William (Bill) A. Grimm is a Professor of Practice in Entrepreneurship and Negotiation at the Rollins College Crummer Graduate School of Business. He brings many years of experience with venture capital, public offerings, mergers and acquisitions, corporate governance, and negotiation into the classroom. Prior to joining the full-time faculty, he served as the chair of the advisory board for the Rollins Center for Advanced Entrepreneurship for six years.
I4B: The rise of entrepreneurial education has been one of the unique phenomena we have watched over the last 10-20 years; explain the how and the why.
BG: Like you, I have seen this emergence, but some entrepreneurial education was done under a different name in the ‘80s and ‘90s. I used to speak in a class titled “Business Planning” on venture capital; it was essentially a class in entrepreneurialism. But this phenomenon started in the mid-90s leading up to the bust in 2001. During that time period, you could raise money in a weekend for almost any company and a lot of people right here in Central Florida invested in new companies, some of which did well, and then the bust came.
We founded the Center of Entrepreneurship in 2001-02 then we changed its name to the Center for Advanced Entrepreneurship about four years ago because there was a move nationally to educate or better yet, provide tools for entrepreneurs. Part of this was due to a quasi-myth that small businesses provide most of the employment growth in the country, which I think studies have said is “not quite true.” It is the small businesses that raise substantial capital that provide employment, not the mom and pop businesses.
I4B: What were the factors in this growth?
BG: In the early 2000s, the government got involved with the Small Business Administration and it really took hold. Up until that time, you rarely heard the word “entrepreneur” used. It was also at this time that the Kauffman and the Edward Lowe Foundations got started, which have done a fantastic job in promoting entrepreneurialism. They began a sort of “think tank” about entrepreneurship, explaining how and why entrepreneurs do what they do. Then universities started thinking they should offer classes in entrepreneurship, first in graduate MBA programs, then undergraduate schools.
Also, the larger schools – Harvard, Yale, Stanford – had made an absolute ton of money backing Yahoo and the like back in the mid-90s. These schools were plugged into the venture capital community, which invested in these companies and they urged the schools to offer classes in how to raise capital – both to teach entrepreneurs and to train people to run venture capital funds. That became a leading indicator for everyone else to follow. Then, of course, there was a market demand from the students, which led to a concentration in entrepreneurialism and then an actual major, like finance and management.
I4B: So how did it evolve at Rollins?
BG: At first, courses were aligned from the current offerings that would be more relevant to the management of an entrepreneurial business. We recognized we needed an entrepreneurial finance course or capital raising and since no one else wanted to teach it, I did as an adjunct. We found 20 percent of our students were electing to take the entrepreneurial program, second only to finance and that continues with our MBA students today.
I4B: So these were students with work experience returning to get their MBAs?
BG: Yes, and amazingly their employers were paying them to study entrepreneurialism!
I4B: I’m paying you to formulate your exit strategy?
BG: Yes, but the other side is that you can have entrepreneurship within a company. You don’t have to start a company to be an entrepreneur. In fact, a large company has invited me to speak on that very subject in a couple of weeks, so that they can bring entrepreneurial thinking into their company.
I4B: How would a typical MBA finance class differ from an entrepreneurial MBA finance class?
BG: Your typical class would examine the management of a portfolio of securities and financial administration on a very large scale for sizeable companies. But these classes don’t deal with the nuts and bolts of accounts payable, accounts receivable and all the nuances of how you go about raising money. Should you raise money from family and friends or should you raise it from angels? Typical MBAs don’t deal with that. When my students start that class, I have to begin the first day with the basics – what is a note, what is a security lien, what is a lawsuit to enforce a note?
On day one of the class, we form a company and the first question is, “How will you split up the equity between the three founders?” We have students debating that among themselves. The next class is how to raise money among family and friends; what are the pros and the cons? They practice those negotiating skills. Also we cover how to handle financial difficulties, which almost always will occur, and how do I sell my company or do I take it public? So in 12 three-hour sessions they go through every phase of capital raising that a company will go through.
I4B: How does a company find strategic partners who can put up significant sums?
BG: The simple answer is you don’t find them, they find you. Go to trade shows, demonstrate what you can do. Write papers that can be presented at those shows. Most of what I’m talking about are technology companies. But realize large businesses send people to those trade shows for that very purpose. They want to know, what are the threats coming along?
I4B: What if you aren’t a technology or software company?
BG: Whatever you are building or selling, you should know who is out there that could be a potential partner; it shouldn’t be a mystery to you who might gobble you up or invest in you.
I4B: Is this entrepreneurial movement an economic renaissance and game changer?
BG: Yes, I believe it is. But there are some great challenges. There is a rule of thumb in the business world – you have to raise $100,000 for every new employee, so if you raise $3 million you have 30 employees. You can’t get to those kinds of numbers without raising significant capital. It takes a long time to get to 30 employees, but you can do it in two years if you can raise the capital. The venture capitalists are in that business; they are not in the economic development business. They are there to create value that they can ultimately harvest.
I4B: But VC’s invest in businesses which in turn hire employees, so there is an economic development quotient.
BG: Yes, but that isn’t their purpose, though it is an outcome.
I4B: How difficult is it to raise capital in this economy?
BG: It is very challenging; there will be a lot of disappointed entrepreneurs, both young and older. Of the 2,000 entrepreneurs a month looking for capital only 20 to 40 will find it and go on to the next stage. Whenever you hear, “There is a capital shortage,” you are hearing from those people who couldn’t raise capital, not the ones who raise money. Frankly, those who are qualified to raise money raise money.
I4B: Is it their idea, their “widget,” that enables them to raise capital or is it their business knowledge in how to present and manage those assets?
BG: It is both. When they get started and want to pull together some founders, it is the widget. When you raise money from family and friends, it is the widget. From angel investors it is a combination; for individual angels it is the widget. When you go into the professional world of venture capital, early stage capital firms or an organized angel group, it isn’t the widget. It is the management team and the management plan – are they perceived as being able to do what they say they can do? It switches over from technology or widget to management.
Also, someone on the team has to have charisma at the professional investor level; up until that time, having charisma isn’t essential. Individual angel investors are usually successful entrepreneurs themselves and frankly they are in it for the fun of it. They don’t say that; what they say is they are involved to be a part of something dynamic and growing, which I call the “fun of it” or “the hunt.” Most angels won’t invest in something they don’t understand, unless they have a trusted partner who has expertise there.
Whether on a small scale or a large scale, you raise money by developing relationships with people; you can’t raise money from a stranger. Every company I have been involved with that successfully raised capital did it by following the relational trail.
I4B: Some have observed that there aren’t a lot of local venture capital firms in Central Florida.
BG: It doesn’t matter where you are; if you have the right idea and the right team managing that idea you will find the money, or more accurately, it