Venture Capital- as bad as I think?
Discussion
Hi,
Myself and 2 other partners are looking for funding for a company in the medical device field. The amount is around £1,000,000. This is out of reach for us in terms of personal loans etc. We have looked at other options and have had a few meetings with VC's which have been positive. However the more I read about VC funding the more nervous I get, the general consensus is that within a few years we will have no equity and a CEO placed by them.
Has anyone had any experience with VC funding? Is it as bad as people make out or is it just a case of going in eyes wide open and accepting that investment at this level comes with a high cost attached?
Thanks
Myself and 2 other partners are looking for funding for a company in the medical device field. The amount is around £1,000,000. This is out of reach for us in terms of personal loans etc. We have looked at other options and have had a few meetings with VC's which have been positive. However the more I read about VC funding the more nervous I get, the general consensus is that within a few years we will have no equity and a CEO placed by them.
Has anyone had any experience with VC funding? Is it as bad as people make out or is it just a case of going in eyes wide open and accepting that investment at this level comes with a high cost attached?
Thanks
VC funding is early stage, they take a risk and expect to see a return of at least 10x. The quicker they can crystallise a loss or a gain the better. So they will push very hard to force this. Most of their investments will fail, but they only need the odd one to go well. I know several people who have gone down this route because they didn't have another option and thy are both still running their company, but the VC money has meant they dance to the VC tune for sure.
Private equity is a better option, but your business needs to be profitable and viable before you can even consider a discussion.
Perhaps angel funding might be worth considering?
Private equity is a better option, but your business needs to be profitable and viable before you can even consider a discussion.
Perhaps angel funding might be worth considering?
topgunkos said:
Hi,
However the more I read about VC funding the more nervous I get, the general consensus is that within a few years we will have no equity and a CEO placed by them.
This is the experience of my former directors (Telco business with c.£10M turnover). They have recently won a high court battle against the VC... but it remains without question the worst decision they ever made.However the more I read about VC funding the more nervous I get, the general consensus is that within a few years we will have no equity and a CEO placed by them.
Had a look at https://www.syndicateroom.com/ ?
It's like crowdfunding for VCs. Might be worth investigating.
It's like crowdfunding for VCs. Might be worth investigating.
yes, have been through VC funding - and have other experience with it...
It can be powerful in allowing a lot of money into a business in a short time, but it can be very controlling - to the extent that I closed one business down because the VCs wouldn't allow it to develop as needed...
If you can find the money in other ways, then do - also consider whether the money can come in stages - a much stronger option for you... you will retain more equity and more control.
Also mainstream VCs have moved away from the £1m space some time ago - their cost of due diligence / investment is high enough to mean that they would rather invest less often and at higher levels... So £1m is an awkward amount - too high for angels, etc., too low for most VCs...
To keep control you will need very strong business plans and a strong board of directors.
It can be powerful in allowing a lot of money into a business in a short time, but it can be very controlling - to the extent that I closed one business down because the VCs wouldn't allow it to develop as needed...
If you can find the money in other ways, then do - also consider whether the money can come in stages - a much stronger option for you... you will retain more equity and more control.
Also mainstream VCs have moved away from the £1m space some time ago - their cost of due diligence / investment is high enough to mean that they would rather invest less often and at higher levels... So £1m is an awkward amount - too high for angels, etc., too low for most VCs...
To keep control you will need very strong business plans and a strong board of directors.
Edited by akirk on Tuesday 10th January 18:27
No direct experience but from what I've been told by people who have gone through the process you need a strong team and a very clear business plan that sets out what you will achieve and when. You also need to have a clear 3-5 year exit strategy.
Expect the VC to demand you stick to the plan, and to ask questions if the financials aren't as projected, as ultimately that dictates their exit/return.
I wouldn't entertain VC money personally unless I had complete confidence in the plan and my ability to deliver.
Expect the VC to demand you stick to the plan, and to ask questions if the financials aren't as projected, as ultimately that dictates their exit/return.
I wouldn't entertain VC money personally unless I had complete confidence in the plan and my ability to deliver.
Janosh said:
topgunkos said:
Hi,
However the more I read about VC funding the more nervous I get, the general consensus is that within a few years we will have no equity and a CEO placed by them.
This is the experience of my former directors (Telco business with c.£10M turnover). They have recently won a high court battle against the VC... but it remains without question the worst decision they ever made.However the more I read about VC funding the more nervous I get, the general consensus is that within a few years we will have no equity and a CEO placed by them.
Private Equity is simply the opposite to Public Equity...
Public Equity comes from e,g floating on the stock market when your shares are publically traded, anyone can buy the equity...
Private Equity is all other forms of equity based investment, VC is a form of private equity.
