If You Want To Attract Venture Capital, Don't Tell VCs Anything

from the we-need-money,-but-for-what-we-can't-say dept

The news that the micro-blogging/message service Twitter has attracted a round of venture capital funding has been greeted with the requisite back-slapping and congratulations, but also with some bemusement by folks wondering what the company's business model is. Even the investors, Union Square Ventures, don't know yet, and say the investment will go towards making Twitter "a better, more reliable and robust service." Paul Kedrosky offers an interesting take on the matter by saying that for companies looking for VC money, business plans and profits are overrated. He contends that offering VCs a detailed business plan only gives them more things to nitpick, while early profits can overinflate their expectations, so it's better for a startup looking for cash to go light on both. It's easy to take his point to an extreme and say it's yet more evidence that we're in another bubble, but Kedrosky really seems to be saying that startups shouldn't pitch their detailed plans to VCs, and not that they shouldn't have one at all. Of course, regardless of whether you have business plan or not, if you can grab the traffic and attention of something like Twitter, there will be plenty of VCs ready to open their wallets, either as a vanity investment, or because they know they should be able to flip the company to a bigger buyer pretty quickly -- much like Union Square did with a previous investment, the social-bookmarking service Del.icio.us, which was later bought by Yahoo.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Troop, Jul 30th, 2007 @ 12:40pm

    hmmm....

    Wouldn't the obvious reply at Twitter always be "posting a message on Twitter"?

    - Discover new Indie Music .. DiscoverOurBand.com

     

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  2.  
    identicon
    anonymous coward, Jul 30th, 2007 @ 1:00pm

    twitter = venture capitalists idiots spending the inherited money of morons on products created by emotionally stunted megalomaniacs for clueless hipster douchebags.

    if that doesn't describe twitter, write a better one.

     

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  3.  
    identicon
    Matt, Jul 30th, 2007 @ 1:24pm

    #2 Wins Toaster

    I think that anonymous coward (#2) wins the toaster.

    Seems to me that web businesses without a business model = web 1.0. I guess people have forgotten the bubble? [Matt shakes head]

     

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  4.  
    identicon
    Perhaps, Jul 30th, 2007 @ 3:28pm

    Driver's seat

    You should check your facts before you write. Quick flips do not fit the VC risk/return profile in many ways. And they certainly can't count on having the control to mandate it in an early stage startup. The terms of a VC funding deal protect the VCs expectations for monetizing their investment. In other words, if they want to flip a firm in 6 months then the deal would be structured to give them the likelihood of being able to mandate that. Ask around, I doubt you'll find many deals structured that way.

     

    reply to this | link to this | view in thread ]

  5.  

    If You Want To Attract Venture Capital

    Hello:

    I am delighted to find this article.

    You are absolutely right.

    "The-less-is-better" psychology should be the best approach because the less information the VCs have about a company, the less they would be able to control the company.

    My company plans to begin private fund raising campaign for $2 billion in a few months, to finance a new start-up company and it has decided not to accept even a dime from the VCs.

    I have heard enough horror stories about them to stay away from them.

    Ikey Benney

     

    reply to this | link to this | view in thread ]


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