Raising Money for a Tech Venture? 50
phosphor-boy asks: "Age old story: a friend and I have a fun, part-time technology venture that's actually generating a little cash. To take this to the next level, we need to raise few hundred thousand dollars. There's good reason to believe that it has enormous potential to make money - but since it's a new concept, it's (obviously) extremely speculative, so going to the bank won't work. We've been tentatively offered venture capital funding, but would have to take A LOT more than we need ($millions!), and give up way more control than we'd like - giving up some control is OK, but we've seen firsthand how VC money can run amok, and it's not pretty. However, a few hundred thousand is more than is do-able with friends, family, and second mortgages. So to sum up: too little for VCs, (maybe?) too much for friends and family. Have any others on Slashdot faced this situation? What works here, and what doesn't?"
And... (Score:3, Funny)
You mean an actual Ask
that's funny (Score:1)
It doesn't work that way.... (Score:2)
Don't believe me? I've seen it with my own eyes.
Doctors and Lawyers (Score:5, Informative)
Re:Doctors and Lawyers (Score:1)
If I had a choice between (Score:5, Funny)
Take the money (Score:5, Insightful)
If you've made one good project, odds are you'll be able to make more. Don't be sentimental about the project and worry about control; just think about the other projects you'd be able to start-up with the money you earn from this. And if the VC does well with the project, they'll be there for your next and more ambitious idea too.
Good luck.
Re:Take the money (Score:2, Interesting)
Re:Take the money (Score:3, Insightful)
Of course, you're right. I was just trying to point out to him/her that there's good reason to sometimes. Good ideas tend to cluster around certain people, and if they came up with one, they can probably come up with more. Especially if they give themselves the breathing room of a share in a profitable business that somebody else is running.
But you're completely right to say that a lot of people have a hard time doing that.
Re:Take the money (Score:3, Insightful)
Re:Take the money (Score:2)
Vulture Capitalism (Score:5, Insightful)
1) You give up more than %50 of your company for the money.
2) The VC'ers put their own "crack team" of managers in place (themselves!) and pay (themselves) ourageous salaries.
3) A few months later, they have sucked all of their own capital back out.
4) The offer to buy the rest of the company for a pittance, which you accept, because you have no money and no control.
Re:Vulture Capitalism (Score:4, Interesting)
My favorite is when CEO's give large contracts out, then go work for the company later. [wink] [wink] nobody notices....
Really is an eye opener when you see how bad corporations can be, pet projects for friends, consulting companies for payback, buying excess equipment or wrong equipment on purpose.
Also, the multiple budgets are amazing little tricks, cant buy new hardware for X, but you have extra money in this budget Y. And then the company looses customers. They get so large they just cant operate, and have to aquire to keep alive.
I think if I ever start another
Is there a patent possibility? (Score:5, Insightful)
1) VC's get excited about patents - it ensures that there's a strong barrier to entry. It may make it easier to raise money.
2) You can sell your patent to another company, so you can get profit from your idea while someone else spends the capital to make it big.
If you did want to pursue this approach, I recommend hiring a lawyer. While you can patent something yourself, it's better to have an expert help craft the patent application.
Good luck.
-Peter
Re:Several thousand dollars? (Score:3, Insightful)
Not worth it... (Score:4, Insightful)
yes and no. So be confused ok? (Score:2)
Sounds familiar? Well, having a good idea is a start. But, it isn't so much. For good insight a
Re:yes and no. So be confused ok? (Score:2, Interesting)
Oddly enough, I'm pretty much in the same boat as the Story Parent. I'm in the process of starting a company, but we're too large to go for a few hundred thousand dollars, we have to go the VC route. Unfortunately, one of our main issues is control of the company, so just
angels (Score:5, Insightful)
Re:angels (Score:1, Funny)
Even though you may not think you need it, they can also hook you up with some Adult Supervision. From talking with VC's first hand, before they were VC's, Adult Supervision is more important and helpful that you probably think. Use your noodle and you can probably find out how to hook up with angels.
Wait a minute. Are we still talking about financial stuff here? I guess when I read "angels" I started thinking about that Victoria's Secret ad where they're all wearing those wings and then you said "Adul
Re:angels (Score:2)
What's wrong with folding back the money (Score:5, Insightful)
Re:What's wrong with folding back the money (Score:1)
You need to balance stab
It's the quantum effect. (Score:2)
Just so you know, I had such a small business that started out at 1 person, moved up to 2, then 4, then down to 2, then up to 4, and then died.
