Ask MetaFilter questions tagged with venture

Help me make a deal: I do all the work, he has all the money.

Anonymous — Sun, 26 Jul 2009 16:46:31 -0800

NegotiationFilter: An old acquaintance who I trust is giving me the opportunity to invest in a business in which I would do all the work and he would provide all the financing. The amount of money he is talking about is in the mid six figures. I am quite familiar with the business but have never personally operated at that level (though I have a close friend who has), whereas he knows next to nothing.

He is curious enough about the details that I would have to explain to him more or less exactly what I'm doing and how I'm doing it, but his concern is (for now) more about the given risk and rate of return like any other investment. He would provide all of the starting capital, and I would be doing most or all of the actual work, at least initially.

How should I present myself and what should I offer in order to get the best deal?

(I am thinking along the lines of how hedge fund managers charge their clients, which can be anywhere from 20% to 50% of the profits before passing on the rest of the gains, but hedge fund managers are also heavily invested in their own funds, giving them risk exposure, whereas in this case there is essentially no potential loss to me except the time spent and the opportunity cost. In any case I want to push as much as possible for a percentage-based or commission-like income rather than a fixed payout or salary.)

How will the credit crisis affect the tech industry?

jacobian — Thu, 18 Sep 2008 12:02:05 -0800

How will the current credit crisis and bank failures affect the tech industry and particularly the availability and quality of venture capital? I'm working for a tech startup, and as a geek many of my friends are doing the same. I've been carefully reading the analysis of the failures of Bear Sterns, AIG, Lehman, et al., and trying to work out how they're going to affect us, particular with regards to venture capital investments.

Last time we had an economic "incident", it ended with a (temporary) stoppage in venture capital availability, which led directly to many folks like me losing their jobs. This time, the economic instabilities aren't the tech industry's fault, but it seems the general drying up of the credit markets could have the same effect.

Has anyone been looking at the effect the mortgage/credit crisis is having on the tech industry and the venture capital system? Anyone have any predictions?

Acquire me! I'll take you to dinner first!

Anonymous — Sat, 08 Mar 2008 11:38:36 -0800

What happens when a little company is interested in getting purchased by a big one? (Take two.) (Sorry if you happened to spot the first question. I used bad html and broke it.)

In the exact reverse of this previous AskMe, I need some advice about acquisitions and venture capital. I am a senior executive at a small young company (less than 200 employees) that is a leader in the niche tech field of doodad design. I run the unit that handles all our North American doodad efforts.

For several solid business reasons, the founder/president has always been open to selling this unit, although not extremely motivated (there are other sexier units of the company that he likes to be more involved with). But there has been a change in the market: last fall, quietly, a big multi-national technology conglomerate with no previous doodad business picked up a similarly sized small doodad company (an indirect competitor of ours; their doodads don't serve the same customer base that ours do, but it wouldn't take long to add that functionality via development). Since then, several competitors of the conglomerate have been discreetly sniffing around us.

I have convinced the president that right now is a good time to accelerate the acquisition effort. He has given me the green light to go forth and seek a potential buyer. After much research, I have created a short list of companies that I think will have interest. I believe that our NA doodad unit offers everything that improves shareholder value as a bolt-on acquisition (including exceptional market share and brand awareness, synergy, cutting-edge technology, human resources that are tops in the field, and high return on the economies of scale) and very little that decreases shareholder value (we have no debt, it would be a relatively cheap acquisition, and so on).

So... what next? How would a huge global entity expect to be approached in this case? And to whom? I literally have the clearance to call up [some top person at a conglomerate on my list] and say, "So, do you have a few million lying around?" (I kid; I know that wouldn't be the tactic.) But what is the best tactic? What's the best way to get my foot in that door? What should I expect in a get-to-know-you process? What will they expect to see in the pitch? I understand pitching the broader strokes: valuation, projected revenue, being able to demonstrate our market activity, and so on... but is it presumptuous to plan for how I foresee the unit functioning as part of a new entity? Or does a global conglomerate not really care about the suggestions of Tim Smith, Doodad VP? I'm not worried about the legal and financial due diligence part, since once a solid lead came into the picture, my president would bring an outside team in to handle that part of the process.

Also, I have seen that in several similar deals in my industry over the last few years, the two parties came together via a consulting firm, some group that advises specifically on this kind of dea. Do we really have to consider using an intermediary? (I've been offered a finder's fee by the founder if I can bring in a legitimate buyer candidate and the deal goes through, but I wouldn't want to have to share it with a broker.)

