Of Dilution, Seed Capital & Sharks

VC Sharks: Can You Afford One?

I love it when things happen for a reason. I’m looking for gifts, and an awesome gift store proprietor sends me a message on Facebook. I’m looking forward to giving away a tiny bit of my equity to a dear friend, and I end up with a Simon Acland book on VC ‘Angels, Dragons & Vultures‘. And now a mail comes in from affable L.pad that describes the popular concept of ‘Dilution‘. Did I just see a vampire grin on your face, dear VC? I hope not.

I’m happy with the video L.pad mailed me considering that it does not show the investor in a flattering light. Investors can be seen as saviors or sharks; it depends on what your goal is, how strong you personally are and how awesome you are in building and managing your own business. Similarly, the book I’m currently on starts with a chapter- ‘Venture Capital: Do You Really Want It?

A nice thought to swivel around in your mind, it is. There are many things to think about here. When you invite an investor to fund your business, you give away equity, share of ownership, thus your independence. Even if you (and your co-founders) own the majority stake, all decisions will have to be agreed upon by all the owners- that includes the investor. Investors come along with a set of new agreements. Therefore, you have to be very careful while choosing one. Money is not the only important issue here. Your compatibility with each other and comparing business goals is equally important.

You have to provide your investor with an exit. And that comes by either buying his shares in the future, by selling your company or by walking the glorious path of your business going public. As shown in the video below, selling your company might be more profitable than struggling alone with insufficient capital. But if you’re determined and powerful, with a thirst for expansion and high ambition- selling your company might be the last thing on your mind. Also, if you don’t want it, don’t do it. As simple as that. I bet it must be a fun journey then. Respect.

Bootstrapping can be fun too. Many of the top corporations today did not go for a VC funding till 5 years in operation. Bill Gates found ways to commercialize all his products, toying around with ideas and thus keep his company afloat. Apple Inc. didnt approach VCs for quite a long time and when it went public, that was one of the biggest openings ever. Find a way to successfully bootstrap and you’ll have no sharks around you. You’ll be independent, working on what you love most and thus successful.

“It is essential to do a detailed study of what you’re into and of the resources required to achieve your goals.”

Dilution Made Easy

You must understand that VCs are in this business for money. When they put in money, it is not for your personal success or goals, it is so that they might get high returns on selling those shares. Also, investing in startups is high risk activity, so VC-Angels do deserve serious respect. Their funds help us but at the same time, it is important to be careful.

It is your company, your creation and you should be able to build it with determination and passion. Do it carefully, steer it through difficult patches and it will give you high financial returns coupled with orgasmic satisfaction plus hell loads of respect. You’ve the right to learn all the tricks and thus kick serious ass.

cheers

  2 comments for “Of Dilution, Seed Capital & Sharks

  1. January 19, 2011 at 3:59 pm

    I believe times have changed a lot from when Steve Jobs or Bill Gates or others started their companies / startups. At one point it makes a lot of sense to infuse capital to grow. But the issue begins when you start focusing on raising money, with almost no focus (and many a time without even doing enough work) on building the business.

    P.S. – Thanks for mentioning L-pad :)

    • January 19, 2011 at 5:14 pm

      I agree. Plus being in India, where the ecosystem is not that favorable, affects things too. And yep- issues like ‘no focus’ & ‘not doing enough work’ kill. :)

      Cheers,

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