We had a top-notch product, produced for our customers more than 300k worth of increased value, and more than $1M worth of net value a year. We were good, very good, so we moved in the middle of all that to Lithuania to decrease our expenses by a factor of 3. Well, it turned out t
Incubation Capital... (Score:3, Insightful)
Good luck.
VC Money is *very* expensive (Score:1, Informative)
http://www.antiventurecapital.com/venturecapita
In general, VC money is available, and a lot of good, successful companies are VC funded. However, it's a bit like Churchill's comment on democracy: VC money is the second best way of startup financing. The best way of startup financing is every other way.
Good luck to you.
Re:VC Money is *very* expensive (Score:2)
A few hundred thousand... (Score:5, Informative)
Try some other avenues first (we used these as well)...
- Local Chamber of Commerce.
- Tech incubators
- Small Business Administration (we used this quite sucessfully)
- State tech assistance programs (normally funds set up by the state to encourage tech sector growth)
If you do not need to grow your company now, then wait. You first need to go through a few revisions of a business plan. That alone can take a whole year. You need to get with a financial specialist to do profit forecsats (potential). You need to make sure all of your liabilites that can be reasonably insured are insured first. You need to look at all business models that might apply (corp, S corp, LLC, etc) to see what best fits. You need to get help with a professional on understanding your local market demographics. You need to take a look at what it would take to give you all required expenses and the ability to pay a loan back at twice the required monthly payment per month (your loan for the capital you need). You need to see if you can grow the current income into this amount before you seek outside financial help.The less risky you look (time and profits), the more likely you are to get a bank loan (much preferred to a VC), or better yet an SBA loan. Check to see if you have a group called SCORE (Senior Core of Retired Executives) in your local area. They are an incredible resource.
InnerWeb
Re:A few hundred thousand... (Score:2)
hmmmm...
revisions of the business plan (real cost, in decreased working time and decreased profits now) ~$5000
Financial specialist: ~$5k
Insurance against liabilities: ~$100k per product (UL certification)
Looking at all business models: Free - use the LLC for lest than 100 investors.
Professional help understanding the local market demographics (read advertiser):$5k
So I get it: the costs of getting a few hundred thousand are that you have to spend a f
Bad idea (Score:4, Informative)
VC may be a good idea, but it probably isn't. Read these links:
- Joel on Software on VCs [joelonsoftware.com]
- 10 reasons to shy away from venture capital [antiventurecapital.com]
I wouldn't bet on it, personally. Consider very very hard what you're in it for, and what risks you're willing to take.smaller steps (Score:3, Insightful)
Because if it is really making money already, surely you can stretch your savings (you do know that that word, right ?) and credit to get 20k, and pay that debt mostly down inside a year. Do it in steps that large, focusing on the parts that will increase the revenue stream first.
When you are within 120k, just walk in to your local bank and talk to the business loan department. With a year or more of steady income records (you are keeping records, right?) you may justify the loan.
On the other hand, if you really need the cash up front, say to have run of plastic molding done or an ASIC produced, you might be in a pickle. If you can raise 1/3 or more of the cost of the manufacturing run or whatever, try meeting with the manufacturer or fab or whatever and showing them the cash and asking for credit on the rest, or offering a non-controlling equity stake. Sometimes the manufacturer or machine-tool seller or whomever is going to receive this big one-time cost is a better source of credit than the normal banks and etc.
Control is important to keep (Score:4, Insightful)
If you can raise money from friends and family then that is a good way to start. It depends on your technology but since you are already making some money it doesn't look like you need a massive investment. If you have a lot of friends and family then you might be able to raise a significant amount of cash. You are better off having control distributed among more people than having a large sum come from one investor or group. As others have said you can raise money from angels (or groups of angels who act as one) but these bodies often push very hard deals and frequently want control for a small amount of cash. They will also certainly want to put someone (or more) on your board of directors.
That gets me to one of my pet hates, boards. A huge amount of time can be wasted with people trying to push a small venture up scale before it is time. Early investors can want to grow the company quickly so they can get out early and move on. These people can have very short term views and this can cause problems if things are growing more slowly or organically than they think it should.
In the end, you need to decide what size your company should get to and bring people and their money in accordingly. The advantage of VCs is that they can afford to bring in very good people who know their stuff. Some of the lower value end of the market people are rather less useful, especially if they have no really idea about the technology. This will not stop them wanting to control things and make decisions they are not qualified to make. This is why you must retain control for it to be a success, or be sure that the people who are taking over really are able to make the correct decisions.
This is likely to be a learning experience, you will probably be able to come up with new technologies which will be successful after this, that is certainly my experience. Everything I learned from my first venture has been rolled into my future plans and my approach is much more cautious but I believe I am on the right track this time and the technology I am developing is far more mature than previous work, and above all it is all under my control.
