While venture capitalists pass on companies for many reasons, one of the most common reasons is that they don't think the opportunity is "big enough".
What does this mean? It means that even if the company executes as planned, the VC doesn't think the exit will be large enough to generate the VC-sized returns. This determination is based on the venture capitalist's "fund math" and their expected returns model. It means that VC doesn't think he will make a big enough return by investing here.
What doesn't this mean? This doesn't mean that the business is not going to succeed. It doesn't mean that the entrepreneur will fail. It just means that the VC doesn't think that the return profile of an investment in the business is a fit for a venture capital investment.
Like all VC's, I pass on many companies that I think will be successful. I pass on many teams I really like. And when I do, I try to make sure that I communicate the reason for my decision. Specifically, I state that I think the entrepreneur will make money here -- I just don't think I will generate the risk-adjusted returns I need.
I think the industry places too much of a premium on raising venture capital. The whole process of starting a technology company has so much inertia towards raising VC financing. Entrepreneurs can create great businesses -- and have great outcomes -- without raising any venture. Just ask James Hong at HotOrNot, Eric Marculier at MyBlogLog, and David Clouse of VRBO.
Part of the problem, I think, is that the technology startup ecosystem seems to be structured so that the goal of every entrepreneur is to raise venture financing. There is a pretty gravitational force that pulls entrepreneurs towards raising VC dollars -- and it's often hard for an entrepreneur to overcome the inertia.
However, I also think that a big part of the problem is that there is no good word/phrase to describe these type of companies. The only phrase I've heard used is "lifestyle business" -- but I think that is inaccurate and pretty demeaning. It falsely implies that these entrepreneurs aren't working as hard as those of VC-backed companies. It falsely implies that these entrepreneurs are choosing a better lifestyle than they would have if they were operating a VC-backed company. And, as 37signals has written, it condescendingly implies that "A lifestyle business is for the hacks and amateurs while a real business is for the big guns and grown-ups."
So, I think we need a new word. Something that isn't demeaning. Something that doesn't imply lazyness or lack of effort.
PLEDGES
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INTELLECTUAL PROPERTY
Will remain with whoever successfully solves the challenge.
"Customer-backed business"
I kept it simple....
URL Provided by Solver: http://www.ticketleap.com
leanstrapped
The real deal
Sweat-backed
Customer Centric:
"Customer-Funded Business"
"Customer-Backed Business"
"Answer to No One Business"
URL Provided by Solver: http://www.ticketleap.com
scale constrained business. Doesn't have the nicest ring, but gave it a shot.
Josh...Notehall thought of a few.
1. "HappyWife, Happy Life Business"
2. "Field Goal Business" - you can still win the game with these guys
3. "Tap-In Business" In golf, although tap-ins arent as challenging and celebrated as much they still make it in the hole which is the overall goal
4. "IPF Business" - income provider forever
5. "TankBank Business"- Thought piggy bank on steroids, I dont know
6. "In the park home run"
Great talk the other day, thanks for the support
Breakout Business.
URL Provided by Solver: http://www.purplecar.net/
Feeders and Growers.
Descriptor placed on some newborn in children in hospital NICU areas where kids might be born underweight and need special attention. They are (of course) beautiful babies nonetheless...just need a little more time to catch up to that of a "normal" baby birth.
"Bill Gates business"
"Andrew Carnegie business"
"Michael Dell business"
Boutique Bootstrap Business
Surely it is simply a "small business" and VCs are looking for (potential) large businesses
I liked "customer-backed" and "customer-funded" at first, when you compare it to VC's, but in reality the customers do not "back" or "fund" the company in the same way as VC's do.
A solution may be found in Steve Blank's philosophy of the "Customer Development" process, of which the (iterative) steps are "Customer Discovery", "Customer Validation", "Customer Creation" and at last "Company Building". VC-backed companies often make the short-cut to "Company Building" and therefore might not necessarly go through the "Customer Development" process, but the companies in question are probably bound to follow this process even if for some this process is either obvious or very short.
So I would go for something like:
"Customer Discovery business" or "Customer-discovered business"
URL Provided by Solver: http://steveblank.com/
NVCFs (non-VC funded companies)
non-scaleable business
highstyle
a better word for "Life style business" is, "next business" which tells tommorrow business trent and our business and futurastic
A NOD NOD business (No Outside Directors, NO Dilution)
1.) "Affinity driven enterprise"....meaning, the core potential has more to do with the founders personal affinity for the sector ...than with broad market growth potential
2.) "Purist Passion Play" Relentlessly focused and dedicated to solving a specific singular problem, but the solution to that problem in itself simply isnt a huge market
3.) "Focused Sector Contributor".....(suggesting just not a sector leader/innovator, nevertheless contrbuting the useful function of further developing the ecosystem)
URL Provided by Solver: http://www.transmediacapital.com
Closely-held Cashflow Machine
Bonsai Business
While the business may have the potential to grow, a conscious decision is made to maintain an optimal size that fulfills the needs of both the customers and the entrepreneur while maintaining a beneficial equilibrium with its operating environment.
URL Provided by Solver: http://en.wikipedia.org/wiki/Bonsai
Founder Funded in contrast to Venture Funded
Josh, I've sent you an explanation by email and attempted to post it on Challenge Post but it hasn't posted.
URL Provided by Solver: http://en.wikipedia.org/wiki/Venture_funding
Purpose Driven Business
Hi Josh,
Great challenge, one close to my heart. I have been constantly distracted by thinking I should be raising money. As you say, it is too often seen as the ultimate validation, when revenue and profit can be just as good, if not a better way to validate your efforts.
My favourites are:
- Family Firm/Family Run Business
- Entrepreneurial Firm or even Entrepreneurial Family Firm
Good luck with the challenge.
Henry
URL Provided by Solver: http://estatecreate.com
Varsity Business
VC's are looking for the Home Runs... but this other category sounds Varsity level to me...
(Good connotations-we all know what varsity players imply)
How about, "newportal business?" The implication is that the business is new, and that it has found a new method for accessing ideas.
grinders
Ground-Up Enterprise
Progressively Funded Company
"independent business"
"indie business"
describes a wide variety of small, creative businesses that tend to bootstrap and are truly independent of VC and other sorts of investors
strong-backed business
hard-backed business
muscle-backed business
fleet-footed business
artisan business
originator business
I agree with the spirit of this challenge. Here are some suggestions and terms I've used before in analyzing and describing these kinds of solid companies in the past:
- PHB - portfolio hedge business
- SSV - stable supportive venture
- IOP - innovation opportunity platform
Suggestion from Mike Maples 1 year ago
Posted by Angelsoft, United States
Deadline: November 30, 2009For hundreds of years, entrepreneurs have started new ventures based on a carefully prepared written document known as the Business Plan. Essentially unchanged throughout that time, the traditional business plan includes sections on things like Organizational Background and Product... read more
Judging: Will be performed by Angelsoft.
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Posted by CT Johnson, Dallas, TX
Deadline: September 30, 2009This challenge is to create content for a website dedicated to helping foreigners invest and do business in the US. Labor & Employment Practices is an area of significant concern for most foreign businesses coming to the US. The content should address unions, discrimination and equal... read more
Judging: Will be performed by CT Johnson.
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Posted by Michael Witham, Scottsdale
Create a contact list of decision-makers in the entrepreneurship industry. The rolodex will connect neophytes with experienced entrepreneurs. The value is two-fold; (1)neophytes have access to expert guidance (2) experienced entrepreneurs have a window into the newest emerging ideas. read more
Judging: Will be performed by Michael Witham.
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