Sometimes an innovative idea for a business or life-changing product connects with the resources to make it happen.
And sometimes they come together when the idea is pitched to a team of angel investors or venture capitalists.
Northwestern Nevada has a number of investor organizations springing up along with a rising spirit of entrepreneurship throughout the region.
In general, angel investors seek early-stage opportunities utilizing personal funds that provide high-risk seed capital. Venture capitalists, on the other hand, enter the mix further along in the process with more substantial capital to enable a startup to grow more quickly.
Angels embrace entrepreneurs but also need to be wary of those looking for easy money, P. Nick Brunson, chairman of Reno Angels, told the NNBW.
Reno Angels funds promising startups before they have sufficient assets or bank loans, Brunson explained.
“We seek to fund the next generation of ideas,” he said.
Reno Angels started in 2008, and Brunson has been with the organization for more than three years.
Many angel investors themselves found success as entrepreneurs, or through investments or other assets they wanted to put to good use.
Brunson earned his money by starting earlier than most.
“I’ve been working since I was 10 years old,” he said. He started investing when he was 20, had several good real estate investments, and now lives below his means.
Reno Angels members have diverse backgrounds: patents, engineering, technology, sales, marketing, business ownership and in the highest level of executive management.
On the venture capital side, Ozmen Ventures is a Reno-based VC organization launched 18 months ago as a byproduct of the success of Eren and Fatih Ozmen, owners of Sierra Nevada Corporation (SNC), a global aerospace and defense company based in Sparks.
“It really started with the Ozmen Center for Entrepreneurship,” Kerem Ozmen, managing director of Ozmen Ventures and the son of SNC’s owners, said in a phone interview with the NNBW. “It’s a way for our family to support innovation.”
After opening the Ozmen Center, which is affiliated with the University of Nevada, Reno and mentors young entrepreneurs, the founders recognized a gap in funding for early-stage startups.
The Ozmen family allocated $5 million to fund Ozmen Ventures and assembled a strong team of advisers — “high-level connected people,” Kerem Ozmen said.
Connections make a huge difference in the entrepreneurial world.
Ozmen recently moved to New York to work with Kairos Society, an organization funding companies working on real-world issues facing America. Among his goals is to make connections that can expand Ozmen Ventures’ network nationally and internationally.
“I think we’re going to bring all these connections back to Reno,” he said.
Both Reno Angels and Ozmen Ventures work closely with other groups to encourage innovation and entrepreneurship.
They share contacts and information. If, say, a university professor or a business incubator operator sees a promising company in need of funders, they’ll refer them to investors.
“We all have an open-door policy,” Brunson said. “If something piques my interest, I’ll send them an invitation to make a pitch.”
Reno Angels members meet monthly and hear about 12 to 20 business pitches a year with only a few given serious consideration. And some even slip by them entirely.
“The group has missed a few good opportunities (that went on to find success with other investors),” Brunson said. “It’s intriguing to listen to pitches and we try to remain open-minded to business opportunities.”
Reno Angels is a 501(c)(3) with no staff or budget. Members invest from $25,000 to $50,000 individually. If multiple members like an entrepreneur’s plan, “with a dozen people around the table, it’s significant,” he said.
Ozmen Ventures’ advisers see five to seven proposals a week, Ozmen said. Two to three may fit its criteria, but even fewer receive funding.
So far, Ozmen Ventures has funded four start-ups. ClickBio, a medical equipment startup company in Reno, was the first. Others are Breadware and CAEK, both based in Reno, and Covered Insurance, based in Colorado but founded by a UNR graduate.
When start-ups receive an infusion of funds, Ozmen said, “It makes a massive difference in the way you go about your operations” as they are able to increase staffing, add more contracts and scale up. “It’s like night and day.”
Both angel investors and venture capitalists look for good investments that will turn a profit for the entrepreneur and investor alike.
“Everyone is looking for the next Google,” Reno Angel’s Brunson said.
In fact, he said, many entrepreneurs think they have the next Google when they actually have just an overinflated sense of what their idea is worth.
In Silicon Valley, there’s so much money floating around that there are a lot of companies with billion-dollar valuations but no profits, Brunson said.
“As an investor, that doesn’t add up. I’m all about the balance sheet,” he said. “If it’s just based on potential, that’s rolling the dice.”
The bottom line: Entrepreneurs need to come to investors with more than a bright idea.
The TV show “Shark Tank” has given entrepreneurs an idea of what to expect. Even though it’s dramatized to keep it interesting for viewers, it does show that panelists can be critical and many ideas do not get funded.
Those hearing a pitch want to see prototypes, business plans, some type of work already done that shows an idea has evolved into a viable business investment.
While angel and venture capital investors are willing to take risks for an idea they have confidence in, they still expect a return on their investments.
“We need proof of concept. Maybe selling to a small market that can translate to a larger one,” Brunson said.
He cited an example of a business with orders for its product but lacking funds to fulfill the orders.
“That’s a great problem to have,” he said. “It obviously has traction.”
Both Reno Angels and venture capitalists like Ozmen Ventures do more than hand over dollars. Members see a big part of their mission as mentoring. Even if they choose not to fund a startup, they may offer insight to make it better or refer to another funding organization that better fits the concept.
When they do invest in a startup, they take a hands-on mentoring approach to increase the chance of success for everyone. They become consultants who can open doors to powerful people in the industry involved.
As an example, Brunson talked about a casino product.
“I know so many people in the casino business. Five phone calls, and one becomes a customer. That customer can introduce them to their sphere of influence. It can accelerate growth.”