61°F
weather icon Partly Cloudy

Business startups face funding challenges in Nevada

When Gerald Meggett Jr. began searching for a new city to relocate his startup, Las Vegas seemed like the perfect fit.

The community’s education system presented a prime opportunity to show off the capabilities of his app, CircleIn, which connects students to peer tutoring opportunities. So in 2017, co-founder Meggett moved his company from Maryland to Las Vegas.

He soon realized one thing was missing: local funding from venture capitalists.

More than 80 percent of CircleIn’s funding had come from out of state. Meggett said Battle Born Venture, Nevada’s state venture capital program, invested $200,000 in the company in January, and UNLV’s Rebel Venture Fund finalized an investment this month.

“There definitely have been some challenges” getting capital from local investors, he said. “Right now, (Las Vegas) is not attractive for venture capital. … You have a community ranking dead last in education. That’s a very scary place to invest.”

Education Week magazine put Nevada in 51st place in its 2018 Quality Counts report, which is used as a national comparison for the quality of public education in each state and the District of Columbia.

Local experts said Nevada’s tax structure and business-friendly climate make it an appealing location to set up shop, but they said the startup scene lacks quality businesses. In turn, the investment money in Southern Nevada is funneled into larger startup scenes outside of the state, including Silicon Valley.

The money scene

The venture capitalist scene in Las Vegas has been growing in recent years, according to Nick Jones, an entrepreneur in residence at Las Vegas-based seed investment firm Varkain. He and others said it is unclear how many venture capitalists there are in Las Vegas.

“It’s a difficult number to track, especially in this town,” he said.

Some of that growth may have been from high-net-worth individuals moving into Nevada from states with high taxes, such as California. According to research co-authored by Charles Varner, associate director of the Stanford Center on Poverty and Inequality, California lost about 138 high-income residents to other states after voters approved a tax increase in 2012 that raised the top state income tax more than 29 percent to 13.3 percent.

Zach Miles, associate vice president for economic development for UNLV, said there is venture money in Southern Nevada, “but trying to find the right groups to tap into for that money is different.”

Jones said his workplace invests most of its money in startups outside of Las Vegas, citing a lack of quality startups in the Las Vegas area: those that have a good minimum viable product, solve a problem in the market and show traction.

Lost opportunity

According to a 2017 report from the Kauffman Foundation, Las Vegas ranked No. 34 out of 40 metropolitan areas for growth entrepreneurship, a metric of how much startups grow.

Jones said Nevada’s lack of quality startup businesses and university structure are two reasons venture capital funding is leaving the state.

While Nevada is home to only a handful of colleges spread across the state, Silicon Valley has schools such as Stanford University, San Jose State University and the University of California, Berkeley, all within a 50-mile radius. That means investors can find clusters of educated, qualified entrepreneurs in one area.

Those clusters tend to attract the most money. U.S. venture capital-backed companies raised $23 billion in the second quarter of 2018, according to New York-based CB Insights, a financial research firm. The Southwest, which encompasses Nevada, Utah, Arizona, New Mexico and part of Northern California, received $386 million in funding, with about $25.2 million in Nevada. The San Francisco area alone received about $5.6 billion.

Sam Palazzolo, managing director of Las Vegas-based financial investment business Tip of the Spear Ventures LLC, said the Bay Area has more opportunities for investors and entrepreneurs alike.

“If I were in San Francisco, I could go to a pitch-fest every evening that was sponsored by a law firm,” he said. “We might hit two law firms in the same evening, and the pitches are from the smartest people on the planet.

People from Stanford, MIT, Yale, you name it.”

Leith Martin, director of UNLV’s Troesh Center for Entrepreneurship and Innovation, said that while education is a factor in developing local venture capital and startup scenes, it’s no different than any other workforce development opportunity.

“If there’s not the necessary skill set there, then there’s going to be a struggle in terms of the number of people or individuals qualified to do that,” Martin said. “There’s a lot of discussion on whether or not you can manufacture entrepreneurs. At UNLV, what we attempt to do is provide individuals the tools that help them start a company, whether it be knowledge in how financing works … (or) determining the commercial viability of an idea.”

Future of capital funding

Local funding isn’t impossible to find in the valley. Mark Brennan, founder and principal of private equity and venture capital consulting firm Brennan Capital Partners, focuses on working with local entrepreneurs. Twelve of the 15 he is working with today are based locally.

“Overall, Las Vegas is a great place to start a company,” he said. “But it’s also frustrating because while it has a host of the basic requirements to create a really robust early-stage ecosystem, it also lacks several elements,” such as qualified workers and an efficient education system.

