The ideas are there. The technology is there. What the founders of early-stage hyperlocal startups really need to succeed in the year 2016 is cash. As access to venture capital funding softens within the startup community, it’s becoming even more important for hyperlocal firms—with products used by merchants or consumers in well-defined geographic locations—to think more strategically about how they’ll fund their great ideas.
“When the financing market goes up, the emphasis tends to be on growth and market share; when the financing market goes down, the emphasis is on business models and long-term sustainability. We’re certainly in the latter category right now,” explains Matt Turck, managing director of FirstMark Capital, an early-stage venture capital firm based in New York. “In additional to the usual—great team, big market, differentiated product that people want—I’d encourage startups to emphasize that they have a sound business model when presenting to VCs, and most importantly, real, repeatable revenue traction becomes more crucial than ever.”
With that advice in mind, we spoke to five industry experts and got their take on how hyperlocal firms should go about securing funding this year.
1. Explore funding from corporate venture capital arms. “Investment activity levels of corporate venture capital (CVC) arms are at all time highs right now and companies as diverse as JetBlue and Campbell Soup have announced the formation of venture groups in the past years. Nearly one-in-five VC deals include strategic investors. For hyperlocal startups, pursuing corporates with venture arms and an interest in delivering hyperlocal products or services represents a broad cross section of potential targets. From Comcast to Walgreens, P&G and McDonalds, corporations today are increasingly dedicating time and resources to connect and invest in startups, as well as the innovation ecosystems around them.” (Neal Hansch, Sherpa Foundry)
2. Consider alternative funding sources. “There’s a whole range of funding options that did not exist a few years ago and should be considered, although it’s unclear how those will evolve when confronted to a tougher market — AngelList and crowdfunding, for example. I also think strategic and corporate investors have evolved dramatically over the last few years, and are now much more in sync with the needs of startups.” (Matt Turck, FirstMark Capital)
3. Focus on a growing sector of the market. “With our focus on consumer-driven innovations, we look for software companies that have a vision worth fighting for and can attract and retain millions of customers. In any geographic market, the startups that demonstrate those qualities stand out. As far as new areas we’re looking at, we see several major trends that will lead to consumer software innovations in the coming one to two years.