What is Digg?29 Comments
- bitt3n, on 10/12/2007, -0/+6Your knowledge is wrong. They are not loaning you money.
- bitt3n, on 10/12/2007, -0/+6just don't fail, or you're screwed. you don't have to pay back a VC.
- inactive, on 10/12/2007, -1/+5
Need a micro loan for a business, and don't have credit?
www.prosper.com
Need a bigger loan? >$25,000
then you need to get an Angel, 2nd mortgage, fund it using a VC, get a group of people together and create a 'fund', credit cards, pull money out of your 401k, get a loan against your life insurance, or go to a 3rd world country and sell a lung. - neutrascrub, on 10/12/2007, -1/+5back in nam...there were a lot of VC
- pyrzqxgl, on 10/12/2007, -1/+4Folks, it works like this;
There are to forms of financing that are available.
1.) Debt
2.) Equity
1.) Debt: You borrow money. You still own everything, but you're borrowing money, paying interest on that money. Whether it's a credit card or a loan from a friend a second mortgage or a VC, you'll be paying some amount of interest on the money.
1a.) Usually, when a VC does a 'debt round' they're also acquiring WARRANTS, rights to buy SHARES at a discounted price. A warrant is an EQUITY INSTRUMENT.
2.) Equity: Equity is ownership. When you have 100% equity in a house, a car, or a company, that means you own the whole thing. If you get Investors in your company (as opposed to Debtors), they are BUYING a percentage of the company. There is no interest rate on this money, you've simply sold part of your asset to them. This is how the stock market works. Only when you buy a share of Apple, you're buying about 1/854,000,000th of the company, as there are 854,000,000,000 common shares outstanding. (There are technicalities that will bias this number a little, but we'll keep this simple.)
Obviously, if an investor is buying X% of your company for $Y, he's expecting that X% is equal to Y+ (a whole lot) sometime in the not TOO distant future.
As to how you get VC money, they don't just find you. It takes a LOT of time, a lot of work, carefully honed presentations, DEEP understanding of your market, your business, your advantages, etc.
In short:
1.) Debt: You keep all ownership, but are borrowing money, paying it back PLUS interest.
2.) Equity: You're selling ownership, but are acquiring cash to use to build your business. You never have to pay it back, but you're ownership when you sell to Google or whatever will be less.
It would be fair to say that I have some familiarity with this process.
I hope this helps everyone understand this stuff a tad. - tutivlahos, on 10/12/2007, -1/+4How does it work? with VCs
You call them? Or they call you? - VeganG, on 10/12/2007, -1/+4"How Venture Capital Works"
It usually doesn't. - thesteampunk, on 10/12/2007, -1/+3You have to sell yourself to a VC. This means making a pitch to them in hopes they will see your business as a good long-term investment.
- inactive, on 10/12/2007, -0/+2I'm 25, have received ventural capital four times now (all over $100k) and... wtf are you talking about? The whole idea behind venture capital is that you roll the dice for someone who can afford to gamble with their money. If they wanted a 5% return on their money they could go get it.
Long story short, if the business busts, everyone shakes hands and walks away. No loans, no liens, holy *****. I've never had a mortgage. Simply wrong. In fact all of my investors have never even asked for my resume, or inquired about anything I might have, because - they couldn't touch it anyways. That's the whole idea behind a limited liability company and corporation.
"As to how you get VC money, they don't just find you. It takes a LOT of time, a lot of work, carefully honed presentations, DEEP understanding of your market, your business, your advantages, careful navigation of your personal network, etc."
Also not true, at least for everyone. I've never made a presentation before, at least a planned one. I usually spend a few days writing the business plan (usually one night), read it over, fix all the stupidness, and then have a chat about the plan at a meeting. Not having a presentation is KEY. Not having a 100 page business plan is also very key. If you were an investor, would you want to read 100 pages? You want to get the idea, get excited about the idea, and have an understanding of whether you think it will work. The rest happens later.
Here's the big secret. I've seen a load of business plans, and honestly most of them really suck. It's not the plan itself, it's the stupid ideas. People have these businesses that sound like they might be cool, but have nothing done, nothing started, they just have this plan to buy an office, get furniture, employees, then magically they'll have a business somehow. So wrong! Step one - Start it. Investors love to see what the ***** you're actually talking and planning about. Get it started. Then you'll have your foot in the door. And offices and furniture are for when you're already making money!!
Also do not try to "cash in" at the VC meeting! You should be a slave to your new business, working to just get by, so that your company can survive. My current venture bled halfway through our VC money before we turned it to black, and haven't looked back since. You can't be worried about losing the money, and neither can your VC (never take money from people who can't afford to lose it!).
I invite everyone to walk in to a VC office and setup a meeting. If you're meant to be a business owner and you know it, they want to meet you, it's not that scary, and you certainly don't need a ***** MBA. I didn't even need highschool. - synae, on 10/12/2007, -0/+1Better article:
http://www.paulgraham.com/startupfunding.html - GoodBrain, on 10/12/2007, -0/+1Steampunk, if you start a business on personal credit cards, then your personal assets have pretty much no protection if you don't make a success of your business. That's fine if you don't have a house or any savings.
