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VentureCapitalThe business of venture capital is frequently misunderstood. Many start-up companies resent venture capital companies for failing to invest in new ventures or risky ventures. People talk about venture capitalists as sharks — because of their supposedly predatory business practices — or sheep — because they supposedly think like a flock, all wanting the same kinds of deals. This is not the case. The venture capital business is a business, and the people we call venture capitalists are business people who are charged with investing other people's money. They have a professional responsibility to reduce risk as much as possible. They should not take more risk than is absolutely necessary to produce the risk/return ratios that the sources of their capital ask of them. Venture capital shouldn't be thought of as a source of funding for any but a very few exceptional start-up businesses. Venture capital can't afford to invest in start-ups unless there is a rare combination of product opportunity, market opportunity, and proven management. A venture capital investment has to have a reasonable chance of producing a tenfold increase in business value within three years. It needs to focus on newer products and markets that can reasonably project increasing sales by huge multiples over a short period of time. It needs to work with proven managers who have dealt with successful start-ups in the past. If you are a potential venture capital investment, you probably know it already. You have management team members who have been through that already. You can convince yourself and a room full of intelligent people that your company can grow ten times over in three years. If you have to ask whether your new company is a possible venture capital opportunity, it probably isn't. People in new growth industries, multimedia communications, biotechnology, or the far reaches of high-technology products generally know about venture capital and venture capital opportunities. A business plan for venture capital is a more sophisticated business plan. It should always include discussions of valuation, exit strategy, investment offering, dilution, and returns for investors. There are examples later in this chapter. If you are looking for names and addresses of venture capitalists, there's no way around the dominance of the Internet search for detailed information. You should probably start with listings of venture capital firms using the search engines at Yahoo! and Google. There is also a very good listing of financing resources at Bplans.com in the Financing Your Business area, and additional resources at PaloAlto.com. In addition, on the Internet, some of the better links for venture capital information include:
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