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Startup challenges
Incubators and state aid may not be enough to build a local tech industry

06/04/15
By Ryan Lessard news@hippopress.com



New state initiatives, competitions and educational programs are sprouting up to nurture a budding tech industry in New Hampshire, but to get companies to stay in the state, some say more needs to be done to build up sources of local investment that are currently too small to compete with the larger sources of capital that pull tech firms out of the state.

 
Secondary markets
Accelerate NH is the only “accelerator” program in the state designed to educate startups. And after existing for four months, it may get more than $100,000 in state aid. 
Mark Kaplan, the CEO of incubator Alpha Loft, modeled Accelerate NH after programs like Y Combinator in Silicon Valley, which provides seed funding and exposure to investors. At Y Combinator, there’s a flat investment and a boot camp period for a select group of startups that ends with an event called Demo Day, where the participating companies pitch to top investors. Y Combinator used to provide a standard investment of $17,000 for 7 percent equity, but that’s gone up to $120,000. They’ve helped companies like Reddit and Dropbox get off the ground.  
Alpha Loft is doing something similar, providing $5,000 for free, plus a period of mentorship and seminars that concludes with a pitch event also dubbed Demo Day.
“Many accelerator programs have a demo day of one kind or another,” Kaplan said. “It gives [the companies] good exposure to the right audience.”
To participate, companies need to be less than 2 years old and to have raised under $100,000 in funding or revenue. Kaplan said they had 29 applicants for the accelerator program, and they selected six.
“We actually got more applications than we thought we were gonna get,” Kaplan said. “We thought we’d be lucky if we got maybe 10 or 15.”
Kaplan said that on Demo Day, which took place during the Party at Arms on May 28, the six participating companies had an audience of angel investors, venture capitalists, media and other members of the “entrepreneurial ecosystem” listening to their pitches.
And that, Kaplan says, is half the battle.
“In secondary markets like we operate in here in New Hampshire, capital resources can always be a hurdle for startup companies,” Kaplan said. “So these kinds of pitch competitions really help fill that gap very well.”
 
Competitive pitching
On May 19, Manchester’s young professionals, business leaders and investors gathered at the Alpha Loft incubator on Elm Street to participate in an event much like Accelerate NH’s Demo Day. They listened to six companies deliver pitches in hopes of being awarded some free money — the second-to-last phase of the New Hampshire Startup Challenge put on by the Manchester Young Professionals Network. 
After a half-hour of meet and greet, Laura Hunter took the floor next to a flat screen mounted to the wall where her Powerpoint presentation was displayed. Hunter introduced herself as a Bedford native and dove into a well-rehearsed and confidently delivered five-minute pitch describing her company, TestNotice.
“Our motto is ‘Never miss a random drug testing appointment because you did not know about it,’” Hunter said. “The market opportunity is pretty big here. Approximately 1.5 million people every year are arrested on DUI charges. Arrests often lead to drug and alcohol screening as part of the parole, bond and rehabilitation program.”
Hunter said she’s already signed a deal with a firm in Oklahoma and needs funds to pay for legal fees to patent her product, airfare for sales visits and Google advertising. 
Other companies (or “teams” as organizers call them) in the final six included BevNow, an app that allows golfers to request drinks from the beverage cart out on the field, and VidFall, a creative marketing service that attracts viewers to watch advertisements where the price falls for a product or service as more viewers visit the page until someone hits the button to buy.
At stake is a $20,000 cash prize and $55,000 worth of in-kind services like legal help, tax assistance, marketing and a year of office space at Alpha Loft, according to Tim Paradis, an MYPN board member and chair of the New Hampshire Startup Challenge.
“As a startup, the more you pitch, the better you get at it,” Paradis said.
After this event, the final four teams were chosen to pitch a second time. On the merits of their final pitch, a panel of five business leaders will select a winner.
Paradis said the second pitch started last year (this is the sixth year of the challenge) as a way to help companies perfect their speech and polish their delivery. But even at this stage, he said, some people in the audience may be the very people that pitches like these are ultimately intended for: investors.
“Investors certainly come to these things and look to see what’s out there, what the trends are,” Paradis said.
The money being offered by MYPN is not a lot in terms of what tech startups ultimately look for from investors, but the hope is that it will act as seed money to attract those much-needed investments. The problem, according to Kaplan, is that there aren’t many venture capitalists or angel investors in New Hampshire.
 
A winner’s perspective
Devon Bernard, a 21-year-old college senior and software engineer from Epping, was the winner of last year’s MYPN startup challenge. But he says the investment deck is stacked against the state.
“There’s, sadly, only a few places [that offer significant investment]. It’s mainly New York City or California if you’re looking for venture capital firms or if you’re looking for a corporation to back you and give you an investment,” Bernard said. “As far as angel investors, there’s a few in Boston … but there aren’t really any [venture capital] firms or significant angel investors in New Hampshire.”
And Bernard said most of those backers have a say in where the company is located.
“If you get a significant investment from a venture capital firm, usually one of the [requirements] is you have to operate wherever they are, in close proximity to their headquarters,” Bernard said. “Unless people are able to manage finances on their own or have angels that will back them … it’s going to be hard for them to stay here.”
Still, Paradis said, competitive pitch events are helpful for young entrepreneurs to connect with other professionals working on similar problems, and more experienced industry sages who can serve as guides. 
“There are people you can actually connect with that are helpful,” Bernard said. 
But is that enough to keep young tech companies in the state? Bernard says it depends. 
Education is a key resource, he said, since it can help some companies gain a steady stream of revenue before seeking investment. If you can demonstrate the company can be profitable based in New Hampshire, backers may not require you to move.
“I definitely think [an accelerator program] can help get people to that break-even point,” Bernard said.
Still, out-of-state investment has a greater gravitational pull.
“No matter how much resources or advice they provide you … you’re near guaranteed to relocate,” Bernard said.
 
State of startups
Liz Gray is the director of entrepreneurship for the New Hampshire Business Finance Authority and is the person heading up Live Free and Start. She hopes all the incubator programs and eventually fledgling state programs will convince small tech companies to settle in New Hampshire.
“We want to inspire current entrepreneurs here in New Hampshire to make sure that they know they don’t have to go to Cambridge, they don’t have to go to New York, they don’t have to be in Silicon Valley,” Gray said. “They can do it right here in New Hampshire.”
The same week the N.H. Startup Challenge kicked off, Gov. Maggie Hassan proclaimed Entrepreneurship Week as part of an effort to showcase the Live Free and Start initiative that began last June. On April 23, the Live Free and Start website was launched.
Gray said the focus is on currently active tech-based startups.
“We are definitely doing some homework and looking at what other states are doing,” Gray said. “We are going to be doing more research, especially on the access-to-capital front.”
Meanwhile, the governor proposed a new line item in her budget for $250,000 to go toward education and acceleration programs. The House reduced that to $107,000.
So far, Alpha Loft is the only organization that provides such a program.
 If Alpha Loft gets any money from the state budget, Kaplan said, it will go toward improving the program and expanding it to serve more companies. 
 
As seen in the June 4, 2015 issue of the Hippo.





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