Where is the “venture” in Venture Capital?

Is it me or does it seem that VC’s want to fund you when you don’t really need the money? Translated, when the risk is essentially gone?  I do not proclaim to be an expert in VC fund-raising but I did spend 1 full year trying get expansion capital (Series A) for a small tech company in healthcare IT with a proven product, real paying customers and a huge market opportunity ($1 billion+) I got spanked!  “Great story but let’s talk when you have a few more customers…..

  • Contrary to popular belief VCs are not gung-ho risk takers. Generally they need something to hedge their risk on.

    a) Clear and unambiguous traction with a plan on how $ can accelerate growth (vs product).

    b) Founders with history of successful exits

    c) Hot market with many potential exits

    What differentiates VCs and banks are that they get equity for their money. This is inherently riskier because if the company fails, the equity will be worth nothing. The banks may get equipment, IP, receivables that they can recoup their money on.

    The only investors that are happy to take on full risks are the Seed round investors (ie pre-product). It is also known as the 3F round – Friends, Family and Fools.

  • When I was a very young child, my grandmother often said to me if I want to catch a martin, I just have to put a grain of salt on its tail…

    Of course, everyone knows it’s much easier to put some salt on a bird’s tail when you already have it in your hand. Your investor tells you the same about money and customers. You think you need money to have more customers, he knows you need customers to catch money.

    VC money is not there to search product market fit (when you are looking for Series A, as you told us). Series A is there to grow fast a proven product/business model/company. What do you need to achieve this ? Simple: proven product, real paying customers, and reasonable market opportunity. This is your words (I changed only one). If you really had a proven product, real paying customers and market opportunity, you would have found your Series A. That’s why I think there is something wrong in your assertion. Maybe the product is not “proven”. Maybe the paying customers are not “real” enough (ten customers from your rolodex won’t prove a market). And a $1B market does not look serious in healthcare IT. I don’t know well this domain, but my guts tell me you’d better pretend it’s a $100M market for your product if you want to look serious. Most $1B markets are only pipedreams.

  • When you build a company brick by brick it will withstand the storms.

    If you build a company too fast it will crumble during the storms.

    Screw venture capital.

    • I like this reply…

      I empathize with the original post, because I’m in almost the same boat as you.

      My healthcare startup isn’t quite as far along as yours…but the brand is solid, the market is $225 Billion, and the research is there to support my business model. I’m building my team, but I’m not quite ready for VC.

      I read somewhere that VC is like rocket fuel…you don’t use rocket fuel to build your rocket. You use it to launch that baby to the moon!

      It’s frustrating when you have unequivocal faith in your idea…and you’re starting to get traction, and the VC guys are yawning. Perhaps patience really is a virtue? If you can get money coming in, without them…why not bootstrap your own success?

  • Venture capital isn’t described who they fund, it is describing who they’re taking money from. In particular, that the limited partners in a VC fund expect higher risk and higher return.

    This higher risk doesn’t mean they throw money around like drunken sailors on rampage. There’s still plenty of risk investing even in companies which have traction, profit, growing revenue, etc etc.

    It is just that VCs seek to reduce the additional risks which lack of traction, unprofitable, slow growth companies add to the ginormous pile of other risks.

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