Netizen: September 2006

Tuesday, September 12, 2006

Early Stage Venture Capital

The term venture capital reminds me of the go go 90s. Detractors kept giving credit to Alan Greenspan and what not, but Bill Clinton was the one steering the ship. His leadership was key to the new horizons you started seeing.

Venture capitalists do it for money. But the very idea reminds me of micro credit. Venture capital is micro credit for the rich. You have no collateral, just the intangibles like maybe an idea, or a basic product, a basic team.

I have looked at some goliath companies like say Microsoft or Dell and wondered why they don't cash out some at their peak and then put that money into venture capital. The ego gets in the way. They think they are going to keep churning out new stuff.

Venture capital is going to India and China. There is hope.

Self interest is a good thing. That Adam Smith invisible hand thing is a point. A lot of people driven by self-interest end up doing public good. The market works great most of the time.

And this thing about going public. Sam Walton one day just showed up at Wall Street. He walked into a firm and asked the receptionist who he should talk to. He wanted to take his company public. He was deep in debt at the time. She lead him to this lone guy from Arkansas who was at the firm.

For every rock star status band, there is one in every town hoping to be one. Hugely successful companies come only a few in a generation. It is hard to figure out which. But then there are numbers involved. Progress can be measured.

On the other hand, money is not enough motivation. Groupthink can set in. Ego can come into play. But if you are a painter, you will paint, no matter what. If you are an entrepreneur, you will jump into the river, no matter what. You will do it. You will seek and find your groove.

In The News

Earlier is Better for Venture Capital BusinessWeek Provenance said that it expects to make 20 to 40 investments ranging from $250,000 to $500,000 per company during the course of the fund. ..... 2006 is shaping up as a very active year for early-stage companies to receive venture capital funding. .... 74 startup and seed companies raised money from venture investors during the second quarter of this year, up from 54 last year. ..... entrepreneurs are willing to get out of their comfort zones and start new projects, and VCs are willing to back great talent ..... Sequeira ... 90% of his investments are in early-stage companies. .... the cost of doing business has decreased significantly. .... funds typically run in 10-year cycles. VCs want to get in on the bottom level, because by the sixth or seventh year a company will have grown to the point where it will be acquired or go public. ..... Right now is the start of a new cycle of funding .... This is a very good time if you are an entrepreneur looking for seed or early seed money
Making India a hub of venture capital CNET News.com, CA Chadha, who left Goldman Sachs in 2000 to form WestBridge ..... an unprecedented explosion of wealth in South Asia. ..... Venture capital investment in India surged 400 percent, to $3.6 billion, during the first half of 2006, compared with the same period last year ..... China outpaced India with $5 billion .... 124 transactions. ..... At least seven U.S. venture firms are raising funds specifically to invest in India. ...... India will emerge as "one of the core venture capital investing hubs in the world." ...... Rupert Murdoch's eVentures India .... Google angel investor Ram Shriram ...... the high quality of the entrepreneurs and the amazing pace of the market ...... a networking group, the U.S.-India Venture Capital Association .... Out of WestBridge's current portfolio of 25 companies, three are in the wireless domain, four are in consumer Internet and three in biotech. ...... Sequoia hopes to combine its experience in helping to turn start-ups into technology powerhouses such as Apple Computer, Oracle and Cisco Systems with WestBridge's knowledge of local market conditions in India.......
Venture capital investing in China doubles in Q2 2006 from Q2 2005 AltAssets 'Information technology remains the beneficiary of the majority of investment activity in China, as it does in the US and Europe, but it is also interesting to see pockets of activity in business and consumer services, healthcare, and even in alternative energy occurring in China.'
India, the Venture Capital & Private Equity Landscape American Venture Magazine, CA Aided by a growing domestic market and a projected 8-plus percent GDP growth rate, India’s stock markets are booming like never before making them one of the highest performing in the world.....
India hot on US venture capital radar Zee News, India over 44 US-based VCs have either raised or are in process of raising between 40 and 400 million dollars for early-stage investments in Indian companies over the next 4-5 years. ..... take the total funds to about 4.4 billion dollars. This amount is equivalent to investment worth 22 billion dollars in the us or Europe on purchasing power parity basis ...... traditionally favourite sectors like IT, BPO, telecom and internet
BusinessWeek.com, 8/3/06, "Before You Accept VC Funding…" Venture capital can be the best thing that ever happened to your company or your worst nightmare. ..... a term sheet—a document that details the amount the VCs want to invest, their conditions and requirements, legal rights, financial terms, and the controls they are seeking. ...... negotiating terms ...... No matter how sure you are that you're asking for enough, make sure more money is available if you need it. The odds are you will. ....... Do you get along? Are they a group of people you would want to deal with on a frequent basis for the next three to five years? ....... you are going to be branded by the VC you choose ..... Ask the VCs these tough questions and check their answers with others .... the VCs have as many warts as you do. ..... Some of the conditions may not seem significant now, but could come back to haunt you later. ...... used-car dealer tactics ....... the highest valuation may not be the best deal. ..... the longer the VCs wait, the more willing you become to accept their onerous terms. The best way to accelerate timetables is to create competition with other firms or via other funding options. ..... The key is to know what you're getting into and have reasonable expectations.
BusinessWeek.com, 8/1/06, "15 Things You Need to Score VC Funding" instead of soliciting venture capital for your new startup, you're better off buying a lottery ticket. You'll save time, money, and spare yourself a lot of heartache. But when you've reached the stage in your business where you have a product that customers love, a business model that works, and a strong management team, everything changes. ...... Their due-diligence process often takes months and is extremely rigorous. Most companies don't make it through. To prepare, you should look at your company the way they will. ......
BusinessWeek.com, 7/17/06, "Venture Capital: The Good, Bad, and Ugly" There often comes a time in the life of a startup when the founder must decide if it's better to own a small piece of a big pie. ..... there are many strings attached to this money—it's practically like getting married. ..... there are many strings attached to this money—it's practically like getting married. ...... It's always about who you know. ..... How can you tell if the VP of sales is more adept at selling himself than your product? ....... Good venture capitalists will support you when things get tough. ..... Venture capitalists are in it just for the money. Most are not out to do good for the world. ..... In their world, the need to create high shareholder returns always triumphs over personal relationships. ....... You could find yourself reporting to a new CEO, or be ousted from the company you founded. ..... They will have the right to sue you for all you own if you forgot to give them any bad news..... differences in opinion usually emerge and personal interests often come into play. It can be a full-time job for a CEO to manage VCs...... Disagreements about strategy often arise between the entrepreneur who is on a mission to change the world, and the venture capitalist who can do no wrong. Like entrepreneurs, VCs aren't created equal and they often know less than the entrepreneur about the product, customer needs, and market opportunity. ....... Your choice is to finance your startup yourself and stay small, or take the risk and raise venture capital. Just be aware that in this marriage, there is no divorce.

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