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Raising Money for a Tech Venture?
phosphor-boy asks: "Age old story: a friend and I have a fun, part-time technology venture that's actually generating a little cash. To take this to the next level, we need to raise few hundred thousand dollars. There's good reason to believe that it has enormous potential to make money - but since it's a new concept, it's (obviously) extremely speculative, so going to the bank won't work. We've been tentatively offered venture capital funding, but would have to take A LOT more than we need ($millions!), and give up way more control than we'd like - giving up some control is OK, but we've seen firsthand how VC money can run amok, and it's not pretty. However, a few hundred thousand is more than is do-able with friends, family, and second mortgages. So to sum up: too little for VCs, (maybe?) too much for friends and family. Have any others on Slashdot faced this situation? What works here, and what doesn't?"
Are usually the investors at this level. And the only way to make the connections is to start networking. Talk to your MD, family lawyer, Opto, and dentist. Work out a song-and-dance and see where it goes.
"Eve of Destruction", it's not just for old hippies anymore...
dealing with my relatives as part-owners of my business, or a horde of rapacious, money-grubbing VCs as part-owners of my business, it would be no contest - I'd vastly prefer dealing with the VCs, hands-down. ;>
If you have the opportunity to close a venture deal for a few million dollars, take it. Do what you can with what control you have left, and walk off with your share of the money if you can't take the pressure anymore.
If you've made one good project, odds are you'll be able to make more. Don't be sentimental about the project and worry about control; just think about the other projects you'd be able to start-up with the money you earn from this. And if the VC does well with the project, they'll be there for your next and more ambitious idea too.
Good luck.
Beware of the following pattern:
1) You give up more than %50 of your company for the money.
2) The VC'ers put their own "crack team" of managers in place (themselves!) and pay (themselves) ourageous salaries.
3) A few months later, they have sucked all of their own capital back out.
4) The offer to buy the rest of the company for a pittance, which you accept, because you have no money and no control.
Vonnegut was right: Of all the words of mice and men, the saddest are, "It might have been."
If it really is a novel invention, you might think about patenting it. Generally speaking, patents take less money (tens o' thousands instead of millions) and that gives you some new options:
1) VC's get excited about patents - it ensures that there's a strong barrier to entry. It may make it easier to raise money.
2) You can sell your patent to another company, so you can get profit from your idea while someone else spends the capital to make it big.
If you did want to pursue this approach, I recommend hiring a lawyer. While you can patent something yourself, it's better to have an expert help craft the patent application.
Good luck.
-Peter
It's called Angel Investment. You can book about 100-500K through Angels. In Austin, they work with groups (Texas Capital Network for one). Frequently, angels can hook you up with business connections. Even though you may not think you need it, they can also hook you up with some Adult Supervision. From talking with VC's first hand, before they were VC's, Adult Supervision is more important and helpful that you probably think. Use your noodle and you can probably find out how to hook up with angels.
Since I've never been in your shoes myself, I can't answer your question without asking one myself. If you're already in the black (my assumption from your post), then what's wrong with building it slowly (putting back all the money you earn into the company) and owning it all yourself? I'm not trying to be facetious here, I'm asking a serious question (please don't mod me down). If you spoke to Warren Buffet, I'd assume that's what he'd say. Then once you have a solid product, look to sell and move on with something else. There's a benefit to slow and steady -- is Warren laughing now when in 1999 his peers were ridiculing him for not buying more blue chip stocks faster?
Linux at home
Try some other avenues first (we used these as well)...
- Local Chamber of Commerce.
- Tech incubators
- Small Business Administration (we used this quite sucessfully)
- State tech assistance programs (normally funds set up by the state to encourage tech sector growth)
If you do not need to grow your company now, then wait. You first need to go through a few revisions of a business plan. That alone can take a whole year. You need to get with a financial specialist to do profit forecsats (potential). You need to make sure all of your liabilites that can be reasonably insured are insured first. You need to look at all business models that might apply (corp, S corp, LLC, etc) to see what best fits. You need to get help with a professional on understanding your local market demographics. You need to take a look at what it would take to give you all required expenses and the ability to pay a loan back at twice the required monthly payment per month (your loan for the capital you need). You need to see if you can grow the current income into this amount before you seek outside financial help.The less risky you look (time and profits), the more likely you are to get a bank loan (much preferred to a VC), or better yet an SBA loan. Check to see if you have a group called SCORE (Senior Core of Retired Executives) in your local area. They are an incredible resource.
InnerWeb
Freud might say that Intelligent Design is religion's ID.
.. from someone having been there..
* If you expect to have any control over the venture, you need to have your management team in place and solid. If you're an individual, forget about VC. VCs typically don't get involved until you've already got your venture running and are grossing more than $1M
* If you're just getting started, you probably want tier one, aka "Seed capital" aka "Angel investment", which basically translates to finding someone with some money to burn that believes in your project; this could be family & friends or some rich person who has an interest in what you're doing. The best way to solicit T1 money from strangers is to put together a business plan that has a clear exit strategy for the angel investor when the time comes for the next tier of funding.
* Ultimately, this whole deal is a catch-22. Most people who have money either want majority control, or won't be interested until you've proven that your idea is marketable and profitable, in which case, it may be less critical for you to need capital.
* If you have an idea that you think is profitable, but have not deployed it in any manner to demonstrate that the concept is practical and marketable, then the value of your venture is ZERO. Unproven ideas are worth virtually nothing. Everyone on the planet thinks they have the world's greatest idea.
* Don't discount the potential of soliciting government grants or regional business development deals, especially if your idea is unproven -- often these types of deals require more salesmanship than practicality.
* Sad but true. Often the entities that would most benefit from exploiting your idea/tech/service are the ones who can't be bothered with you UNTIL you embarass them by demonstrating that your idea kicks ass. You usually don't get the attention of major players until you're pissing other companies in your industry off. Your best bet is if you have companies being serviced by a potential investor/partner that represent your target audience, you should target them and try to get their attention that way.