Final thought, be sure that you trust your partner. He is the most important person, other than you, to the business.
How to raise money for your venture (Score:3, Funny)
2. If the toast looks like the Virgin Mary, put it up on eBay
3. $$Profit$$
If you want investment... here are some rules (Score:5, Interesting)
* If you expect to have any control over the venture, you need to have your management team in place and solid. If you're an individual, forget about VC. VCs typically don't get involved until you've already got your venture running and are grossing more than $1M
* If you're just getting started, you probably want tier one, aka "Seed capital" aka "Angel investment", which basically translates to finding someone with some money to burn that believes in your project; this could be family & friends or some rich person who has an interest in what you're doing. The best way to solicit T1 money from strangers is to put together a business plan that has a clear exit strategy for the angel investor when the time comes for the next tier of funding.
* Ultimately, this whole deal is a catch-22. Most people who have money either want majority control, or won't be interested until you've proven that your idea is marketable and profitable, in which case, it may be less critical for you to need capital.
* If you have an idea that you think is profitable, but have not deployed it in any manner to demonstrate that the concept is practical and marketable, then the value of your venture is ZERO. Unproven ideas are worth virtually nothing. Everyone on the planet thinks they have the world's greatest idea.
* Don't discount the potential of soliciting government grants or regional business development deals, especially if your idea is unproven -- often these types of deals require more salesmanship than practicality.
* Sad but true. Often the entities that would most benefit from exploiting your idea/tech/service are the ones who can't be bothered with you UNTIL you embarass them by demonstrating that your idea kicks ass. You usually don't get the attention of major players until you're pissing other companies in your industry off. Your best bet is if you have companies being serviced by a potential investor/partner that represent your target audience, you should target them and try to get their attention that way.
Must Read (Score:4, Informative)
If it's already generating cash... (Score:2, Informative)
Watch the enthusiastic customer who is also a startup. I had a business KILLED by one of these who placed huge orders, never paid, filed for bankruptcy, and then got bought out of bankruptcy by the founder!! I haven't been the same since. I made me much to cynical!
I invested in anothe startup. They dragged on with angel m
3F's not 2F's (Score:2)
You forgot one of the 3F's . . . they are "Fools, Friends, and Family" a euphemism for the first place one often looks for funding a business venture.
More seriously, are there any local entrepreneurs who have succeeded in your area? Often they are l
Simple (Score:1)
2. Travel back to the 90's
3. Create a startup and pull in suckers -eerr- investors with nothing more than hype
4. Make a gazillion dollars!
Avoid venture capital (Score:1)
Do you really NEED venture capital or do you just WANT it because it seem like a cool and easy thing? You have so many other options as people have pointed out here (friends, family et cetera). You can even ask your customers to buy a share of your company, then you will have a life long customer and
Second Mortgages? (Score:2)
Maybe you better find some financing that is not secured by your only source of shelter. Someone you don't really have to pay back if your business flops.
I used an Angel Investor (Score:4, Interesting)
We talked to many VCs but were happy with none or the deals they offered (basically they say "if it's so good and you need the money then give us at least 50%"). We pursued a much bigger funding deal (about $16m) but that fell through after about a year of negotiations.
Today I'm back into a 9-5 job but a lot wiser. The software still belongs to my friend and I and no-one has come out with a similar product.
A close friend also went down the same path but got 1m VC money, followed by a further 5m. Control of the conpmany went to the VCs. After 2 years the original two dvelopers had 8% each and one had been fired and the other hanging on by the skin of his teeth in a sidelined job at 100k salary whilst the VC appointed managers were on 160+100k annual bonuses+options. Too many pigs in the trough and the company died 2 1/2 yrs after starting.
Only about 5% of companies that get angel funding get VC backing. Only about 10% of VC backed company reach 5yrs age. Very very seldom there's a Cisco or such like that returns enormous rewards (though the founders were kicked out of that too in the end).
I wonder sometimes if we'd taken the VC money if I'd be happier. I'd've had to move cities and in all probability would have a huge salary for a few years (based on statistics of past VC backed companies). Instead I learnt a lot and still own the sw/idea and still have the opportunity to do something with it. Someone else might come up with the same idea and maybe I don't have the spare time now to devote to it like I did in the mid-late 90s so it'll never get off the ground again.
Tough decisions ahead for all developers of ideas trying to get them off the ground...
Peny stock for public offering (Score:1)
your stocks on the bulletin board (nasdaq) and if you issue 2 million shares with 40% of the company equity and they sold for
Maybe the pinks sheets are for you!