Venture Capital or Creative Partnership?
When your online business reaches the stage where it needs some serious scaling up, what do you do?
You could try the VCs (venture capital providers). They are the helpful folk who will take 40 or 50pc of your business in return for funding your expansion. They’ll probably insist on bringing in a new (and expensive) chief executive, robbing you of much hands-on control.
They will also expect an exit payout of something like 20 times the amount they put in. This could only come from either a sell-off or an IPO (initial public offering). Either way, you’re going to lose your business progressively over a few years. Of course, you may get rich in the process, but not before making a lot of others wealthy too.
Then there’s the question of what you’ll do with the money. Spend it, of course. That, as Greg Gianforte points out in his book Bootstrapping Your Business, will just deflect you from selling your product to customers.
Human nature is such that when we have lots of cash we spend it on Wants rather than Needs. In business that translates to a fleet of white Rolls Royces emblazoned with the company name, each driven by a salesperson in a white suit. I once knew such a company. It went bust.
There’s a story doing the blogorounds today about a company called Podshow which has received $25M in VC funding. A number of commentators, including canny Jason Calacanis, are questioning the logic of the money stream : “What on earth Podshow is going to do with almost $25M in funding is anyone’s guess, but it’s not going to end well I can tell you that.”
Jason points out that to raise the cash they must have had “a $35-60M pre-money valuation”, which translates down to the VCs looking for a $300-500M exit at some stage. Revenues would need to be in the region of $30-50M for that to happen. Remember, we’re talking about podcasting here, a technology whose business case has yet to be proved.
He goes on to say that his own company, Weblogs Inc, raised only $100,000+ from VC Mark Cuban “and we never spent it–we made money”.
So what’s the alternative? If you’re a content provider like Syntagma Media — and most blog-type businesses are — there’s an obvious one.
Instead of selling half your business to strangers with half the money going back into their coffers (the money has to go back into the business of which they now own half), you could try looking for a complementary creative partner.
Content provision needs a lot of skills beyond fiddling with template code and pushing out a few posts a day. Having something worth selling and a means of finding buyers for it, require a step-change in skills from one’s first Blogspot days.
You might, for example, seek out an industry consultancy firm which could deliver great contacts and new possibilities, while also taking over crucial areas of the business operation.
That’s what we’re doing here. It’s a much better way to blast your way out from the initial stages of business construction than jumping into the arms of ravenous money-people — even if they let you.