Venture Capital - blessing or curse?

Good financial management is the cornerstone of successful innovation deployment and entrepreneurs who have been through the mill recognise the benefits mentoring here can bring.Back to the future with innovation mentoringWe're seeing an...

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Good financial management is the cornerstone of successful innovation deployment and entrepreneurs who have been through the mill recognise the benefits mentoring here can bring.

Back to the future with innovation mentoring

We're seeing an expansion of mentoring groups and schemes for IT-related entrepreneurs, linked in some way to eventual finance provisions.

But is venture capital the best route for an innovative entrepreneur to aim for?

That was a core question debated in May at an entrepreneurial awards dinner given by the Information Technologists Company, a City of London livery company whose members currently mentor over 60 IT start-ups in a fast growing entrepreneurship mentoring scheme.

This is done pro bono by entrepreneurs and business angels driven to give back and help promote UK jobs. They hope (but do not demand) that mentee companies will donate shares to benefit the livery company's charities. That is in the 800 year old tradition of the medieval merchants such as Dick Whittington, who donated considerable tranches of now prime London land to his livery company, the Mercers' Company, which has a large charitable foundation.

The ITC Entrepreneurs Panel was set up a couple of years ago by Nic Birtles, who spent 1993-2002 in Palo Alto, and got hooked on the Stanford University's programme for entrepreneurs and mentors and ended up an early investor in Yahoo. The unwritten rule was that if your business did well you donated shares to Stanford. Nic's long term ambition has always been to set something  up like that in the UK so that if entrepreneurs did well they could put something back for the good of all. And that's all coming to fruition.


Should Entrepreneurs Look for External Money?

Advice from successful entrepreneurs at the ITC seminar  was mixed, but then that depends on the type of company you are.

Duane Jackson, who, with help from the Prince's Trust set up accounting service company KashFlow Software, was all for waiting. “The barrier to entry on the web is very low and the longer you can put off getting money the better. If we had taken money we would be where we are now but would have burnt more money.”

Richard Holway, an IT supply industry analyst who successfully sold his company said “some businesses do well with venture capital - others are successful without it.” He said he never used private equity and advised getting your customers to fund your development through subscriptions.

Neil Kipling,  founder of IDBS, also took no external money. Not because he had an aversion to taking finance. “I got down to the last 2 chocolate biscuits,” he said. “I had no formal business training  but had a 20 page business plan and the numbers added up. I sent that to business angels but got no response so I just carried on and tried to make the ingoings more than the outgoings. You need to instil a higher cause than a flotation - if you just go for that you will fail.”

Brent Hoberman, founder of lastminute.com, one of the relatively few survivors from the dot com boom, took a different view. Using your own money means that you're more stressed and take shorter term decisions than when you're on other peoples money. If you have the comfort of venture capital you'll take risks you might not have taken.
“If you do it step by step you can't always shoot the lights out”, he said. “If money's not a god, why not take dilution and other peoples money?”

Mike Lynch, Founder of Autonomy, agreed with both sides but for companies at different stages of development.
“Large money in a small company is a curse because everyone wants to do things properly,” he said, adding that they focus on doing things properly rather than keep asking why they are doing it. “The constraint in technology is not money but time and that needs discipline in (focussing on) what needs to be done”, he said.

“Then you reach a plane where you have the widgets and the formulas working. It's then that money does matter,” he said.  Oracle, for example, had multiple competitors and got its money at the right time. “Don't do VC too early or take too much,” he advised. “Optimise the business. It's like buying a fast sports car and on your first run pulling out and putting your foot down. That's daft - you have to pull out, get straight, and then put your foot down,” he said. “I started in Richard's world and moved into Brent's world.”

* Searching for success: I'm always looking for practical case examples showing how innovative companies have successfully broken through generic barriers into large enterprises or government. Please point me to good examples you know! Thanks!

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