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November 1st: Torsten Jacobi, CEO of Creative Weblogging, joins host Anita Campbell. Sponsored by Six Disciplines. Show details.
Saturday, May 29, 2004
VCs and Bootstrapping
One of my favorite columns is Guy Kawasaki's "Art of the Start" in Forbes.com. I like it because he delivers insights for startups, in a wise-cracking kind of way.

When asked in a recent column about VCs who leave companies hanging without saying yes or no, this is what he had to say:
I'll translate VC-speak for you. "Let's start doing due diligence" = "Yes, we're interested." Every other response = "No." It's that simple. Do you know how you can tell if a VC is rejecting you? His lips are moving.

I'm not sure if I am seeing a trend or not, but it strikes me that I'm hearing less from entrepreneurs these days about seeking venture funding. More frequently I am hearing about bootstrapping, i.e., small businesses growing from internal and customer-funded efforts, rather than external funding. Maybe the hype from the dotcom era has petered out, and entrepreneurs are back to reality. If so, that would be a positive thing.

Going after venture funding can be frustrating -- and a business-threatening distraction. I've seen many companies that should have been out getting customers instead chasing after venture money, only to be in a worse cash crunch 6 months later when sales have flagged and no VC money is forthcoming. The odds of getting VC funding are not in the entrepreneur's favor. According to the most recent Global Entrepreneurship Monitor report, in 2002 fewer than 38 out of 100,000 companies were funded by venture funding.

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