- bightchee, on 10/12/2007, -1/+2Go Team Venture!
- dootisterhans, on 10/12/2007, -2/+3were you in the *****?
- GoodBrain, on 10/12/2007, -0/+1This article is pretty lame. No Digg.
- jkenda, on 10/12/2007, -0/+1The 200% interest refers to what VC firms expect to earn on their initial investment upon exiting through sale or an IPO. I think most firms shoot for 10 to 15 times return on their initial investment on the firms that succeed. I'd imagine that that figure changes over different industries
The article could have been a lot clearer on this point-for example, are they using a TVM approach to get to the 200% figure? - GoodBrain, on 10/12/2007, -0/+1"It usually doesn't"
Which is actually part of how Venture Capital works. Funds assume that most of their investments will, at best, have scrap value. 2-3 out of ten might turn an operating profit and pay back 1-2x their initial investment. One in 10 will pay for all the money lost on the other investments and make enough money to pay the investors in the venture fund back their promised returns. - digitalgopher, on 10/12/2007, -2/+3beleive me, if you're a hot company, they'll find you.
- inactive, on 10/12/2007, -0/+1You do not, I repeat, do NOT ever have to pay back a VC, unless you were stupid and didn't setup a corporation, or spent the money on coke.
It's borrowing money from the bank that you need to worry about.
Also there may not be any interest at all from a VC. I have a deal with no interest ever, and my intellectual property is of equal value to their cash investment. - LogicBomB, on 10/12/2007, -1/+1There are networking events and conventions and meetings specifically focused around VC's. You bring your company ideas and goals and they bring the money.
- ideafry, on 08/28/2008, -0/+0Venture Capital : Spurring Innovation and Growth @ http://www.sociableblog.com/2008/08/08/venture-cap ...
- kanja42, on 10/12/2007, -2/+2How venture bro's work
http://funny.quicksilverscreen.com/watch-all-of-the-venture-bros-episodes-online/ - parkjins33, on 11/01/2007, -0/+0hey,
if you got passion on startup, visit www.micro-funding.com and raise many small funds from micro-investors...my two cents..http://www.micro-funding.com - pyrzqxgl, on 10/12/2007, -2/+1Folks, it works like this;
There are to forms of financing that are available.
1.) Debt
2.) Equity
1.) Debt: You borrow money. You still own everything, but you're borrowing money, paying interest on that money. Whether it's a credit card or a loan from a friend a second mortgage or a VC, you'll be paying some amount of interest on the money.
1a.) Usually, when a VC does a 'debt round' they're also acquiring WARRANTS, rights to buy SHARES at a discounted price. A warrant is an EQUITY INSTRUMENT.
2.) Equity: Equity is ownership. When you have 100% equity in a house, a car, or a company, that means you own the whole thing. If you get Investors in your company (as opposed to Debtors), they are BUYING a percentage of the company. There is no interest rate on this money, you've simply sold part of your asset to them. This is how the stock market works. Only when you buy a share of Apple, you're buying about 1/854,000,000th of the company, as there are 854,000,000,000 common shares outstanding. (There are technicalities that will bias this number a little, but we'll keep this simple.)
Obviously, if an investor is buying X% of your company for $Y, he's expecting that X% is equal to Y+ (a whole lot) sometime in the not TOO distant future.
As to how you get VC money, they don't just find you. It takes a LOT of time, a lot of work, carefully honed presentations, DEEP understanding of your market, your business, your advantages, careful navigation of your personal network, etc.
In short:
1.) Debt: You keep all ownership, but are borrowing money, paying it back PLUS interest.
2.) Equity: You're selling ownership, but are acquiring cash to use to build your business. You never have to pay it back, but you're ownership when you sell to Google or whatever will be less.
It would be fair to say that I have some familiarity with this process.
I hope this helps everyone understand this stuff a tad. - thesteampunk, on 10/12/2007, -4/+0Sorry, I misunderstood this statement in the article:
"When is it healthy to run up a 20%-interest-rate debt on plastic? When it's cheaper than running up a 200%-interest-rate debt on VCs." - thesteampunk, on 10/12/2007, -4/+0Why was my initial comment dugg down? Credit cards are a good way to start a business as long as you plan ahead.
- thesteampunk, on 10/12/2007, -5/+0@bitt3n
To my knowledge, you do have to pay back a VC. And the interest rates on their loans are steeper than credit. The best thing to do is make sure you can rely on cash reserves and plan ahead. Balance the checkbook. Otherwise, you won't survive either option. - thesteampunk, on 10/12/2007, -7/+1A lot of credit card companies are giving incredible benefits to start-up businesses. American Express and Visa have programs which give you additional benefits if you spend up to a certain amount. I'd go with them instead of a VC.
- asskey, on 10/12/2007, -12/+2Great for Wedding Crashers!
Check out the new & improved 
© Digg Inc. 2009
— Content created and posted by Digg users is