Editor’s note: Peyton Anderson is CEO of RTP-based Affinergy, a developer of site-specific biological delivery systems. He is also co-chair of the Council for Entrepreneurial Development’s (CED) upcoming Opportunity 2005 conference, set for Nov. 10-11 in Wilmington. Anderson is helping organize a panel at Opportunity 2005 entitled “Finding the First $1-2What Angels Think.” CED recently asked Anderson to share tips and insight on early-stage financing. This column is the latest in The Entrepreneurial Spirit series published in partnership with Local tech Wire.
CED: Peyton, you have been involved with two entrepreneurial companies in the Triangle during your career. What has been your experience raising capital and working in this start-up environment?
I started doing this type of thing in 1995, with three other cofounders at SciQuest. We started that and kind of bootstrapped it for a couple years with a lot of personal assets and sweat equity. Then we raised two rounds of angel money, followed by two rounds of venture capital, and finally I went public at the height of the bubble in 1999. SciQuest then grew to a $2 billion dollar market cap in early 2000. It was kind of crazy. We then rode it all the way down as the market cap declined 98 percent. We worked with some awesome people — it was a very fun ride in that regard. It was a great learning experience. It is a lot of fun trying to do it again. After two years with Affinergy, I’m having a great time and loving the people, and the opportunity.
What kinds of advice could you give to other early stage companies out there looking for money? Where should these small, start up companies go when they first begin looking for money? Should they go to angels for investment, or should they look somewhere else first?
Well, step one is understanding the amount and type of funding that your business needs and is appropriate. There are certain deals that, from the beginning, are never angel fundable because they would take too much money, for instance, and there are certain deals that are never venture fundable for other reasons. Different businesses have different funding needs and business models. You have to really understand that CED and the broader community have a wealth of programs and networking opportunities to help entrepreneurs answer these questions. There are a lot of businesses that have been started, and tried, and you can research those to understand similar companies with similar models.
If you talk to enough smart people in the entrepreneurial community, you figure out what your funding needs are. Because if you have a deal that angels will never fundamentally invest in, then you should not even waste your time trying to get the meetings because it’s not going to work, and vice versa. That’s step one. Know thyself.
If you do have an idea that angels would want to go after, how would a new business go about doing this? When is the right time for them to do that?
Well obviously you need to have a business plan and it will take quite a bit of your time for 6-12 months to raise a decent amount of money. You have to have your pitch together and you have to take advantage of all the good programs that we have with CED, like the Opportunity event coming up in Wilmington, where you learn the nuts and bolts of what it takes and what it’s like to start a business. And it really is very valuable training and networking and a great catalyst for getting a company started. A good asset we have locally is the ability to create and start these high growth companies. I’d err on the side of going to potential investor groups early so you can learn from their feedback as your plan morphs — as they always do.
So, is there anything that you have learned, through your experiences with investments and early stage companies, that you could pass on to someone else who may be just starting out? Like the kinds of things that no one actually came right out and said to you, but what you gained on your own by doing this type of thing?
Well, I think the one thing that gets lost in today’s world is something I am learning from Affinergy’s licensing business. It’s very easy, rational and convenient to essentially work out of your home and/or do all of your work by email or redlines. For most businesses that are dynamic and entrepreneurial, fast paced kinds of things happen on a personal level. At the end of the day, things are always complex, and they always require some kind of personal subtleties and interactions. I think we try to remind ourselves continually that the best way to do business is to pick up the phone and talk to the person you are trying to do business with or fly out for a dinner and morning meeting, as opposed to emailing documents back and forth. That’s something, the second time through, that I try not to lose sight of that, because it’s more efficient and you learn more about your customer.
Peyton Anderson currently serves on the Board of Directors for both the Council for Entrepreneurial Development and the North Carolina Medical Device Organization. He earned his MBA from the University of North Carolina and is now a frequent speaker at entrepreneurial conferences and business schools. For more information please visit www.cednc.org