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What Is Venture Capital?

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

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What Is Venture Capital?

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  1. Venture CapitalWhen You Need ItWhen You Don’tUnion Square Ventures915 BroadwayNew York, NY212-994-7880

  2. 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

  3. The Venture Capital Process • Find Deals • Research Deals – A 3-6 Month Process • Structure and Close Deals • Manage The Investment • Exit The Investment

  4. 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

  5. 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

  6. 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

  7. 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.

  8. 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

  9. What Are The Alternatives? • Bootstrap • Self-Finance • Friends and Family • Find Partners To Share The Risk • Don’t Start A Business, Buy A Business

  10. 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

  11. BootstrappingWhat 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

  12. 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

  13. 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

  14. 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

  15. 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

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