Martin said he expects more investors will turn to Las Vegas as they start to recognize the potential in Las Vegas’ convention space and tax structure.

But the local venture capital scene — which Miles described as “disorganized,” with a lack of networks between local startups and investors — still has a ways to go before it sees major growth.

“The sooner it gets organized, the sooner we’ll have a robust venture capital scene,” Miles said. “It’s moving in the right direction.”

Contact Bailey Schulz at bschulz@reviewjournal.com or 702-383-0233. Follow @bailey_schulz on Twitter.

This story has been updated to clarify that Battle Born Venture, a venture capital program overseen by the Governor’s Office of Economic Development, invested $200,000 in CircleIn.

Don't miss the big stories. Like us on Facebook.
Business Videos
How much do Las Vegas casino CEOs make?
Las Vegas gaming CEOs made anywhere between $1 million and $24 million last year, according to company filings with the U.S. Securities and Exchange Commission. ((Las Vegas Review-Journal)
30-year-old Rio needs a little TLC
Nearly 30 years after the Rio opened, the red and blue jewel that helped catapult Las Vegas to a new level with its buffet and nightclub has lost its status along with its shine.
The latest on the Drew Las Vegas - VIDEO
Eli Segall recounts his tour of the Drew Las Vegas, formerly the Fontainebleau, on the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
Pinball Hall of Fame to move near south Strip
Operators of the Pinball Hall of Fame have been approved to build a new, larger arcade near the south edge of the Strip on Las Vegas Boulevard near Russel Road. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
National Hardware Show underway Las Vegas
The National Hardware Show kicked off Tuesday at the Las Vegas Convention Center (Mat Luschek / Review-Journal)
Caesars for sale?
Caesars Entertainment Corp. has been swept up in takeover speculation since the company’s share price tumbled last year amid disappointing earnings and concerns over a recession. Amid the decline, hedge funds scooped up shares. Billionaire activist investor Carl Icahn began buying shares of Caesars as early as January. Icahn acquired nearly 18 percent by mid-March. In February Icahn called on the Caesars board to study a sale as a way to boost shareholder value.
Las Vegas home prices
Las Vegas home prices grew fastest among major markets in February for the ninth straight month. But amid affordability concerns, the growth rate has slowed down. Southern Nevada prices in February were up 9.7% from a year earlier, according to the latest S&P CoreLogic Case-Shiller index. The last time Las Vegas' price growth fell below 10% was in September 2017, S&P Dow Jones Indices reported.
Free Parking Coming To Wynn
Free parking will come to the Wynn and Encore resorts on May 1, 2019. (Mat Luschek / Review-Journal)
Founding Venetian employees talk about 20 years at the Strip resort
The Venetian, which opened May 3, 1999, is celebrating 20 years on the Las Vegas Strip. Seven original employees talk about opening the luxury resort and working there for two decades. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Circa aiming for December 2020 opening
The 1.25-million-square-foot property will have 44-stories and 777-rooms. It will also have a separate nine-story, 1,201-space parking garage.
Boxabl official explains the building concept
Boxabl business development manager Galiano Tiramani shows off a room built by his company. (Blake Apgar/Las Vegas Review-Journal)
TI/Mirage Tram reopens
The tram that shuttles guests between TI and Mirage reopened this week after being closed for much of 2018.
Las Vegas Convention Center expansion taking shape
Renderings and actual footage show how the Las Vegas Convention Center is evolving.
Former Starbucks CEO Howard Schultz at Las Vegas convention
Former Starbucks CEO and potential presidential candidate Howard Schultz spoke at the Epicor Insights user conference at Mandalay Bay Convention Center Wednesday, April 17, 2019. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Drew Las Vegas to open in the second quarter of 2022
The 67-story Drew Las Vegas is slated to open in the second quarter of 2022 at the north end of the Las Vegas Strip. (Michael Quine/Las Vegas Review-Journal)
NAB Day 1 (Time Lapse)
NAB kicked off at the Las Vegas Convention Center on Monday, April 8, 2019. (Mat Luschek / Review-Journal)
National Association of Broadcasters Show shows 1mm thick 8K TV with 22.2 channel digital sound
Japan’s NHK Science & Technology Research Laboratories booth featured a 1mm thick 8K TV system used in conjunction with a 22.2 channel digital sound system at the National Association of Broadcasters Show at the Las Vegas Convention Center. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Nevada shoppers react to Smith’s no longer accepting Visa credit cards
On March 1, Smith’s announced that it would no longer be accepting Visa credit cards at any of its 142 supermarkets, including the 45 in Nevada.
