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Venture Capital is when a group of investors or a firm most often an LLC or a Partnership begins to loan money to private businesses not individuals trying to start a business.
One of the biggest misconceptions about Venture Capital is that you just need an idea. That is not true, you need a patent. If you have a patent you have a bargaining chip if you walk in with no Non Disclosure Agreement and no patent then you have essentially given the venture capitalist a patent.
So, rule 1) Once you have an idea and you think it is solid go to USPTO.GOV and start searching for patents like you would search for domains.
Don't get discouraged if you find something that sounds like yours. Read through the entire patent, because a patent typically has several sections. Broad, more narrow, and narrow. The patent is dependent upon that narrow item. So, if your idea is different from the narrowest item then you may be able to get a patent.
Rule 2) Find a patent search company, they will charge you roughly $500 for a thorough search. You will want that because the patent itself will cost you roughly $4,000.
#Tip: You just need a concept to apply for a patent, after you are granted a provisional patent you are given 12 months exclusivity to develop your product.#
Rule 3) Business planning is a joke. It is advisable that you make a 3 page business plan tops then include any forecasted revenues. Working hand in hand with VCs I end up number crunching only if they like the first page. 30 page business plans get pitched.
#Tip: larger business plans get pitched because it shows that the individual does not understand what is important. Venture Capitalist don't care how you are wanting to run the business because if the patent you have is worth money they will invest and run the company.#
Rule 4) If you have made it this far and the VC is still speaking with you then you should begin to think about the money. Don't expect them to pay your salary if you are asking for more than $40,000. In other words if your idea is not making money then you are not making money.
Then you have to accept the fact that they are going to try to remove you from the picture. They don't want you running the company unless you are in your midfourties with upper level management experience. If you are younger then they will want to move you aside.
The next part is technical and will determine how much of the company you will actually own.
Once the VCs agree to fund you they are going to want to know several things: Is it seed funding, Round A, B, C funding. Typically a firm wants to be all three IF it can afford to be. If it cannot then chances are you will get passed up.
Think of the rounds like this. You start with 100% of your company. Then you get seed funding so they now own 20% of your company, then another firm buy 20% then another firm 20%
You however come out the least harmed, but the first investor is now diluted to 1/3!
Rule 5) Hire a lawyer and make sure you keep a minimum of 51% of the company. That way once all the contracts are up (5 years typically) then you have the authority to remove them.
#Tip: Even though I make Venture Capitalist sound like a bunch of cruel individuals many Venture Capitalist are very nice people, but when dealing with hundreds of thousands of dollars it tends to put people on edge. So, don't take it personal if you end up on the receiving end of a bad day.
Also if anyone is interested I can: Build business plans, marketing plans, business proposals, and review business plans
One of the biggest misconceptions about Venture Capital is that you just need an idea. That is not true, you need a patent. If you have a patent you have a bargaining chip if you walk in with no Non Disclosure Agreement and no patent then you have essentially given the venture capitalist a patent.
So, rule 1) Once you have an idea and you think it is solid go to USPTO.GOV and start searching for patents like you would search for domains.
Don't get discouraged if you find something that sounds like yours. Read through the entire patent, because a patent typically has several sections. Broad, more narrow, and narrow. The patent is dependent upon that narrow item. So, if your idea is different from the narrowest item then you may be able to get a patent.
Rule 2) Find a patent search company, they will charge you roughly $500 for a thorough search. You will want that because the patent itself will cost you roughly $4,000.
#Tip: You just need a concept to apply for a patent, after you are granted a provisional patent you are given 12 months exclusivity to develop your product.#
Rule 3) Business planning is a joke. It is advisable that you make a 3 page business plan tops then include any forecasted revenues. Working hand in hand with VCs I end up number crunching only if they like the first page. 30 page business plans get pitched.
#Tip: larger business plans get pitched because it shows that the individual does not understand what is important. Venture Capitalist don't care how you are wanting to run the business because if the patent you have is worth money they will invest and run the company.#
Rule 4) If you have made it this far and the VC is still speaking with you then you should begin to think about the money. Don't expect them to pay your salary if you are asking for more than $40,000. In other words if your idea is not making money then you are not making money.
Then you have to accept the fact that they are going to try to remove you from the picture. They don't want you running the company unless you are in your midfourties with upper level management experience. If you are younger then they will want to move you aside.
The next part is technical and will determine how much of the company you will actually own.
Once the VCs agree to fund you they are going to want to know several things: Is it seed funding, Round A, B, C funding. Typically a firm wants to be all three IF it can afford to be. If it cannot then chances are you will get passed up.
Think of the rounds like this. You start with 100% of your company. Then you get seed funding so they now own 20% of your company, then another firm buy 20% then another firm 20%
You however come out the least harmed, but the first investor is now diluted to 1/3!
Rule 5) Hire a lawyer and make sure you keep a minimum of 51% of the company. That way once all the contracts are up (5 years typically) then you have the authority to remove them.
#Tip: Even though I make Venture Capitalist sound like a bunch of cruel individuals many Venture Capitalist are very nice people, but when dealing with hundreds of thousands of dollars it tends to put people on edge. So, don't take it personal if you end up on the receiving end of a bad day.
Also if anyone is interested I can: Build business plans, marketing plans, business proposals, and review business plans
