Startup businesses in the Richmond region are getting investments here but gaps mean they must look elsewhere for funding

For startup companies, the quest for money to transform an idea into a business, and then build it into a sustainable venture, is often a perpetual process.

“It is the entrepreneur’s challenge of building the business and raising the money at the same time,” said Richard Kelly, co-founder and CEO of Nutriati, a Henrico County-based company that makes non-allergenic, high-nutrient food ingredients.

Since it was founded in 2013, the company has been through several rounds of raising money, involving angel investors, a local venture capital firm, then national and even international partners and investors.

“When do you start raising money? Right after you close your last round,” Kelly said.

For Temperpack, a Richmond-based company that makes sustainable packaging for shipping perishable goods, it took several months of work, travel and meetings with numerous investors before the company closed on a $10 million capital raise in July 2017 to help it expand its business operations.

“It was intense — a round like that is always a lot of work,” said Brian Powers, the co-CEO and a co-founder of the company, which started out as a small garage-based business in Maryland in 2014 before moving to Richmond in 2015.

The investment has translated into jobs in the Richmond region. In April, Temperpack moved its manufacturing from a 44,000-square-foot plant on Castlewood Road in South Richmond to a 130,000-square-foot plant at 4447 Carolina Ave. in eastern Henrico. It plans to hire 140 new employees on top of the 55 full-time employees and about 300 hourly personnel it already employs.

The company’s decision to come to Richmond to build its business operations proved to be the right one both for finding space and staff and for finding investors, Powers said. “Richmond lends itself well for companies with a physical component,” he said, referring to the manufacturing of a material product.

“It was clearly where we should be, so that was a good sign with investors,” he said.

Much of that funding for Nutriati and Temperpack has come from investment groups or institutions outside Virginia, which is the case with most startup companies when they reach the point of needing larger sums of capital.

But the companies also have benefited from local angel investors — those who are willing to take the risk of putting money into a venture at its earliest stages, when the risk of failure is high.

Angel investors also have helped back RoundTrip, another local startup that has developed a software tool that enables patients to book trips to and from medical care appointments.

In March, the startup received $1.9 million in an initial seed round of financing from four key institutional investors — all outside of the area — as well as from individual investors including several from the Richmond region.

It took about five months to complete that round, said Mark Switaj, a co-founder and CEO of RoundTrip.

“Raising money is never easy,” he said.

“We’ve reached out to investors in Richmond, and we are proud to say that we did receive capital from investors in Richmond,” he said, adding that RoundTrip — which has some staff in Richmond and some in Philadelphia — has had an overall favorable experience as a Richmond startup.

“The positive energy is unmatched,” he said.

“I can 100 percent tell you this has created jobs in Richmond as a result,” Switaj said. The company employs 24 people and is expecting to add more as it works to expand its business.

RoundTrip is one of more than 30 Richmond-area startup companies that have participated in Lighthouse Labs, a nonprofit business accelerator that provides mentoring for local startups and can also serve as a conduit to meet potential investors.

It participated in last fall’s Lighthouse Labs cohort, winning the top award and receiving a $5,000 grant.

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In 2017, startups in the Richmond area raised around $250 million, according to data collected by Activation Capital, a nonprofit that promotes the Richmond region’s entrepreneurial environment.

About two-thirds of that was grant funds, or angel investors, or early-stage venture capital funding. The majority of the funding came from sources outside of the region and state.

Startups typically raise money in stages, from “bootstrapping” early on by relying on personal savings, credit cards and the generosity of friends and family, to raising money from angel investors who can help push a business with some traction and revenue further along in its development. With promising growth, startups can then go to venture capital firms for seed funding and larger investments.

The local venture firm NRV has been active in funding startups in Richmond and across Virginia that are still “early stage” but have shown traction.

For instance, NRV took the lead in helping Nutriati raise a $1.5 million Series A round of funding. Last year, NRV assembled a $33 million investment fund, called its Early-Stage Growth Fund, with money raised from 83 investors across Virginia, to invest in promising ventures.

NRV — formerly known as New Richmond Ventures — was created in 2011 by a group of Richmond-area businessmen including former Ukrop’s Super Markets Inc. Chairman and CEO James E. “Jim” Ukrop.

