5 Reasons Not To Take VC Money (Even When They Are Tracking You Down)

I had an interesting conversation with a brilliant, hugely entrepreneurial guy who owns a technology company that is so hot right now that, with absolutely zero PR or fundraising activity, he is getting pursued by Venture Capitalists who want to invest.

Major VC firms are calling him; clamoring to invest in and/or acquire his business. They are desperate to get a piece of what he's building.

But he's not interested.

He wants to build something big - huge. And he wants to own all of it. Here is what I learned about his strategy:

1. You should only take on investment if your growth is constrained by funding
2. You should only grow as fast as you are able to learn 
3. You should only grow as fast as you can build the infrastructure to support growth
4. It takes time to build a great company
5. You gain more in the long term by maintaining full ownership

I have so much respect for this thinking. In a time when it seems like every technology start-up out there is trying to figure out how to attract venture capital, this guy just goes out and builds a company that is so solid that he can ignore the VC community. His business is completely self-funded, and it's not because he's some kind of millionaire, he built it strong and slow. And he intends to keep doing that.

Of course, there is nothing wrong with taking on investment capital from venture capitalists or angel investors, but I do think it's worth considering the alternative if you have the means to do so.

Virginia Ginsburg is founder and chief consultant at Swell Strategies. She is passionate about supporting small business owners and entrepreneurs in starting and running successful enterprises. An avid reader, in this blog she reviews books and articles and relates specific learning points back to entrepreneurial businesses.

How to Raise a Bunch of Money For Your Business

Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist Hardcoverby Brad Feld and Jason Mendelson 

What They Say: This book covers many aspects of raising capital for an entrepreneurial venture. While their focus is on venture capital, they provide excellent advice for entrepreneurs seeking angel capital, also. Here is a recap of some key fundraising rules:

• Know who you're talking to: do your research and know as much as possible about the venture firm, angel group, and individuals who are evaluating your business. (NOTE: they have a pretty high perceived self-worth, and a little knowledge about their accomplishments will go a long way)

• Develop the basics: You need series of explanations of your business:
• Elevator pitch - 1 sentence
• Short pitch - between 1-3 paragraphs 
• Executive summary - 1-3 page document 
• PowerPoint presentation - 10-20 page overview

• Know the details: All of the items listed above should touch on the following key elements:
  
• The Problem
• How big of a problem it is
• Why it should be solved
• The Product
• Why your product is awesome
• Why it's better than what currently exists
• The Team 
• Why your team is the right team for the job
• The Business Model
• How you will make money
• What you need money for

What This Means for Entrepreneurs: Luckily, unless you are seeking a bank loan or SBA loan, you will not have to build out a massive business plan, but sometimes bigger is easier. Creating simple, to-the-point explanations is key to fundraising. Your potential investors don't have time, and they simply are not interested in, a long discussion. They just want to know what you're going to do and feel relatively good about the potential outcome.

Good luck! 

Virginia Ginsburg is founder and chief consultant at Swell Strategies. She is passionate about supporting small business owners and entrepreneurs in starting and running successful enterprises. An avid reader, in this blog she reviews books and articles and relates specific learning points back to entrepreneurial businesses.

The One Thing You Can't Skip When Planning a Business

Most entrepreneurs enjoy the process of building out a great idea, and can tell me how they will make and market their idea, but few of them have created the financial model detailing the revenue streams and expenses. The modeling process illuminates whether the business will be scalable and sustainable. Therefore, it is the single most important aspect of business planning.

Here are some questions that I use to get the financial modeling process started:

Marketing

• How will you reach new customer prospects? (i.e. advertising, PR, social media, etc.)
• How many prospects can you reasonably expect to reach on a monthly basis?
• What will it cost to get prospects? (i.e. advertising, PR, etc.)

Sales

• What is the process of converting prospects to paying customers? (i.e. salespeople, reps, affiliates, etc.)
• How many customers can you reasonably expect to convert on a monthly basis?
• What will it cost to convert customers? (i.e. sales commission, affiliate fees, etc.)

Revenue

• What are your revenue streams? (i.e. subscriptions, advertising, product sales)
• What is your pricing structure for each revenue stream? (i.e. what will the consumer price be?)
• What is a reasonable conversion rate for each product? For example, if we're talking about online product sales, what percentage of site visitors will purchase? You need to estimate a conversion rate for each revenue stream.

Costs

• Startup Costs - what are the costs involved in launching the company? (i.e. brand identity, website development, content development, etc.

• Variable Costs- what are the costs involved in producing each product you sell?  

• Fixed Costs - what are your monthly fixed costs (i.e. office space, web hosting, salaries, etc.)

Are you thinking about starting a business? Start by building out your financial model - get help if you need it! Any investment you make in this one aspect of business planning is well worth it in the long term.