I often think that venture capitalists must have the best public relations machine in the world.
Only a tiny fraction of a percent of entrepreneurial ventures ever get or need venture capital financing, and yet the two most common phrases that come out of most aspiring entrepreneurs mouths are “business plan” and “venture capital.” It is as if the venture capitalists have done such a good job of branding that their product name has become common speech for financing a business (like Kleenex for tissues and Xerox for copying).
It seems, however, that the very place that is synonymous with venture capital is moving on and taking alternative roads to financing their start-ups. StartupJournal reports on the growing trend in Silicon Valley to shun venture capital.
It’s a scenario playing out all over Silicon Valley — and one with potentially big ramifications for venture capitalists. A new generation of Internet companies — many offering online photo and blogging services or downloadable software for businesses — have been built for a fraction of the cost just a few years ago. That’s mainly due to the increasing popularity of cheap “open source” software and programming tools, as well as dramatic cost reductions in computer memory, storage and Internet bandwidth.
In the past, the first step that Silicon Valley entrepreneurs would take was to raise millions in venture capital. Then they’d try to figure out how to spend it all.
The new trend is to determine can you buy topiramate over the counter what they need to do to get their product to market and then forecast how much money they actually need to execute their plans. They have discovered the beauty of self-financing and bootstrapping.
They have learned that just because their business concept has a potential valuation that could make raising $25 million in venture capital relatively easy, it does not mean that they should actually take that money. Why give up equity and control when for a $100,000 personal investment you can launch the business and reap all of the benefits for yourself?
Raising too much money can be much worse than not raising enough money. I know those of you struggling to make payroll think I am nuts for saying this, but it is true. Too much money in a new venture leads to poor decisions on unnecessary overhead, wasteful spending on non-productive assets like opulent offices and furnishings, over staffing, inflated salaries, and just plain mischief. At some point the start-up money runs out and you have created a business model that cannot sustain its lavish expenses.
I think the Silicon Valley entrepreneurs have finally gotten it right. Build a sound business model, minimize your need for external funding, and build a business with real and sustainable value.
I think it is time for us to hire a p.r. firm to help make bootstrapping the new synonym for financing rather than venture capital.