The Cintrifuse team, much like its hometown of Greater Cincinnati, is a diverse group of doers, full of differing backgrounds and areas of expertise.
Over the coming weeks and months, we’re making a concerted to bring you insights from across the organization. And we’re not limited to the Cintrifuse “squad” alone. Keep an eye out for insights from thought leaders, provocateurs and partners from throughout our Active Network.
Today, we’ll begin with our own Patrick Henshaw, VP of Growth, Startups and Technology. From the Tagaw in Afghanistan to Silicon Valley — he has lead troops and teams from combat missions to VC negotiations all the way through to exit. His venture work includes advising and mentoring startups with terms sheets from everyone Richard Branson and Mark Cuban to Techstars and from the billionaire buyer to “thousandaire” angel investors. He has a deep passion for scaling and supporting tech companies and is doing that very thing here at Cintrifuse.
Since the day Cintrifuse set up shop on 6th Street (we’re now in Union Hall), 400 venture capitalists have walked through our doors. That’s a lot.
But what does that mean for Greater Cincinnati? Is this benefitting our startups? Who are these travellers? And of course… why did they come here? So many follow-up questions…
Before we dive in, let’s step back and ask “how do our local startups benefit?” We can’t forget, startups are at the core of who we are as an organization – they’re customer numero uno.
So, out of our 300+ members of Cintrifuse, we know that only about 46 percent of them are either in the ‘Ideation’ or ‘Incubation’ stage (more on this data in the graphics below). This means that half of our members haven’t either encountered or even thought about venture capital yet. Therefore, it would be beneficial to shed some more light on what “venture” means for startups.
What is Venture Capital? Who are the players?
First and foremost, the core of the Venture Capital space is… wait for it… NOT Venture Capitalists!! It IS the entrepreneurs themselves. There would be no startup ecosystem if there were no startups and entrepreneurs at its core. This is exactly why we focus so heavily on them at Cintrifuse.
To start, there mixed perspectives and views on the word “entrepreneur.” For this purpose, I’ll broadly define them as “founders” and use those terms interchangeably.
Founders are company originators that are (or should be) driven by a particular problem they are trying to solve for. I very specifically mention the problem here because, often times, the reasons why startups fail (stay tuned for more on ‘failures’ in a later series…) is because founders focus too much on selling a solution and/or building out a better, faster product instead of focusing on the problem.
Ash Maurya of LeanStack has a great piece here about the very idea of “Love the Problem, NOT Your Solution.” You can think of this as the age-old example of how Henry Ford came up with the idea for the car. He didn’t just breed horses to become faster or stronger, or build a more-frictionless wagon wheel. He fell in love with the problem “getting from Point A to Point B.” (Read more about Ford’s history here. And be on the lookout for Ford’s future here from this 2016 Fortune piece.)
So… Is VC the only way?
Founders don’t have to take on Venture Capital, but many choose to do so to gain the large amounts of fuel ($$$) often needed to rapidly grow a company. The founders I’m talking about today largely have started (or are in the process of starting) a high-growth company that likely leverages some type of technology — we at Cintrifuse refer to these as “tech or tech-enabled.”
Now that we have defined a founder as someone who has or is starting a scalable company around solving a problem — let’s talk about the venture capitalist. When the term “venture capital” is used, people often think of the TV show Shark Tank. While the sharks are VCs, there is usually a bit more behind the individual you see on-stage — both in team and in motivations.
A VCs motivations
Why do VCs invest?
Primarily… it’s for financial return – for themselves and their investors. (Yes, VCs have their own investors — typically called Limited Partners (LPs) …more to follow on that later.)
Second, VCs typically invest because your product, service and/or software is something they feel has an unusual ability to make outsized returns. This deduction might be because they can directly influence your efficiency or scale. OR, they are trying to fill out affiliated companies in a thesis area, industry or macro trend they are focusing on.
How do VCs make money?
VCs make money by funding startups and in exchange for that investment, the startup gives the VC a portion of their company (equity) in return. While this is a transaction between a private startup company and an investor, you CAN think of it just as you would if an individual bought a share of stock in a publicly-traded company: dollars exchanged for a percentage of ownership. Now there are many more regulations, terms, upsides, complications and valuation fluctuations – which we will talk more about later – but the basic transaction of trading money for stock/equity in a company is relatively (in HEAVY italics for all my venture lawyer friends out there) similar.
Why do we care?
Why is it so important for our ecosystem, our members, our team and even me, personally, to care so much about this?
Because our member companies — as of today — are raising over $326,000,000 (yes, million!) right here in our own backyard. (And that’s only the stuff we know about.)
One of the services we offer our members is a funding connections program. While we don’t guarantee any specific raise amounts, we do walk companies through the raise process and formally introduce fully-prepared companies to venture capitals through a double opt-in process. This allows us to remain Switzerland (neutral) while providing deal flow to our Active Network. Being a trusted confidant to every startup in StartupCincy is a part of who we are. (An inside-the-office legend tells me that Switzerland was actually one of the names being tossed around for our organization before our founders landed on Cintrifuse.)
Venture capital allows entrepreneurs to exchange equity in their company for dollars in their bank account.
Cintrifuse’s role? We’re the ones that interact every day with founders and funders looking to scale their capital and their company. I encourage you to get on our radar no matter which side of the fence you’re on. Our next event is March 14 – Understanding Investment Process and Deal Terms (register here).