|Guy Kawasaki, the latest addition to our columnist lineup,
is an entrepreneur, an author and the chief executive of Garage Technology
Ventures, a venture capital investment bank for tech firms. Guy will provide
expert answers to all your questions about starting a business.
I've got a venture capitalist who wants to invest $5 million in my company. What should I expect in terms of how he will want to interact with the company?
As long as things are going well, a venture capitalist will leave you alone. Understand a venture capitalist's life: He's on as many as ten boards that meet at least quarterly and sometimes once a month; he has to raise money to invest and keep about 25 investors informed and happy; he's looking at
| several deals a day; he's dealing with five other partners.
He doesn't have the time to micromanage you--and if he thought he'd have
to, he probably wouldn't have invested in you.
The more important question is, "What can I expect out of a good venture capitalist?" The answer to this is: five hours per month of mindshare during which he opens doors for you with prospective customers and partners and interviews candidates for high-level positions at your company.
How can I identify the venture capital firms that have new funds with a maturity sufficiently far out so they align with my liquidity time frame?
You're thinking too much. The timing of a fund is hardly ever a factor. Besides, the firm is going to pick you and not vice versa, and there is no way to predict a liquidity time frame.
Do entrepreneurs have to accept the valuation proposed by the venture capitalist who wants to invest into our business?
Whatever the first offer, ask for a 25% higher valuation because you're expected to push back. In fact, if you don't push back, you may scare the venture capitalist if he thinks you're not a good negotiator. It would be nice to have some arguments to show why you believe your valuation should be higher--saying that this book told you to push back isn't sufficient.
At the end of the day, though, if the valuation is reasonable, take the money and get going. You'll see that you either make more money than you ever thought possible or your organization will die. In either case, valuation and owning a few more percentage points seldom makes a difference.
For a rough approximation of your valuation, circa 2004, you can also use Kawasaki's Law of Pre-Money Valuation: for every full-time engineer, add $500,000; for every full-time M.B.A., subtract $250,000.
If this is too unscientific for you, then use services like VentureOne or VentureWire for information about current financings.
How can one protect an idea since few investors will sign an NDA (Non-Disclosure Agreement)?
You're right: Few investors will sign one, and even if they did, simply hearing your idea better not make it copyable. I've never seen a case where an entrepreneur told an investor about an idea, and the investor ripped it off.
Investors are looking for people who can implement ideas, not simply come up with them. Ideas are easy. Implementation is hard--and where the money is. Quite frankly, few investors are capable of implementing an idea--that's why they're now investors--but I digress.
Here are the fine points of using an NDA:
The bottom line is still that the best protection of an idea is great implementation
of the idea.