Saturday, May 28, 2011

5 Things a VC Can Do for You

I am sure that you have heard stories of heartless Venture Capital firms taking advantage of heroic entrepreneurs. I certainly have heard my share of depressing tales from colleagues. In stark contrast, my experience with VC financing has been very positive. Over the past few years, I have raised capital three times  to accelerate ZTEC's growth into new markets. In retrospect, I was very lucky to team up with an excellent VC. Our partnership works well because our goals and interests are aligned. We are dedicated to building stakeholder value through the creation of a great, highly successful, lasting company.

A good VC brings much more than capital. Capital helps, but it always runs out. When it does, you need to be cash-flow positive at the next stage of company development. Your VC partners can assist you in making this happen. Here are the five things that a good VC can do for you.

1) Hold you accountable - As CEO of a privately-held company, you may have only yourself (& your spouse!?) to hold you accountable to meeting business plans and objectives. Without external accountability, there is the risk of falling into bad patterns such as avoiding difficult issues and ignoring mistakes. Accountability keeps you sharp.

2) Provide advice and oversight - A good VC will provide you with board member(s) or advisor(s) that have true operational, business & management experience. I am fortunate that my VC investor is made up of serial entrepreneurs, with whom I have built strong professional relationships. I have received valuable advice on topics ranging from personnel, merger & acquisitions, accounting & legal issues, to strategic business decisions. Also, a VC will ensure that you have necessary corporate governance in place, such as comprehensive stock plans, annual audits, IP protections, etc.

3) Connect you with other entrepreneurs & businesspeople - A VC portfolio will include numerous companies. CEOs of those companies can be a valuable set of peers. Many VCs coordinate gatherings of the portfolio company CEOs for training and networking. Also, VCs can be a good resource for introductions and contacts into other business and financial organizations.

4) Build credibility - After taking VC investment, I was surprised that we immediately had more credibility within the business community. Sure, raising money is not trivial and requires you to sell skeptical investors on your company and your vision. Investment does not change the company overnight, but the local papers will tell your story, banks will increase your credit lines, and potential suppliers will pursue your business.

5) Push you to think bigger - After achieving some level of business success, it can be easy to get complacent or conservative. Too much risk taking can be fatal, but too little risk taking can be equally deadly for a startup. A startup's strength is its ability to move quickly and capture new markets. Success requires a constant search for new opportunities balanced with a pragmatic understanding of your company's capabilities. VCs are always pushing for big returns. I am not suggesting that you should impulsively bet the business on the next big thing, but a VC's influence can help expand your thinking and keep you on the lookout for greater opportunities.

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