| > | | | | No one risks money to break even. The VC's goal is |
| Venture Capitalists | | | | to do an Initial |
| By William Cate | | | | Public Offering and take your company public. Once |
| Published March 1998 | | | | your company starts totrade, they'll sell their 30%+ |
| [ [ | | | | stock in your company. The good news is the |
| They invest in less than 1% of the companies they | | | | IPO will raise more money for your company. The |
| review. Your oddsof raising money at the race track | | | | bad news is the IPO shareswill further dilute your |
| or in Las Vegas are better than yourodds of finding a | | | | ownership of your company. As a public |
| venture capitalist. I don't believe that it's worth | | | | company,you'll probably now only own 10% to 15% |
| yourtime and money to seek their investment in your | | | | of your company. |
| company. | | | | It costs money to do a successful IPO. You'll find |
| Venture Capitalists aren't Fairy Godmothers. If you | | | | that those VC |
| won't give up | | | | Financial Managers will divert your advertising budget |
| 60%-70% of your company for the venture capital | | | | into generaladvertising that acquaints potential stock |
| investment, you'll neverinterest a Venture Capitalist in | | | | buyers with your company. Itdoesn't bother the VC |
| your company. For most business owners, acontract | | | | that none of the potential stock buyers are buyers |
| with a Venture Capitalist is a deal with the devil. | | | | ofyour product or service. The axiom is that when |
| Let's assume that your company is a winner of the | | | | investors recognize thename of your company, they'll |
| Venture Capital | | | | buy your stock. It's the VC's stock, not |
| Lottery. You'll become a minority shareholder in your | | | | thecompany's product or service that is being sold. |
| company. Your jobwill be to make your company a | | | | It costs money to do an IPO. That money comes |
| business success. | | | | from your company'scash flow. Until you receive the |
| The Venture Capitalist's first goal is to recover their | | | | proceeds from the IPO, you won't have themoney |
| investmentin your company. The VC expects to | | | | to expand your business. If the cash flow isn't |
| recover their risk capital within twelvemonths. They'll | | | | adequate to pay the |
| do it by appointing several financial sales people to | | | | IPO costs, expect the VC to issue more stock and |
| topmanagement positions. This VC management | | | | dilute your ownershipfurther. |
| group will prepare your companyfor its IPO. They'll | | | | You can invest in a search to find a Venture |
| encourage accredited investors to buy half the | | | | Capitalist. I don'tthink your VC strategy is sound. You |
| VCstock in your company at double the price paid by | | | | are betting against the odds thatyou'll find a VC. If |
| the VC. Within a year,the VC has recovered their risk | | | | you find a VC, you'll lose control of your company. |
| capital and still owns 30%-35% of yourcompany. It | | | | When your company goes public, you could find that |
| takes between 25% and 40% of the VC's | | | | your insider group owns less than 15% of your |
| investment in yourcompany to allow the VC to | | | | company's stock. If you think that a VC strategy is a |
| breakeven on their investment. | | | | winning strategy, I wish you luck. |