Which Path Forward?

How to fund a business may be the most important decision an entrepreneur makes — here are some tips for finding your way

Back Longreads Jul 24, 2018 By Bill Sessa

Having a great idea is easy. But turning that idea into a business is a bit more difficult. From creating a product with market viability, to hiring staff and growing to scale, the road to entrepreneurship is rife with obstacles. But, perhaps none are as fundamental as the age-old question of how to fund.

Got Cash?

Here are just a few more funding resources in the region:

Stockton Impact Corps:

offers small loans up to qualified persons owning or seeking to start a small business in San Joaquin County. Typically, SIC clients are unable to get a loan from a traditional lender.

U.S. Small Business Administration:

SBA 7(a) offers up to $5 million per person for startup costs, while the SBA’s 504 Loan Program offers funding for specific purchases.

Calling All Dreamers:

annual competition organized by the Downtown Sacramento Partnership since 2013, with the winning business receiving a prize valued at more than $100,000 including up to $10,000 in matching capital to open the business.

Social Venture Partners Fast Pitch:

annual competition and mentorship program specifically for nonprofits. Each year the contest awards $20,000 in cash awards. In 2018, an additional $100,000 was raised at the pitchfest in addition to $110,000 in in-kind services.

Rapid Acceleration, Innovation, and Leadership:

launched by the Sacramento Mayor’s Office of Innovation, the program offered startups $1 million in grants up to $100,000 in its first year, adding matching grants up to $250,000 in 2018.

Blacktop Capital:

a Rocklin-based seed-stage venture capital firm with an additional office in Los Angeles.

Impact Venture Capital:

a Sacramento-based early-stage venture capital firm investing in technology startups working in civic tech, cyber security, financial tech, big data, telecoms and media.

Moneta Ventures:

Folsom-based venture capital firm investing in early stage companies in the enterprise technology, health care and internet/consumer application sectors.

Sacramento Angels:

angel investment group which accepts applications from Northern California entrepreneurs needing less than $2 million.

We know there are more resources out there. Tweet us with the ones we missed @comstocksmag

Bootstrapping, the practice of cobbling together personal funds, is typical of most new businesses — necessary for the first year or two until a business can create a financial track record and a business plan worthy of outside investment.

The mega-million dollar venture capital market that routinely makes headlines in the Bay Area or New York has yet to fully develop in the Capital Region. The options that are available are more suited to the area’s growing startup community. The Capital Region Small Business Development Center had 1,700 clients last year alone, with up to 60 percent of those startups proposed by first-time entrepreneurs — the remaining clients were established businesses looking to grow.

“Every entrepreneur is different,” says Paul Bozzo, a financial consultant affiliated with the Capital Region SBDC. Funding solutions have to match the growth strategy of the business.


Founded in 2014, the Capital Region SBDC oversees 10 local hubs as part of the 900 centers created nationwide by the U.S. Small Business Administration. The local organization has helped launch about 100 new businesses, created or preserved about 500 jobs and has infused more than $30 million into the regional economy. It counsels a couple thousand hopeful entrepreneurs a year at no cost, and one of the main areas of guidance involves financing. The SBDC employs a range of consultants from nearly two dozen disciplines, from franchising to e-commerce, who coach the group’s members.

“We see ourselves as a business fitness center with expertise to help companies grow,” says Executive Director Scott Leslie.

Estimating their financial need is one of the many mysteries facing entrepreneurs. The SBDC works with business owners seeking capital to help them procure bank loans that fit their unique needs and growth goals.

“Some people have a good idea, but their projections are off and they can use a little hand-holding to refine them,” Leslie says.

Business partners Michael Donoho and Jeff Belaki worked with SBDC to procure a loan after bootstrapping the early days of their company, a restaurant called The Waffle Experience.

“They advised us on how to approach bankers to show our potential for growth and profit and define the client base we knew would support us,” Donoho says. Ultimately, a loan from the Veterans Administration Small Business Outreach Program provided the funding for a new restaurant and to consolidate their debt. (Both men had served in the U.S. Marine Corps in the 1980s.)

In searching for a deal that fits, the SBDC has more latitude in talking to banks and other financial institutions than an individual borrower. Banking laws typically restrict lenders from offering advice to prospective borrowers about tailoring or refining their business plans, limiting them to providing “yes” or “no” decisions on loan requests.

But because the SBDC essentially plays “matchmaker” and is not a party to the loans, it can have a more comprehensive conversation with potential lenders. That allows the SBDC to explain the situation of their client and shop for a lender that is a good match.

“Banks are typically looking for a record of revenue, solid cash flow, strong executive leadership and a clearly defined market,” in exchange for a loan, says Bozzo. Typically, a loan provides cash faster than finding a partner to buy equity into a company, he adds. “You also are not giving up equity ownership in the company.”

