How to Get Venture Funding, page 5

How Much Difference Does the VC Make?, continued

The truth is that you should evaluate any funding offers holistically. All that may matter to you is the money. On the other hand, the prestige of a top-tier commitment may be important, and you may genuinely believe that the strategic input of the VC will be beneficial. But don’t get too hung up on the apparent status of the VC or its successful deals in the past. What matters most is your deal.

Many entrepreneurs actively seek high profile VCs because they have experience, expertise and contacts they can tap in areas such as going public, choosing investment banks, shopping a company for sale and much more. They also do not necessarily fear giving up control to their VCs. As one start-up entrepreneur stated, “It is my opinion that VCs have less control than most people think, because they don’t usually want to alienate the management teams, at least the good ones.”

One aspect of prior deals you may wish to investigate is the amount of ruthlessness the VC has shown in forcing companies that it is funding to shut down (or to sell out when they didn’t want to). Bear in mind that your lead VC may end up having a tremendous amount of control over your company. You may wish to put VCs with a history of this kind of thing toward the end of your list.

Who Should Seek VC Funding?

It’s perfectly possible to start a business that funds itself from revenue and never needs venture funding. However, businesses with this characteristic are typically smaller and have a gradual growth curve. In addition, “angels” or strategic investors such as customers may be viable and preferable alternatives to venture funding.

Before you seek VC funding, you should know that:

• Today’s VCs rarely fund businesses outside of technology.

• VCs expect to fund only professionally run businesses. Management should have a track record.

• VCs expect a substantial—possibly controlling—equity in your company.

• VCs expect a substantial say in how things are done at your company.

• VCs expect successful candidates for funding to present professional quality materials and financial models. (See “Materials Needed to Approach a VC.”)

• Successfully obtaining VC funding is a huge amount of work. The resources required to do this perhaps could be better spent growing your business.

Continued next page

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