|
|
| Featured Topic Topic Index Blog Index Thinker Index Group Index |
| AbstractContentsSpecialties |
Link
|
Print
|
Email
|
Rate
|
Listen
|
Edit |
Share
|
RSS
|
In the past year or so, I have had several solid technology companies describe to me their experiences in seeking growth capital with venture capital firms. The common theme that emerges is that the VCs told the companies that their business model or technology “did not fit.”
The words “did not fit” is code language that the VCs use that means the same thing as “your baby is ugly.”
I usually tell the company’s executives not to worry about what the VCs think. Very few deals are ever funded by the VCs to begin with, and most of the ones that are funded end up in the Dr. Kervorkian assisted suicide statistics.
The entire direction of causation for capital markets is all wrong for established, operational high tech companies when the go to the VCs for funding. A better business model is to stand the process on its head and have the investors seek out the companies.
Do-It-Yerself Capital: Raising Your Own Capital and Avoiding the Venture Capitalists
Sometimes, the best way to raise capital is to do the job yourself.
Thomas E. Vass, BusinessCapitalAdvice.com
What Happens When The VCs Think That Your Baby is Ugly?
In the past year or so, I have had several solid technology companies describe to me their experiences in seeking growth capital with venture capital firms. The common theme that emerges is that the VCs told the companies that their business model or technology “did not fit.”
The words “did not fit” is code language that the VCs use that means the same thing as “your baby is ugly.”
I usually tell the company’s executives not to worry about what the VCs think. Very few deals are ever funded by the VCs to begin with, and most of the ones that are funded end up in the Dr. Kervorkian assisted suicide statistics.
The entire direction of causation for capital markets is all wrong for established, operational high tech companies when the go to the VCs for funding. A better business model is to stand the process on its head and have the investors seek out the companies.
One reason the DCPO alternative to the VC model is never mentioned in the venture capital and angel community is that they generally can not make much money on it. In other words, there is no vested financial special interest group that promotes the DCPO like there is for the venture capitalist model.
The venture capital community is well organized for public relations and has a whole coterie of non-profit agencies that sing from the VC hymnal. No one is organized to sing the praises of small high tech companies, or is actively promoting the long-term financial viability of small businesses.
The DCPO model requires the company to manage the entire process of issuing securities in a process called self-underwriting.
Part of the complexity of the management involves coordination of the tasks among outside professional advisors, including:
DCPO Tasks for The Securities Attorney
9. Prepares and mails stock certificates to investors after the date of closing
DCPO Tasks for CPA
DCPO Tasks for Third Party Transfer/Clearing Agent
DCPO Tasks for Independent Third Party Technology and Marketing Verification Vendor
Most small high tech companies do not have extensive staff to help manage the process of a self-underwriting, and most CEOs are so busy trying to stay alive, that the extra burden of managing the capital raise is too burdensome.
It often makes sense for the small company to outsource the management of the DCPO to a licensed professional investment advisor who represents the fiduciary interests of the company, not the investors.
Prior to the offering the DCPO investment advisor would help the company with the following tasks:
When Your Ugly Baby Grows Up To Become A Beautiful Company
The upfront work and added costs of the DCPO may work out for the best for your ugly baby. When the company controls all the terms and conditions of the offering, it is unlikely that the company will end up on the Dr. Kervorkian list.
By raising the capital yourself, you set the conditions of future success to letting your company be a big happy baby with lots of opportunities for success.
Which is exactly the outcome we would wish for all of our small high tech companies.
|