Comments on: Thinking of taking venture capital? Don’t!

By: Peanut Gallery

Peanut Gallery — Fri, 19 Jan 2007 17:59:00 +0000

“VCs have opinions and they are not want to share them” –>? “VCs have opinions and they are wont to share them”

By: Pelle

Pelle — Thu, 30 Jun 2005 09:00:00 +0000

I agree with most of what is said here as well. Mainly because I feel it’s much better to focus on your business. Too many entrepreneurs get trapped into the constant chase for funding, when they really should be in a constant chase for business.
There are a million ways that you can bootstrap your business up and most online businesses nowadays really do not need that much funding. Many can probably survive doing a 9-5 for a while during the pre revenue phase. Chasing VC and writing business plans take surpising amounts of energy and time, much like a 9-5 job.
I’m trying to do this myself right now based on good and bad experiences in my own and other startups in the past. I’m also trying to blog about it as a hopeful inspiration or warning to others like me.

By: Will

Will — Wed, 29 Jun 2005 14:33:04 +0000

Intersting post.
I think you meant to say:
“1) VC’s have opinions and are wont to share them”
I have some friends in WA that recently (last year) turned down ~1-2M in VC funding for some of the very reasons you describe.

By: Daniel Nerezov

Daniel Nerezov — Sat, 25 Jun 2005 00:50:07 +0000

Good comment there Dave!
I don’t think I’ve ever met an entrepreneur who’d shut down a perfectly good, profitable venture that they built with their own sweat and blood- simply because it doesn’t meet the risk adjusted hurdle rate, or isn’t posting triple digit growth- on a way to meeting listing requirements.
Cutting losses in general is very difficult. Even writing this, I’ve no idea what I’d do if our venture doesn’t skyrocket. Will we be able to mothball it? Of course we don’t want to be left with a walking dead – but having the guts to close everything down…it’s a psychological nightmare.
Sure if the venture is nearing bankruptcy- yeah! But a perfectly good business (from a non VC point of view)…whoa Nelly. You show me one person who’s done it, ‘caus I certainly would love to talk to them.
Sure there are solutions to the problem- entrepreneurs investing under 10% of net worth and time per venture, entrepreneurs seeking to quickly diversify into many ventures…..but knowing what it takes to run one rapidly growing venture backed business, do these solutions stand up to scrutiny?

By: Dave Jilk

Dave Jilk — Fri, 24 Jun 2005 14:52:02 +0000

The comment above regarding risk profile is, in my opinion, the most critical one. Entrepreneurs tend to see opportunities as opportunities and thus pursue them. VCs see opportunities that do not help the “big vision” as distractions. Consequently the VC seems irrational to the entrepreneur, when in fact it’s just a different risk profile.
If your goal is to build a substantial business (someone mentioned $50-100m, that’s a good number), and you’d be WILLING TO SHUT IT DOWN if it doesn’t look like you’ll get there, then you might be a VC money candidate. If it turns out to be a $10m business growing slowly, and you’d want to keep running it in that case, you shouldn’t take VC money.

By: Steve Sawyer

Steve Sawyer — Fri, 24 Jun 2005 13:31:10 +0000

#1 is a reason that a smart entrepreneur might WANT VC investment. Many VC’s bring a wealth of experience and knowledge that can help the entrepreneur succeed. While VC’s have a fiduciary responsibility to their LP’s, they are still looking for aggressive performance and aren’t likely to offer advice that would restrict a company.
–Steve–

By: Jeff Clavier

Jeff Clavier — Thu, 23 Jun 2005 18:37:37 +0000

It is horribly risky to generalize, but a company that does not have a prospect of reaching $50M to $100M in revenue, and provide a return of 10X to its investors based on “reasonable” exit assumptions, might not be such a great VC investment.

By: Amit

Amit — Wed, 22 Jun 2005 15:24:53 +0000

1) VCs have opinions and they are not want to share them.
Did you mean, “.. and they are not shy to share them” or something to that effect.
Good post.

By: James

James — Wed, 22 Jun 2005 11:29:15 +0000

Seth - You've forced me to post twice in one day...http://purevc.typepad.com. I think the essential question for every entrepreneur is - what kind of entrepreneur do you want to be?

By: Brian Cabezud

Brian Cabezud — Wed, 22 Jun 2005 11:02:35 +0000

I think Joel Spolsky made some good points in an old blog here: http://www.joelonsoftware.com/articles/VC.html My takeaways…don’t take VC because of their desired 1) RETURN: VCs interests misaligned with founders (time frame, market choice, etc) and 2) RISK: founders would prefer reasonable success with high probability, versus the VC swing for the fences attitude. To Jack’s question, I’m at a loss. There are a number of sites out there that explain what it takes to be 'VC ready', but few that can make a recommendation of whether or not you should take VC money. I know The Venture Alliance has some score reports it produces when judging whether or not to try to help fund a company, and I'm pretty sure SBIR has some surveys. Anyone know of anything else?