| I do not mean to discourage you entrepreneurs in | | | | fail to achieve the promise of their great idea |
| your quest to launch the next Big Thing. Many of you | | | | because they get caught up in the venture trap. |
| look at your path as write a compelling business plan, | | | | They are passionate about their idea and believe that |
| make a few presentations to the well-known | | | | it will become the next big success story. They tend |
| venture firms, get $3 million for 5% of your company | | | | to be very optimistic which is essential for one that |
| pre revenue, and launch. Product development | | | | takes the kind of risks that a start-up requires. Their |
| progresses without a hitch, you hit all of your | | | | biggest flaw is that they focus way too much of |
| milestones, you get a second round at an even more | | | | their efforts on the venture dance. Endless meetings |
| favorable valuation, and you land the big high-profile | | | | and presentations followed by delays and more |
| account. Two years later, you do an IPO with a | | | | presentations to other members of the same |
| market cap of $350 million. Fast forward another two | | | | venture teams. |
| years and you are the subject of a bidding war | | | | There are other alternatives. How about a strategic |
| between Microsoft, Google, and Interactive Corp. | | | | alliance with a bigger company in your industry? What |
| You finally agree to a buy-out at $3 billion. Life is | | | | about a licensing deal with a big player? Can a value |
| good. | | | | added reseller play a role for you? What about an |
| Wow, that was easy. Unfortunately that is one in 10 | | | | outsourced sales effort? Should you sell your |
| million. I was listening to CNBC this morning and they | | | | company? If you do have a great idea and are |
| were reporting on a new test developed by a | | | | meeting an important market need, it is likely that |
| Stanford PHD that would identify people two to six | | | | there are other companies out there that have the |
| years in advance of developing Alzheimer's Disease. | | | | same or very similar solutions. In today's business |
| This is an ideal venture play - huge potential market, | | | | environment that translates into a very limited |
| company founder with great credibility, and a great | | | | window of opportunity to achieve scale. You are on |
| way to reduce future health care costs. On the | | | | the clock to achieve scale before your funds run out |
| surface this would seem like the sure fire bet for the | | | | or before a well funded competitor simply captures |
| venture guys, but the CNBC reporter said they were | | | | your market. |
| having trouble raising venture capital. What a shock. | | | | Venture is very glamorous, but do not be myopic in |
| If this company is having trouble, think about the | | | | your approach to cashing out on your big idea. There |
| battle you face. Because no one has a crystal ball, | | | | are several very important alternatives including |
| seven out of ten venture investments totally fail. | | | | building a solid, profitable small company under the |
| With that backdrop, venture capital investors look to | | | | radar and then raising venture to achieve scale and |
| achieve a thirty times return on their investment in | | | | take it to the next level. |
| three years. Many potentially successful companies | | | | |