A day in the life of a VC

Tom Heath does a nice job of capturing a “day in the life” of VCs in his column, “A peek inside a venture-capital pitch meeting.” He provides readers some insight that reinforces what they might have learned about the industry either in business school or from around their networks. Although he writes that an entrepreneur’s first stop is often to a VC firm, I find that this is usually not the case – at least not for entrepreneurs who are successful at raising money. Usually step one is putting a second mortgage on the house or cashing-in investments. Step two is friends and family. Step three may be an angel investor, and then step 4 – if he/she wasn’t able to bootstrap the business to profitability or is having problems scaling – a VC.

Unless someone is a successful, serial entrepreneur, or he/she has some other “special sauce,” an entrepreneur is well advised to bootstrap the business as long as possible. Eventually VC money may become necessary – usually when capital is needed to scale the business or when the company’s technology needs more work before it can be launched. Seeking VC money down the road not only improves your chances of making your business case, it also may allow you to get a better price for your equity. Moreover, the networks and business discipline that VCs provide are usually very valuable. Once they have skin in the game, VCs have a vested interest in your success. This can be to the detriment of an entrepreneur’s ego, though; a VC might very well push the entrepreneur out of a leadership role and bring in a professional CEO. Although this would ideally make the entrepreneur very rich, it can also be very disheartening.

The bottom line is that there are no free lunches. VCs provide an extremely valuable service to the free-world’s economy, and I’m a big fan of the industry (quite a few of my close friends are VCs). I would suggest, however, that entrepreneurs bootstrap their companies as long as possible before they invest a tremendous amount of their time – and their equity – in raising these funds.

Grow Strong!

Coach Grev