The scale is roughly seen as:
- self funding
This can range in amounts depending on liquidity of founders, any further investment is likely to expect founders to have skin in the game and will expect them to have maximised their investment, potentially having put house on the line, certainly having sold expensive cars and invested all savings...
- friends and family
Again this can vary in amount but likely to be lower levels from hundreds to thousands, possibly tens of thousands and amounts invested can be spread across a number of people... very often inexperienced founders give away too high a % of equity to family and friend investors...
- angels
not connected, but put cash in and often advice / help as well. This category is often people who have had successful businesses before and now enjoy helping other businesses grow, putting in maybe £25k / £50k / £100k levels of funds and playing a role otherwise missing in the company management, e.g. relating to a target market / customer base, or perhaps a specialism such as Digital director or manufacturing etc.
- venture capital
Funds that exist to invest in business - any board presence is going to be about protecting their investment rather than fully helping the founders / business. The usual pattern is a fund that raises investment money from a range of sources (e.g. government / pension funds / finance sector / etc.) for a specific purpose, so the fund is likely to have a profile, e.g. green or ethical investments / a market sector such as automotive / a regional focus, e.g. SW v. SE in the U.K., or internationally such as investing in the Middle East / Asia etc. The scale of investment tends to be much higher and the starting point has risen over the last 20+ years, so that it has become more difficult to find VC investment under e.g. £2m
This pattern of investment has lead to what is know as the equity gap (£100k - £2m) though there are now some equity gap funding options, but they can be more difficult to get... the OP's £1m can sit in this gap making funding difficult...
Public Equity comes from e,g floating on the stock market when your shares are publically traded, anyone can buy the equity...
Private Equity is all other forms of equity based investment, VC is a form of private equity.
The scale is roughly seen as:
- self funding
This can range in amounts depending on liquidity of founders, any further investment is likely to expect founders to have skin in the game and will expect them to have maximised their investment, potentially having put house on the line, certainly having sold expensive cars and invested all savings...
- friends and family
Again this can vary in amount but likely to be lower levels from hundreds to thousands, possibly tens of thousands and amounts invested can be spread across a number of people... very often inexperienced founders give away too high a % of equity to family and friend investors...
- angels
not connected, but put cash in and often advice / help as well. This category is often people who have had successful businesses before and now enjoy helping other businesses grow, putting in maybe £25k / £50k / £100k levels of funds and playing a role otherwise missing in the company management, e.g. relating to a target market / customer base, or perhaps a specialism such as Digital director or manufacturing etc.
- venture capital
Funds that exist to invest in business - any board presence is going to be about protecting their investment rather than fully helping the founders / business. The usual pattern is a fund that raises investment money from a range of sources (e.g. government / pension funds / finance sector / etc.) for a specific purpose, so the fund is likely to have a profile, e.g. green or ethical investments / a market sector such as automotive / a regional focus, e.g. SW v. SE in the U.K., or internationally such as investing in the Middle East / Asia etc. The scale of investment tends to be much higher and the starting point has risen over the last 20+ years, so that it has become more difficult to find VC investment under e.g. £2m
This pattern of investment has lead to what is know as the equity gap (£100k - £2m) though there are now some equity gap funding options, but they can be more difficult to get... the OP's £1m can sit in this gap making funding difficult...
Been involved in a few start ups, funding rounds.
At this level, might be best to try and get some angel investment support -
Last co I helped (tech side not funding) just hit LinkedIn for all entrepreneurs in that field (or private investors with an interest in the industry) once they landed one, he brought in half a dozen more - that was the first £800k raised, this was topped up to £1.4M pretty much by the same group (plus a few others) and more recently a multi million pound investment by a U.K. pLC.
The initial investors have got a paper return of 500% in three years
Friend of mine is CEO for a medical tech co, they are always working with startups, doing joint ventures etc...so might be worth approaching some big companies in similar field.
Forgot to answer your original question....
Yes have experience with VC.....
In my case really bad....company ran out of money.....next funding round was at 20% original valuation....directors were desperate (and had no alternates) so ended up saying yes...leant a new expression 'If you can't follow your money - you get f***ked'
At this level, might be best to try and get some angel investment support -
Last co I helped (tech side not funding) just hit LinkedIn for all entrepreneurs in that field (or private investors with an interest in the industry) once they landed one, he brought in half a dozen more - that was the first £800k raised, this was topped up to £1.4M pretty much by the same group (plus a few others) and more recently a multi million pound investment by a U.K. pLC.
The initial investors have got a paper return of 500% in three years
Friend of mine is CEO for a medical tech co, they are always working with startups, doing joint ventures etc...so might be worth approaching some big companies in similar field.
Forgot to answer your original question....
Yes have experience with VC.....
