Venture Capital
When You Need It
When You Don’t
Union Square Ventures
915 Broadway
New York, NY
212-994-7880
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
The Venture Capital Process
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Find Deals
Research Deals – A 3-6 Month Process
Structure and Close Deals
Manage The Investment
Exit The Investment
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
When Is VC Good
• Heavy R&D Component of the business
– Seminconductors
– Biotech
– Datacomm Equipment
• Very Large Opportunity Requiring A Lot of
Working Capital
– Federal Express
– Amazon.com
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 don’t
always get to take the kids
When is VC Wrong For You
• Too Early – You Don’t 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.
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 Don’t Need It
What Are The Alternatives?
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Bootstrap
Self-Finance
Friends and Family
Find Partners To Share The Risk
Don’t Start A Business, Buy A Business
Why Bootstrap?
• Get Going Fast – Don’t 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
Bootstrapping
What Comes Next?
• Profitability – Happiness is Positive Cash
Flow
• Bankers – They’ve Got Cash and Are
Willing To Lend
• Venture Capital – On Terms You Can
Accept
Self-Financing
• Entrepreneurship Is Risk Taking – If You
Won’t Take the Risk, Why Should Anyone
• Go Without A Salary
• Close Out Your Savings Account
• Mortgage Your House
• Sell Your Car
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
They’ll Lose Their Money
• Try Your Hardest Not To
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
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