Press

Startups Jostle For Funding, Attention at South by Southwest

03.30.2015

Entrepreneur P.K. Fields (R) is pictured with investor Dave McClure in Austin Texas, in this undated handout photo courtesy of P.K. Fields. By Sarah McBride

AUSTIN, Texas (Reuters) – Entrepreneur P.K. Fields was delighted when she won a contest and a chance to pitch her Los Angeles-based startup to a venture capitalist.

So delighted, she dropped everything and flew 1,400 miles on her own dime to the South by Southwest Interactive conference in Austin, Texas, for 30 minutes alone with angel investor Dave McClure as he was driven around town in a tiny red-and-black electric BMW i3.

Fields is emblematic of the thousands of entrepreneurs who converge on Austin each year, hoping to rub shoulders with venture capitalists and win funding for their companies amid the current startup boom.

Despite long odds, many hope to replicate the success of past “South-by” standouts such as Twitter Inc in 2007.

It’s rare to find so many would-be startup investors in one place at the same time; rarer still to catch them in a casual setting removed from the pressures of Sand Hill Road, the California locale known for its cluster of venture capital firms.

But that convenience comes with a price: The growing volume of startups today at South by Southwest, or SXSW as many call it, engulfs both the startups and their audience.

“It’s kind of like the great white whale of Austin,” said Ethan Kurzweil, a partner at Bessemer Ventures, likening finding an investment-worthy company at the conference to Ahab’s elusive prey in Herman Melville’s novel “Moby Dick.”

An estimated 32,000 people swarm through Austin for the Interactive conference, which began on Friday and ends on Tuesday, and a parallel SXSW film conference (About 16,000 attend the famed SXSW Music and Media Conference beginning on Tuesday and ending on Sunday.)

The entrepreneurs don’t lack opportunity to pitch venture capitalists. SXSW Interactive typically puts on multiple events where entrepreneurs can showcase their talents. This year’s Accelerator contest gave entrants the chance to pitch their companies and were judged by a panel that included venture capitalists like Kurzweil.

The “Pitch a VC” ride-along that Fields took part in was sponsored by startup Life360, a social network for families. “You have to be somewhere where the ratio is right,” he said.

CHASING THE DREAM

Yet many still flock to the conference for opportunities to pitch, at considerable cost or inconvenience.

More startups are springing up than ever before, spurred on by the success of the likes of photo sharing services SnapChat and Instagram – which are often little more than great ideas and well-executed mobile apps that have drawn millions of dollars in funding.

As inspiring as those success stories are, they represent just a tiny sliver of startups. Many fail.

Still, money continues to pour into startups. Last year, venture capitalists invested $29.4 billion, an increase of 7 percent over 2012, into almost 4,000 young companies, according to the National Venture Capital Association.

Entrepreneurs are often willing to go the extra mile to try to get a slice of that.

Fields, for example, cashed in frequent flyer miles, both her own and an adviser’s, for her last-minute plane ticket. She took a red-eye flight that got her to the city early Sunday morning, a few hours before her ride-along pitch meeting.

It’s too soon to know how successful this year’s attendees will be in raising money.

What does work? Using the trip to cement a relationship forged before the conference, investors and entrepreneurs say.

Ryan Swagar of Venture 51 said that at a past SXSW he was able to hammer out funding terms over tequila at an Austin bar for a company whose people he’d met previously. John Arrow, chief executive of Mutual Mobile, said he clinched a deal to build an Apple iPad app for Garrett Camp, founder of Internet recommendation service StumbleUpon and an existing client, after running into Camp at a bar.

But with a little luck, lightning sometimes strikes.

Bryan Stolle, a partner at venture firm Mohr Davidow, recalls hosting a party at SXSW a few years ago and spotting some unfamiliar guests lurking nearby. Toward the end, they approached and pitched alternative-lending service Kabbage.

“At the right moment, they sort of pounced on me,” he said. “They wanted to make sure we’d done the rounds already, so when they cornered me, that we could actually have some quality time.”

It worked. Stolle led Atlanta-based Kabbage’s next funding round. Kabbage co-founder Rob Frohwein said he and his co-founder had wrangled the invitation through one of the party’s co-hosts and turned up specifically to meet Stolle.

As for Fields, her ride with McClure didn’t lead to an immediate offer for a term sheet, the document that accompanies funding.

But she did get valuable advice, such as what revenue levels she needed to achieve for her startup, care-provider ElderSense. Perhaps the biggest coup: McClure “favorite” her tweet and photo about the ride.

“With a startup, it’s every little step along the way,” she said.

(Editing by Edwin Chan, Christian Plumb and Jonathan Oatis)