More than the money

by Mike Feinstein

With the advent of lower capital intensity business models, there are more entrepreneurs who are building their businesses without venture capital.  This gives them the ability to hold on to more equity and more control.  In the most likely event of a modestly priced exit for the company, they'll keep more of the upside.  That all sounds great, and, if you don't need much outside capital to get your business going, it could be attractive.

But, there are things you get from venture capital beyond the money.  You can add these to your business without a VC investment, but you have to work at it.  Here are some:

1. Independent perspective -- As an entrepreneur, you have to drink the Kool-Aid.  You think that what you're building is great, and you look past all the problems to see the possibilities.  But, some of the time, you need a dose of realism.  You need to find a way to hear the outside perspective on your company.  You can achieve that with one or two independent directors on your Board, or an active advisory Board.  Go beyond your friends and current stakeholders.  If you can't attract an industry insider from your segment to work with your company, you may not be good enough at networking, or have a strong enough value proposition, to be successful.  And, that's the kind of 'tough love' feedback you should expect from an independent perspective.
2. Deep contact network -- You also need to be able to attract talent who really knows your marketplace.  Most VCs have great contact networks that they have developed over years (or decades).  You need to be a great networker to find this talent for your own company if you aren't getting value-add from a VC.  For some, networking comes naturally.  For most of us, it takes work and attention.  That may mean carving time away from other things to go to an industry event, conference, or meetup.  As an entrepreneur, it's essential.
3. Relationships with key customers and partners -- After you have sharpened those networking skills to bring talent into the company, you'll need to make contact with more customers and potential partners.  No company has enough of these.  Business people you add to the company should come with some of these contacts, but there is always the potential for more.  Another value-add you can get from independent directors is access to their contact network.  I like having an independent director that is a recently retired senior executive from one of the big customers or partners in your sector.
4. Keeping you honest -- I like people with attention for detail.  At least one Director of your company should be motivated to go over everything you are doing with a fine tooth comb.  They can give you feedback on how to improve and be a sounding board for future moves you are considering.

Whether you are going it alone (without venture investment) or evaluating whether a particular VC really brings something more than money to the table, think about these types of value-adds for your Board.  Your company won't improve with a Board full of your biggest supporters.  Mix in a couple of independent, well-connected, detail lovers.  You'll be glad you did.