Startupreneur

For the First Time Entrepreneur

Venture Capital. Don’t bet on it.

Posted by Vijay on September 3, 2006

One of the great questions that you will face as a first time startup is how to finance your operations. Choices are Self Funding, Friends, Family, Banks, Highway Robberies and then the Venture Capitalists in that order.

Don’t count on VC money to come to you in the beginning unless you have a track record (of previously raising and spending it). I read an interesting Business Week Online article (The Art of Doing it Yourself). Talks about how small businesses shouldn’t count on VC money and how VC money comes when you least need it.

I sat through an INSEAD presentation last week that stated that over 90% of startups are funded by the founder. This was followed by Family and Friends.

So when we started the business we were told, “Build a good team, Build Customers. Funding will follow. Trust us”. So we did just that. Stated with a motley crew of 8 people and built it way up to 100. Went out an got some customers as well . Oh yeah and revenue (Monthly Recurring Revenue). It took us 2 years to do this. Along the way we even finalized bank financing (we were later told that this was quite an achievement).

We then looked to a VC for funding and were told that we were asking for very little. So much for that.

The USA is the ONLY country where there is an ecosystem of VCs for startups. Most of the VC funds there are run by people who have been entrepreneurs in their past lives. In countries like India most VC funds are run by people who have a finance or a banking background and are very very very risk averse.

The best bet for someone starting out is some amount of self funding and a customer who is willing to bet on you by giving you business. I know it’s easier said than done but its possible and easier to do this that raising money from a VC.

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8 Responses to “Venture Capital. Don’t bet on it.”

  1. rk said

    vijay,
    really interesting to know all the intricacies associated with starting a business. getting to know a lot of info from this blog. keep it going.
    eagerly waiting to read more posts from your stable.

    Most of the VC funds there are run by people who have been entrepreneurs in their past lives.

    sakatthagide ee line-u. lol 😀

  2. Ravi said

    Hi Vijay!
    Your posting implies you’r old timer with US job, then back to India with high profile job and then startup venture. I would like seek your opinion on few apprehensions I have being myself with entrepreneurial aspirations.
    I’ve few interesting applications software products ideas as well as design as well as ideas on Web 2.0 based online services which could be explored into enterprise level products. What would you suggest be the better idea? Doing Design & develop prototypes and hosting 30days trial products and seek interested customers? OR Work on business plan & present idea to VCs or interested parties and seek fund? FYI. I’m IT professional with 9yrs exp. with 4 yrs in .Net including exp. in .Net 2.0.
    I would appreciate your suggestions.
    Thnks.
    Ravi

  3. Vijay said

    Ravi,
    Sent you an email directly….

  4. pegasus said

    very true… anyhow most start-ups actually borrow their seed capital from family and friends.

  5. Ravi said

    Thanks introducing Vivek Wadhwa. His few articles in BW gave me great courage and many insights. He shared his experience make believe it’s simple to follow the dreams and how.

  6. Hmm.. This is a nice writeup! I would want to start a school but not a business, I will ask you suggestions then.. !
    This is just my life’s dream but I am still not there to think about it. I am very ambitious for the first place, family, home, work & then come my dreams! I beleive the most in dreaming.. Some day it will come true!

  7. Vijay said

    Veena: I am sure it will. You sound like a strong willed and determined person.

  8. I am fully flattered! Thanks for that line, it makes a difference 🙂

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