Rajat Paharia is one of a growing number of Silicon Valley entrepreneurs who are finding a home — and funding — in Arkansas.
Paharia, who moved from Fremont, California, to Bella Vista last year to grow his generative artificial intelligence startup, Ask Steve, said he has been surprised by the startup ecosystem he discovered — not just in innovation-heavy northwest Arkansas but across the whole state.
Rajat Paharia
“I’ve been really impressed with all the startup support resources in Arkansas,” he said. “From organizations like Startup Junkie, the Conductor and ARise that are encouraging and supporting entrepreneurs of all types throughout Arkansas to the accelerators like Fuel, 10X, MBX and the recently launched Highstep and Arkansas Global Cycling accelerators and all the efforts from the University of Arkansas [in Fayetteville] with its New Venture Development program, GORP — the Greenhouse Outdoor Recreation Program — and many more that I’m certain I’m missing.”
The Arkansas startup ecosystem, of course, may not compare to the big boys like those in Silicon Valley, New York or Boston, but Paharia said he found in northwest Arkansas a plot to grow a thriving scene.
“In terms of angel and venture funding, relative to Silicon Valley, things seem nascent but with good momentum,” he said. “There are several investment firms and organizations like Cadron Capital, Dickson & Main, 412 Angels and the Ark Angel Alliance. In addition, Serafina Lalany at StartupNWA has done an amazing job at building relationships with investors around the world and bringing them to northwest Arkansas. At a recent event, they had 35-plus VC firms in town who had more than 260 meetings with startups.”
Arkansas may lack the volume of other startup hubs, both in terms of successful exits and the amount of investment capital generated, but one successful entrepreneur/investor/advocate believes the northwest Arkansas and Little Rock markets hold their own with comparable and even larger markets in the region.
Jeff Amerine, founder and managing director at Startup Junkie Consulting in Fayetteville, has witnessed firsthand the growth of the state’s overall ecosystem from its early stages. He works with investment groups in Arkansas, including Cadron Capital Partners, Gravity Ventures and the Ark Angel Alliance.
Jeff Amerine
“Northwest Arkansas competes favorably with anyone when it comes to resources available and support,” he said. “A ridiculously high percentage of entrepreneurs who come to participate in accelerators want to stay here in some way. For an MSA of our size, it’s hard for me to believe northwest Arkansas is not top 10 in the country [for startup ecosystems].
“Little Rock-Conway has real potential, especially as it relates to fintech, where it is world class.”
Investors of all stripes in Arkansas — angels, venture capitalists, microlenders — are no different than those anywhere else: They are looking for the smallest risks with the largest potential for returns on their investments.
Paharia said the job of startup founders is to convince investors that their ventures deliver limited risk and big ROI.
“There are a number of ways to derisk your startup in their eyes, including but not limited to having traction and customer validation, having a previous track record of success, having some unique or valuable intellectual property such as patents or expertise, and having other reputable investors,” he said. “For their ROI, you have to clearly articulate the size of the opportunity that you’re going after and how much of that value you think you can capture. Then you have to weave a story about how a confluence of factors like market trends, regulatory changes, new technologies, etc., make the outcome that you’re describing inevitable and how you are uniquely positioned to capture it.”
For startup founders, raising money before launch can be the preferable approach.
“Once you’ve built your product and launched it, you have certainly eliminated some of the risk, but investors can also see how the market reacts and will anchor to that reality, and it’s very unlikely that you hit the ball out of the park on the first try,” Paharia said. “Whereas when you have nothing but a vision, they can only anchor to the immense potential that you outlined in the story that you told.”
Chad Brown, vice president for private investment at the Circumference Group in Little Rock and managing partner of the Venture Center Arkansas Fund, said the startups he encounters have a clear sense of their market, who their customers are and what immediate set of problems their venture solves.
“They also have a plan to reach early adopters so they can learn and iterate from these initial customers to reach the next set of customers,” he said. “They have founders who are determined to see their company succeed.”
The most important thing for founders to bring to the table when making a pitch? Effective communication.
Experts say the job of startup founders is to convince investors that their ventures deliver limited risk and big ROI.
“Even the most complex solution should be able to be described to nontechnical investors,” Brown said. “Most individuals and organizations will not necessarily be experts in your field, but they will need to be able to understand the business value proposition to make an investment.”
412 Angels is the angel investing wing of Endeavor Heartland in Bentonville. Director Quinn Robertson’s mission is to increase angel investments in the 412 corridor between NWA and Tulsa. He said he sees a few key traits shared by successful ventures: They are customer/problem oriented rather than solution oriented; their default is speed/action/learning rather than planning; and they have a team with unique insights and talents aligned to solving a specific problem.
Quinn Robertson
The most important thing a founder can bring to the investors’ table, he said, is validation.
“It’s as simple as that. Early on, investors will want to see what effort the founder has put in to validate the urgency, magnitude and clarity of the problem statement, usually showing up as customer interviews and later on repeat customer use and happiness,” he said. “If revenue is starting to grow larger, what validation points suggest a repeatable and scalable way of getting new customers to continue growing? Everything points back to validation; it may just look different at various stages.”
When Amerine first got involved in the state’s startup ecosystem, it was at an embryonic stage, he said, but seeds were planted with organizations such as the private angel group Fund for Arkansas’ Future and Innovate Arkansas, a public-private partnership that supported early-stage tech startups. Following the success of homegrown startups such as Rockfish, RevUnit, Apptegy and even Slim Chickens, momentum was seized and “the coalition of the willing has grown,” he said.
“We’ve got the capital coming in, and as far as talent, we are seeing more entrepreneurs launching ventures here,” he said. “The state is now pretty well resourced. Overall, the resources, talent and funding in the state is a lot better.”
Still, Amerine estimated that Arkansas is at the end of the beginning stage of its startup ecosystem growth. The process is not an overnight one; he noted that what is now known as Silicon Valley started in 1946. The state just needs to expand the momentum to all 75 counties, he said.
Arkansas makes up for its small size with entrepreneurial DNA that can compete with any place in the world, he added.
“We are open to collaboration, welcoming and genuinely want people to succeed,” he said. “People want to help you get to the next level. It’s our No. 1 strength. Try finding that in the mid-Atlantic states.”
Feature image: Events like the Fuel Accelerator expose northwest Arkansas to entrepreneurs from across the globe. (Photos provided by Startup Junkie)
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