Venture Capital?

[HappyScrappy]

Has anyone here had any experience with starting their own business - esp anyone that did so through venture captial?

just curious on hearing about the experience, the pros, the cons (esp the cons), and how hard it was - in the past and then today.

anyone?

 

[WODIN]

I had two coke dealers put up five grand for my first series of porno's. Thank God I found Vixenbabe is all I got to say. That girl saved more than my digits.

I can hook ya up with them if you like.

 

[naturally anabolic]

i have started my own business however i haven't had exprience with venture capitol...

 

[Steroid_Virgin]

People in the business refer to them as Vulture Capitalists... For good reason.. stay the fuck away from em.

 

[beastboy]

I have my own business, but I also have no exp. with V.C..... If you want any info on my experience, let me know...

 

[SofaGeorge]

Has anyone here had any experience with starting their own business - esp anyone that did so through venture captial?

just curious on hearing about the experience, the pros, the cons (esp the cons), and how hard it was - in the past and then today.

anyone?

Scrappy, I do this all the time. I have been retired for about 5 years, but I started working projects again this year. I've just started working projects again this year. VC money is definitely tighter post the .com melt down; however, it is still very possible to raise fund for good projects. (I've gotten three small companies funded this year - one with a 10 million LOC, one with 2 million cash and a 3 million LOC, and one solely on 3 million in purchase orders for them to establish their LOC.)

The big mistakes most people make is they think a good idea equals a fundable company. It does not. I have the hottest product in the world sitting on my desk right now. It will see 200 million in sales in the next two years... but only after the company that invented it goes bankrupt. Why? Because the CEO of the company is incompetent and no VC would put money behind that kind of idiot. However, once he is bankrupt there are already offers to buy the rights to the project out from under him. It's a sad situation... but it underscores the first and most important thing that VC looks for - MANAGEMENT THAT CAN EXECUTE A BUSINESS PLAN.

VC will invest in a knock off Q-tip if you can show a P&L (Profit and Loss sheet) that demonstrates an attractive margin of return and a management team that has experience executing their business models successfully. VC is investing. It is NOT gambling... especially now after so many .com burns.

The biggest problem you will face is that fact that you have not worked with VC capital before. You will need an extremely well thought out business plan to show how you will manufacture, market, advertise, fulfill, etc... and why your management team can complete this business model.

Often for "risk" projects we go to well healed private investors rather than VC groups. If you have a track record with a private investor it is much easier to get a thumbs up based on 5-6 past success stories with that client.

The sad part of dealing with VC is what we call the "middle man fakers." Many supposed VC are actually brokers. They don't have the investment capital but they will pass themselves off as the actual investors... then they will take your business plan and shop it around... either hoping to get a percentage of the real VC's deal or to find someone interested in ripping you off out right. (Every successful product I have ever had has been knocked off within one month.)

My first advice to you is get a good lawyer... one who is both experienced in contracts and working with VC... and preferably one who has extensive VC contacts.

My second bit of advice to you is get ready to be screwed. Greed is a terrible thing... and it makes people do really stupid short sighted things.

 

[HumorMe]

SofaGeorge.......damn good post!

I have talked with venture capitalists in the past but really I am very leary of them because of what SofaGeorge has stated. Greed is the underlying factor for basically all of these guys. I would personally stay away from them if you have other means of raising needed money. You might run across one person who isn't in it for the greed but that would be a longshot to say the least. Explore all avenues of financing before signing on with a VC. Again, good post SofaGeorge!

 

[HappyScrappy]

excellent - thank you SG.

I have a few good contacts right now and I am trying to get setup with a few more (I am finally really starting to appreciate the reasons to go to a top college).

I have heard that you are likely to get screwed out of lots of money in it - I don't really expect them to be like, here is the $5million - run wild with it and we just hope to get any of it back really. I see their perspective on it and I respect that.
the worst part is I really don't care about the money too much, I'd be sadly happy with just a relatively decent salary - I just have an idea right now that I can show will do well, but there is just no way in hell that I can raise the initial captial required to start it.
I know that the ideal way to start a company is small under your own resources, and then grow and take the money that you make as you grow and feed it back into the company. that way it is all your's.
but this is software, and the fact of the matter is that you need to be one of the first out, which means I need a team of people, which means I need more money than I currently have access to.

but seriously - thank you for the honest and open opinion on that.

 

[MattTheSkywalker]

Scrappy

I can help you out. I am part of management at the only startup to get funded in our sector last year. I can answer a lot of your questions.

If you're for real, (good plan and model) you won't have to deal with any of those "brokers". They're nobodies, and if you know your shit you can dismiss them outright. We never even bothered with them.

Wealthy private investors usually hire VCs and operate like a private investment bank, so dealing with them is the same shit.

