Every venture capitalist is looking for an investment edge, but not many have a story like Stuart Sutley’s. The 49-year-old graduated from the University of Virginia in 1987, but instead of creating a fund or going straight to grad school, he immediately enlisted in the U.S. Marine Corps. Sutley spent a few years as a first lieutenant before taking part in the military operation that would become known as the “video game war,” for its extensive use of new communications technology: Operation Desert Storm.
Sutley left the Marines not long after Operation Desert Storm began, but his participation in the military at a time when technology was becoming such an integral part of war has given him insight into a growing demographic of veteran entrepreneurs who are turning to technology start-ups upon leaving the service.
“A lot of people don’t realize that today’s veterans have great technology backgrounds with hands-on training,” Sutley says. But as more investors become aware of this fact, he is counting on being one of the first people they turn to.
In 2013 Sutley and a crew of three other general partners and six analysts put together the Veterans’ Opportunity Fund (VOF), under the umbrella of Baltimore-based TEDCO Capital Partners, a private investment entity spun off from TEDCO, Maryland’s economic development organization. VOF’s founders hoped to capitalize on the talent they knew was emerging from the military but needed a boost after spending so much time inside.
“Many times veterans come out of the military after spending their 20s there, and they don’t have a business network established, they don’t have any credit history, and they don’t own any collateral, so we were seeing veterans who had some great business plans and ideas but were having a very hard time raising any money,” Sutley says.
At VOF, Sutley and his partners aim to inject veteran-owned businesses that have strong management practices and business plans with up to $3 million in capital to help make up for lost time.
VOF made its first investment in June, in veteran-owned RedOwl Analytics, a data-crunching software company also based in Baltimore. The founders are West Point graduates who took their experience handling data for the military in Iraq and Afghanistan and developed a commercial data analysis product.
Sutley says VOF was tipped off to the growing company by angel investors who had helped it get started. When RedOwl brought on its first clients and proved that its product worked, it was time for VOF to move in. The fund hopes to make similar investments in 15 to 20 more companies in its first round.
“We want to invest in what we think will be the best leadership or management teams,” says Sutley. But in addition to leadership and technology skills, veteran-owned businesses have other pluses as well: Veterans are much less likely to give up and go work for someone else when they hit stumbling blocks with a new venture, and they are more likely to be willing to move to the part of the world that best suits their company’s needs, Sutley says.
Investing in a veteran-owned business can also meet an unexpected need of many investors, particularly family offices: social responsibility. Many firms look for ways to invest in green technologies and companies that do some kind of social good, and, at least in Sutley’s experience, investing in an entity created and run by veterans is another attractive option.
Though VOF is one of only a few venture funds that focus on veteran-owned and -managed companies, other industry leaders are getting the message. Veteran Ventures, an Orlando-area 501(c)(3) nonprofit launched last year in an effort to connect veterans with science-, technology-, engineering- and mathematics-focused companies with potential investors. The organization, which is still working on gathering donations and recruiting venture capital firms, also plans to provide education and mentorship services.
Universities are getting in on the game as well. Many have entrepreneurship programs, and some are now adding tracks that are specific to veterans. At George Washington University, the office of entrepreneurship recently sponsored a “Semper Startup” event that gave student veterans a chance to pitch ideas and connect with potential mentors and investors.
Jim Chung, the founding executive director of the innovation and entrepreneurship program at GW, says he is also working on a plan to create a program that would connect veteran entrepreneurs with military laboratory technologies for licensing.
“My hypothesis is that their military training and background will be an advantage in commercializing this type of technology,” Chung says.
Companies like RedOwl, which pulled in a total of $4.6 million in new funding this year from a group of eight investors and funds, and their backers are hoping to prove that hypothesis correct.
