Every startup company begins with an idea, but as a group of aspiring entrepreneurs at Vanderbilt University’s School of Engineering learned Feb. 26, it is the funding behind the idea that ultimately determines success.
As part of the Spring 2018 Chambers Family Entrepreneurial Lecture, alumnus Bruce R. Evans, BE’81, senior adviser and chairman of Boston-based growth equity and venture capital firm Summit Partners, shared details about his journey from Vanderbilt to the venture capital industry and offered some fundraising advice. The audience for his presentation, “Entrepreneurial Finance: The Venture Capital Fundraising Process,” included students, faculty and administrators from across campus.
“I came to Vanderbilt on an academic scholarship [the James W. Stewart Jr. Honor Scholarship in Engineering], and that was one of the drivers of my desire to get involved with the university after graduation,” said Evans, who is now chairman of the Vanderbilt University Board of Trust. “I felt like Vanderbilt had done a lot to help me get started, and I wanted to do some things to give back.”
After graduating magna cum laude in 1981 with a bachelor’s in mechanical engineering and economics, Evans relocated to Louisville, Kentucky, where he sold mainframe computers for IBM. His main account was restaurant chain Kentucky Fried Chicken.
“I sold the really big stuff. They were systems sales,” he explained. “That was helpful to me later in my career because a lot of what a venture capitalist has to do is a systems sale of sorts.”
After three years as a computer salesman, Evans moved to Boston to attend Harvard Business School. He graduated with an MBA in 1986 and joined Summit Partners, a firm that has raised $20 billion in capital since its inception. Evans ended up staying with the firm for 32 years, joining its board of directors and serving as one of Summit’s managing partners along the way.
“One reason they hired me was because the guy who ran the firm was from Macon, Georgia. He was looking for another guy who was nominally a Southerner,” chuckled Evans, a West Virginia native.
During the Chambers Lecture, Evans drew upon his years of experience at Summit Partners to explain the different financial options available to startups and outline the private equity industry as a whole. He told the audience that there are essentially three choices when it comes to obtaining capital for a business: “You can make it. You can borrow it. Or you can raise it.”
“The characteristics of your business will drive you in a particular direction,” he said. “If you borrow money, you don’t have to give up equity in your business. But when you borrow money, you also take on financial risk. With equity you’ve got a lot more flexibility. You’ve got big pools of capital. But the issue with equity is you can sell it only once.”
Evans spent much of his presentation discussing venture capital—the funds raised during the early growth stages of a startup—and offered the audience several pieces of advice on how best to secure it.
“The first thing you should do is develop some financial literacy,” he said. “You need to know how to read an income statement, a balance sheet, a cash flow statement. The people you will encounter and raise money from will talk in this language, and you need to be able to make good judgments about what they tell you and what you tell them.”
Evans also told the audience that they must honestly assess their business ideas before seeking investors. That means identifying an idea’s strengths and weaknesses with regard to (1) products and/or services—e.g., thinking about the product development technical risk, (2) the market—its size and the potential competition, (3) people—the qualifications of one’s team, and (4) historical and projected financial performance.
He then went on to walk the audience through the fundraising process, identifying key steps like hiring an experienced securities lawyer, preparing an effective fundraising pitch for investors, and negotiating the final venture capital agreement.
“Once you have the money and the resources to be able to pursue your objectives, that’s when the real fun begins,” Evans said. “It was the part of the business that I liked the best. It wasn’t a negotiation anymore. It became a cooperative thing, a situation where we had a common objective.”
The School of Engineering’s Chambers Family Entrepreneurial Lectureship was endowed in 2014 by the Chambers Medical Foundation. The lectureship encourages entrepreneurial activity among engineering students and throughout the Vanderbilt community by inviting successful business leaders to share their experiences.