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Entrepreneurial Ventures: Are the Streets Paved With Gold?

 

As you drive along Highway 101 in California's Santa Clara Valley, on Route 128 near Boston or nearly anywhere across the country, you can almost see the parched bones of entrepreneurial ideas that have died and been cast aside. They lie next to now healthy giants and soon-to-be-successful manufacturing and VAR organizations.

There have been a great many people who had "the outstanding idea of the decade" the one that was going to help them carve a place for themselves, and their followers, in the computer industry.

Some succeeded beyond their wildest dreams. Some failed quickly, almost painlessly. Some took a long time to die. Others were acquired when they were in the throes of death. And, some of these companies and ideas were never even born because they couldn't acquire the necessary parental support money.

 

Psychological Impact

Some people feel that anyone in the VAR arena, who has the desire should take the plunge and become an entrepreneur. They reason that even if the company fails, the individual has marketable skills that can then be sold to someone else. Others (and I agree) feel that you should be prepared for success and failure.

Generally, individuals that venture out on their own have been successful all of their lives. But anyone, regardless of his or her past successes, had better be prepared for the bumpy road that lies ahead when starting a VAR organization.

The start-up will consume all of your energy--and your life savings. If it fails, it's more than a financial set back. It's a dramatic blow to your ego and your self esteem. But it is the successes that keep dreams alive and the reason more people try for the gold ring every year.

 

Money, Money, Money

Jerry Casilli, general partner of Trinity Capital, said that good people and good ideas are two of the ingredients of a successful start-up, but that money is what makes the whole thing happen.

One entrepreneur recently reinforced this statement by saying that when you start a company and are trying to build it, "money is more important than your mother."

Venture capital is often thought of as the first method of raising money for a new company. In fact, today, it's estimated that there is more than $60 billion available from venture capital firms and R&D partnerships for start-ups. However, venture capital actually comes quite a bit further down the line.

The first source of money is your own bankroll. This is followed by money from friends, relatives, your partners and the bank. After you have exhausted these sources, it is time to approach the group or organization that will most likely be your biggest backer the venture capitalist.

 

Venture Capitalists

Some people consider venture capitalists to be worse than loan sharks. Others picture them as angels.

They are neither. They are business people. They invest in young firms and hope to make money when the company goes public or is acquired. They invest in those companies that they feel will provide an optimum return for their investors.

Different venture capital firms weigh the criteria for their investments differently. But they will look for people who think big, are highly motivated, are willing to make substantial personal commitments and have a track record of success. They also look for products and/or programs that meet specific market needs in a high-quality cost-effective manner.

Some firms look for large, rapidly growing markets such as CAE/CAD or desktop publishing where there are significant opportunities. Others look for new, emerging markets such as video capture, where market leadership can be established quickly. Still others look for a smaller market such as farm feed management in which the company can be the dominant factor.

Match your venture group with your goals just as you would if you were selling your products to a prospect.

Next, realize that there are various categories of investments and selection criteria within each category. There is start-up, first-round and second-round financing. Each has its degree of risk for the venture capital firm.

And, look for more than just funding from your venture capital people. Every venture capitalist says they provide management assistance and direction. Make sure yours actually does.

The venture capital firm should only take a board position, they should have an active board position. Use your venture capitalist firm as a valuable information and experience resource. Learn from their past mistakes rather than making the same costly mistakes yourself.

 

R&D Partnerships

More and more firms are creating research and development partnerships. It is a way for small firms to gain financing without giving up ownership. In addition, investors receive some tax shelter benefits.

The limited partnership is formed to finance the development of a product. The partnership then owns the rights to the technology and the company(s) contract to sell the technology on a royalty basis to the partnership.

The limited partners get their write-offs plus (hopefully) significant long-term returns. The company gets technology without having to give up equity.

 

The Very Few

While names like Steve Jobs, Bill Gates, Alan Shugart, Gene Amdahl and others have become as well known as screen stars to many aspiring entrepreneurs, it is a fact of life that the successful entrepreneur is a rare individual.

He or she will go into battle severely outnumbered and be battered unmercifully. But he or she will bounce back again and again to the entrepreneur, the game is as much fun as the victory.

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