FWIW, I believe that we are in the best position to get acquired, as opposed to obtaining (what would be) stage 3 or mezzanine funding. But, I also know very little about the VC world and what the trends in the market are right now, so I could be wrong: is mezzanine funding the way to go here? The founders are going to want to divest of the unit completely, not just get a cash injection in order to then have to futz with it even more; this would necessitate restructuring the management of the unit (which wouldn't really be a bad thing). Am I right in my understanding that a VC firm won't want to bother with an outfit that isn't already fully contained, that needs to fill some management holes?

Also, I am very nervous about the possibility that I am opening the door to being out of a job. There's really no way to absolutely guarantee that I stay employed if we get purchased, is there?

I'm sure there are additional questions that I should be asking that I don't know to ask. Any thoughts, resources, experiences are welcome. Btw, I'm also looking for a mentor to help me navigate this (frankly overwhelming but exciting) opportunity so if you can suggest anyone, I'm all ears. Email me at acquisitionaskme@gmail.com if you need more info.

Seeking info/guidance on Internet startup costs

boone — Sun, 16 Sep 2007 12:56:36 -0800

We’re seeking advice on startup and ongoing costs specific to an Internet venture. We would really appreciate any advice/guidance at all. Here is some background info…My wife and I have MBAs (marketing and finance, respectively) and have worked successfully for several years in our respective professions. We also have our own seed capital of $200-$300k for our Internet venture. Neither of us, however, have a technology background. (We do though have in mind an MBA acquaintance that is in the high tech sector that we would approach if this idea turns out to have any legs.) At the outset, we will work from our home and my wife will be working on it full-time while I will be working on it part-time. Ok, our Internet venture idea amounts to a… Yelp-like user-generated directory and social networking platform….surprise!! Please keep reading though… Speaking in general terms, our site will service an overlooked target market and start off by just focusing in our relatively small city (roughly 1 MM population) for now as we work out the kinks. Our city has a particular target market for our Internet site of 50,000-100,000 people and at least 500-1,000 small businesses (or representative of up to $200 MM in sales). Revenues will be derived, by and large, from general advertising and sponsorships and we’ll likely use Google AdSense initially but then possibly move on to direct relationships with advertisers. If we were to scale the system for nationwide penetration….then the target market could be at least 8 –15 million individuals and close to 1 million relevant small businesses (or representative of at least $150 billion in sales). Now, while we’re aware of some of the basic startup costs involved (e.g., computer/printer/fax, incorporation fees, trademark registration; logo design), we’re particularly interested in learning more about large technology-specific costs associated with starting an Internet venture these days… such as the Web design/buildout cost at the startup phase and then dedicated Web hosting costs (and buy/rent servers at some point?) on an ongoing operating basis. Those really appear to be the largest tech-specific costs. Moreover, for security, control and regular meeting reasons, our preference is to use a local Web design shop (we’re not at a major metropolitan city and so costs shouldn’t be that inflated)…rather than outsourcing the creation of our site to a freelance designer here or abroad. (For the creation of a simple Yelp-like system…would there really be that much of a cost differential between a local design shop versus online outsourcing?) We’ll, of course, seek to ultimately get quotes for the build-out/creation of this system from several local Web design shops…but it would be great to get some initial sense on these cost levels. If folks could possibly help us then in identifying and quantifying Internet-specific startup/ongoing costs (i.e., educated/seasoned guesses on the range of dollar costs or unit metrics or “rule of thumbs” involved)…then that would be extremely helpful for us. For example, with Web design/buildout, it be useful to hear what the possible various sub-cost components are to such a buildout of a Yelp-like systems; and it would be equally informative to get a sense of how much Web hosting will cost us (directly or via the local Web design shop?) if we make certain assumptions on how many people start visiting the site. If there is also any other advice for this startup process (e.g., what questions to ask the design shop; how best to draft a schematic/layout; what more I need to present to the Web design shop; etc.)…we would very much welcome it. FYI, our +50 page business plan is nearly complete, we have a domain name and we’re now trying to finish a draft of the site design details/layout/schematics. Thanks in advance for any help.

How do I start a tech heavy business?

tylerfulltilt — Fri, 09 Mar 2007 19:33:18 -0800

I have an idea for a tech heavy business that I know is guaranteed to completely put blockbuster/netflix/any other dvd rental place you can think of. But I have no clue how to start a business. so where do I begin? My idea is really tech heavy. I have no experience with venture capital firms or anything like that.

basically, all I have is a great idea and no clue what to do with it.

what should I do?

Securing capital for a software project?

