Why you should avoid Venture Capitalists

Venture Capital

Ahhh, Venture Capital, the quaint and entirely American notion that if you send some stranger a business plan, they will send you a million dollars. We wouldn't bet on it if you are a minority-owned company.

And don't laugh too hard, sisters. According to one source, "women-owned businesses receive less than 4% of venture capital money."

To help you along, we've included some data on the best venture capital sites for women and minority investors. We're gonna be frank here. We hope you don't mind. We must warn you at the outset: Most, but not all, venture capital firms targeted to minorities and, to a lesser extent, women, are ineffective. This includes most of the incorrectly named MESBIC's (Minority Enterprise Small Business Investment Companies) and the SBA.

Part of the problem may be the quality of the business plans these Venture Capital guys are seeing. Having been on the web since 1995, we've seen every kind of business plan, from those that caused us to refuse to accept any more messages from the sender's email address to a few brilliant ideas really worthy of further consideration. All we can say is, we're willing to help, but DO A LITTLE HOMEWORK, FIRST. PULEEZE....start by reviewing this video.

Basics

Venture Capital - Venture Capital (VC) firms invest in start up and early stage firms. Venture capital investments usually start at $250,000 and are mainly in "businesses that exhibit extremely high growth potential." If they invest, these firms expect to earn a significant return on their investment. For example, one venture capital firm, in 1996, invested $2 million dollars in Lycos, an internet search engine. That investment was worth $427 million at the start of 1999.

Another VC firm told a small minority company we know that "Unless you foresee revenues in the ballpark of $20 million in year 3 for the product this would not be a venture target. Thank you so much for considering BLANK Venture Partners." If your venture does not have a chance of meeting these investment return and revenue targets, reconsider seeking venture capital.

Other considerations: Most venture capital firms cannot correctly evaluate investment opportunities in minority markets. They don't have the personnel to do so, (if you know what I mean.) Still, if you feel your business will, in fact, generate "revenues in the ballpark of $20 million in year 3 for the product," give them a shot.

But, be careful. Before you send them anything to any venture capital firm, get a signed confidentiality agreement. Or, send a stripped down version of your business plan, without all of the secrets. Many VC firms simply collect good business plans and ideas, which they then develop. We feel this will be especially problematic for minority firms.

Prospects for Minority and women-owned firms seeking funding: Poor. A VC firm may see 1,000 business plans in a year, and only fund 10. You do the math. Your chances with these firms are, in essence, zero. (See: Anti-Venture Capital)

Still, we think the following are among the Best VC Site for minorities and women:

ICV Partners focuses on early stage`companies.

Vcapital.com

Their quick response to our survey indicates a real interest in this sector. Following are the answers they gave:

1. How long have you been on the internet?

Since January 4, 1999

2. Do any sections on your site target or seek to serve women and/or minorities?

Yes, we have Venture Capital Firms in our Network that only invest in Minority-Owned Businesses and we have segmented them accordingly at http://www.vcapital.com/Network/4b_prefs.asp. Also, we are affiliating with many minority-focused organization such as TiE - The Indus Entrepreneurs.

3. If you are a lending institution (a bank, thrift, or payday loan company), do you have data that shows the number of on-line loans made to women and/or minorities in 1998 or so far in 1999? Could you send that data us?

We are not a lending institution. We have Network Members that invest, but generally do not lend.

4. Please tell us about your founders, owners, employees, and partners. Are any of your founders women or members of a minority group?

Four of our 13 employees are women and we have no other minorities that work for our firm at the moment. We are hiring quickly and these numbers will change dramatically by year end. As stated above, several of our partners (Network Member venture capital firms) are minority focused.

We like these answers. Give them a shot. And let us know what happens.

Other Venture Capital Sites:

Ascend Venture Group, LLC, New York, NY

Video on Black People and VCs:

Small Business Financing, Black People and Venture Capital