Popular Misperceptions About Venture Capitalists
1. Venture capitalists want to control my company.
Not true. The last thing a venture capitalist wants to do is run
your company. In fact, Woodside Fund only invests when the entrepreneur
has the energy, vision and talent to build a successful company.
Investors like Woodside Fund who are active, value-added investors
do want to contribute to the development of the company. Each managing
director at Woodside Fund has successfully started and managed his
own company, and they have addressed every issue that arises in
the development process. Woodside Fund uses that valuable experience
and expertise to assist companies like yours in their early stages
Because Woodside Fund is an investor in addition to being your
partner, we require enough ownership in a company to compensate
for the risk on the investment.
2. Venture capitalists always replace the entrepreneur.
This is also not true. We strongly believe that the founderís vision
and talent is essential to a companyís success. Our goal at Woodside
Fund is to establish a close, supportive partnership with you, to
assist in the development of your company. We are also committed
to building the best management team possible in order to enhance
the companyís ability to succeed. Realistically, as in any enterprise,
individual roles can change and grow as the company matures.
3. Venture capitalists load their deals with obscure and unfair
We believe that the terms of our investment must be in line with
your goals and those of your management team. Once the decision
is made to invest, we work out a mutually beneficial agreement with
you that ensures that we all share common long-term goals and objectives.
We pride ourselves on using language in the basic terms of an investment
that is clear, easy to understand and thoughtfully crafted.
4. Venture capitalists are only interested in financials.
Financial projections (best, expected and worse case scenarios)
are commonly used as tools to understand the potential cash needs
of a company. The most successful venture capitalists examine financials
plus other factors, including market, management, technology, and
competition when performing due diligence on a new investment opportunity.
We focus on the strength of the management team, the size and need
of the market, competition, and the soundness of the technology,
in addition to financials. Outstanding management teams executing
in a large market opportunity are more important to us than purely
a set of numbers. We also want to be able to form a positive and
productive working relationship with the management team of the company.
5. Venture capitalists have unrealistic expectations for performance.
We have found that the best management teams have very high goals
and performance expectations for themselves, so we do not anticipate
a miss-match. Venture capitalists are in the business of high risk,
high return investing. Our investors also have high performance
expectations for us. If we do not outperform standard market measures,
we will be out of business! Woodside Fund has successfully managed
four funds for over two decades, generating top investment performance
for investors, and helping to transform innovative startups into
headline success stories.
6. Venture capitalists are completely focused on an "exit strategy".
An "exit" is the only way the entrepreneur and the venture
capitalist can realize some of the value created in building an
exciting and growing enterprise. This is the way venture capitalists
deliver returns to their own investors, and how venture capital
firms make their living. There are many events that can qualify
as an exit. We like to work with management teams in crafting an
exit strategy that is in line with both their business and personal goals.
Woodside Fund must see a clear exit strategy in order to invest
in a company. The nature of venture capital partnerships requires
a liquidity event within in a reasonable amount of time.
7. Venture capitalists give me a lower valuation than a bank
or angel private placement.
Woodside Fundís experience shows that having professional, value-added
investors at your side will substantially strengthen the companyís
ability to succeed. A private placement doesnít give you advice
on business strategies and development, hiring decisions and access
to additional capital investors and markets in later financing rounds.
In the long term, a lower valuation given to your venture capital
partner almost always translates to substantially higher valuations
in subsequent financing rounds than using a private placement for
the initial financing round.
8. Venture capitalists will only invest in large deals.
Entrepreneurs must do their research on venture funds that can
meet their initial capital requirements. There are situations in
which a small angel investment is appropriate.
Woodside Fund is a seed and early stage investor. We typically
invest $3 to $8 million in an initial round, syndicating with one
to two partners. Over the lifetime of the investment, we will invest
$5 million to $12 million. Some venture funds have substantially
larger investment minimums, and typically do not invest in early
stage companies. We do, however, work with these funds in subsequent
rounds of financing.
9. Venture capitalists are too quick to pull the plug when trouble starts.
The best venture capital firms choose their investments carefully.
They realize the level of resources that is involved in developing
each company. The venture capitalist is always reluctant to "pull
the plug" because it means that the venture fund loses its
investment, which hurts the fundís overall performance.
Every new venture will undoubtedly encounter some problems, and
that is why we feel it is extremely important for you to choose
your venture partner carefully. Having been entrepreneurs ourselves,
Woodside Fund understands that there will be bumps in the road.
We will work with you to solve them, getting us back on track to success.
10. Venture capitalists donít sign non-disclosure agreements.
This is correct. Venture capitalists see new and recycled ideas,
technologies and business concepts everyday from many different
sources. Signing non-disclosure agreements could hamper their ability
to evaluate new investment opportunities or work with portfolio companies.
Woodside Fund does not sign a non-disclosure agreement at the initial
meeting, but may sign one later in the investment cycle in certain
situations. We hold all information confidential, and consider confidentiality
as a critical aspect of developing a trusting partnership with you.
In all the years Woodside Fund has been in business, there has never
been an issue regarding a non-disclosure agreement.
11. Venture capitalists are impossible to reach by phone.
Time is a precious commodity to a venture capitalist. Their schedules
are typically filled with meetings - from board meetings and strategy
sessions with portfolio companies, to discussing new investment
opportunities with management teams.
But we know that you are busy too, and your time is equally valuable.
We are committed to being responsive to you and making communications
easier. We have staff dedicated to answering your phone calls.
We see the Internet as a great way to talk with you. You will
find it easy to submit your funding application through our site.
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