Venture Capital–The Reality
Mainstream media, in its search for bad news, seems intent on trying to lead readers into thinking that Venture Capital today is all but non-existent…and that any entrepreneur who is looking for VC money is on a fool’s errand. However, let’s look at the reality of Venture Capital investments.
Obviously, there are fewer IPOs during the present turmoil and condition of the stock market, but this simply means that Later Stage companies will have to wait a while longer before cashing in on their big “payday.”
The good news is for startups. Investment in Seed Stage companies increased substantially in 2008, with a 19 percent jump from the prior year. There was also about the same investment in Early Stage companies during 2008 as there was in 2007.
Money invested in Clean Technology grew more than 50 percent in 2008, and investments in Internet-specific companies remained at about the same level as 2007. VC investments in the categories of Energy, Media and Entertainment, and IT Services grew during 2008, while several other categories remained about the same level as 2007.
It is true that; overall, the total amount of VC money invested was down about 8% in 2008–due largely to a decline in Later Stage and Expansion investments. This is likely due to everyone waiting out the stock market before they crank up the IPO machine again. Total number of deals in 2008 was only down about 4%.
So, with the President arranging for more capital to become available to loan to small businesses, Congress pumping up the economy, and Venture Capitalists continuing to invest at close to their normal rate, there should be no reason for entrepreneurs to put off starting a business, or growing a business. Put aside the fear and get on with it!
Venture Capital in Mid-America
Venture Capitalists tend to cluster in Boston and the Bay area of California. Many of them also like to be close to the companies they invest in. Consequently, many startups and growing small businesses located in the mid-America regions find it difficult to interest VCs.
No longer. There is a source of VC funding for small businesses in areas the U.S. Census Bureau defines as rural. These VCs are called Community Development Venture Capitalists (CDVC) and most of them are looking for a “double bottom line”–financial and social returns. Many of the CDVCs also provide money for operations assistance and to guarantee debt.
Although the concept of investing in “rural” companies began in the late 90′s, it has only become popular more recently. There are now about 80 CDVCs actively investing. There is a large untapped pool of talented entrepreneurs in small-town America, and even the traditional VCs are starting to realize that becoming successful does not require a big-city address. Ideas hatched in a small town diner are just as viable as those hatched in fancy high-rise buildings.
At the same time, don’t forget that these are still Venture Capitalists, and they don’t just hand out money without expecting a high rate of return. You still have to do your homework, and present a “knock their socks off” business plan–that is believable. There are thousands of people constantly seeking VC money across the country, and very few of them get funded. You must have a great concept, great team, and a great presentation, or your idea will never even get looked at. Do your homework…get help if you need it.
If you are starting a business in “rural” America, or trying to expand your existing business, you may be interested in what CDVCs have to offer. For more specific information on CDVCs, check them out at the Association of CDVCS.
Open Source Funding
I know there are many newly started, or about-to-start businesses out there just waiting for an investor to jump in and help them. Well, now’s your chance. Hi-tech entrepreneur, Mark Cuban, has developed his own private stimulus plan for small business, and is willing to consider funding existing, or start up businesses. If you are looking for “jump start” money, this program may be for you.
Here is what Mark said initially on his blog:
Rather than trying to be a Venture Capitalist, I was looking for an idea that hopefully could inspire people to create businesses that could quickly become self funding. Businesses that just needed a jump start to get the ball rolling and create jobs. Im a big believer that entrepreneurs will lead us out of this mess. I just needed a way to help.
So here it is. Some people will love it, some will hate it. It is what it is.
Some of Marks rules for funding may be outside the box, but he moves fast, and if your business qualifies, you may be funded very quickly.
This is certainly not the only way to fund your business, but it is an interesting concept, and well worth taking a look at.
For more information and all the details on applying for funding, go to Marks blog.
Good luck!
Venture Capital Available
If you are a tech-based company and are looking for venture capital as seed money or expansion capital, it is now available…that is, if you are developing new applications or services for Apple’s iPhone, or iPod Touch.
The Venture Capital firm of Kleiner Perkins Caulfield and Byers (KPCB) is seeking companies with “market changing” ideas. KPCB’s current iFund focuses on location-based services, social networking, mobile commerce, communications, and entertainment. They will make investments ranging from $100,000 of seed capital, to $15 million of expansion capital.
If your business fits any of KPCB’s current focus areas, and you need capital to start up, or expand, this may be your opportunity. You may get more information from KPCB here.
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