Houston Voices

7 ways to escape the Valley of Death, according to University of Houston research

Finding funding is tough and might get you in the mother of all holes — the Valley of Death. Miguel Tovar/University of Houston

To walk through the valley of death means that death and misery are low points (valleys) in the human experience through which we all must inevitably walk and experience.

Although not as morbid, in the world of startup businesses, the valley of death is still grim. It is a low point in your startup's life where your business suffers and all seems lost. Specifically, it describes how hard it is to cover negative cash flow while you wait for your startup to start generating revenue from actual consumers. Sadly, only 10 percent of startups will survive the valley of death after the first three years, according to a Gompers and Lerner analysis.

"Our startup overcame the valley of death by making believers out of investors. Often, you have ideas that are worthwhile, but you have to find investors who also believe that," says Jason Eriksen, Ph.D., associate professor of pharmacology and chair and co-founder of Alzeca Biosciences.

Alzeca develops advanced imaging technology that helps physicians detect Alzheimer's at a much earlier stage than ever before. Alzeca is one of 28 groundbreaking and innovative startups changing the world at UH's Technology Bridge.

"Initially, our investors rejected us because they were disappointed that we couldn't cure Alzheimer's, and that we could merely stage it. That sent us spiraling into the valley of death. We overcame that by making other investors believers. We made them believe in our technology for detecting the disease early and that it would be life-changing for millions of sufferers," Eriksen says.

Here are another seven ways to dig yourself out of, not just a hole, but the mother of all holes: the valley of death.

1. Gather resources.

Planning your business is a good way to minimize risk. Such preparation involves determining how much money you will need to get to the revenue generation stage, and how much money you will need to cover costs in the likely event you fall into a financial hole. The more resources you've accumulated beforehand, the more padding you'll have if you fall on your face.

2. Don't quit your day job.

Keep your day-to-day job to keep money coming in and your personal finances covered. Use your weeknights and weekends to put in work on your company while you wait to generate revenue. You'll be making money while you wait for money. This way might take longer, but with proper planning, you can ensure that your lights will stay on while your startup struggles to bring in revenue while spiraling in the valley of death.

3. Find funding from friends and family.

"Angel investors and venture capitalists will feel a lot better about investing if they see you already have money at stake," Eriksen says.

That pre-investor money usually comes from friends and family. There is some weight to the idea that you should never mix business with family, but there are exceptions.

You're more likely to secure funding from friends and family if you show them you have a more-than-solid business plan. Your loved ones will want to see figures and metrics that have tracked what your business has done or what it is projected to do. They will also want to see that you are an expert in your business. It would also help to show them a payment plan where you outline when and how you will pay their money back.

Once you have friends and family funding secured, you're a lot more likely to acquire more funding from investors, and the long, hard road out of the valley of death begins.

4. Call for crowdfunding.

One smart way to jet pack out of the valley of death is to launch a crowdfunding campaign. If you know your tech, service, or product is a game changer, crowdfunding will put that to the test. This is where you'll obtain funding from everyday people who like what you have to offer enough to put all their faith in it in the form of dollars and cents.

5. Enter competitions and apply for grants.

Enter as many competitions as you can.

"Because of the government's recent surge in focus on tech-based and energy-based startups, there are now more startup competitions available in major VC (venture capitalist) geographic hotspots like San Francisco, Boston, New York, LA, and San Jose," Eriksen says.

While those cities are the startup hotspots, their activity reflects the current market for startups all over the country. Thankfully, that activity is at an all-time high, so you can rest assured that startup competitions are abundant in your own city, too.

This is your chance to show the world your hoverboard and attain funding you don't have to pay back, all without even relinquishing any equity. These competitions are, get this, competitive, so it would wise to register as early as you can.

6. Consider joint venture.

There might be a company out there that sees your product or services as congruent to their own business. Reach out to them and try to convince them that a joint venture would behoove both companies. This approach is not uncommon, and companies have been known to advance funding early on with the expectation that you'll reimburse them once your revenue starts rolling in.

7. Borrow if need be. 

Somewhere out there is a loan with your name on it. Wallowing in the valley of death can really leave a business owner feeling desperate and alone in the world. So desperate, that is, that they might mess around and apply for a loan. This alternative is the nuclear option. A last resort. It's only a viable approach if you're willing to put your home or other big assets on the line as collateral.

Typically, banks will only approve loans to startups that are cash-flow positive. So maybe this option is best if you've succeeded with a few of the aforementioned approaches so much that they helped your company start generating revenue. Once you've reached that point, that's the prime time to apply for a loan or line of credit.

"The phrase 'valley of death' is appropriate because it is a death sentence for the vast majority of startups," warns Eriksen.

That doesn't mean you go down without a fight.

When Buster Douglas fought Mike Tyson, every fan, expert, and sportswriter counted him out. For the entire fight, they were right. His defeat was inevitable. Then the tenth round happened.

Not only did he not go down without a fight, he won the bout. He beat the champ, and the odds. If you want your best chance at beating the odds, you do everything you can. You fight. Loans, competitions, crowdfunding, joint ventures; whatever it takes.

"The valley of death is only a death sentence if you allow it to be."

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This article originally appeared on the University of Houston's The Big Idea.

The author, Rene Cantu, is the writer and editor at UH Division of Research.

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Building Houston

 
 

Register for some of these informative online events happening throughout the month of March. Photo via Getty Images

March marks a full year of attending online events — from Zoom panels to virtual conferences. But, the shows must go on with another month full of online innovation and startup events that Houston innovators need to know about.

