Last month the local startup community didn’t get the news it was hoping for from the Hawaii Legislature. A request for $5 million from the Hawaii Strategic Development Corp. to help fund startup companies received only about $1 million.
In the long run perhaps this is not a big deal, but it’s instructive in illustrating the difficulties of funding high-tech startups in the Aloha State.
“For startup companies,” said J.R. Robinson, founder of Nest Egg Guru, initial “seed funding is absolutely crucial.”
Robinson, whose startup provides retirement stress testing software for financial planners, knows something about finances.
Robinson said he’s better off than most startups because his company is self-funded from the success of a separate business, Financial Planning Hawaii. Although he has invested over $100,000 into Nest Egg Guru out of his own pocket, he said it is still not enough.
Startups need money to scale their businesses. Without adequate funding, even if you have a good idea, you’ll be dead in the water. It takes money to pay developers, hire talented marketing people, build brand recognition, attend trade shows, etc.
Finding funds is a huge challenge, especially in Hawaii. The first source of startup funding for any fledgling company, Robinson said, are the “three F’s”: friends, family and fools. After that you need other, more formal sources of funding, such as seed capital and angel investors.
Even small investments, he said, are tough to come by in the Aloha State.
That, he explained, is why the funding for startups that the Legislature passed on this session is so important. The lost $4 million — even though in relative terms it is small potatoes — would have made a huge difference to the multitude of young companies that are starved for seed capital.
In terms of getting his own company launched, Robinson gives a great deal of credit to Blue Startups, a Hawaii-based high-tech business accelerator founded by software entrepreneur Henk Rogers. Blue Startups not only provided him with $25,000 in seed money, but more important, said Robinson, offered mentoring that he said was invaluable. Had he paid $25,000 for the mentoring provided by Blue Startups, “it still would have been a good deal.”
Robinson said that one of the reasons why the Legislature might be hesitant to provide more money for startups is the perception that if a startup that receives funding fails, the Legislature could be criticized for throwing away money.
Nothing could be farther from the truth, he said.
“While it is true that most startups will indeed fail, the money invested by the state in Hawaii-based businesses is far from wasted,” Robinson said. “In fact, to the extent that the companies that receive funding spend their money in the state, it is a powerful economic stimulus.
“Speaking from my own experience, it’s a good bet that most of the money will be spent locally, and if the Legislature is worried about where the money is being spent, it could stipulate that the funding it provides is only spent in Hawaii.”
What advice does he have for other high-tech entrepreneurs?
“First, have a team,” Robinson said. “The task of scaling a company requires long hours and a diverse range of talent. One-man shows generally face long odds of success.
“Second, try to have a developer on your team, preferably as a co-founder. Keeping your (development) work in-house may save you a fortune or, at least, can help you avoid (development)-outsourcing mistakes.
“The main thing you need to understand,” Robinson said, “is that it’s incredibly competitive out there, and you’re going to need funding. It is exceedingly difficult to build and scale a startup on a shoestring.”
Mike Meyer, formerly internet general manager at Oceanic Time Warner Cable, is now chief information officer at Honolulu Community College. Reach him at mmeyer@hawaii.edu.
