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Sunday, July 25, 2010

VENTURE FINANCE – REALITY VS. RUMORS: Finance Your Venture Without VC's

Venture Financing - Reality vs. Rumors with Dick Brown

Bottom Line:
  1. Most entrepreneurs believe that all (or nearly all) ventures are financed by Venture Capital firms and when they ever get the itch to start their company, the VC’s will be there, panting to finance their spankin’ new idea and Business Plan.

  2. This widely-held notion about VC’s is a myth. Nonetheless, new entrepreneurs still create new business ideas, write awful BP’s and are crushed when rejected.

  3. Herein is one way (of multitudes) to get your venture started without ever sending one email to one VC.

Your Very Own Venture

One afternoon your girlfriend calls you and says that her all-time favorite, romantic movie from the 60’s has been re-mastered and is playing to rave reviews. You’re bright enough to understand that you either take her to the movie or can plan on cold pizzas and colder sheets for at least two months. You agree.

It’s clearly a period, “woman’s movie” with a complex plot involving a minimum of 12 people that you’ve never seen on a movie screen before. As a period piece (set in New York), the characters all travel in horse-drawn carriages. Being totally bored, you begin to pay attention to the kinetics of these vehicles and how they are driven. You’re impressed with the skill of the driver - maneuvering a carriage and horses through the traffic-choked NY streets.

In one shot, the driver dismounts to help his passengers and leaves his buggy whip on his seat. By some blinding moment of epiphany combining that slice of film and some obscure law you’ve forgotten from physics class, a flash before you reveals that the design of every buggy-whip in the world is wrong and you have effortlessly conceived their perfect replacements. A miracle!!

After the movie, you are consumed with your invention and the way it came to you. You rave on and on, finally boring your girlfriend into such frenzy that she leaves you on a street corner, swearing never to see you again.

You have just lost a girl friend, but hardly notice as you’re obsessed with your conceptual design and cherish the time now available to turn it into a real product. It’s easy and takes only a few days.

Feverish about actually have invented something, now you want to turn it into a product – although you know the main market passed some decades earlier. However, you can produce a superior product at very low cast. If any sales potential does remain and will support just a moderate sell price, the margins will be wonderful. So, there burns a tiny flame of curiosity: “What is the market for buggy-whips in 2010?”

You first stumble on a buggy-whip owner’s society with a headquarters in Derbyshire, England. Contacting the current president, an Oliver Mellows, he reveals there are several chapters in the UK and US, all dedicated to preserving the ethics and mores of those times passed - most of which they believe superior to those of today’s modern society.

They even have a catalog and sell things. One item is a buggy-whip and Mellows agrees to add your product if you can produce these in volume. You are ecstatic. It’s said that the first touch of madness appears in entrepreneurs when another person actually thinks their invention is a good idea.

You keep researching when someone suggests “riding-crops” and “horse-racing”. You find that your buggy-whip can easily be modified to be superior to those crops used by professional jockeys. You extend a bit and look into people who own horses and then, those that own riding stables. Adding up the numbers, capturing just a tiny portion of any of these markets can make you rich.

It’s time for the VC’s.

You throw together a Business Plan and - to “be safe” - email it to five, well-known VC’s, pondering what you’ll do when all five want to invest. Two weeks pass. No responses. Then: two more.

You finally get one rejection, a form letter. No explanation is contained. You call the other four. You’re astounded that none is quite sure where your plan has ended up, but they all do tersely say: “We’re not interested.” By the last VC, you’re shattered with the rejections. Then, a kindly soul says: “Son. This is not the kind of thing we’re interested in and I doubt you’ll find any VC that is.” The good soul continues and gives you an honest briefing of the VC business. The VC offers: you’re in the wrong century; have the wrong product for their markets; we don’t know you; you have no experience or management team; and, you need the wrong kind of funding (too little).

Pretty much beaten, you go back to your prior, real-world for a couple of months. However, you’ve inherited “the bug” and devise a new plan. During the marketing period you found people that were interested and seemed to have some money. Each seemed to grasp the opportunity and some even knew how to profit from this. You go to these folks for “seed money” … “I want to actually produce a few hundred of my product and print some simple literature. I’m sure I can sell all of them” … and, then you do.

Now, you go back to the same group showing success. It’s important to note that these people were interested in you because they saw how they might use your product and/or benefit from your venture. Self-interest is a great motivator to invest.

Your approach is close to one of those described by Dick Brown in his articles in TNN:

“I need $250,000 to form the company and go into production. Most of the money is for inventory and a little for machinery. I don’t want to have you give me money. What I want is for each of you to guarantee part of a note I’ve arranged, in my name, at my bank. As long as I succeed, you never have to write me a real check. In return, I’ll pay each of you a royalty based on all sales. When the royalty I’ve paid you equals 100% of the note, we’ll pay it off. I’ll keep paying the royalty to you until you’ve received a bonus of 50% of the original guarantee."

It works. Today you own all of a very profitable company in a very well-defined niche market. If, like most entrepreneurs, you had given up when rejected you never would have realized the money and all the “highs” that come with self-made success. Even better, if you had totally ignored the VC’s and directly built your company totally without them, you would have saved a lot of time, money and anguish.

After all, what do VC’s understand about buggy-whips?

The Close

The above is only one of many, many ways to finance your companies. You’ll find them all in Dick Brown’s new book, just published by American World: How to Raise Money, Insider Edition. Dick feels he put in “everything you’ll ever need to know to raise money”. It even includes extensive directions on how to write a BP. It’s available at

The National Networker (TNNWC) is the ultimate authority on business networking, with news, surveys, and a suite of tools for relationship- and team-building.

If you have questions, comments or suggestions, send them along. Contact Dick at American World ( You’ll get an answer.

For more information, please visit Dick's TNNWC Bio.

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