Since of the economic meltdown begin, the question "how-to-start" your business is more important than ever. While managing the tech business and doing the seed investments in the web services, I'm worried about the startup fund-raising question as is nobody else.
"Venture Capital" has reduced the amount and number of investment deals rapidly. This is due not only to future risk, but also to the fact that VC's returns has decrease dramatically already in Q2 this year.
Additionally VC-firms experiencing problems making "capital call's" from the committed investors for the first time since 2004.
If you have a brilliant idea that could become a great business today, there is still a chance to pass the due-diligence, which is now a very high priority for every venture firm and even the small angels. You'll be never sure that the venture capitalists will produce the money themselves when the "capital call" will come up to date.
Even when the economy had its best times, many of young tech entrepreneurs started on their own, when they failed to raise early capital. I know exactly that "YouTube" and "Facebook" started with credit money from their personal credit cards. They succeeded, but all of the stories that you read about are about the winners. We will never know how many entrepreneurs failed and dug a big hole with credit debt.
Of course it's not the business of innovators to risk their money. I know a better example of young entrepreneurs who were already successful and rich before they raised the money.
To risk your own money or somebody else's? To risk the credit money, the credit you will pay whether you succeed or not - thats the challenge. When you start with your own money or personal credit, in other case, it's the illustration of your complete dedication to the project and it's objectives. Sometimes, therefore it could also be an illustration of your total stupidity...
Based on my experience, I've never faced the fact that I'm sorry that I haven't invested or haven't participated in a specific project, that eventually succeeded. Sometimes, I'm sorry that I haven't made a copycat of "Facebook" or "LinkedIn" in Russia. It's against my morals, but it seems that nobody judges the winners. "Vkontakte.ru" (russian copycat of "Facebook") has millions of users just because they do not have stupid unethical beliefs. Nevertheless the same applies to child porn and drug dealing...
What I remember, that I was several times sad about some of the investments that I made. For example, I'm sorry that I started three projects this year just before the economic meltdown. These projects are already dead or near death because the funds have stopped coming.
From my point of view, it's better "to" than "not to" risk. I started my own business with credit card money. It was very small money, but the only option I had at that time. The sums that are available for russian citizens are funny. I have a credit line of up to 20 thousand dollars. This is a small amount in comparison with the average american citizen. For example, my brother who lives in California told me that as a student, he has more than 100 thousand available from credit cards that the banks have sent to him just like junk mail. It's hard to believe from my side... Here we need several trips to the bank with dozens of documents to receive something like 5-10 thousand and there is still a risk of refusal.
Additionally, the banking regulations in Russia are an evil for normal people. Today the government is going to pass the law of criminal offense for credit fraud. This is not a surprise in a country where every young man aged 17 is obliged to play the national game with the Army Forces Dept. The game rules are: you choose between starting a degree, going to the army, pay a huge bribe, or go to jail for rejection of serving the country. The officials call this action game "serving your country". I call this making slaves from your citizens, but that's a topic for another post.
One of my senior employees (named Alexey) always wanted to be a partner in my business, but his private assets never allowed him to buy a share, and I wasn't allowed to offer him a stock option. When the economy switched on life support, I offered to sell him a share with personal credit at a lower price. The money he could bring into the company was useful and he accepted this proposal with cheerful glee.
The Bank approved credit for Alexey and we agreed on a deal. On the date he arrived with the proper sum of money, we had a splendid conversation concerning the company future. I had a strong feeling that he had doubts about the deal.
The next morning I was awakened by his call, he wanted to cancel the deal and meet again. When we met he told me a story... He had a friend in the USA (named Philipp)
who graduated from Harvard, and when he was a student, another guy (named Mark) offered him a web business. The problem was that they needed money and they didn't have any. As the project was too risky for investors, the only chance for them to raise capital was to borrow the money from the bank. Philipp refused to borrow money from a bank. Later he understood that he refused to be a co-founder of Facebook...
