Beholden
Before the Entrep Summit, I was not very familiar with the venture capitalist (VC for short). I have heard about them but was not sure how they figured in the world of business.
Turns out, VCs are the power behind great start-ups like Facebook (as you would have already found out if you watched the movie Social Network).
And through the Entrep Summit, I learned the hoops of how I can get funding from a VC.
But as I said in an earlier article, it is not simple. A lot of money is at stake and venture capitalism is not charity – the venture capitalists are also in the business of making money.
But yes, getting funding from a VC might be well worth your time – it not only eliminates worry but it also lets you know someone believes in you and that someone has your back.
Here’s how:
1. Submission of an Executive Summary Assessment
This should explain your product or service and why you think it will work. It should include your company information, credentials of your people, and some initial research that you have done, like market size and growth and financial projections.
2. Presentation
According to Sandejas’ website, you should present 10 slides in 20 minutes and the slides have to have at least a size 30 font (the 10/20/30 rule).
3. Preliminary Assessment
If the VC asks you to give them additional information, additional documents or an interview, you are getting nearer your goal. But brace yourself, more inquiry is coming your way.
4. Formal Due Diligence
They will ask you about anything and everything, including the kitchen sink, so that they are sure that your business will bring in the bacon. You will be visited by accountants, lawyers, and, depending on your business, other professionals like engineers or scientists.
5. Approval and Offer
Get ready to negotiate on the terms and conditions of the venture. You will be asked to sign a term sheet – this outlines the major terms of the deal, which usually includes the number of shares that the VC will have in your company (this is usually how they want to be paid back for their investment). And then the contract will be drafted according to the term sheet. Sign on the dotted line and the money will soon be yours (but make sure your lawyer gets to take a really good look at the document too).
6. Completion
This is it – the money is yours. Cash is infused. (you can say yipeee! here)
7. Post-investment monitoring
You will have to provide the VC status reports, among others, and accommodate their representatives during board meetings. Be prepared to answer (and field) questions.
8. Exit
This is where the VC will sell their shares in your company. You might find yourself the sole owner or in bed with another investor.
You can have another look at the process in detail here .
I met some VCs at the Entrep Summit – Paco Sandejas and Martin Lichauco.
Sandejas’ and Lichauco’s companies usually invest on tech and internet based businesses but unique business propositions can also entice them. Get in touch with Sandejas’ company through (02) 757-3521 (Manila) or (650) 331-1134 (United States) and Lichauco’s company through (02) 687-4091 (Manila) or (310) 437-8001 (United States).
I also personally attended entrepreneurship sessions conducted by the Philippine Venture Capital Investment Group, a group composed of serious investors and angel investors (rich individuals who invest their own funds, as opposed to venture capitalists, who manage the pooled money of others in a professionally-managed fund). They meet every last Thursday of the month at the Asian Institute of Management. You can contact Claribel Bembot Janer 0906-494-8521 or check out the group’s website here. They are a fun, interesting group and I look forward to going to their sessions again. There is also a chemical investment bank for companies and investors in the chemicals, materials and related sectors which also handle joint ventures.
During the Q&A, I asked Sandejas: Is there a chance that the VC will steal the small businessman’s idea?
Yes.
I was surprised.
I guess Sandejas was telling me and the audience not to be naïve, and that there are big businesses or venture capitalists out there ready to gobble up small companies with big ideas simply because they can.
So you have to exercise caution. Ask the venture capitalist or the investor to sign a Non-Disclosure Agreement (this makes them liable to you in case they disclose your business idea to third persons) – just an fyi, some of them will not. Give in during negotiations, but not so much. Remember that it still has to be a win-win.
Best of luck.
Article by Issa. Art by D. Copyright 2010.
website: www.YouWantToBeRich.com
email: issa@youwanttoberich.com
P.S. If you want to get a copy of a standard Non-Disclosure Agreement, you can email me.
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Hi, I’d just like to clarify that I don’t know anything about venture capitalism and I’ve never been in contact with a VC before but since no one clarified this section, I thought I’d share my guess.
“During the Q&A, I asked Sandejas: Is there a chance that the VC will steal the small businessman’s idea?
Yes.
I was surprised.
I guess Sandejas was telling me and the audience not to be naïve, and that there are big businesses or venture capitalists out there ready to gobble up small companies with big ideas simply because they can.”
I doubt the lesson is naivete although like I said I am purely guessing. Big businesses will gobble up small companies but it has nothing to do with whether someone is going to steal your idea or not. It’s just the nature of corporations. In fact, many small businesses often sell to them because it is often guaranteed pay-out vs. the risk of the business not generating enough profits in the long run and shutting down.
“Ask the venture capitalist or the investor to sign a Non-Disclosure Agreement (this makes them liable to you in case they disclose your business idea to third persons) – just an fyi, some of them will not. Give in during negotiations, but not so much. Remember that it still has to be a win-win.”
I don’t think this advise will work which is why I’m sharing my guess. I’m not suggesting that NDAs don’t work at all but this isn’t how VCs will primarily steal your idea and if you look at it from their point of view, it’s bad for them to be associated with an idea stealer because not only are they risking the idea to fail if they don’t have the idea maker’s vision or staff but then less people would go to them.
More importantly, stealing ideas is just not very profitable even in the short term. No decent VC would waste time hearing idea makers when they can assemble a team that will brainstorm for them and be done with ideas in a cheaper and less time consuming manner.
What VCs want instead are for the idea makers to handle all the launch events, all the hype and all those other factors and they just supply the initial cash flow. It’s when the idea becomes profitable enough that the VCs will start buying back their shares and hence ‘steal the idea’ because at that point the mindset is that we just need guys to “maintain” the popular service and we no longer need the founder anymore. They’re not going to kick the founder out directly though. Too much bad PR. Instead the VCs will use their control of the company to guide it in more “corporate cash inducing” manners rather than innovating upon the idea. The common example being injecting ads in a service or creating subscription type payments into the service once enough people are stuck on the service that they can’t afford losing their data and hence are willing to shell out cash for it.
Again, these are all just my guesses but I feel it is necessary to state this in case NDAs aren’t sound enough to prevent someone from having their business idea stolen.
@Marv Precisely my point… A person can attempt to have the VC sign an NDA but although it is an iron-clad agreement, it is not really a deterrent to stealing on the part of the VC, as pointed out by Mr. Sandejas. I guess the main idea in the article is to be careful and to be courageous at the same time. I guess finding that balance is what will spell the difference between the business being a failure and a success. As an end note, my unspoken advise is, I guess, if you can finance your venture yourself, you should. If you can find people you trust to invest in you, you should and if you can dream big, you should. Good luck in all your endeavors.