Arkansas startups find difficulty in accessing capital

Capital is the essential grease that keeps the entrepreneurial wheels turning and despite lots of cash on the table, area startups say investments are more difficult to secure than they once thought.

“I feel like the teenage guy waiting to kiss a girl, I know it will happen but the waiting is so hard to deal with in the meantime,” said Mark Brandon, serial entrepreneur and founder of Qbox Inc.

Brandon said his Fayetteville-based tech firm is still trying to raise $1.5 million to fund its next phase of growth. 

“We have a growing client base and are bringing in tens of thousands in monthly revenue but we have tapped out about every Arkansas capital source and I have spent a lot time on the coasts trying to draw financial support. I am hearing from investment groups that have requests from 4,000 ventures and they are going to fund 12. Mostly likely that will be those located near them, not miles away in Arkansas,” Brandon said.

Michael Paladino, one of the founders of Overwatch, said his venture is also beating the pavement for investment capital and it’s proved harder than they once believed.

Jeff Amerine, a keynote speaker at the NWA Technology Summit, said Northwest Arkansas is in dire need of its own venture fund that focuses on technology startups. He said there has been a lot work in establishing the local angel investment group that now has 300 members. This group looks at five deals each month, but that is not nearly enough for the deal flow created in this region alone.

Amerine said there is a need for all stages of capital to support ongoing technology ventures. He said the region and state has made major steps in the right direction over the last five years when there was just one angel fund in the entire state. He said accelerator programs like the ARK Challenge, provide some teams some seed money to start but when they need more money to ramp up it can be difficult. Brandon and Paladino, who were each ARK Challenge winners, agreed with Amerine’s assessment.

Abigail Kiefer, founder of Red Clay, moved to Bentonville to start her business a few years ago. In 2012 Red Clay raised $170,000 through local angel investors. Since then they have raised $1 million successfully using crowd sourcing.

“Over three years we have been able raise $1.5 million and it’s never easy. The best capital for a startup is revenue. Area companies who reach out and do business with local startups are the best,” Kiefer said.

Amerine said there have been a few success stories in the past five years that keep the hope alive for other startups, something that is essential for creating a technology hub in this region. There are 10 new angel investor funds in the state, when five years ago there was just one.

Acumen Brands closed the largest deal in the state with an $83 million investment from a capital venture fund that could have gone anywhere and invested in any company, Amerine said.

He said last year, Updata’s $10.5 million purchase of Collective Bias was a huge score.

Ryan Frazier and his team at DataRank got into the Y Combinator in Silicon Valley with a top 5 finish, according to Amerine. Within 24 hours DataRank raised $1.4 million in capital, enough to buy them a few more years and expanded growth opportunities.