I think SofaGeorge overstated the lawyer side of things. The lawyer only comes into play when you are drawing up the contract, which means someone has agreed to fund you.

Even then, the role of your attorney can be minimized; the VC's always seek to have the contract structured so that they can get their money out in the event of failure or bankruptcy. Attorneys will usually ask for a percentage of the company (small) and then bill all kinds of hours. You need to tightly focus their role.

If you need help email me.

Matt

 

[HappyScrappy]

matt, thanks - I'll likely be emailing you in a few.

 

[SofaGeorge]

ScrappyI think SofaGeorge overstated the lawyer side of things. The lawyer only comes into play when you are drawing up the contract, which means someone has agreed to fund you.
Matt

I can't disagree with this more. He is inexperienced and unschooled. He needs an attorney from the beginning.

You and I can fly by the seat of our pants because we've done it a few times. Having a novice trying to take things out the door without proper legal guidance is a losing proposition. If his idea is sound, many attorneys will work with him for small points on the project. That keeps him from having to go into the hole upfront... and it covers his ass.

I've been through numerous litigation suits. I only came out on top because I had good lawyers, good contracts, and I've always followed my attorneys' advice all the way.

 

[HappyScrappy]

out of curiosity - to show how little I know - what type of lawyer does this sort of thing. I have family that is in patent law and intellectual property sorts of things - but that doesn't sound quite the same as this.
contract law?
just curious, I have a lot of potential contact in the law field, but not much money

 

[MattTheSkywalker]

You and I can fly by the seat of our pants because we've done it a few times. Having a novice trying to take things out the door without proper legal guidance is a losing proposition. If his idea is sound, many attorneys will work with him for small points on the project. That keeps him from having to go into the hole upfront... and it covers his ass.

I think we're arguing different sides of the same coin. I am warning him to control his attorneys...and I am saying they don't really need to be there as he meets with various funds or VC groups.

Once a potential investor has shown real interest, then yes, have an attorney nearby. Sound idea...I just prefer to avoid needless bill-able hours. I suppose getting started, it;s better to be safe than sorry.

I also know that atty's often have their own interest (billing hours) above yours (a fair deal).

PM me if you have some time.


Scrappy,

VC's throw the phrase "IP" around a lot, as in intellectual property. So an IP lawyer would be helpful, particualry if they have a background in contracts.

There are dozens of atty's that do this. Most of them are in NYC or Silicon Valley, (as are many VC's).

 

[SofaGeorge]

I also know that atty's often have their own interest (billing hours) above yours (a fair deal).
.

Can't agree with this strongly enough. I had one very cool litigation attorney (long time friend) representing one case. It got combined with a sister suit that I had another firm working on. The cool attorney gave me the full skinny as to what my own attorneys were doing to secure THEIR best interests... not mine. On the first day of court when it came to settlement talks... he didn't just have to beat the crap out of the opposition... he ahd to beat the crap out of my own attorneys.

After the settlements were in, he and I were smoking cigars on his back porch and he was giving me the blow by blow. He was a master of psychological manipulation and slight of hand. He said, "I knew I was going to get the money I was asking... not when I saw the opposition counsel shaking their heads... but when I saw your own attorneys shaking their heads and saying 'This guy really is insane.'

 

[MattTheSkywalker]

On the first day of court when it came to settlement talks... he didn't just have to beat the crap out of the opposition... he ahd to beat the crap out of my own attorneys.

Good story. if you are well informed, you can often leverage your own attorneys' interests to force settlement of issues pre-litigation.

Of course, it very much depends on the type of suit, but most lawsuits are settled in mediations or pre-trial hearings, so negotiating is generally how these things are won.

People err when they let their attorney be their mouthpiece and don't add to it. Depending on the fee structure for your lawyer (contingency or hourly), you may have similarly aligned, but fundamentally different, interests in the outcome of the hearing or mediation.

In any negotiation, you can leverage these varying interests against opposing parties, and at the very least, while negotiating, you can make each of your concessions to the opposing party, painful to them.

Well, we're on a tangent and I apologize. However, a lot of the getting funded process comes down to negotiation. VCs will use all their leverage (mainly, your need for capital) to get you to acquiesce in negotiations, and give them a deal which overwhelmingly favors them in most conditions.

One common trick is to make an offer with a 1 or 3 hour window. They don't want you to shop the offer to other funds. They aklso throw in all kinds of exclusions and conditions to get money back even if it fails, to control apportionment of options, first right of investment, (second round) etc.

Your principal strategy in these events is *balls*, and patience.

We'll talk more.

SG thanks for teh input

 

[HappyScrappy]

well, I just spoke with my family that is in this law field and they are going to help me out on that side, so this is good.

thanks for the advice guys - feel free to add more or to email me if you like.