Free Money Here! Online help for finding venture capital — which you may not want to use
Monday, November 23, 1998
Last year, one of my editors at Inc. magazine had a brilliant idea: Call up top Silicon Valley venture capitalists and ask them for a list of the 10 best business plans they’d ever seen.
So I called the usual suspects: Kleiner Perkins Caufied & Byers’ John Doerr, Yahoo! backer Mike Moritz at Sequoia Capital, Cisco Systems, Inc.’s first major investor, Don Valentine, and legendary San Francisco semiconductor company financier Art Rock, among others.
I popped the question. And none of the financial A-Team members could think of a single written business plan, let alone 10, that had made an impression on them. Some of them even laughed at the question. “They’re usually a waste of paper,” one told me. “You’re kidding, right?” asked another.
We spiked the story.
That experience came to mind recently when my in-box started to fill with breathless news about “revolutionary” new web-based services designed to help entrepreneurs obtain venture capital. There are now dozens of these operations online, including companies such as Venture Capital Marketplace, Financehub.com, Capital Venture, and vfinance.com — the last of which contains a particularly good index of venture capital firms.
The game plan at most of these operations is to charge would-be entrepreneurs — usually upward of $100 a year — to publish their business plans online alongside others on their site. Funny, but the one thing conspicuously missing from all these sites is a list of entrepreneurs who have actually received investment money.
If most real venture capitalists aren’t terribly impressed by the dozens of written business plans they receive in hardcopy each week, what makes anyone think they would be moved by similar documents online?
Now, don’t get me wrong. The Internet, and business plans, are certainly useful to entrepreneurs starting a business. Most successful entrepreneurs I know say writing a business plan forced them to think harder about what they wanted to do and how they might do it.
Likewise with the Internet: It’s a great tool for entrepreneurs who want information about venture capitalists. It’s not usually, however, the best way for venture capitalists to find out what they need to know about entrepreneurs. (One possible exception, although it is still much too early to tell, might be Silicon Valley startup Garage.com, unique in that it makes its money charging investors, not entrepreneurs.)
The other contribution the Internet has made is to successfully remove the veil of near-total secrecy that long shrouded the venture capital industry. It used to cost about $300, for example, to purchase a simple, annotated list of venture capitalists. Up until a few years ago, the single copy of the Venture Capital Directory maintained at the Stanford Business School Library was as well-thumbed as a girlie magazine at San Quentin Prison.
Now all the online venture capital-oriented sites have free pointers to the leading venture capital firms. Most of the firm sites themselves, though, are dry and full of numbers, providing little help to entrepreneurs hoping to learn how to get funding.
One exception is the Sequoia Capital website, which features an excellent FAQ on how the company makes investments. The information is straightforward and blunt. Check out, for example, the section on how to make contact. Not a word about publishing your business plan on the ‘Net. Instead, they say, with admirable honesty, that it’s best if you know someone they already know.
The fact is, Venture Capitalists don’t sit around waiting for someone to hit them with an insanely great idea. Instead, most of them already know exactly what kind of company and what kind of technologies they are looking for. The Kleiner Perkins Caulfield & Byers website is one of the few that explains this in any real detail.
It makes little sense to send companies such as Kleiner Perkins business plans that don’t address the interlocking markets they have targeted. (That fact, of course, doesn’t stop the business plan mill, though, which gets its money stuffing the mailboxes of venture capital firms with business plans paid for by clueless entrepreneurs.)
The good news is I have discovered one sure-fire way to get the attention of venture capitalists. I’ve seen it work many, many times. The truth is you really don’t need three-color spreadsheets, hockey-stick sales projections, expensively bound business plans, or pie charts of any kind. You don’t even need a Powerpoint presentation.
All you need is something you can find on virtually every street corner: A customer.
There is nothing that brings venture capitalists running faster, Mike Moritz once told me, than the sound of a ringing cash register. That’s how Apple Computer got started. Someone bought something from someone else. That’s how Yahoo! got started; advertisers wanted in before the founders, David Filo and Jerry Yang, were even ready to sell.
That’s also the way it worked for omnipresent smoothie maker Jamba Juice, formerly The Juice Club, that got the cash it needed to franchise nationally after a VC wandered by Kirk Perron’s first shop and noticed a bunch of waiting customers.
In fact, in the age of the Internet, at least right now, you don’t even need a paying customer, just a group of people wanting to use, or to look at, whatever online service you provide. Attract a crowd and you won’t have to chase down the venture capitalists. They’ll be the well-dressed people pushing their way to the front of the line.
Just think of all the money you’ll save on postage.
This work is licensed under a Creative Commons Attribution 4.0 International License.