VC’s – what to do?

For the last 10 years, I’ve worked for various VC-funded technology
companies. One arose like a Phoenix but crashed leaving the investors with
nothing, another an aging company trying to re-start with new money (this went
nowhere), finally a decades old “start-up” constantly in need of new money and
finding after 10 years, their new technology not so new.

In trying to start a new venture, I adopted some simple
rules. Take as little risk as possible (attacking a known market), require as
little cash as possible (with the ability to run with what you got) and try and
become profitable as fast as possible (cash being king). So off we set in search
of capital and down to the local VC’s we trotted, a solid business plan and
compelling presentation by experienced professionals.

The VC’s politely sat, asked intelligent questions and at
the conclusion scratched their heads. “We don’t know how to invest in companies
that make money”, one VC candidly told me. What? “You’ve got to need more money
before, we’d be interested”, another said. What? “What would be our exit
strategy?” What – a profitable growing company throwing off cash, what better
exit strategy do you need, I pondered.

In the current economic climate, VC’s are finding the old
rules simply aren’t working. Put a bunch of money into some high flying
start-up and sell out for 10x the investment to some big stupid company. Clearly
this happens; witness Cisco’s acquisition of the Flip video system. But those
deals are like betting on “00” in Vegas, sure it happens, but not often enough.

So here I sit with various VC’s, my hand out, but across the
table I see a group truly wondering what their role will be in the new world of
economics that has been thrust up on us. Only time will tell.

I’m in the court that making money is never a bad thing,
profitable companies with cash always have options and have the resources to
make some bad decisions and weather various storms. It’s the ones riding close
to the edge that are troubling.