Chris Young is a member of the Bluegrass Angels, a seed funding organization of Kentucky entrepreneurs and business leaders. They have seeded many companies in industries including technology, health care, manufacturing and distribution.
A Duke graduate with degrees in electrical and biomedical engineering, Young has been active as an entrepreneur and investor in technology-related startup companies for more than 10 years.
His conversation with Tom Martin begins with something new for the Bluegrass Angels: a "Launch Fund," a competition to provide funding to entrepreneurs who have interesting business ideas, but are not yet far enough along to present to the Bluegrass Angels group. As a result of its first competition, held recently, the fund awarded $25,000 investments to four finalist companies.
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Tom Martin: Let's begin with that idea. What inspired it?
Chris Young: A number of individuals including myself, have had this conversation recognizing a gap of funding for these young companies that aren't ready for a larger scale investment from one of the regional venture capital funds such as the Bluegrass Angels. These companies are usually started by bright individuals that have a good idea and no access to capital; banks don't lend them money. So it's kind of difficult. Friends and family perhaps don't have enough to get them going. So we saw an opportunity. Offering some financial reward for the endeavor is what it's about. As recently as December is when this idea got started. We thought it would be fun to do this. It would be good for both the investment community to see some of these young companies and also, of course, good for these startup enterprises to get access to not only the money that we were going to provide but possibly more importantly to the mentorship and contacts that these local investors might be able to provide these companies.
Martin: You just recently completed your first round and began with a pretty large field, narrowing that down to four, correct?
Young: We had 33 applicants, which we were tremendously excited about considering we only sent out the notice of the event — which was held at the end of January — at the beginning of January. A screening committee of volunteers narrowed those down to 10 companies that we invited to present. We allowed them five minutes to present and five minutes Q & A, which is not a lot of time. We, the investors in the room, debated and bandied about and voted on five finalists, which we then narrowed down to four winners.
Martin: How do you sort through all those ideas?
Young: Sorting through young companies is inherently difficult. ... I think everyone has their own opinion. And that's what was very fun about this. It wasn't just one person looking at a company and saying I like it or I don't like it, or it fits my area of knowledge. We had a group; I think there were 19 of us in the room that were investors, and we had some pretty heated debates. That was, to me, as much fun as seeing the new companies. Getting the interaction between very intelligent investors, you always learn something. But in the end we were unanimous in our decision on the four winners which I didn't necessarily anticipate, going into the process.
Martin: I guess this requires a certain level of patience and comfort with risk?
Young: Yes. You have to be very comfortable with risk, but I think with risk comes opportunity.
Martin: As you listened to these pitches did any of them strike you as, 'Gosh that's a great idea, I wish I had thought of that?'
Young: Yeah, and I think those are sometimes the best ones. Of course then you start your next risk analysis: Is it defensible? Do they have some patents? Do they have a first market advantage or is there a design or something that maybe separates them from the rest of the field? A lot of the great startup companies did start with a simple idea. Twitter, for example. That's not a highly complex idea, 140 characters that you can send out to some audience. But it hit a need at a time when mobile devices and phones and things were in our pockets with the need and the desire for very simple information. It's a very simple idea, though I'm not sure I would have seen the potential if I had heard that in a five-minute pitch.
Martin: What is it about entrepreneurialism that you find attractive?
Young: I like the spirit of entrepreneurs. I like the go get 'em attitude. I couldn't ever imagine myself working a 9-to-5 job where I did the same thing every day. I think I would just be bored to death, and so for me this is an opportunity to interface with very bright individuals that have good ideas but have gaps in their abilities. They might be very good engineers that have a very bright idea for a product but they don't understand the business aspects of building a business. The university might have people that might have a good idea but they don't have the technical background to implement it. And that's where I really enjoy getting involved with young companies and trying to help them personally but also help them network with other individuals that can really help build their business.
Martin: Would you say Lexington has a pretty robust entrepreneurial culture and scene?
Young: I think it's coming on, yeah. The university system here in the state provides a good influx of smart and talented people that are working on interesting things. I'm not sure that we are completely optimizing the university system to get those ideas out to potential investors and out to the market. But people continue to work on solving that problem.
Martin: And there are a lot of people out there who believe they have come up with a "better moustrap" and don't know how to get to that next stage. What's your message to them about moving forward?
Young: Keep trying is an obvious message. Most companies need to raise some amount of cash to succeed. They need to figure out who their customer is and how they can interact with that customer very quickly to validate their business idea and then quickly pair that with investors that trust that validation. Now, that might be pre-orders of a product; that might be customer testimonials: 'I will buy it if you will build it.' It can come in all forms. But investors typically don't know the businesses very well before they come in. External validation is a huge de-risker for investors. So if you get somebody that comes in and says 'I've got this idea and I did a Kickstarter and I've got 1,000 people waiting for delivery of the product, will you come along for the ride?' I think investors respond better to that than 'I've got an idea but I've done nothing beyond put it on a PowerPoint deck for you to hear about.'