Venture Capital: Russian Roulette for Your Business
Filed under: Business Growth, Profitable Growth, Uncategorized
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 firm’s 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.
Dont 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 company’s customer base rarely enriches a 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 capitalists’ own statistics show how choosy they must be. Venture capitalists only:
- Fund one out of 1,000 business plans they see;
- Need two of ten portfolio companies to succeed to earn the 100 to 1 payoffs their investors expect. And, therefore, VCs may only
- Stay committed to healthy businesses, because problem companies are cheaper to close down than fix.
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:
- After successive rounds of equity financing, it is quite possible you can end up with neither ownership nor a big payday to show for your hard work and effort.
- Every minute you spend writing business plans for investors is time you could be spending growing customers. A business plan never convinced a customer to buy what you sell. In fact, many venture capitalists often shuffle plans among themselves in a practice called “passing the trash” in the hope of finding more investors to carry the risk.
- After the post dot com\9-11\Enron disasters, the improving economy is favoring real companies creating real value for customers by selling real products and earning real revenues. The “home run” technology companies are fewer and farther apart.
- The changing deal flow of venture capitalists is reflecting this. The impact of too many “dream deals gone bad” is trickling up to the VCs and their investors. They are laying-off and cutting back before funding businesses with modest returns on longer paybacks.
Don’t 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:
- Pay more for less money if it comes with fewer strings.
- Realize that venture capitalists exist to make their partners wealthy.
- The more customers you grow, the more of a real business you have and the less equity you will have to give away to get funding.
- “Lawyer up” to protect your interests and business goals.
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 driver’s seat and will live and retire to tell about it. So:
- Make your new product or service something people can buy now.
- Put all your efforts into creating sales people, channels, and proposals.
- Over deliver to the first customers you close and ask them for referrals and references as soon as they are happy with what you have delivered.
- Reinvest all the money you make from your early sales into more customer services, benefits and products. This will grow your company faster than anything will.
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.
Articles by Birol Growth Consulting are © copyrighted and all rights are reserved. However, articles may be reprinted with prior written consent if attribution is included as follows:
© Copyrighted by Andrew J. Birol, President of Birol Growth Consulting, who helps owners grow their businesses by growing their Best and Highest Use ®. Andy can be reached at (412) 973-2080, by email at andy@birolgrowthconsulting.com, or on the web at birolgrowthconsulting.com.
I Promised to Build You a New Website
Filed under: Business Growth, Profitable Growth, Uncategorized
Last March in my article WWWWW, I promised to build you a new website where you could quickly see and take advantage of my free value and then contact me to chat for more of my no-obligation help. With much thanks to Ricardo Rodriquez, Adam Paulisick, Kevin Grainger, Hank Walshak, and Fred Dugach, it’s ready for you! Here are some FAQ’s if you’re just wondering.
Q. Andy; what happened to your original website www.andybirol.com?
I liked your 500 articles, 180 newsletters and videos?
A. www.andybirol.com is and will always be available for your reference purposes. My new site www.birolgrowthconsulting.com sits “in front” and you can always link to www.andybirol.com for my library of content.
Q. What’s your refocused message?
A. I help established business owners run, fix and grow their companies so that they can keep or sell them when and how they choose. I also help business advisors and associations to empower their clients and members to profitably grow their businesses.
Q. What’s behind your “Run, Fix, Grow, Sell” philosophy?
A. If you own, advise or host owners of an established business, is it worth what it was in 2008? Can you sell it for what you need to? Do you have the mojo to recommit yourself to creating the profitable growth your business needs so you can sell it when and how you want? Intrigued? Click here.
Q. Andy, I want to suggest an improvement, pinpoint a typo or give you feedback but WIIFM? (What’s In It For Me)
A. If you find a typo, suggest an improvement or just give me your feedback at EMAIL ANY, I will send you a free electronic copy of my book, Accelerating Your Business.
