?), but we needed more of the other three ingredients — particularly if we wanted our ecosystem to grow the tech companies that will drive the future economy.

Our priority need was more capital. Every city says they don’t have enough capital to fuel their startups, but it was objectively more difficult to launch a startup in Bloomington than it should have been. I’m proud to say that with the creation of Flywheel Fund, we now have seven capital sources that our startups can access.

Why does a tech startup need investment in the first place?

The technology business is unique in that everything we create today will quickly become obsolete.

Technology has a limited lifespan. If you wait for the typical business cycles to gather enough capital to grow a tech business, you will not be able to grow it fast enough; your technology will become obsolete before you can optimize it and build a customer base.

For example, if you wanted to open a pizza place, you might save a little money and then buy a pizza oven. You could start making pizzas, and, if you’re any good at it, you might be able to save a little money and buy a second oven. And then, if you’re really good at it, you could save enough to open a second pizza place. It works because making pizzas hasn’t changed in 200 years.

If a tech company approached growth in this way, whatever was valid about its innovation would be moot by the time it was financially ready for expansion.

In a nutshell, venture capital acts like a growth hormone that grows a company faster than normal business cycles. This is why it is so tightly linked to the technology business: As tech entrepreneurs, we require it to be able to build our companies.

Here are the seven sources and, whether startup or a potential investor, how to apply them.

1. Elevate Ventures is a venture development firm for the state of Indiana. They invest taxpayer money in Indiana-based startups to creates jobs and increase wages. When companies exit, they generate a return, which makes the venture organization self-sustaining. Elevate also uses returns to facilitate programming — they advise and coach startups, helping grow those businesses. To apply for funding, visit: https://www.elevateventures.com/apply/.

2. VisionTech is the state’s largest angel investing group. They invest in startups in Indiana and throughout the United States. They’ve had multiple exits, including an IPO. Bloomington has maintained a chapter since its inception. Mill startups have the opportunity to pitch to the screening committee on a monthly basis, and the top two startups receive the opportunity to pitch to the entire membership bi-monthly. To apply for funding or to become an investor, visit: http://visiontech-partners.com/.

3. The Community Ideation Fund from Velocities invests $200,000 every three years. Velocities is a $2.5 million regional partnership between The Mill, the Columbus Area Chamber of Commerce, and Elevate Ventures to foster entrepreneurship and innovation in this region. Early stage startups need capital to validate their concept, and this fund is perfect for that, awarding money in increments of $5,000 to $20,000. Since its inception a year ago, Velocities has invested $75,000 into four companies. To apply for funding, email The Mill’s entrepreneur-in-residence, Cy Megnin, at [email protected].

4. The Indiana Technical Assistance Program (INTAP) is from the Indiana Small Business Development Center statewide network and managed by Ivy Tech’s Gayle & Bill Cook Center for Entrepreneurship in Bloomington. It provides technical assistance for Indiana small businesses that are facing technical hurdles to getting their product or service into the marketplace. The ISBDC provides funding to Indiana professional service providers to help with milestone-based projects with the goal of new revenue and jobs at small businesses across the state of Indiana. Startups are eligible for funding from the program. The program was initially funded at $200,000 for 2020, and another $250,000 was added due to impact of COVID-19. The Mill received INTAP funds to cover legal costs of creating the Flywheel Fund (more on that below), which accelerates the growth of startups in Bloomington.

5. Flywheel Fund invests $25,000 in startups four times a year. They invest in software and technology-related startups, which by nature are capital efficient and perfect for an emerging market like Bloomington. Each startup also agrees to be mentored on a monthly basis by one of our members after investment. Flywheel Fund launched this month, with 11 members contributing a minimum of $10,000 each. To apply for funding or to become an investor, visit: https://www.flywheelfund.vc/.

6. IU Ventures manages the IU Philanthropic Venture Fund for Indiana University. This donated pool of capital invests in startups nationwide that have IU DNA, meaning they are founded by an alumnus, faculty member, student, or they license IU intellectual property. This innovative method of engaging IU donors throughout the world disproportionately benefits Bloomington residents.

7. The last capital source is the IU Angel Network, a collaborative group of IU-affiliated angel investors. Also founded and managed by the IU Ventures team, this is another unique way to engage investors while supporting the broader IU startup ecosystem. If you’re an IU alum, you can apply here: https://iuventures.com/investors/.

These capital sources are part of the “Mill Thesis” for building a startup. That is, there is an emerging approach for successful startups in Bloomington. The more parts of the method you work, the better: complete the Firestarter program to vet your idea; work with our entrepreneur-in-residence to receive coaching and guidance; become a member at The Mill; apply for SBIR funding; participate in a pre-accelerator like gBETA; and obtain capital from any of the sources above — especially the Community Ideation Fund and Flywheel Fund.