People have asked me why anyone would want to start a company in this economy. Surely there are better times to start a company. Well, the economy being what it is, starting a company is as likely to lead to starvation as is job-seeking.
Starting a company is definitely how I would like to starve. At least, I will keep my sanity.
I’ve been going to all these Venture Capital meetings, what have I learnt and what does it mean?
The Value Curve
The value curve (Source: Prof Schaufeld, WPI) is supposed to represent the value of the business as a function of time. The business is worth zero in the beginning. Over time, with investments from friends, family and fools (FFF — I hate that last F but it’s part of the jargon), the business starts to create value but it can’t be realized yet. Venture capitalists get interested on the up ramp, when the company has enough proof that it may succeed, depending on the industry, perhaps a Phase II trial is going well, perhaps there are happy clients attesting to the value.
That point at the top, with the $ next to it is the exit event. That’s where the company will go IPO or be bought out. From the time an entrepreneur starts trying to raise money, all eyes are on the exit event. What will be the dollar value? When in time would that be? It’s when the VCs get their money back. It’s not unusual for the original founders to leave at that point, the company now needs to have more predictable processes, a steadier hand at the helm, a more professional management team.
It’s also possible that the exit event is no longer (in 2009) as important as it used to be. Aside from a few exceptions, no one expects any significant IPOs. No one expects the big companies to have money for buy outs. So we could all just muddle along, starved for cash. If a company expected to establish founder’s advantage in their field, the new environment may allow others to catch up with better-cheaper technology and wipe out that founder’s advantage.
Used to be that time to market was everything for startups. Managing your burn rate will be the new game, methinks!
Life has settled into a new rhythm. I’ve been out prospecting for clients and for the last couple of weeks, I’m estimating jobs. This is the first step of course, still no source of income, but it’s a step forward.
This is familiar territory — unlike the networking which challenges the shy engineer in me. This is a statistics game: some folks who ask for an estimate discover they don’t have the money, others decide our estimates are too high, some sign up. I know how to engage in this process.
Still, I will continue to do the networking thing.
But the first contract will mean an end to the perpetual brainstorming!
