The last decade has seen the funding options for burgeoning entrepreneurs grow drastically. Whether seeking small contributions from strangers through Kickstarter or using the traditional VC routes the ability to access capital has never been easier. Some of the most innovative activity is taking place in Utah.
One of the leaders in providing options to innovative minds is Salt Lake-based venture fund, 42 Ventures. Founded in 2006 by successful tech entrepreneur Ned Stringham, it has pioneered a new formula for venture investing. It's almost the opposite of traditional Silicon Valley firms. Rather than pursuing bets in multi-billion dollar markets with the idea of hitting a home-run 1 in 10 to 20 times, 42v concentrates on narrower, industry-specific markets where the upside is lower, but the potential to dominate that market means less risk and more winners, albeit singles and doubles.
Rather than investing other people's money, which creates incentives that are often in conflict with the entrepreneur (think management fees, raising the next fund, exit timing), Stringham invests primarily his own capital. He makes his money the same way the entrepreneur does and that creates better alignment and a more productive relationship. And finally, Stringham and his team are all entrepreneurs in their own right. They have plenty of deal experience like traditional VC's, but their real impact comes from actively using their background, relationships and even the technology they already own to help their companies make smarter decisions and move faster.
42v invests up to $1.5 million per deal but may start with as little as $100k. The companies they work with have to use their capital wisely. The premise: Capital constraints lead to more focused and faster moving companies. Until a business has clearly found the sweet spot for customer demand, funding needs to be sufficient to drive rapid innovation only. Once the product and value proposition is validated, funding for building the support teams, sales force and broad infrastructure is a no-brainer.
While Stringham's formula is delivering very attractive returns, the proposition isn't right for everyone. "42v is not a fit for companies that simply need capital. When entrepreneurs are looking for a partner that can help make the business grow and they really value what we bring beyond the capital, that's when the model makes sense," said Stringham.
Ned Stringham started 42 Ventures after successfully selling SBI Group, a digital marketing and technology consulting firm that he co-founded in 1998 and grew to nearly 1,000 employees with 13 offices across the U.S. and Europe. He guided SBI through the dot-com bust, acquiring several well-known public firms including Lante, MarchFirst, Scient, and Razorfish. SBI was acquired by Aquantive where Stringham joined the board.