Wednesday July 11, 2012 1 comments
VCs ideally want to multiply their investment 10-fold in 4-6 years
By Steve Porter
FORT COLLINS - New startup companies looking for venture capital to help get their businesses off the ground should give it some thought, says David Gold, Access Venture Partners, a Westminster-based early-stage venture capital firm.
Gold, who serves as the lead partner for clean technology investments, told a group of about 60 entrepreneurs and others attending the Fort Collins New Tech Meetup at Rocky Mountain Innosphere on July 10 (see related story under "Social" category) that venture capitalists have a window - 10 years - to invest in new companies and get a desired return back on that investment.
Gold said because of that fact, a venture capitalist's patience is limited - unlike an angel investor who can sometimes wait indefinitely for a return.
"When venture capitalists look at an investment, we look at investments that can grow fast," he said. "We're patient, but our patience is limited."
Gold said mixing angel investment and venture capitalist investment is sometimes not the best strategy.
"Angel investors can wait as long as they want," he said. "For venture funds, the clock is always ticking."
Gold said startup companies should ask themselves if venture funding is right for them "because most startups really aren't good venture capital investments. Your company has to have the potential and you have to have the drive to grow quickly in four to six years.
"If you do the math, venture capitalists want to make 10 times their money in four to six years," Gold added.
Gold, a former NASA engineer, is the founder and former CEO of ProSavvy, an e-procurement and online marketplace company that grew to profitability and a merger before he joined Access Venture Partners.
While startups should think long and hard about seeking venture capital, Gold said venture funders are always on the lookout for companies with great prospects -- and they must keep investing.
"The reality is VCs invest every penny they have," he said. "VCs end up saying no a lot more than they say yes. But we need and we want lots of deals."
Gold said sometimes an investment is made more on its timing than other factors. "We're not basing investments on is this a good company," he said. "It's about is this the best company to invest in in this time frame. You have a certain pace of investment you try to keep up with."
Gold noted that many investments wind up producing nothing, while others hopefully break even. Only a very few yield that 10-times-return venture capitalists are looking for, he said.
"We're looking for companies that can make $50 million in five to six years," Gold said. "Most companies won't get there, but you have to believe you can."
Gold encouraged those who do want to seek venture investment to first do their homework about the firm and ask about its portfolio of investments -- particularly seed and early-stage investments -- and how that's worked out.
"You should go in and be prepared to interview the VC in a robust way," he said. "I like it when entrepreneurs come in and ask me tough questions."
Gold told those attending the July 10 meetup that Access Venture Partners is looking to invest between $50 million and $75 million in its latest investment round, which he predicted would fund about 30 companies.