What Venture Capital Might Get YouDecember 19, 2006
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).
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