25,000 reasons to tell your VC backer to Foxtrott OscarPosted: September 29, 2010 | |
I’ve worked in Telecoms for coming up on 10 years now, in the past 4 years I have moved more into the back end of the business into infrastructure and wholesaling. Most of my competitors are backed by hungry Venture Capitalist firms whereas my business is backed solely by the money we make from clients, clients are our sole reason for existing and clients are what keep us growing.
In the last 24 months, I have also worked closely with start-ups in the new media space through the Princes Trust and Open Coffee
What I have noticed most over the past 24 months in Northern Ireland is that there seems to be a wave of people advocating businesses to go down the VC route for funding to grow or start their business.
Sure there are some amazing success stories from VC backed firms, Debenhams used VC cash to grow from 10 department stores to over 100, Facebook and Google would not be here today without the millions of pounds that went into server deployment, these are however just a couple of major success stories, Venture Capaltists by there very nature will take a risk on your business and in return you will hand them over a sizable stake, they are largely not interested in medium to long term goals and mostly want to get in, get out and count there cash, developing your brand and balance sheet is only something that will interest them if they can see an immediate return.
In most case’s at the first sniff of your company crumbling they will rip it to shreds to get their seed money back.
The thing that annoys me most about VCs and the people promoting VCs is that they largely do not take in the fundamental principles of business, make more money than you spend. Lets look at Twitter for an example, in traditional funding days, twitter would not exist. It has no business plan, it has been burning cash for years, it has no real revenue stream. Don’t get me wrong, I love twitter, it’s a fantastic service but it is being propped up by VCs pouring money into the service in the hope that ‘one day’ it will be worth something to someone, they will buy it and the VCs can cash out.
Every business has a cash burn rate and an exit plan, it is acceptable to burn cash in any business to get started, few can make money from day one and it is also acceptable to have an exist strategy but that cash burn (in the business plan) must stop at a point, move to break even and then profit otherwise you do not deserve to be in business. Burn cash, build a network of people then sell to a big corp and take a directorship, no not acceptable in my view.
So whats the point of all this. Well, simply put for a lot of new start ups in Northern Ireland. VC funding has been the only way to go recently, you can’t get security on your house, you can’t get a loan, the bank thinks its too risky yadi yadi yadi. Suddenly a VC agrees to back you, rent you a fancy office, pay you a salary and you are home in a boat. Until now that is.
Ulster Bank are putting their money where their mouth is and offering Free interest-free banking for start-ups and early stage companies allowing companies avail of a loan of up to £25,000 for business development purposes without having to back it with assets.
“Improving and growing our economy requires a continuous emergence of new enterprises,” said Henry Elvin, head of business banking at Ulster Bank.
“We want to play a key role in helping to create a new generation of vibrant, successful local businesses and to help them develop to their full potential,” Elvin added.
This is fantastic news for the NI economy and quite frankly if you can’t start a business with £25k then you are doing something wrong from the start.
Think traditional, take the gamble yourself and get going, don’t spend your life trying to get VC cash because it comes at a higher price than you think.