- The Venture Adventure
- Getting the Latest News on Venture Capital
- Money from Angels
- Adventure Capitalists
- Business Development Agencies
- Money from Corporations
- How Much Will You Have to Give Up in Exchange for Investment Capital?
- Doing Your Own Valuation
- Small Business Investment Companies
- National Association of Small Business Investment Companies
- Folks Who Might Have Money for You
- The National Venture Capital Association
- Show Me the Money!
As the story goes, the very successful company Hewlett-Packard got started in a garage. Deep in what would later be called the Silicon Valley, an area in Palo Alto, California, a Stanford University professor encouraged his students to create their own high-tech companies in their own home town, instead of joining high-falutin' companies out on the East Coast. (And this was way back in 1938, which explained why he really didn't use the term high tech, but rather, electronics companies, or so the story goes.
David Packard and William R. Hewlett listened well to their professor's advice. In 1938 they started their company in a small garage. They got their first big break a couple of years later when they sold some cool electronic equipment to Walt Disney (Hey! That Walt guy is all through this book!), which Disney used to help make his movie Fantasia.
Garage.com (as shown in Figure 10.6) has adopted this story for its own use, specifically in the naming of its company. What doesn't good old Garage.com do? Well, it doesn't sell new and improved automatic garage-door openers. (Although I could use a new one. My own garage-door opener accidentally put my 10-speed bike into the hospital yesterday.)
Garage.com helps entrepreneurs and investors build great high-technology companies. They screen startups to find seed-level companies with the greatest potential. So, essentially, Garage.com is very much like an incubator, but it does not itself invest in a startup.
Garage.com essentially puts the best startups with the best possible investors, or so it seems. Its Web site is loaded with tons of information about how it goes about its business. If Garage.com accepts your company, you can then proudly call yourself a member company. Most of its member companies are seeking between one to four million dollars in start-up capital. According to Garage.com, this is an amount far lower than most venture capital firms are looking to invest.
So, you should perhaps consider an amount of between one and four million dollars as being seed money. That is, start-up money that allows you to grow your company to the point where a venture capital company might be interested in offering a much larger investment to you.
Indeed, Garage.com says "It is rare for a company to need only seed capital. We'll help entrepreneurs launch and grow their companies, preparing them for additional financing from VCs and corporations."
Check out its Web site and see if it meets with your approval. Meanwhile, we'll take an even farther look into venture capital in Chapter 17, "Please Sir, Can I Have Some More Moolah?"
FreeMarkets: Bid Low, Sell Big
Web site name: http://www.FreeMarkets.com
Service provided: Business-to-business auctions
Business model: FreeMarkets runs an auction Web site with a very different target than the well-known sites such as eBay or Yahoo! Auctions. FreeMarkets is aimed at businesses that need materials or services. The needed item is put up for auction with a maximum bid. Because the needs of a company buying thousands of dollars worth of material can be very precise and require more sorts of control than someone buying a used Hummel figurine, the FreeMarket auctions are heavily customizable. Various approved suppliers try to bid lower than all the other bids, looking for a price that will make them the cheapest and yet still bring them a worthwhile profit. The auctioning business gets its needs filled cheaply, while suppliers can easily find customers without spending big bucks on promotion and advertising. FreeMarket makes its money from membership fees (businesses are more comfortable paying fees than are individuals), performance incentives, and commissions from the sales.
Where the money came from: FreeMarket has run at times as an actually profitable operation. In 1998 alone, it auctioned off nearly a billion dollars worth of items, enabling it to bill $7.8 million and get a profit of $234,000. As it's sought expansion, its sales have grown but its expenses have grown more quickly. At least one estimate predicts that it will auction more than $100 billion per year by 2005, so there is vast potential for profit. As such, it should come as no surprise that its IPO was an impressive one. The originally announced expected share price was in the $14$16 range. By the time the offering came, it had upped the price to $48 per share. When the stock actually hit the open market, the price skyrocketed to $280 by the end of the first day of trading (December 10, 1999). By January 20, 2000, the price had calmed slightly, to $244 5/16, for a market capitalization of $8.3 billion. The stock trades on the Nasdaq exchange under the symbol FMKT.
The Least You Need to Know
Venture capital can be very expensive and you need to carefully negotiate your best possible deal.
You will probably benefit from professional help regarding the evaluation of your company before you accept venture capital.
The U.S. government's Small Business Administration can be a valuable resource for you.
Shop very carefully for venture capital and don't merely accept the first offer you receive until you have had a chance to fully investigate all aspects of the venture capital offer.