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Tips from a VC: Crowd-Sourcing and Micro-Financing Alternatives (part 4)
It takes a lot to become a successful small business entrepreneur. That great idea is just the beginning. You need a plan. You need a reliable team. You may need financing beyond what family and friends and your own hard work can provide. Staples was lucky enough to get some face time with Bob Davis, who founded and was CEO of Lycos and is now a leading venture capitalist with Highland Capital Partners. From his office in Cambridge, Mass., Davis tackled five major areas of small business investment.
In part four, Davis gives his thoughts on some of the newer funding opportunities available to small business owners.
Staples: Let's say that maybe VC isnt right, and a business owner is just looking for that $50,000. What are your thoughts on micro-financing or crowd funding, like Kickstarter?
BD: Crowd-funding is a great alternative, but in the case of entrepreneurs I would be more inclined to recommend knowledgeable investors. When youre taking money from people that have no relevance to your business, or who don't necessarily want to invest for the long-term, you're getting help with cash, which is OK, but as an entrepreneur, you want to associate yourself with not only investors, but also great advisors who can help guide your business in a meaningful way. If you take just a little bit of time when considering fund-raising options, and you're armed with a credible idea, you can always find relevant investors.
Staples: It sounds like we'll continue to have discussions about accessibility versus relevance as these crowd-funding sites continue to grow in popularity.
BD: One of the common mistakes that entrepreneurs make is they pick these advisors or investors based on accessibility not relevance, and they know little about the investors on the other side of the table. It is very important to understand how to answer questions such as:
What is the investors objective?
How does the investor operate?
How does the investor work with me?
How will the investor help me?
Sometimes people think of fundraising as an end not a mean. The fundraising should be the mean to something else, which is building a great businessnot the end unto itself.
Bob Davis is a general partner with Highland Capital Partners, where he focuses on digital media and the Internet. In part five of our interview, The Top Small Business Funding Mistakes, we'll visit some of the no-fly zones for raising capital. See part three, Tips from a Venture Capitalist: The Small Business Traits We Love, for a peek at the things Bob always wants to see during a pitch.