Here's a roundup of virtual events not to miss this month — from workshops and webinars to summits and pitch parties. Note: This post might be updated to add more events.

March 1-5 — CERAWeek by IHSMarkit

In lieu of the week-long, in-person mega-conference that is the annual CERAWeek by IHSMarkit, the 2021 iteration will be completely virtual. Need some ideas of what panels and talks not to miss? Click here for five recommendations of what to attend.

The conference takes place Monday, March 1, to Friday, March 5. Click here to register.

March 2 — Houston Innovates: Digital transformation and Innovation in Oil & Gas

Digital forces are changing the skills an executive needs to manage organizations. In a world that's become increasingly digital, energy companies can sometimes find it hard to adapt. Join General Assembly Houston for a panel discussion with:

  • Sameer Khan, digital leader (MarTech and Transformation) at ExxonMobil
  • Sarah Vega, vice president of IT & Change at SmartestEnergy
  • Ricky Burns, business transformation team lead at BP
  • Jose Beceiro, senior director of Global Energy 2.0 at the Greater Houston Partnership

The event is on Tuesday, March 2, at 9:30 am. It's free and can be accessed online. Click here to register.

March 2 — Ladies Who LaUNCH #13: The Female Superpower

In 2020, 40 percent of US businesses were owned by women and generated $1.8 trillion. With these numbers in mind, it comes as no surprise that the presence of women in entrepreneurship and investing is growing.

Why do women-led companies financially outperform their male counterparts? And what are the "female superpowers" behind our ability to excel in these fields? Join featured speaker, Megan Bent, as she explores the research, data, and her own experience in the importance of female leadership in entrepreneurship and investing, and how to leverage your differences to your advantage.

The event is on Tuesday, March 2, at noon. It's free and can be accessed online. Click here to register.

March 3 — What's Next in Crypto?

Baker Botts and TeamBlockchain are hosting a webinar discussing trends in cryptocurrency. Key speakers from the sector include:

  • Ali Dhanani, partner at Baker Botts
  • Sarah Beaumont, associate at Baker Botts
  • Jonny Fry, co-founder & CEO at TeamBlockchain Ltd
  • Spencer Randall, principal & co-founder at CryptoEQ
  • Ankush Jain, chief investment officer at Aaro Capital

The event is on Wednesday, March 3, at 11 am. It's free and can be accessed online. Click here to register.

March 9 — Investing in Medical Devices

Join the Texas HALO Fund for a conversation with three of the fund's portfolio companies: Adient Medical, Allotrope Medical, and PathEx.

The event is on Tuesday, March 9, at noon. It's free and can be accessed online. Click here to register.

March 10 — Open Project Night: Achieving Gender Equality in Houston and Beyond

Impact Hub Houston is bringing you a monthly opportunity to come together to work on solutions for some of Houston's most pressing issues. Our city is full of changemakers across all ages, cultures, skillsets, and industries. This is your chance to conned and collaborate for the greater good.

The event is on Wednesday, March 10, at 5 pm. It's free and can be accessed online. Click here to register.

March 10 — Conversations with Latinx Entrepreneurs in Houston

Latinx entrepreneurs are starting small businesses faster than the rest of the startup population and becoming a bigger part of the total U.S. market every day. Join General Assembly for a panel of Houston Latinx leaders as they share stories about their heritage, failures and success.

The event is on Wednesday, March 10, at 6 pm. It's free and can be accessed online. Click here to register.

March 11 — How to Sell Without Being "Salesy"

In celebration of Women's History Month, Catherine Brown and Leela Madan, both serial entrepreneurs and founders of Houston-based Founder's Compass offer their advice on selling your business.

The event is on Thursday, March 11, at 10 am. It's $30 and can be accessed online. Click here to register.

March 11 — Inspire Seminar with Leslie Wise

Join Enventure for a talk and Q&A with the president and principal consultant of Evidence Matters, Leslie Wise. Inspire is one part of Lilie's three-program career exploration series. The goal of Inspire is to share an individual's career journey so that trainees can see one of the many paths that can be taken, learn about the reality of working in these fields, and gain valuable advice from key leaders to better prepare themselves for their own career journey.

The event is on Thursday, March 11, at noon. It's free and can be accessed online. Click here to register.

March 16-20 — SXSW

Another conference is pivoting to virtual attendance this year. SXSW has flipped the switch to being online only for 2021. SXSW's seven conference themes are A New Urgency; Challenging Tech's Path Forward; Cultural Resilience in the Arts; The Rebirth of Business; Transforming the Entertainment Landscape; Connection in Disconnection; and An Uncharted Future. Stay tuned to InnovationMap for a Houston innovator's guide to the conference.

The conference takes place Tuesday, March 16, to Saturday, March 20. Click here to register.

March 17 — Top Legal Considerations for Startups

Join Rice University's Liu Idea Lab for Innovation and Entrepreneurship for a session with corporate and securities lawyer Aaron Barker, who specializes in advising companies from formation to exit, will give you the inside knowledge to help you launch your venture, and possibly save you from making a rookie mistake.

The event is on Wednesday, March 17, at 4 pm. It's free and can be accessed online. Click here to register.

March 24 — Houston Startup Showcase

The Houston Startup Showcase is a flagship event from The Ion, formerly known as Demo Day. This event will allow for developing companies to receive feedback from subject matter experts and showcase their successes thus far. The event is a year-long series of monthly pitch competitions, and results in a final winner to close the series in November. Companies are encouraged to apply online to pitch.

The event is on Wednesday, March 24, at 6 pm. It's free and can be accessed online. Click here to register.

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