More Money Available for In-State Startups

At the end of 2010, Acumen Holdings, an Internet retailer with headquarters in Fayetteville, received $5 million from the venture capitalists Noro-Moseley Partners of Atlanta.

The deal marked the biggest venture capital investment in the state since 2002.

In the first quarter of this year, Acumen received another $5 million from Noro-Moseley and other investors, according to a spokeswoman with the National Venture Capital Association of Arlington, Va., which tracks venture capital investments.

The investments show an increase in startup funding activity as more venture capital firms are taking a look at companies in Arkansas, said Gene Eagle, vice president of development finance for the Arkansas Development Finance Authority.

In addition to venture capitalists, Arkansas has state agencies that are willing to fund new companies. The availability of funding for new companies is “probably better than it’s ever been,” Eagle said.

In 2011, however, none of the $29.1 billion that venture capitalists invested in companies nationwide was in Arkansas, according to the MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association.

That number might not be correct, said Leslie Lane, senior vice president of Arkansas Capital Corp. of Little Rock. He said a lot of the national reporting was voluntary and might not reflect the true investments and the number of deals done in Arkansas.

Still, Eagle said, Arkansas’ programs have used seed and early-stage money to fund startup businesses in the state.

ADFA created the Arkansas Institutional Fund in 2003 and since then has made 18 investments worth $29.3 million. Eagle said the source of the AIF funds was a loan from Little Rock’s Bank of the Ozarks, but ADFA was providing a first-loss guarantee on that loan.

“This is being accomplished at no direct cost to the state or its taxpayers,” Eagle said.

And others are helping companies get on their feet with early cash.

“I’ve been extremely busy” helping companies raise money, said Jim Smith, an attorney in Fayetteville who works with startup companies and investors.

And, Smith said he’s fielding more calls from out-of-state venture capital companies.

“We probably get a couple of calls a month from venture capital companies,” he said. “I think 10 years ago, we really didn’t have a track record to prove a whole lot of things, but we’ve moved in a decade to where we do have some real success stories.”

The Lifeblood of Startups

Funding is the lifeblood of startup companies, said the ACC’s Lane. The key to getting those very early-stage investments is for the company to have an idea or a product that can be sold, Smith said.

But in the next round of investment, a good management team is a must, he said.

“Obviously, people are investing for a profit, and they expect a return,” Smith said. “Your management team has got to have legitimacy and competency to obtain the necessary funding to come out of the ground.”

The venture capital money was vital for the growth of Acumen, said Josh Clemence, a senior project manager at Acumen.

“It allowed us to do many things that we needed to do to grow to the level that we’ve grown.”

He said the money allowed the e-commerce firm to expand into a bigger office and hire more workers. It now has about 70 employees. But more importantly, Acumen attracted other investments, such as Dillard’s Inc. of Little Rock, which in February said it was investing $4 million in the firm.

Clemence said that he, too, had seen VCs taking an interest in Arkansas startup companies.

Eagle, with ADFA, said once a startup company is approved for funding through state agencies, several funding sources are available.

The newest one is the State Small Business Credit Initiative, which recently approved $125,000 for investment in the ARK Challenge. The ARK Challenge hopes to receive 100 applications to compete in a business accelerator boot camp. Only 15 teams will be chosen and receive $15,000 seed investment in exchange for a 6 percent equity ownership in the company, Eagle said.

“The goal is to introduce 15 pilot-ready entities for funding and positioned for job creation” in Northwest Arkansas, Eagle said in an email.

The two winning companies will receive $150,000 each.

Also in 2007, the Arkansas Risk Capital Matching Fund was created to help companies that have raised money through private sources.

So far, the $3.7 million of state money that has been committed from the fund has leveraged more than $20 million in private investment capital, Eagle said. And those companies, one of which is Acumen, employ more than 150 people who earn more than $35 an hour.

Eagle said that to participate in the Arkansas Risk Capital Matching Fund program, the startup company has to raise the private investment money first before the matching money is awarded. “So that way, we’re leveraging the private sector and tagging along with them,” Eagle said. “It’s not just the state out there on a lark, making a bet on a company.”

And if a company can’t raise money from investors, “that’s telling us and them that maybe you don’t have what it takes,” he said.