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Tips from a VC: Identifying Small Business Investment Objectives (part 2)
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. We were 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 two, we'll take a look at the kinds of objectives you need to consider when approaching investment opportunities for your small business.
Staples: Are there specific objectives or traits a business should look for when researching VC funding?
BD: Its an interesting question. You dont necessarily need a venture capitalist that is learning on the job with you. You generally would want someone that has the experience to understand what youre building and how you are going to go about it. If an entrepreneur was starting a healthcare company, for medical devices, for example, I would tell the entrepreneur that my firm is not the match [since that is not our specialty].
Second of all, take a look at your personal assets and ask, Do I want to finance this myself? Look at potential outside sources of financing:
Staples: Is there a situation or a stage of a companys growth where it doesnt makes sense to start investigating VC?
BD: For the most part VC is when you need a substantial amount to accelerate the growth of the business and youre looking for an active investor, an active board member, and more importantly a partner for the growth of the company. Entrepreneurs should also note that, while it's not an absolute rule, most VCs are looking for a minimum of 20% ownership at the time they invest in a company.
Bob Davis is a general partner with Highland Capital Partners, where he focuses on digital media and the Internet. Part three of our interview, The Small Business Traits that Venture Capitalists Love, sees Davis breaking down the specifics he looks for in a potential investment. Part one of our interview, Small Business Investment Options, details some initial steps you can take to investigate raising capital for your business.