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Do You Need To Rely on Venture Capital Funding?


High tech entrepreneurs frequently see venture capital funding as a quick route to raising funds for their ventures. However availability of VC funding is highly variable by tech sector as well as the cash needs of your company and few companies are ever funded. Do you need to rely on VC funding and what are the alternatives?

Notes from a conversation with Charles Bellavia, CEO, ElectraDrive:

One of the first questions to ask is what the VCs will bring to you as a company. In the past they brought both contacts and funding. Now, for the most part, they just bring funding. In light of this, you should be asking three questions before you seek VC funding.

Can you fund the company out of your own pocket? Far more companies are funded from the pockets of founders, friends and families than receive VC funding. However this route demands several conditions. Cofounders should have alternate sources of income so that they can progress their technology and company without salaries for a period of time. Watch the life stages of start-up cofounders. Avoid joining a start-up when your kids need your attention – for example if they are in grades 7-12. Also, if you are paying for college, ask whether it makes financial sense for you to forgo regular income to join a start-up. If an annual 2-week summer vacation is important to your family, start-up life is not for you.

What is the minimum funding that you need to bring the company to life? Figure out the bare minimum needed to bring your technology to life and generate cash. Focus is the key word. People will come to you with variations on your plan. You have to know your path and whether these variations will help or distract. Stay with your core idea, and think in terms of current and future generations of the plan. Build fitting variations into future plans if they will delay the current iteration.

How do you keep those working on the project motivated? Plan for turnover. Know who is key to the project, and those for whom you need back-up. Life in a start-up is all consuming. When the picture on the wall is crooked, everyone jumps to straighten it out. This is part of the start-up culture. Have fun and make it fun. Fun doesn’t need to be expensive. Simple parking lot barbeques with a CD deck and music are not expensive, particularly if everyone brings something. Include simple, low cost recognition in your events. Acknowledge your employees for who they are and where they came from. This can be especially important if you have a diverse employee group and helps to build camaraderie. One company with a diverse employee group has pot luck lunches where employees are asked to bring the national dish from their home country; the food is wonderful and helps employees to appreciate one another.

Polo Ralph Lauren Sandy McMahon is publisher of Ceo2Ceos (http://Ceo2Ceos.com), a non-commercial site for executives to share best practices. He is also President of Executive Forums of Silicon Valley. With over 20 years of executive experience, Sandy has a BA from Brown, an EdM from Harvard, and an MBA from Duke.