Mikey-San — Wed, 03 May 2006 18:24:12 -0800

A colleague and I want to raise money for a project our company currently can't take on. How to get this ball rolling? (This is long. The question is in bold at the bottom for those who wish to skip ahead.)

I work for a NYC-based software company that is familiar with video game development. A colleague and I have been developing an idea for a game we really, really want to make. We're confident that it has serious Selling_Potential, and we also believe we can pull together the rest of the talent we need to ship 1.0.

The only problem is that, well, it's larger than anything the company has ever done, and in fact, in order to begin and finish this, we would likely need to secure additional capital. We'll come back to this.

UPSIDES (or "we can't lose"):

We're smart. We've seen projects to 1.0 and beyond before, we've seen others fail, and we've seen our own failures. We understand how to ship.

We've already got in-roads to the (closed) platform we want to develop on (contacts, relationships, development and testing kit access), so we don't have to spend three-to-six months kissing someone's behind just to get past info@companyname.com.

We've already got a great art director in the company who would love to work on the project, and could be freed up for it. Same goes for sound design. Level design is the part of the team we'd need to expand on, but we've already got 1/3-1/2 of what we project for that.

The engine, we believe, we already have in existing IP. See "DOWNSIDES" below.

The idea is solid, and the bosses like it. In fact, everyone to whom we've pitched so far has liked it. Are they just telling us what they think we want to hear? Totally possible. In fact, likely. But at the very least, we and our Very Skeptical Bosses think it's a triple-A title.

DOWNSIDES (or "we're totally fucked"):

This project is a triple-A-size title, which means all of the people I mentioned above? Yeah, they/we have to be pulled into our own little world for 18-24 months, and that costs money. Our normal duties have to be replaced with other people, and additional people we pull in from outside jack up the costs as well.

We've got an engine, but it will require a some changes, like any adapted engine. That also means we still have to provide the world with objects, scenery, textures, etc. AI work, scripting, playtesting cycles, extra kits . . . the list piles on quickly. "We have an engine, we just need to make stuff" is the mistake most indie game devs make, and we're fairly confident we can avoid that. But now we've just added more cashmoney requirements. MATH PROBLEMS HERE.

In short, we need to figure out how to secure the funding the company would need to begin production on such a title. We're not talking Halo 2 here, more like something in the development scope of 10-15 people for approximately 2 years. Think Hitman, as far as size goes.

We pitched the idea this afternoon, and The Bosses liked it. And then proceeded to show us that we don't have the resources to do it. The colleague and I decided that this is a great idea, and we should put our money where our mouths are and show some initiative to get this in the pipe.

The Colleague and I want to do this for the company, but we've never done anything like securing this kind of funding before.

Where should we start?

looking for people looking for venture capital

patphelan — Wed, 03 May 2006 11:13:00 -0800

who do I find people looking for venture capital (small) small Irish based company in telecoms,very succesful and has cash funds on hand looking for maybe 2-3 small projects to back with funds.
We cant find any info on proceeding with this.Is there a forum where people post or a site or something.
thanks

Where can I find a partner for my business?

jbb7 — Sun, 26 Feb 2006 14:35:17 -0800

Where can I find a partner to help me build a business based on a Web service? I'm 18, I'm not going to be in college for at least a year, and I can fund the venture for 6+ months out-of-pocket. But the programming is far too much work for just one person. The business is the kind that requires a few servers, some programming, and some marketing--it doesn't require much money to bootstrap.

I've been working very hard on it since the end of November, but if I continued working alone, it'd take until mid-July or later until I even had a working prototype. I firmly believe in the idea, but I just don't see myself being able to do all of the work alone. (Though I have the technical skills, it's just too much work.)

None of my friends are tech people, and nobody at my high school does much programming. I've also searched for 2 months through acquaintances, to no avail.

So, how can I find other people to help me who are of a similar age and whom I live near? Does anyone have any experience starting a business like this with a partner who wasn't already a friend? Should I look for an employee rather than a partner (i.e., pay a salary instead of share a stake in the business)? Should I cast a wide net and look to team up with somebody who lives somewhere else in the U.S. ? (I'm in Chicago.) Has anyone had experience starting a Web-based business with someone whom they haven't even met in person?

Footnote: I realize the whole teen-starts-Web-business thing is a cliché, and this thing could totally crash and burn. I'm more interested in advice relating to my search for a partner--but don't worry, I have no irrational illusions that this business will bring incredible success. I only know that it's a fun project and a good learning experience.

Footnote 2: I applied to Paul Graham's Y Combinator Summer Founders' Program, but they turned me down (and my having no partner was likely a big part of their reason).