Houston Voices

Startup funding: Know the bucks behind the business

A startup without funding is just a great idea. Miguel Tovar/University of Houston

A Cadillac with an empty gas tank is just a really nice, really expensive decoration for your driveway.

Change my mind.

A startup company without funding, is just a really great idea. A dream. Just like a car without gas will never get out on the road, a startup without funding will never get its product out on the market.

"There are opportunities for startup funding out there, your job is to find them and take advantage," says Daniel Weisfeld, CEO and founder of Resthetics, a blossoming startup that takes waste anesthetics and converts them into safe, renewable resources.

Mohamed Hashim, Resthetics co-founder and chemist, chimes in, "You have to do your homework. It's a slow process and hard work, but it'll be rewarding once the money comes in."

Putting the fun in startup funding

According to Weisfeld and Hashim, Resthetics joined the Texas A&M New Venture Competition and won admittance to the Texas Medical Center Accelerator, in addition to funding. In fact, their company is backed by the Texas Medical Center to date.

Business plan competitions give hopeful entrepreneurs the chance to vie for funding of their technology's development. They also give young entrepreneurs real-world experience and a chance to refine their business plans. Business plan competitions offer entrepreneurs a better understanding of what it's like to get a new venture off the ground and helps them learn to commercialize their technology.

You can browse a few business plan competitions here, including a Houston-based one.

Angel networks

While on the surface, an angel network may seem like a religious TV station, it's actually something a little more beneficial to your search for funding. Angel networks are composed of angel investors, i.e., people who invest their own funds into the beginning stages of a startup, with the hope of seeing a big return on their investment later on. Angel investors who invest in startups that end up failing will lose their money. It's a big risk.

They are called "angel" investors because these individuals give their own money to support startups, unlike venture capitalists who use funds pooled together from a group of investors.

Weisfeld suggests that, "Even if you don't think that your company fits someone's investment criteria, you should still reach out to them. Always ask. An investor might like you or your tech enough that they'll make an exception, or they may even recommend you to someone they know who is willing to invest."

Fun fact: In the early part of the 20th century, wealthy business owners gave their own money to support stage plays, so the term "angel investor" was born from Broadway.

You can find local angel investors in Houston here.

Non-dilutive funding sources

Often times, a startup will garner funding but will have to give up partial ownership of their company in return. This is not the case with non-dilutive funding sources. One example of non-dilutive funding is a bank loan. Sure, you'll have to pay a monthly interest rate, but you'll also get to keep absolute ownership of your startup.

Another example of a non-dilutive funding source is revenue sharing. Revenue sharing places more emphasis on a company's growth rather than its equity (your assets vs. your debts). This is important because it is congruent with the interests of entities who provide non-dilutive funding. Funding entities are more concerned with how sustainable your startup is projected to be rather than how much it is worth. This makes non-dilutive funding one of the best avenues through which to receive monetary sponsorship

Accelerators

Startup accelerators support startups as they are, well, starting up. Focused on the early stages of companies, accelerators offer startup funding, mentorship, connections in the industry, and education. Resthetics, a finalist for the 2018 MassChallenge accelerator in Austin, was able to expand its young company thanks in part to the connections made at the MassChallenge accelerator. Weisfeld and Hashim gained access to global mentor networks through the MassChallenge accelerator. Mentors helped them with manufacturing, quality management systems, and guided them as they developed Resthetics.

One of the primary differences between accelerators and business plan competitions is that accelerators offer intensive training and rigorous mentoring to push entrepreneurs to learn the ins and outs of running a business in the span of a few months. It's a hands-on crash course in business, and not for the weak at heart.

Brave souls can find Texas accelerators here.

Bang for your buck

So you've finally received the funding you need for your startup. Now what?

As a kid, my old man never let a teachable moment pass him by. After I spent ten bucks on a single Pog, my dad's new mission in life was to teach me the value of a dollar.

This lesson becomes all the more important after you finally receive funding for your startup. Weisfeld stresses the importance of budgeting after funding is acquired.

"What's the furthest you can go with the smallest amount of money?" asks Weisfeld.

Weisfeld opines that while you must be comfortable spending money, you also have to be confident with your budgeting strategy so that you spend each dollar as efficiently as possible as you take your product to market. After all, what funder is going to want to invest in someone who is wasteful with money?

Whether it's negotiating with vendors, outsourcing, cutting costs, or using independent contractors, it is incontrovertible that financial efficiency should be your next goal after you've finally acquired your startup funding. As Weisfeld proclaims, "Every dollar you spend should in turn create the same amount of value to the company."

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

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

Public universities can be negatively affected during a government shutdown — especially within its research department. Miguel Tovar/University of Houston

As the partial government shutdown loomed, academic institutions explored ways this might affect their research operations. Although we expect delays in processing proposals and award payouts, the impact on the institution may have been much less than expected. Consequently, most of the impact occurred at the individual principal investigator, or PI, level. That is where research that required federal resources came to a halt.

This is also the case for researchers at the Borders, Trade, and Immigration (BTI) Institute at the University of Houston. As a result of the shutdown, they were unable to start any new projects. Sadly, the government furloughed their program manager at the Department of Defense- Science and Technology Office of University Programs.

Education initiatives and multiple other research projects pending review were stuck along the "assembly line," as approvals did not happen during the month of January.

Consequently, BTI is a granted institution. Current projects were able to continue with slight delay due to the requirement to have meetings with the DHS representatives for their projects.

This scenario echoed across the research enterprise, as other researchers found themselves in similar situations.

Business as somewhat usual

Moreover, Nicholas Bond, climatologist and associate professor of atmospheric sciences at the University of Washington, felt the pinch of the shutdown and chronicled his experiences of how it impacted his research on climate and oceanography of the North Pacific.

Academic institutions across the country became burdened with the task of assuming unexpected financial responsibilities. In mid-January, the lapse in governmental funding forced The Ohio State University to temporarily cover the costs of unbilled expenditures to the tune of about $3 million. Harvard University continued to pay stipends for fellowships. They did this despite the fact that the shutdown included the federal funding agency.

Many faculty members, including our own, were able to continue working on their projects with the expectation of administrative delays. No new funding opportunities were issued, panel reviews were postponed and no new grants or no-cost extensions were awarded. For the most part, it was business as (somewhat) usual.

The big picture

It may be safe to say that the partial shutdown acted more as an inconvenience to the research enterprise than anything. Which is great news! Especially for the University of Houston, who has recently ignited the campus with the announcement of the 50-in-5 initiative. This ambitious program will increase the research and scholarly output by 50 percent over the next five years.

While this article focuses on the inconvenience of administrative delays, it's critical not to skim the surface. It may seem minute when compared to recipients of public assistance fearing not receiving benefits, but short-term implications are likely.

Keep in mind that most often, grants are not awarded by a single payment from the agency. Timelines are established between agencies and the institutions, and funds are released accordingly. Because of this, it's likely that research programs and educational initiatives across the academic research enterprise will not receive their funds on schedule.

What the future holds

Imagine, if you will, a conveyor belt. A system designed to allow items to move through a process with maximum efficiency. Because of the partial shutdown, research proposals that were in queue for review or funding experienced interruption along the conveyor belt.

Once disruptions to processes within federal agencies happen, it becomes inevitable that there will be delays further down the line.

Claudia Neuhauser, associate vice chancellor/vice president for Research and Technology Transfer for the UH System, warns of the "ripple effect" of the downstream delays and the potential impact on expenditures. We'll have to wait until the end of the year when annual reports are prepared for answers.

For now, it's a question of what the aftereffect will be.

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

Nitiya Spearman is the internal communications coordinator for the UH Division of Research.