Thinking about VC Funding

Posted on November 10, 2006
Filed Under General |

A New York Times article focusing on startups getting by by bootstraping is encouraging. More start-ups should focus on how to get creative about getting the business going to figure out if they even have a business.

The ValleyWag blog attempts to outline some of the factors involved and alternatives to raising money from VC sources, but does’nt seem very educated in what really goes on in the process of raising money.

ValleyWag seems to think that VCs want 3x their money back. Good luck getting any VC or an angel investor interested in 3x returns. If you shoot for 3x, you’ll end up with 0.3x returns. VCs and angels both want 10x return possibilities, so if you can’t see your way to that kind of return get busy finding money elsewhere.

And don’t even bother with the hedge funds mentioned by ValleyWag unless you have a company with substantial revenues and room to cut costs.

The costs to run a start up company are really very low and every entreprenuer should be really focused on how to get revenue to cover costs as fast as possible. Once you have a business model that works and don’t need VC money, but you want to drive hyper growth then its time to get VC money.

Go for VC money when you’re strong, not weak. And get something besides money. VC’s are very different in their ability to add value and adding value is what new companies need in addition to money.

This added value can be a major reason for getting funding from angels because you can target individuals who have the right connections/skills to really help.

My suggestion is to make a list of things that would really help the company be successful and use it as a filter for allowing others to invest. Only those that can help should be considered qualified investors.

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