Venture Capital When You Need It When You Don

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Venture CapitalWhen You Need ItWhen You
DontUnion Square Ventures915 BroadwayNew
York, NY212-994-7880
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What Is Venture Capital?

• High Risk Capital Seeking 50 Annual Rates of
  Return
• Active Investors Who Will Step In and Make
  Changes to Protect Their Investment
• Experienced Investors Who Know How to Build Large
  Companies

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The Venture Capital Process

• Find Deals
• Research Deals A 3-6 Month Process
• Structure and Close Deals
• Manage The Investment
• Exit The Investment

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Some Statistics

• 99 of All Startups Do Not Require Institutional
  Venture Capital
• VCs average initial investment is 3M
• Average Dilution from Initial VC Investment is
  40
• VCs look at over 100 business plans for every one
  they finance

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When Is VC Good

• Heavy RD Component of the business
• Seminconductors
• Biotech
• Datacomm Equipment
• Very Large Opportunity Requiring A Lot of Working
  Capital
• Federal Express
• Amazon.com

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The Cost of Venture Capital

• Dilution
• Average founder who uses VC owns less than 10 of
  the business upon exit
• Liquidation Preference
• The VCs will want to take their money out first
• Control
• It is a marriage and divorce is messy. You dont
  always get to take the kids

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When is VC Wrong For You

• Too Early You Dont Have Enough to Show Yet
  (Revenues, Product, Team)
• Too Small You Only Need A Couple Million to Get
  Profitable
• Not Proprietary Your Business Has No Barriers
  to Entry. It is Just An Execution Game.

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When Is VC Wrong For You continued

• You Need to Move Fast
• Raising VC takes 3-6 months minimum
• You Are Dilution Sensitive
• You Need To Be In Control
• You Dont Need It

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What Are The Alternatives?

• Bootstrap
• Self-Finance
• Friends and Family
• Find Partners To Share The Risk
• Dont Start A Business, Buy A Business

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Why Bootstrap?

• Get Going Fast Dont Wait For the VC
• Stay Lean and Mean Cash In The Bank Makes You
  Soft
• Sell, Sell, Sell The Customer is Your Best VC
• Learn On The Job
• Let Your Customers Write Your Business Plan

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BootstrappingWhat Comes Next?

• Profitability Happiness is Positive Cash Flow
• Bankers Theyve Got Cash and Are Willing To
  Lend
• Venture Capital On Terms You Can Accept

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Self-Financing

• Entrepreneurship Is Risk Taking If You Wont
  Take the Risk, Why Should Anyone
• Go Without A Salary
• Close Out Your Savings Account
• Mortgage Your House
• Sell Your Car

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Friends And Family

• By Far, The Most Common Form of Startup Finance
• If Anyone Will Believe In You, They Will
• Tell Them That There Is A Good Chance Theyll
  Lose Their Money
• Try Your Hardest Not To

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Partners

• A Team Is Always Better Than A Lone Wolf
• Misery Loves Company
• Four Savings Accounts, Mortages, and Cars Add Up
  To A Lot More

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Summary

• VC money comes with a lot of strings attached.
  Make sure you can live with them
• Raising VC money is not a guarantee of success
• Seriously consider the alternatives to raising VC
  money