The way to the heart of a venture capitalist may not actually stem from razzle dazzle in the boardroom, instead it’s the heart of Mom, Dad and the old buddies that crammed for all of your biology exams with you that need winning first.
In a recent sit down with a panel of venture capitalists at SXSW in Austin, a interesting light was shed on a more sound direction to jumpstart the small business life that reaches out to those you know, rather than those you dream of coaxing into giving assistance.
Paul Lee, one of Chicago’s Lightbank venture partner states that family and friends should be the starting place for the small timers looking to take a jump out of the gate. The idea of rushing headstrong into the big time investor stream can actually leave one stranded and wasting time and enthusiasm for the business venture ahead.
However, talking those close to you into dumping money into sending you off with the green light is still a delicate matter. Keep the projects within reach, meaning do not bite off more you can chew by pulling in more money than you really need, and more investors than you can really handle. The panel also urges small businessmen to try to convince those close to you into putting up between $50,000 and $100,000 in seed money, and that will show that you can really prove to the bigger fish that you have something worth their time. As we all know, as much as Mom believes you can become the next President even though you might have gotten a C in Political Science, Dad will be extremely hard pressed to see his money leave the bill fold.
Paul Lee also cautions to keep the game clean.
“Be honest; tell them they are likely to lose that money.”
Going after a venture capitalist should not involve trying to push your way through their doors in a grandeur parade of your own self worth, but rather a backdoor approach by letting those already holding the trust of the venture capitalists to open the door for you.
“I don’t think venture guys look at stuff that comes over the transom.
They trust their networks.”
Receiving money from those close to you can very often prove to be a tricky situation and therefore Laura Killcrease, a partner of Austin based Triton Ventures recommends that not only does she see a large number of investors as a negative, but to also not put a price on the startup. “I suggest you make it simple, make it a convertible instrument with some warrants.”
With no one quarrelling over their own assessment of what the worth truly is, less time is wasted trying to get off the blocks and into the race. Killcrease said,
“People come to an agreement much quicker.
I’ve seen too many companies lose time arguing over what the value is.”
The strong corps of trust an entrepreneur can find in those close should not be overlooked either. Marching into the unknown with those you can rely on and that have genuine interest in your success can only help push forward to taking the business out of the garage.