Are VCs Really Right For You?

If you are reading this blog entry I assume you are an aspiring entrepreneur and at least know what a VC is... But do you really know what a VC does? Should you really go after VC funding and if so at what stage? These are age old questions for the entrepreneur.

There is a lot of cash out on the market these days and the endless number of entrepreneurs with ideas knocking on investor's doors. In all honesty the VCs are looking for good ideas to invest in and they are hard to come by... Let's say you have the next best idea and you know you can secure some VC funding; should you get it? My first reaction is if your idea is so good, and you somehow made it to the prototype stage take it a little further and launch the product, get some market validation. Understand if you can really pull this off without the VC funding.

In reality the business plan does not work in most cases, so getting the product out there will give you an accurate picture on what is working and what is not. Interestingly this will give you an upper hand while talking to the VCs. Imagine talking about topic with just information you conjured up from the Internet versus something you lived through, need I say more...

Even then directly going to the VCs may not be the right thing for you; as an entrepreneur you have the dream of operating your company and taking it to the next level. Well, the VCs on the other hand is looking to get a 10x return in 3 to 5 years for his investment. This means he will work your rear-end off until he gets what he wants. And if he cannot you will be fired from your company - oh yes, you will... For that reason it is very important to be cognizant if your personality is a match to work with VCs. It is almost like working for a corporation at a faster pace.

Time to market is key when you are a start-up, but if you can hack it - here is what we recommend:

1. Launch your product get market validation. (at least do a Private Beta)

2. Seek capital from the 3 Fs - Friends, Family, Fools

3. Seek capital from Angel Investors

4. Then go to VCs