Early-stage capital tight for entrepreneurs with ideas

REGION

Recessions often give rise to great business ideas, but many entrepreneurs are struggling to find investors who can help get those ideas off the ground.

At the Centre County-based seedcapital fund known as Ben Franklin Technology Partners, funding inquiries have doubled from ayear ago, said Pam Martin, director for the southcentral region.

"There's a lot more people in our pipeline, which means it's making competition for our limited funds even more competitive," she said.

The line outside Martin's door is growing because of tighter financing from banks and private early-stage investors, but also because many people try to start businesses when they lose their jobs, she said.

Meanwhile, companies in which Ben Franklin already has invested are finding it harder to move to the next stage of financing, so they are asking to stay under the organization's wing for longer, Martin said. That ties up more capital.

Ben Franklin is one of four nonprofits statewide that make investments with funding from the state government. Each got $6.9 million in the last fiscal year, but budget plans in Harrisburg would reduce the pot of money that funds the nonprofits, said Terry Singer, director of statewide affairs for the four groups.

Angel investors, individuals who make earlystage investments, are pulling back, Singer said.

"A lot of (angels) have lost a lot of money, just like everybody who was in the stock market and everybody who was in mutual funds," he said.

A little higher up the financing ladder, the venture capital outlook is bleak, according to a survey of the industry. Nationwide venture investments totaled $3 billion in the first quarter of 2009, down almost 50 percent from the previous quarter, according to the Moneytree report. It was the lowest level of venture investment since 1997, according to the report, compiled by the accounting firm PricewaterhouseCoopers and the National Venture Capital Association.

But several local examples paint a brighter picture.

The Lancaster Angel Network is still moving at the same pace, said Mike Shoemaker, one of its leaders. Some investors are saving cash in case firms in which they already have invested need it, but newcomers are still being funded, he said.

A Dauphin County company recently snagged a $1.1 million slice of the withered pie. Derry Township-based CoTweet Inc. has developed an eponymous application that helps businesses get their messages out on Twitter, the socialnetworking Web site.

"The reception overall was very, very positive because this is one area where people see growth," CoTweet Chief Executive Officer lesse Engle said.

The company announced the investment IuIy 9. At least one of the CoTweet investors, First Round Capital, has a Pennsylvania presence, with an office in suburban Philadelphia.

One of the keys to CoTweet's success was having advisers who knew the right people to call, Engle said. He found those advisers through personal networks developed over years in the technology industry, he said.

Lancaster County-based nanotechnology firm Illuminex Corp. is talking to potential investors but not searching aggressively for money, said CEO Joe Habib.

"Because we don't necessarily need it and we just feel that it's in our best interest to only talk to people that are serious and it's a very timeconsuming process," he said.

For now, the company is more focused on developing its technology than landing investors, Habib said.

"If you have a great technology, the money will come to you," he said.

So far, Illuminex has been funded by state and federal grants and some subcontracting, Habib said. Revenue is expected to reach more than $1 million in 2009.

The Investors Circle of York has been plugging along as usual through the downturn, said Darrell Auterson, president of the York County Economic Development Corp (YCEDC), which created the angel network. The last investment he could recall the group making was last fall.

The investors circle has always been rather conservative, Auterson said.

And he acknowledged that hunting for money And he acknowledged that hunting for money is no picnic.

"The challenge is that money is very tight in this market, and this recession is not your typical recession, given what happened in the capital markets," Auterson said. "I think it makes it that much more challenging to access capital."

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"The reception overall was very, very positive because this is one area where people see growth."

Jesse Engle, CoTweet Inc.

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YOUR TAKE

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[Author Affiliation]

BY DAVID DAGAN

davidd@journalpub.com