Venture Capital for a New Business

This week, I'm answering a few readers' questions.

From: Mark

“I had a question for you about venture capital. I read recently in the Los Angeles Times an article where many VC firms are ramping up their funding of high tech Internet companies once again.

Some of the companies being funded are startups, with what appears to be very little in terms of history, track record, experience and the like.

My question is, do you think it is possible that a VC firm would fund a startup with a good business plan that did not have a history, experienced management, or even an office?”

Response from Buzz:

Hi Mark!

In the tech bubble of 1999-2001, it seemed like all you needed behind your name was a “dot-com” and you became the recipient of mountains of venture capitalist (VC) money. Some companies didn't even have a business model that would earn them a profit… and they still got money! Of course, today things are very different.

I think that VCs today will continue to take risks and invest in high-tech but will be far more measured than those early days of the “Wild West” of the web. Many VCs will want to see that history or experienced management, but I suspect that some will even willingly forgo history and experienced management as long as they can identify two things: a profitable business model and a ready market… two things that the VCs of the 1999-2001 tech bubble didn't always look for.

If you are looking to get VC money, don't worry if you don't have the history or the experienced management. But make sure your business model has profit built into its forecast AND that there are real people looking to buy your product.

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