Five Tips: Entrepreneurs & Early Stage Capital
in a Tough Market
How the Venture Capitalists Nationwide Say to Do It
By Brian Hill
Profit Dynamics Inc., a research firm in Fountain Hills, Arizona,
founded by Brian Hill and Dee Power, authors of the books, "Attracting
Capital From Angels," and "Inside Secrets To Venture Capital," recently
conducted a survey of 74 venture capital firms from all regions
of the United States. They were asked their views about the outlook
for the early stage capital market in the upcoming year. On the
whole, the VCs responded with at least a moderate degree of optimism,
the overall theme being--the worst may be over. They were then asked
this question:
What advice would you give to entrepreneurs looking for early stage
capital?
Here's what they told us:
Be Prepared
In both good times and bad, this is good advice: Be thoroughly
prepared for the presentation to VCs and focus on why your business
will make money for investors.
Conserve Capital
In the late 1990Ís, capital was much more plentiful and in some
cases, management teams looked at the term "burn rate" to literally
mean they had investorsÍ money to burn, and when one round of
financing ran out, they could easily go out and get more. From
2000 and up to today, a massive reality check occurred in the
market for early stage capital. The emphasis now is on conserving
capital and reaching as many milestones as you can on your own
without investorsÍ money.
Be Committed
In the due diligence process, investors try to determine the
level of commitment the management team has to the business.
Will the team exhaust themselves trying to make this business
succeed? Part of that commitment can be financial, both in terms
of willingness to commit personal resources to the venture,
and the willingness to forego compensation until the cash flow
of the venture becomes positive.
Have An Outstanding Managment Team
One way investors mitigate risk is to only put money behind
the very finest management teams. An ever-viable maxim applies
(and you imagine VCs carry this around in their wallets): a
great team with a mediocre idea succeeds more often than a great
idea with a mediocre team. The strength of the management team
is even more critical to them when the new venture will be trying
to gain a foothold in tough economic times.
Be Patient and Persevere
Even in the exhilarating days of the Internet boom, entrepreneurs
were sometimes shocked by how long it took them to obtain seed
stage or first round capital. For one thing, they did not take
into account the incredible number of ventures that were begun
in a short period of time, all pounding on investorsÍ doors
at once. Today, the number of entrepreneurs looking for capital
has declined, but at the same time, investors have become much
more cautious. The bottom line: nothing succeeds like perseverance.
Our survey pointed out a definite lifting of the gloom that has
hung over the early stage capital market for more than two years,
but not all VCs were in agreement, as quotes from these two VCÍs
show:
"Good entrepreneurs will get funding! Great companies are often
started in a recessionary environment."
"Keep your day job."
Perhaps this venture capitalist most clearly stated what entrepreneurs
looking for early stage capital in 2003 should keep in mind:
"Conserve capital, get customers, be patient, be persistent."
The entire report is available at no fee. Send a blank email to
offer@capital-connection.com
and it will be automatically sent as a PDF document.
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Startups: Early Stage Capital In Tough Market 
