VCs Can Help, Or Destroy Your Business

Posted on Updated on

vcchLooking for venture capital money to finance your Internet startup? Be prepared for a torturous experience. I’ve been there. And believe me, it’s a game with its own special set of rules and etiquette. I spent so much time trying to convince potential investors that there was a killing to be made, I ended up killing the product instead. Believe me… it’s a thing, no matter how cool your small business is.

I started shopping for VC backing about a year ago, shortly after beginning work on my project, a product akin to Spry’s Internet in a Box. I talked to about 20 VC firms directly or indirectly, but no one believed that the Internet was going to be big. I was constantly told that my estimates were inflated and that my strategy was too broad. Turns out my estimates were deflated and my strategy was too narrow. If I had been able to move ahead then, my product would have been released about the same time as S pry’s, and we would now have a substantial share of that market.

Here’s what I learned from my season in hell:

* It takes a lot of money to attract money. Investors wanted elaborate business plans that cost tens of thousands of dollars to do right. And no matter how hard you try, the plans that please one group of investors dissuade others.

* Although many investors call themselves “venture” capitalists, they are more like commodity traders. Most that I have talked to are more interested in brokering a deal than doing one themselves.

* Bottom line is that I have found venture capitalists to be very gun-shy at the beginning of a new opportunity, when the most money can be made. They are most interested when the chances for failure are at their worst–once a market has been established and the competition is becoming fierce. Unlike their name implies, most are not very adventurous.

For anybody thinking of following in my footsteps, I can offer some handy suggestions.

First, and most important: No matter what it takes, get the product finished and ready to go to market. Avoid, whenever possible, VC types in the early stages. This will just slow you down and might prevent you from ever getting your product or service to market.

Before you go looking for money, get someone who knows the game inside and out to develop your business plan. Make them do it for equity. Don’t pay anyone anything.

Have a third party negotiate with VC types–preferably the person you used to prepare the business plan. Put him or her on your board of directors. Even though the industry is based on rapid innovation and seat-of-the-pants decision making, VC types like stability and someone who makes them feel safe and warm.

Get as much PR as you can in the printed press about your product or service. VCs love to see your name in print.

Finally, don’t use VCs if you don’t have to. I have learned my lesson. The next time I go into something, it will be with the absolute knowledge that venture capital is almost impossible to get. And even if you can, it’s hardly ever worth it in the long run.

If I had the opportunity to chase VC money again, I don’t think I would. Instead I would focus 100 percent on simply finishing the product, something that seemed to work at other companies I have been involved with. If I had followed my own advice, I would still be living off my credit cards and still be worried about paying bills, but at the least I would have a product that is highly salable to one of the big players.

And, with luck, I’d be in business for myself.

4 thoughts on “VCs Can Help, Or Destroy Your Business

    Matt Havens said:
    November 11, 2014 at 7:02 pm

    Really great essay. VC is one of those things that is pretty much 100% necessary in the tech industry if you want to do anything real, but it is also very similar to signing a deal with the devil.

    You get rich, yes, but in the end your company will probably go broke. Then, you start it all over again. It’s an ugly cycle that ensures a lot of losers get a lot of cash.

    Katrina W. Brown said:
    December 20, 2014 at 2:14 pm

    It is very important to be friendly when it comes to finding people who will gladly fund your company. You must make an effort to encounter private equity companies, institutional investors, as well as private investors.

    Leeann R. Tee said:
    December 28, 2014 at 6:56 am

    Before taking on a VC search, make sure you know and you are certain of what you are up to. You have to make a decision whether it is a small business that you want to build or you want to make it big time.

    Stephanie D. Samuel said:
    January 1, 2015 at 2:58 pm

    If you have not had any business before and VC is not something that you clearly understand, it is never enough reason for you not to give it an attempt. You simply need to expose yourself to entrepreneurs and you will soon learn the game.

Leave a Reply

Your email address will not be published. Required fields are marked *