Massachusetts Gaming Commission asks how long Wynn executives knew about misconduct
Business reporter Rick Velotta gives an update on the adjudicatory hearing on the suitability of Wynn Resorts to retain its gaming license in Massachusetts.
Henderson app developer part of Startup in Residence
Henderson based developers of the app On Point Barricade are taking part in Startup in Residence, a North America program dedicated to pairing tech companies with governments. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Sam's Town employees and customers talk of their love for the iconic casino
Longtime Sam's Town employees and customers love each other and love their casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
Las Vegas apartments rents
Las Vegas’ apartment market has accelerated in recent years. Developers are packing the suburbs with projects, landlords are on a buying spree, and tenants have filled buildings.
William Boyd talks about the birth of Sam's Town
On the eve of the 40th anniversary of Sam's Town, William Boyd, executive chairman of Boyd Gaming and son of hotel namesake Sam Boyd, talks about how the casino became one of the first local properties in Las Vegas. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
High Roller observation wheel turns five
The world’s tallest observation wheel celebrates it’s fifth year on Sunday, March 31, 2019. (Michael Quine/Las Vegas Review-Journal) @Vegas88s
Escape Room Industry Growing In Las Vegas
Escapology employees discuss the growing escape room industry in the U.S. and Las Vegas. (Bailey Schulz/Las Vegas Review-Journal)
Impact of parking fees on visiting the Las Vegas Strip
There are no data showing a relationship between Strip resort and parking fees and the number of out-of-state visitors to Las Vegas. But there are data showing a relationship between Strip parking fees and the number of local visitors to the the Strip. ‘’As a local, I find myself picking hotels I visit for dinner or entertainment, based on whether they charge for parking or not,”’ said David Perisset, the owner of Exotics Racing. ‘’It is not a matter of money, more of principle.’’ A 2018 survey by the Las Vegas Global Economic Alliance found 36.9 percent of Clark County residents reported avoiding parking at Strip casinos that charge for parking. 29.1 percent reported avoiding using any services from a Strip casino that charges for parking.
MGM's sports betting deals
MGM Resorts International signed a sports betting sponsorship agreement with the NBA in July It was the first professional sports league to have official ties with a legal sports betting house. The deal came just two months after the U.S. Supreme Court overturned a law prohibiting sports betting in most states. In October, MGM became the first gaming company to sign a sports betting partnership with the NHL. In November, MGM became the first gaming company to sign a sports betting partnership with the MLB. Financial terms of Tuesday’s deal and earlier partnerships have not been announced.
Faraday puts Las Vegas land on the market
Nearly two years after Faraday Future bailed on its North Las Vegas auto factory, the company has put its land up for sale. (Michael Quine/Las Vegas Review-Journal)
El Cortez owner Kenny Epstein on running the iconic property
Kenny Epstein, owner of the El Cortez Hotel in downtown Las Vegas, talks about Jackie Gaughan mentorship and answers rumors about bodies in the basement at the mob-era casino. (K.M. Cannon/Las Vegas Review-Journal) @KMCannonPhoto
LVCVA recommends construction of underground people mover
The Las Vegas Convention and Visitors Authority announced the recommendation for an underground people mover for the convention center. The system would have the potential to expand and connect Downtown and the resort corridor all the way to McCarran. (Michael Quine/ Las Vegas Review-Journal)
THE LATEST
Billboard industry robust in Las Vegas

Back in the late ‘60s, Jonathan Fine’s grandfather was the valley’s second largest billboard owner. Today, Fine and his partner Jonathan Gudai are working to change the out-of-home advertising space.

Innosance aims to attract foreign entrepreneurs to Las Vegas

Sarper “Sharp” Celenk and John Unal are working to introduce entrepreneurs — most of whom are based in other countries — to mentors and investors through their startup incubator Innosance, named after a mash-up of “innovation” and “renaissance.”

Entrepreneur Q&A: Thompson Tee co-founders say ‘cash is king’

Last August, co-founders Billy Thompson and Randy Choi moved the e-commerce company from California to Las Vegas for its friendly business climate, and said they haven’t looked back since. Thompson Tee is now nearing its 1 millionth T-shirt sold.

Henderson-based Xtreme Cubes sees growing industry

The local company builds modular street structures they describe as “giant, prefabricated Legos.” The blocks come in a range of sizes and can be interlocked and used for things like offices, residential buildings, retail buildings and remote work sites.