“But one disadvantage of a loan is that you have to start paying it back, which is a drain on cash flow,“ says Bozzo, “and the cost of borrowing is a liability on a balance sheet.”

May the Best Business Win

There are a variety of sources in Sacramento for grants, with many devoted to specific industries or issues. Individual awards may be as small as a few thousand dollars. Some offered by state agencies run into six figures.

Related: Funding Resources in the Region

Related: With JOBS Act provision, startups can crowdfund by selling company shares

Photo gallery: 2018 Big Bang! Business Competition | Finalist Presentations

Related: Niki Peterson on preparing future entrepreneurs

Denise Bronner, a graduate student at UC Davis, was awarded $17,500 this year at the university’s Big Bang! Business Competition for her business that creates snacks from the grain waste of microbrewers. For this year’s competition, the Big Bang! awarded $100,000 in grant money. With 62 teams entered, the field was nearly twice as large as it was just four years ago. Launched in 2000, the competition was opened to teams not affiliated with the UC system two years ago.

Beyond grants, many competitions also offer mentorship and coaching. As part of Big Bang!, UC Davis hosts a series of 11 workshops and three multi-day academies in which teams hear from business leaders about intellectual property law, how to write persuasive executive summaries and business plans — and the value of networking.

“In business, relationships and networks are everything. Edison didn’t invent the light bulb, but he had a team of people who could bring it to people’s homes,” says Karen Harding-Davis, who supervises the program.

The Sacramento Kings launched its own startup competition, Capitalize, in 2016, awarding $10,000 to the top performer of 16 finalists. Seventy-five local applicants participated in the 2018 competition, with Kings fans awarding the grand prize to Protxx, which developed a wearable sensor to help monitor athletes to reduce the risk of impact injuries.

The contest exposed the startup to a “large audience and really leveraged the innovation ecosystem in Sacramento,” said Protxx’s Chief Revenue Officer Rick Spencer in a press release. “ … Also, as we prepare to launch our large athletic pilot in Sacramento, we have benefited from leveraging the Capitalize brand in our messaging.”

The biggest advantage of a grant is that there is no debt, giving up of equity or other strings attached. “When teams win, the grant is free and clear without obligations,” Harding-Davis says. “We encourage them to invest in their project, but they can use the funds any way they wish.”

The drawback of competitions is that they can entail a lengthy application process, and the competition itself may take anywhere from days to months. Each competition is different, and a business’ success or failure can depend on the unpredictable preferences of the judging panel.

An Angel for Quick Growth

As companies grow, they can reach a critical point where they need larger amounts of capital to scale up. Angel investors may be an option over lines of credit or loans. But an angel investor represents more than simple financial help. Their investment comes in exchange for equity in the company, meaning an entrepreneur needs to choose between being sole owner of a smaller company or giving up some control for a larger and more valuable company.

“One mistake entrepreneurs make is to think of angel investors like banks,” says John Peters, the leader of Sacramento Angels, a group of about 50 accredited investors that evaluate new opportunities. And they typically need more than a good idea or a potentially viable product with a decent business plan: “Angel investors want to see highly scalable revenue in a short period of time and an exit strategy in 3-10 years,” Peters explains. “They aren’t looking for dividends.”

Laura Good is a cofounder of StartupSac, a nonprofit public benefit corporation with a mission of supporting the local startup ecosystem through education and networking. “You need to have gained some traction,” Good says, “if not in sales dollars then in a success measure like number of users, to gain their attention. If you’ve invested your own money in your startup or been bold enough to ask friends and family to invest, they are more likely to risk an investment in you.”

Companies looking for investment capital can apply on the Sac Angels website or can be introduced to the group by one of its members. A selection committee evaluates as many as 30 applications each month, which are narrowed down to five or six to be vetted by the larger team.  

Ultimately, two applicants are invited to make a pitch before the entire group. “If there is enough interest from within the group, we proceed to do more due diligence before our members write checks,” Peters says.

While large sums of capital may be more difficult to find in the region compared to the heavy-hitting Silicon Valley, Peters says that’s changing.

“Sacramento has momentum and it’s exciting,” he says. Peters estimates that up to two-thirds of the groups’ investments are in the Sacramento region. “There was a time when we invested more than half of our money out of the area because we couldn’t find high-enough quality companies.”

For an entrepreneur, the road to success starts with a good idea — but then it must be paved by smart financing. And what works for one entrepreneur might look completely different from another. “The No. 1 reason new businesses fail is that they run out of cash,” says Bozzo of the Small Business Development Center. “Funding is a dynamic situation and there is no one-size-fits-all approach.”