Let’s start with this: ABC’s Shark Tank is a fantastic show, and there are some moments of real drama that mirror what actually happens across the world in corporate boardrooms each day. For example, if you don’t have a realistic valuation or a feasible business plan, then prepare to get shredded — presuming, of course, that you can get a meeting with venture capitalists in the first place.
However, there are things about venture capitalists that you won’t learn on Shark Tank — things that will make the difference between bringing your entrepreneurial dream to life, or being forced to find a good bankruptcy attorney to keep your creditors from taking your last dime. (With this in mind, if you do need information about bankruptcy, then read the great blog at charleshuberlaw.com.)
And so, what are the things that you need to know about venture capitalists, but won’t learn from the University of Shark Tank? It boils down to five little-known truths:
- Not all self-described venture capitalists are venture capitalists. Some are consultants who try and connect entrepreneurs with venture capitalists, and earn a fee or commission for doing so. While there is nothing inherently wrong with this — some consultants can add real value — it’s essential for you to know whether you’re dealing with the actual person who will (hopefully) write you a check, or if you’re dealing with a middleman.
- Not all venture capitalists have the same game plan. For example, some smaller investors may balk if you try and raise more money, since it means they’ll lose control to bigger fish (or make that bigger sharks). On the other end of the spectrum, some major players in the VC space may insist that you go all-in, and either become a unicorn or go bust. If you try and diversify along the way to mitigate your risk (or just maintain your sanity and see your family once in a while) you may be in for a very rude awakening.
- Some venture capitalists who want a quick exit down the road may force you to sell your business, even if you’re reaching — or exceeding — your targets and benchmarks. Watch out and be prepared.
- Don’t throw a party if venture capitalists start throwing money at you. It could mean that they’re pumping your tires just enough so they can pass the business off to another investor. Hey, they aren’t called sharks for nothing!
- Don’t assume that venture capitalists are going to hold your hand and teach you how to run the business. Yes, they may lean forward to close some gaps, because your success is their success. But if start to become a time drain, be prepared to trade for it — either by offering cash or (more likely) control and equity.
The Bottom Line
Finding the right venture capitalist(s) is a critical piece of the puzzle. But you need to know what you’re getting into. Remember: when you swim with sharks, you either help hunt for food — or you become food.
About Carson Derrow
