When I was researching how businesses change or pivot their business plans, I found this presentation about Venture Capital and when you need it and when you don’t, by Union Square Ventures in New York.
Since I have no control over whether it disappears from scribd, I want to pull out a few points about venture capital. First, high risk capital wants a 50% plus return a year – and that’s going to compound over time – that’s double the money back in about 18 months and much more if the investment is long term.
Second, raising venture capital is a 3 to 6-month project. Don’t expect the cash to be easy or quick.
Third, 99% of new ventures don’t need venture capital and venture capital firms look at more than 100 business plans for each investment.
Fourth average dilution from the initial venture capital investment is 40% and on exit, the average entrepreneur who uses a VC owns less than 10%. The logic is that 10% of something big is better than 100% of something small but it does show there huge culture change required.
Venture capital is wrong for you if you’re too early in the start-up phase, your business is too small or you trade in n industry which doesn’t have barriers to entry to stop plenty of competitors rushing into the market to share in your early success.
The presentation offers bootstrapping up as an alternative to venture capital as i mentioned in Why Don’t Banks Finance Startups . I also agree completely with the comments that “cash in the bank makes you soft” and “sell, sell, sell – your customer is your best VC”.
It’s well worth taking a look at the presentation before you start thinking about wanting venture capital.