Forum Moderators: phranque
Has anyone had first hand experience with VC's and perhaps even secured funding? What were your experiences?
They don't want long term investments. they want to build up your company fast, then either sell it or take it public for the big payoff.
They have no interest in YOU as a person, other than evaluating your ability to run the company. If they invest in your company, and don't like the way it's being run, they can replace you.
There is no hard and fast rule for percentages, but expect to lose control if you work with a VC. After all, it's their money being risked, not yours.
a few days after the papers were signed they had lawyers in our office to do due diligence reporting
it felt like we had a new boss!
I know they typically server on the companies board of directors, but wouldn't they still only have 25% voting power? How could they oust you without majority voting power?
If they do vote you out, do you just lose your salary position but still stand to cash your % if the company later is bought out?
I always read how important management teams for to VC firms. However what about a company like Flickr, who was founded and ran by a husband and wife team? When does the product overshadow the management experience? And also how often does a VC arrange to replace management (even if agreeable by company owners) with higher profile people?
If they do vote you out
No - they won't vote you out just yet but they will attach lots of strings to funding and you will lose initiative -- you will have to do things they want, spend lots of money in a hope to get through to the next financing round and they will be slowly but surely getting more of your shares: if they realise shares are not worth it they will pull off and you are stuffed because they forced you to bet farm on THEIR strategy as otherwise you won't get to another round of finance.
There are exceptions obviously but if you made a deal with VCs make sure you count all your fingers, limbs and then do the same for your relatives.
Aside from direction and cash, VC's should be able to provide some great connections and contact which could lead to a buyout. I mean if Widgets Worldwide is looking for a dot com, wouldn't they rather deal with a VC backed site than a non VC backed site as it shows some level of trust and high hopes if a site is already backed by a large VC firm. Correct?
Now what do dot coms do with all this money VC's provide? Dot coms being notorious for being able to start for pocket change compared to brick and mortar ventures, where does all the money go. For example in an industry which I am in, one site was recently funded $6M. I could make the exact site for $50,000. Where does the rest go? Do they expect you to spend it all or do they want some in the bank thats not spoken for in the future? Does a good chunk of VC funding go to over inflated salaries for the founders and if so, who determines the salaries?
God, I can't even comprehend $2B. That Skype story is mind boggling.
Having said that, it's better to have 49% of something than 100% of nothing. If you lose control but can walk away rich, then you can a) fund your next venture yourself or b) cut a better deal with investors next time.
Kaled.
If you lose control but can walk away rich
Problem with VC funding is that getting first round of finance won't make you rich or let you walk away -- they won't allow this to happen. And from the moment you got finance you will have to act primarily in the short term get-rich-quick interests of VCs. This means you will have to forget sensible strategies and start gambling - putting lots of money into marketing etc etc.
VCs are gamblers -- they EXPECT like 9 out of 10 companies they invest in to get bust, sometimes more than that - this means that from their point of view choosing very risky strategy of aggressive promotion makes sense, but does it make sense for you? You have to realise that as soon as you get VCs you are gambling because majority of companies they invest in don't make it!
You may say that majority of companies don't survive 3 years anyway but as soon as you get VCs money you will have to take far riskier strategy than otherwise - and you will spend all their money and have to beg for more money in next rounds of financing: this sure will happen because it allows VCs to get more of your business, so in effect they have huge interest in giving you some cash straight away, then make you commit to their high risk strategy, make you spend this cash and come back begging for more.
I've worked for .COMs through .COM boom a few years ago and I have learnt some lessons: if you need VCs then 9 out of 10 your idea is not going to make it.
they EXPECT like 9 out of 10 companies they invest in to get bust
I think you are taking far too gloomy a view of venture capital investors. They can also bring a wealth of business experience and contacts with them. Having said that, I have no doubt that there are sharks out there that should be avoided.
Kaled.
Very few enterprises pay off tenfold in the short term.
Yes, that's why VCs look specifically for those that promise such a high pay off that would cover losses from those companies that won't make it.
I've walked away from three angel situations and never regretted it.
Today, about four years after my first interview, I have as much money in the bank as I was asking for to start my business.
I have as much money in the bank as I was asking for to start my business.
And I bet you feel twice as good about making it without their "help" :)
And I bet you feel twice as good about making it without their "help" :)
