Venture Capital

Raising capital for emerging growth companies has never been easy. Most entrepreneurs truly believe they have the next “big idea” and at first believe that venture capitalists (“VC’s”) will beat a path to their door. They soon find out it is very difficult to get someone to listen to them, never mind fund them. After several failed attempts they then realize they have to adjust their thinking when it comes to raising their initial capital. Most new business ideas today are initially funded with “seed capital” by friends and family. Contrary to popular belief VC’s are not lining up to fund start ups. They see 100 deals a week. Their freshly minted MBA’s review those deals and may pick 5 out of 100 that they want to pursue. Out of the 5 maybe one will get funded. Not very good odds, I sit? The only guys that get preferential treatment are those individuals who have a proven track record. In other words, they had a previous VC funded deal that was a huge success so the VC’s are “all ears” when they come back with another billion dollar idea.

VC’s have this “I want to invest in the next Google” syndrome. They all search for the next billion dollar baby. Most have a very simple approach. If I invest $10MM in ten companies and one of them gets a multi billion dollar valuation they have made probably 50X to 100X their money. With those kinds of home runs they can afford to take complete losses on 9 out of 10 investments.

The problem is most companies don’t have billion dollar market cap potential. In most cases they have a proven business model that, with enough capital pumped into it, can expand either nationwide or globally. There business model is for slow, steady growth. It is not the 0 to 100 miles an hour in six seconds that the VC’s are always searching for. Therefore VC’s are not a viable option for most entrepreneurs seeking capital, especially if they are seeking to go public through a reverse merger.

And, if you think for a minute you are going to go to some conference and meet the right VC and get your deal funded – think again. Unless you are represented by someone who has a relationship with the VC community you are not going to be able to get their attention. The VC’s want someone they know to do most of the heavy lifting by sifting through possible candidates and bringing them the cream of the crop.

By the way, did I mention that regardless of the valuation of your company or how much money you need the VC’s will always ask for 50% of your company? So, if you’re smart you will increase the value of your company and ask for 50% of the value in funding.

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