Friday, May 05, 2006

Landing Venture Capital

There was a recent article posted on entitled Landing Venture Capital. This is a fairly good article outlining the state of Venture Capital funding. 2005 was the first year in three years that venture capital funding has increased, yet the odds of getting funding remain bleak for early stage companies. It goes on to describe how the VC's essentially moved into triage mode after the dot com crash in 2000 and even though the money has started flowing it is still primarily focused on either later stage companies or early revenue companies, i.e. you won't get funding for a couple guys in a garage with a business idea. It does outline the re-emergence of angel investing. Because VC's are not focused on as many early stage deals, there are more of these deals available to angels. A great example of a new sort of VC firm taking advantage of this trend is Paul Graham's Y-Combinator.

While I agree with the state of VC funding, the article contains an underlying assumption that your primary goal is to achieve funding. Your primary goal is to deliver a product to an identified market that will find value and pay you more for it than it costs to produce. There are a number of companies today, especially in the Software as a Service space (Web 2.0) that are growing their business organically and bypassing VC funding altogether. One of the poster children in this area is 37 Signals, the creators of Ruby on Rails and authors of several popular web hosted products such as Basecamp, Backpack, etc.

So while the article isn't exactly bullish on venture funding prospects, don't lose heart. Focus on the primary goals of driving value and getting paid for it, network heavily in the funding communities (both angel and VC) and the rest will take care of itself.

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