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What Venture Capital Might Get You

December 19, 2006

Via Business Pundit I came upon this post by Matt Winn talking about how much a company founder might expect to come away with if he/she teams up with venture capitalists to build a business.

Winn quotes Tim Janke of the Inception Micro Angel Fund as saying first-time entrepreneurs might end up with only 7% or 8% of the company by the time it is sold or goes public. Those who’ve been through previous startups and presumably have more to offer in the way of seasoned management expertise might get 20% to 25%.

For the entrepreneur, that’s something to think about, because taking on venture capital really means that to get anything out of the company in the end it really has to sell big. After all, in order for you to get anything out of it, the VCs are going to demand that they at the very least get all of their money back in a sale, so you really have to grow that sucker.

On the other hand, I guess I’d offer a variation on a well-worn theme: Seven to eight percent of $25 million is a lot better than 100% of nothing.

Interestingly enough, while I was writing this, Matt Winn added a follow-up post to his earlier post, in essence agreeing that those who go the VC route are generally in it to win it, or, as he says, “Go big or go home.” So, for them, they’d rather give up the stake in the company in order to go for the jackpot and take their reduced share than bootstrap for years on a business that eventually might fail. This makes sense, too. I guess it depends on what type of entrepreneur you want to be (and of course the whole discussion is moot if no one is interested in funding you in the first place).

e-mail me: adam@bessed.com

Adam Jusko is founder and CEO of Bessed, a Web site promising “search without spam”, thanks to human-edited search results and ongoing visitor feedback. Do a search, offer your comments, submit your site–help create the “bessed” search site in the world.

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3 comments

  1. I love the blog that you have. I was wondering if you would link my blog to yours and in return I would do the same for your blog. If you want to, my site name is American Legends and the URL is:

    http://www.americanlegends.blogspot.com

    If you want to do this just go to my blog and in one of the comments just write your blog name and the URL and I will add it to my site.

    Thanks,
    David


  2. Adam:

    Thanks for contributing to the discussion! Send me a line if you’re interested in getting in touch – I’m always up for getting to know entrepreneurs in the area.

    Best,
    Matt


  3. Thanks for stopping by, Matt. Will drop you an e-mail.



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