In my case really bad....company ran out of money.....next funding round was at 20% original valuation....directors were desperate (and had no alternates) so ended up saying yes...leant a new expression 'If you can't follow your money - you get f***ked'
Edited by Wilmslowboy on Tuesday 10th January 22:39
akirk said:
Private Equity is simply the opposite to Public Equity...
Public Equity comes from e,g floating on the stock market when your shares are publically traded, anyone can buy the equity...
Private Equity is all other forms of equity based investment, VC is a form of private equity.
The scale is roughly seen as:
- self funding
This can range in amounts depending on liquidity of founders, any further investment is likely to expect founders to have skin in the game and will expect them to have maximised their investment, potentially having put house on the line, certainly having sold expensive cars and invested all savings...
- friends and family
Again this can vary in amount but likely to be lower levels from hundreds to thousands, possibly tens of thousands and amounts invested can be spread across a number of people... very often inexperienced founders give away too high a % of equity to family and friend investors...
- angels
not connected, but put cash in and often advice / help as well. This category is often people who have had successful businesses before and now enjoy helping other businesses grow, putting in maybe £25k / £50k / £100k levels of funds and playing a role otherwise missing in the company management, e.g. relating to a target market / customer base, or perhaps a specialism such as Digital director or manufacturing etc.
- venture capital
Funds that exist to invest in business - any board presence is going to be about protecting their investment rather than fully helping the founders / business. The usual pattern is a fund that raises investment money from a range of sources (e.g. government / pension funds / finance sector / etc.) for a specific purpose, so the fund is likely to have a profile, e.g. green or ethical investments / a market sector such as automotive / a regional focus, e.g. SW v. SE in the U.K., or internationally such as investing in the Middle East / Asia etc. The scale of investment tends to be much higher and the starting point has risen over the last 20+ years, so that it has become more difficult to find VC investment under e.g. £2m
This pattern of investment has lead to what is know as the equity gap (£100k - £2m) though there are now some equity gap funding options, but they can be more difficult to get... the OP's £1m can sit in this gap making funding difficult...
Pretty unhelpful and confusing post. No one needs a literal translation of private equity and whilst VC & PE money are both funding options, they are fundamentally different in terms of what stage they get involved. Your post above does not describe VC investment in any way, it describes PE investment.Public Equity comes from e,g floating on the stock market when your shares are publically traded, anyone can buy the equity...
Private Equity is all other forms of equity based investment, VC is a form of private equity.
The scale is roughly seen as:
- self funding
This can range in amounts depending on liquidity of founders, any further investment is likely to expect founders to have skin in the game and will expect them to have maximised their investment, potentially having put house on the line, certainly having sold expensive cars and invested all savings...
- friends and family
Again this can vary in amount but likely to be lower levels from hundreds to thousands, possibly tens of thousands and amounts invested can be spread across a number of people... very often inexperienced founders give away too high a % of equity to family and friend investors...
- angels
not connected, but put cash in and often advice / help as well. This category is often people who have had successful businesses before and now enjoy helping other businesses grow, putting in maybe £25k / £50k / £100k levels of funds and playing a role otherwise missing in the company management, e.g. relating to a target market / customer base, or perhaps a specialism such as Digital director or manufacturing etc.
- venture capital
Funds that exist to invest in business - any board presence is going to be about protecting their investment rather than fully helping the founders / business. The usual pattern is a fund that raises investment money from a range of sources (e.g. government / pension funds / finance sector / etc.) for a specific purpose, so the fund is likely to have a profile, e.g. green or ethical investments / a market sector such as automotive / a regional focus, e.g. SW v. SE in the U.K., or internationally such as investing in the Middle East / Asia etc. The scale of investment tends to be much higher and the starting point has risen over the last 20+ years, so that it has become more difficult to find VC investment under e.g. £2m
This pattern of investment has lead to what is know as the equity gap (£100k - £2m) though there are now some equity gap funding options, but they can be more difficult to get... the OP's £1m can sit in this gap making funding difficult...
cashmax said:
Pretty unhelpful and confusing post. No one needs a literal translation of private equity and whilst VC & PE money are both funding options, they are fundamentally different in terms of what stage they get involved. Your post above does not describe VC investment in any way, it describes PE investment.
really?! perhaps you might like to help by giving your definition?! 
it describes it very well - and as I have been involved in both sides (receiving and investing), I have seen each of those stages across a number of businesses...
private equity is a common term for outside money - so tends to be seen as the last two stages (angels / VCs), but technically covers all stages as it is an all-encompassing term for equity based investment not available to the public (i.e. non-listed companies)
but look forward to seeing your helpful definition...
The only way you are going to get a medical device on to the market is by multiple funding rounds of private equity. I friend of mine recently went public with a similar business achieving a £68m valuation, however in the 7 years leading up to that event the quantity and amount of money he had to raise and the dilution they all took was eye watering.
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