Venture Capital

This is the best and the worst of financing. Some entrepreneurs have become rich through working with Venture Capitalists, and others have become poor. First, they're expensive, but not right away. They'll take 25% to 65% of your company, or they won't play. And they'll want to make sure that you actually execute that detailed business plan you gave them, and if you don't, you'll suddenly find yourself out the door of your own business. Don't think that you can simply throw yourself in their arms and make a quick and easy deal; typically VCs see 500 deals a year and close 3 or 4. They're hard to find, too. Unlike banks, you won't find them in the Yellow Pages.

Part of the problem is that not all Venture Capitalists are in the same business: some will invest only in dot-coms, others never in dot-coms; some go for "Old-Economy" businesses, others won't touch them. Still others will invest only in manufacturers, and others only in computer companies.

Perhaps what's best is to find an Investment Banker who makes it his livelihood to marry you to the right investor, whether it's a Venture Capitalist, insurance company, hedge fund, pension fund, mezzanine financier, angel investor, etc. Be prepared to pay the Investment Banker a stipend upfront for "his expenses," however; he has clients who do pay him and he's not going to put you at the head of the line if you don't show your good faith by giving him only a success fee. Porter Capital can introduce you to a select and trustworthy few Investment Bankers.

Advantages: You pay no interest, and you will receive some sound advice about your business.

Disadvantages: If you're successful, eventually Venture Capital is costly, as you must give away a large part of your company. Be prepared for intense monitoring after your results are in. If you make a promise, VCs expect you to keep it, excuses don't count.

Current Availability: The market is more cautious than in prior years, as Venture Capitalists have taken some severe losses from their dot-com investments.

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This Guide includes information on business financing options and how to decide which is best for your business.