Home Venture Q and A Should I Incubate My Ideas With Friends or Venture Capitalists?

Should I Incubate My Ideas With Friends or Venture Capitalists?

Entrepreneurial Insight by Susan Schreter
Special to Seattle24x7

Q.  I have a completely unique idea for a website that has HUGE revenue streams in the social networking arena.   My problem is I’m a Web designer and know others skills will be needed to make this happen.  Should I approach venture capitalists myself or should I work with my buddies to hammer out a complete business plan and starting management team and then approach investors?

searchwrite seo and buzzometer

A. In bars and coffee shops around Seattle, you can find eager Internet entrepreneurs scratching out prototype designs and happily talking through their next big idea with friends and co-workers. These are the paper napkin days of Internet startups when entrepreneurs seek reassurance of just how cool and important their idea will be in the marketplace.

You ask a very good question.  How far along should an entrepreneur’s concept be before soliciting investors?  And, is presenting the perception of a management team better than having no management team in place at all?

In the raw startup world, I’ve found angel investors and true seed venture funds to be very forgiving.  Unlike funds which seek to invest in “early stage” companies, seed stage investors don’t look for specific measures of business plan progress (filed patents, prototype completion, first customers, etc.) to help them determine which companies will be invited to make a presentation.

In fact, waiting for feedback from knowledgeable investors before handing out founder’s shares to friends or committing your company to a specific business strategy may improve your chances of securing startup funding.

Portland-based Wade Bradley, who has invested in 27 startups as a private investor and Empire Ventures fund manager, says “Smart investors avoid situations in which a founder has to potentially demote unqualified friends in order to raise capital.  Entrepreneurs should wait until a business plan is complete so they can hire people with the specific skills needed to move a company forward, not before.”

Another advantage to presenting your hot concept to experienced seed stage investors is the opportunity to get time-saving feedback from the fund’s managers and affiliated experts at no cost to you.  In addition, the fund may have on hand certain proven business executives who can complement your code writing and web design skills.  In this way, you are creating early momentum by partnering with people who already know how to side-step common, but costly rookie management mistakes.

How do you find venture capital firms that are willing to help you incubate new ideas?  Some venture funds make it easy.  For example, CambridgeLight Partners’ web site reads “No venture is too early for CambridgeLight.  We work with our portfolio companies to fully develop their plans.”  Also look for funds that invest as little as $250,000 to help young companies reach their first operating milestones.

Some seed-friendly funds include Frazier Technology Ventures, SmartForest Ventures, Blueprint Ventures, Zone Ventures, Camp Ventures, American River Ventures and Pinpoint Ventures.

Start your solicitation by preparing a 3 to 5 page outline of your concept.  You can be candid with potential investors that you want to “discuss the viability of an idea and opportunities for commercial advancement.”  You can also state that seek an active investment partner who can help you identify your startup management team.

Here’s one last nugget of advice.  When I meet startup Internet entrepreneurs around town, I remind them that while angel and seed fund investors can be encouraging and generous with their time, they are not pushovers.  They help build companies, not just web sites.

If you approach them with this objective, more business building doors will open for you.  You can do it! [24×7]

Build the business of your dreams.  Send your fundraising and small business management questions to susan@insideentrepreneurship.com.