
Fundraising: From $1,000 To $1,000,000 - dwynings
http://techcrunch.com/2012/04/08/excerpt-fundraising-from-1000-to-1000000/
======
jasonlbaptiste
Hey, I wouldn't have a book or really anything without hacker news. I'll give
away a ton of free books here. Just email me: j@onswipe.com with the subject
line, HN Free Book and include your twitter handle if you have one. Will mail
and sign. Sadly, DRM won't let me give kindle or digital version :(

~~~
sethbannon
Thanks for this, Jason. You've always epitomized one of the best things about
the startup world -- that those who have achieved some level of success take
it as their duty to mentor and assist the next generation of entrepreneurs.
After all, none of us would be where we are today without our own great
mentors along the way.

~~~
jasonlbaptiste
Thank you a ton. This industry is where it is because it's about pay it
forward. Be fortunate enough to do well, teach those lessons, and pass those
connections forward. I had to get everything I wish I knew 5 years ago down on
paper.

------
motti_s
_"Business Plans are Dead"_

Good riddance. It's so frustrating to waste countless hours working on a
detailed plan that you and anyone who reads it know is wrong. Such a pointless
exercise. It is important to have a plan, but not a formal business plan per
se.

------
citricsquid
> Is your business large enough? Most companies are not large enough to be
> backed by venture capital. To raise venture capital, companies should be in
> multibillion-dollar markets or have the potential to make revenues of more
> than one hundred million dollars a year.

That seems to be a nonsensical and arbitrary figure pulled out of thin air.
Let's say hypothetically there's a business that needs $1m to start, the
maximum revenue it can make is $50m/year of which $20m is profit. Why
shouldn't they raise venture capital? The business would be providing a return
for the investors because the business would be making money. Not every
company needs to be making billions of dollars to exist.

VCs make their money by investing less in a company than their stake is/will
be worth, if they invest $1m for 10% of the company and that company is then
making $20m/year profit they have made a worthwhile investment... haven't
they?

~~~
gyardley
Too early to say. VCs get paid when they can sell their stock, not when the
company makes a profit.

Business making money != VCs making money. (Also, VC-backed business making
money != founders making money. Your VC probably isn't going to let your
company issue a dividend, which is how you'd get those profits out.)

The $100MM is probably a 'minimum revenue to plausibly take the company public
and get paid' figure.

~~~
donw
In the category of 'potentally stupid questions', why can't VCs also make
money from dividends?

~~~
patio11
Not a stupid question, but it isn't their model. Some reasons why it isn't
their model:

a) The primary customer of a VC firm is not an entrepreneur. Rather, it is a
limited partner: a personal (natural or otherwise) who has tens of millions of
dollars allocated out of a larger pile of hundreds of millions specifically
for a bucket called Risk Capital in their portfolio allocation strategy. Their
only mission for that money is Go Big Or Go Home: they're interested in assets
which reliably pay 5% per year but NOT FROM THAT BUCKET. For that bucket
they're looking for 20%+ a year over a 10 year period _regardless of what
happens in the generic stock market_ and they're willing to pay two and twenty
to make it happen.

b) A VC fund is organized as a 10 year commitment between the VCs and their
limited partners, and has to wind up at the end of 10 years. Having large
amounts of residual illiquid value in the portfolio, like shares of a private
company which pays dividends, are the opposite of a win condition. If you
value the future dividend stream annuity-style at, say, $100 million NPV or
give the VC the option of an acquisition by Google at $90 million in a later
year of the fund, the VC will push for the acquisition every day of the week
and twice on Sunday. They need that win before the fund closes and they lose
the ability to take their 20% of the winnings from it (and primp it to
investors in subsequent funds they may manage).

c) Just a social norm: US tech stocks do not historically pay high dividends
-- they typically reinvest into new lines of business, like an office
productivity company deciding to successfully remake the domestic videogame
industry or unsuccessfully compete with their hated advertising company rival,
or a domestic purveyor of status goods with microchips in them deciding to
make smaller status goods with microchips in them and become the biggest
company ever. There are exceptions -- MSFT pays a modest dividend and once did
a gigantic distribution -- but they're largely marginal rather than decisive.

~~~
donw
Patrick, sometimes I wonder if there's anything you don't have a deep
understanding of. :)

So, in this case, a profitable company might make the case to buy its shares
back from the VC at the same price point they would see in with a 'successful'
acquisition.

------
jsmith72
Would love you take you up on that offer.

------
andreheinemann
Generous offer... Will take you up on it.

