Venture Capital: Russian
Do you feel lucky? Will venture capital make your day?
With an improving economy, you know your new business is poised to grow. However, to seize your day, you need more money. Unfortunately, with your firmís earnings history, no banker, investor, or traditional lender is interested. With your friends, family and angel investors already tapped out, venture capitalists could be your best option to get the investment you need. Or, are they?
There are good reasons to seek venture capital. Venture capitalists have and will risk their money, advice, and resources just when your business needs these most. Their cost, owning a part of your business, seems minimal in light of what they say it will be worth.
Don't be fooled again: Delusion and Dilution.
The basic problem with using venture capitalists is that their need to earn quick, big returns conflicts with your goal of building your business. Growing a companyís customer base rarely enriches venture capitalists as much as the next round of investors who buy them out. To sell your company, the VC must find shortcuts to creating customer value. The technology and life sciences industries offer capabilities that may be easily commercialized and sold. However, even these odds are very long. The venture capitalistsí own statistics show how choosy they must be. Venture capitalists only:
If you are not deluded (your business is venture capital-fundable), you face a new challenge--that of dilution. When you work with a venture capitalist, you must ensure your vision; ownership and energies stay in control. Your risk of dilution is high because:
Donít Get Burned: Keeping the Heat Down if You Stay in the Kitchen.
Venture capital does play an important role in certain businesses. If your business must create a completely new business process before it can sell anything to anyone, you probably are well suited for venture financing. So when outside investment precedes money from paying customers, then get your business plan perfected and put it in front of the firms that fund ideas like yours. But still take the following precautions:
Home Grown Venture Capital: Have Your Customers Finance Your Business.
If you really plan on building and managing your business for the long run, turn your focus to finding, keeping and growing more customers for your products. There is an old saying it is better to learn how to fish than to be given fish. No business survives without a strong and well-developed ability to get new customers. If you focus on this rather than getting money first, you will be in the driverís seat and will live and retire to tell about it. So:
Remember, customers get you money better than money gets you customers. Each paying customer provides you with more money you have already earned.
Turning to venture capital for money to grow your business is sort of like going to a bar looking for someone to marry. The longer the night goes on, the clearer it is that most people you meet have unacceptable objectives. So, to find capital just as you would find a spouse, the same advice holds true. Focus hard on your own success and the right people will buy into you for what you are, not who you might become.
Andy Birol is a Cleveland-based business growth consultant, owner of Birol Growth Consulting and author of "Focus. Accomplish. GrowÖ The Business Owner's Guide to Growth." He holds an MBA from the Kellogg School of Management at Northwestern University and has been published in The Wall Street Journal, New York Times, Entrepreneur Magazine, Fortune Small Business and many more. In 2002, his firm won the Weatherhead 100 Award as Northeast Ohio's fastest growing single-employee business. A guest expert on CNN's Dollar Signs, NPR, and NBC, Andy comments on national and local issues facing business owners who want to grow their businesses. Andy can be reached by visiting his website at www.andybirol.com or at firstname.lastname@example.org .
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