Aleksey said that by telling me this story he want's to show me that he properly understands the risk to lose his chance too, but he won't take the risk now and that's why he canceled the deal. It's his decision.
"Venture Capital" has reduced the amount and number of investment deals rapidly. This is due not only to future risk, but also to the fact that VC's returns has decrease dramatically already in Q2 this year.
Additionally VC-firms experiencing problems making "capital call's" from the committed investors for the first time since 2004.
If you have a brilliant idea that could become a great business today, there is still a chance to pass the due-diligence, which is now a very high priority for every venture firm and even the small angels. You'll be never sure that the venture capitalists will produce the money themselves when the "capital call" will come up to date.
Even when the economy had its best times, many of young tech entrepreneurs started on their own, when they failed to raise early capital. I know exactly that "YouTube" and "Facebook" started with credit money from their personal credit cards. They succeeded, but all of the stories that you read about are about the winners. We will never know how many entrepreneurs failed and dug a big hole with credit debt.
Of course it's not the business of innovators to risk their money. I know a better example of young entrepreneurs who were already successful and rich before they raised the money.
To risk your own money or somebody else's? To risk the credit money, the credit you will pay whether you succeed or not - thats the challenge. When you start with your own money or personal credit, in other case, it's the illustration of your complete dedication to the project and it's objectives. Sometimes, therefore it could also be an illustration of your total stupidity...
Based on my experience, I've never faced the fact that I'm sorry that I haven't invested or haven't participated in a specific project, that eventually succeeded. Sometimes, I'm sorry that I haven't made a copycat of "Facebook" or "LinkedIn" in Russia. It's against my morals, but it seems that nobody judges the winners. "Vkontakte.ru" (russian copycat of "Facebook") has millions of users just because they do not have stupid unethical beliefs. Nevertheless the same applies to child porn and drug dealing...
What I remember, that I was several times sad about some of the investments that I made. For example, I'm sorry that I started three projects this year just before the economic meltdown. These projects are already dead or near death because the funds have stopped coming.
From my point of view, it's better "to" than "not to" risk. I started my own business with credit card money. It was very small money, but the only option I had at that time. The sums that are available for russian citizens are funny. I have a credit line of up to 20 thousand dollars. This is a small amount in comparison with the average american citizen. For example, my brother who lives in California told me that as a student, he has more than 100 thousand available from credit cards that the banks have sent to him just like junk mail. It's hard to believe from my side... Here we need several trips to the bank with dozens of documents to receive something like 5-10 thousand and there is still a risk of refusal.
Additionally, the banking regulations in Russia are an evil for normal people. Today the government is going to pass the law of criminal offense for credit fraud. This is not a surprise in a country where every young man aged 17 is obliged to play the national game with the Army Forces Dept. The game rules are: you choose between starting a degree, going to the army, pay a huge bribe, or go to jail for rejection of serving the country. The officials call this action game "serving your country". I call this making slaves from your citizens, but that's a topic for another post.
One of my senior employees (named Alexey) always wanted to be a partner in my business, but his private assets never allowed him to buy a share, and I wasn't allowed to offer him a stock option. When the economy switched on life support, I offered to sell him a share with personal credit at a lower price. The money he could bring into the company was useful and he accepted this proposal with cheerful glee.
The Bank approved credit for Alexey and we agreed on a deal. On the date he arrived with the proper sum of money, we had a splendid conversation concerning the company future. I had a strong feeling that he had doubts about the deal.
The next morning I was awakened by his call, he wanted to cancel the deal and meet again. When we met he told me a story... He had a friend in the USA (named Philipp)
who graduated from Harvard, and when he was a student, another guy (named Mark) offered him a web business. The problem was that they needed money and they didn't have any. As the project was too risky for investors, the only chance for them to raise capital was to borrow the money from the bank. Philipp refused to borrow money from a bank. Later he understood that he refused to be a co-founder of Facebook...
Aleksey said that by telling me this story he want's to show me that he properly understands the risk to lose his chance too, but he won't take the risk now and that's why he canceled the deal. It's his decision.