At a later stage of growth, companies can also turn to venture capital firms such as Richmond’s Harbert Growth Partners, which has invested in local ventures such as medical products maker Kaléo Pharma Inc. and health services provider Envera Health Inc. Harbert typically invests in businesses that have already raised capital before, and that are showing growth of 50 to 100 percent per year.

The availability of money in a region for startups at each stage of development is often referred to as the “capital stack.”

Richmond has often been perceived as lacking a well-developed capital stack compared to many of its peer cities.

But Carrie Roth, CEO of Activation Capital and of the Virginia Bio+Tech Park in downtown Richmond, noted that a report last year by entrepreneur Chris Heivly, co-founder of Mapquest, actually identified access to financial capital as one of the region’s top strengths.

“You hear folks say we don’t have enough capital here, but we have a mature capital stack,” Roth said.

There are, however, “certain gaps” in the stack where startups can falter for lack of access to investors, said Mary Doswell, a retired executive with Dominion Energy and founder of Doswell Strategic Consulting Services who serves on the Virginia Bio+Tech Authority Partnership.

“This is the danger area — it is that middle ground where they don’t have enough to hold on,” Doswell said.

Lighthouse Labs is increasing its capacity to support early-stage startups, said Dan Myers, who recently became managing director of the organization.

But most of the funding for startup companies will likely continue to come from out of state, he said. Citing industry research, Myers said Virginia ranked fourth among states in terms of investment dollar activity in 2016, 10th in 2017 and 15th in the first quarter of 2018.

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Efforts are underway to help startups get funding in the earliest stages of development.

In October 2015, local entrepreneurs Brad Cummings and Will Loving formed CVA Angels, a network of accredited investors in central Virginia who could be those “angel” investors that back ventures in the early stages of development. Cummings said they formed the network after noticing there was not an organized way in central Virginia to bring together startups and potential investors.

“Every time we found out about a company that was looking for funding, we sent out an email to this group, which started at about 150 people,” Cummings said. There are now about 280 investors in the group.

Cummings estimated that CVA Angels has invested between $3 million and $4 million in about 31 companies in central Virginia, or an average of more than $100,000 per company. Recently, the group has started hosting monthly “in-person” meetings at the 1717 Innovation Center, a new startup incubator in Richmond’s Shockoe Bottom, where startups can pitch their businesses to potential investors.

“There is no shortage of companies that are looking for capital, so we will continue doing it monthly,” Cummings said. “The exciting part of that is not just going to be individual companies getting funded, but creating more of a sense of community not just in Richmond but around central Virginia.”

Some startups go a more nontraditional route to raising money.

For instance, Heidi Drauschak and Sam Biggio, both recent graduates of the University of Richmond School of Law, are using the crowdfunding platform Kickstarter to raise money for their new venture, CrowdLobby, which is itself designed as a crowdfunding site where people can contribute money to hire lobbyists for political issues. The Kickstarter campaign, which started Saturday, aims to raise $35,000 to help build a new version of the CrowdLobby web platform.

“I think that crowdfunding gives you a very interesting opportunity to raise funds by building a community at the same time,” Drauschak said. “You get the funds you need, in addition to a community of people that care about what you are doing, that believe in it and have expressed an interest in being part of it.”

If the venture decides to seek out private funding later on, it can show investors that it has built a community of supporters, Biggio said.

Jamie Christensen, a Richmond entrepreneur and president and co-founder of the startup company Outdoor Access, said there are plenty of funding options for startups in the region. “But you need to cast a very wide net, and it may mean casting that net outside of Richmond.”

Bootstrapping for as long as possible also is underrated, he said. Many startups try to go for outside funding too soon. “The time to raise outside capital is when you have built something and taken it to market — even if in a small way — and found customers who think it is great,” he said.

Bootstrapping has been the strategy for more than two years for Ticket Spicket, a Henrico-based startup that has built an online ticket sales platform for high school athletics.

Russell Hertzberg, the company’s co-founder and CEO, said the venture has drawn interest from investors, but so far it has chosen not to take outside investments. “We really have been focused on growing our own business,” he said.

“I think the entrepreneurial environment in Richmond is great,” he said. “We have had some great meetings [with potential investors].

“I don’t have any doubt that the funding environment is definitely capable for what we would be looking for.”