The Joel on Software Discussion Group (CLOSED)

A place to discuss Joel on Software. Now closed.

This community works best when people use their real names. Please register for a free account.

Other Groups:
Joel on Software
Business of Software
Design of Software (CLOSED)
.NET Questions (CLOSED)
TechInterview.org
CityDesk
FogBugz
Fog Creek Copilot


The Old Forum


Your hosts:
Albert D. Kallal
Li-Fan Chen
Stephen Jones

How do i approach a Venture Capitalist with only an idea?

I just got an idea for an internet website which i think will be quite successful. At the moment, its just an idea. What bewilders me is why no one had thought of it before because its so common place. So, how do i go about pitching it to a venture capitalist or raise funds?

I am quite a good programmer. But part of the website does involve technology domains i am not familiar with, though there is no big technological hurdle to surmount. Its more or less usual programming as so many websites implement the technology (not the idea) that i am talking about.

I hope you guys dont laugh at me and do something to help me out. How do i go about this? If something does come out, i hope to get back to you someday.
Anon Obviously
Thursday, October 12, 2006
 
 
Also, is it a good idea to approach software companies?
Anon Obviously
Thursday, October 12, 2006
 
 
You would be highly lucky to gain VC backing with only an idea up your sleeve. Those guys usually require at least a good prototype/demo and a convincing business plan.

You could try specialist angel investors instead, like Paul Graham's Y-Combinator.

Or you could try going it alone like 37Signals and Dropsend. Those guys self-funded their product developments and are somewhat pioneering an organic growth alternative to seeking any VC whatsoever.

> Also, is it a good idea to approach software companies?
Possibly, but very cautiously. Get a good NDA (though that isn't going to be much good without the mean$ to defend it if the need arises). There *are* software companies (e.g. ASG http://www.asg.com) whose business model includes bringing other people's software products to market for them in return for a piece of the pie.
MonkeySpank Send private email
Thursday, October 12, 2006
 
 
Without a business plan, no investor is going to listen to you.  Go to your local library or bookstore and look for books on writing business plans.

How are you so sure that nobody has thought of your idea before?
Kyralessa Send private email
Thursday, October 12, 2006
 
 
you don't approach a VCist with only an idea. As for your general point that you have this great idea and want to know how to corner a piece of the eventual profit from it -- that is not the way the world works. You need to develop your idea yourself... at the very least do a full business proposal so you have something to show to VC. But really, very few people make money off of ideas they did not carry to fruition.
onanon
Thursday, October 12, 2006
 
 
+1 Write A Biz Plan

You need a business plan. And it would also be awesome if you could find a friend/colleuge with some business experience.

Really, your idea is basically worthless. A bad idea backed by people with good biz. experience would be more likely to attract VC money than a great idea without a principal that has business experience.
Shane Harter Send private email
Thursday, October 12, 2006
 
 
Sorry to say, but business plan is just as worthless as the idea.

Any intelligent, motivated person can come up with an idea and write an accurate, intelligent business plan. You will not be funded on those two assets alone.

You need to develop a prototype. You're fortunate that you can program -- 99% of the "idea guys" out there don't have the tools to implement their idea. You do. So get some Red Bull, carve out some nights and weekends, and get cranking.

The only thing that will get you VC money is a functioning prototype. End of story.
PWills Send private email
Thursday, October 12, 2006
 
 
Get an introduction.

For example, find a web company that has had VC funding and see if you can pitch the idea to the founders over lunch and see if they will tell their VC contacts about you.

And yes, VCs *will* speak to you without you having a fully fleshed out business plan with 50 pages on financials *if* you tick their other boxes. (And yes, that did happen to me and we did get funded by one of the worlds largest VC firms - this was '97 though!)

Another thing that will help a lot is if you have other team members in place - marketing, engineering etc. People with experience doing similar things will help.
Arethuza Send private email
Thursday, October 12, 2006
 
 
PWills -

I have to disagree. I personally know a couple different people that have gotten VC funding. Neither had a prototype. In fact, a lot of VCs will fund you so you can build the prototype.
Shane Harter Send private email
Thursday, October 12, 2006
 
 
Shane, that is pretty rare unless you already have a proven track record in the business world.  For example if Sergey Brin came up with a new idea, he could probably get funding on the idea alone.  It's very unlikely a VC will give out X million to a random guy with just an idea (and if they did, why wouldn't they simply steal the idea and give it to one of "their guys" to implement).  Ideas are just ideas.
Phil Send private email
Thursday, October 12, 2006
 
 
Phil,

This is, again, wrong. For example, an old friend of mine,  Allen Graber, got funding for a free business webhosting company--HyperMart.net--when he and his partners will still at Georgia Tech.

Allen is an Angel now after selling HyperMart to Go2Net in 1999.

Also, checkout the most recent issue of Business 2.0.

There's an article abotu "20 ideas VCs want to fund" and they interview 20 VCs.

In each case, the VC spells out their desire, and then say how much they would commit. Each one says something like "3MM for a team that can put together a prototype in 6 months"

Here, I found the article: http://money.cnn.com/magazines/business2/business2_archive/2006/09/01/8384349/index.htm

Some excerpts:

What he'll invest: $5 million for a deeply qualified 20-person team to deliver a prototype and a plan for pitching a commercial version to automakers within three years
...
What he'll invest: $4 million over two years for a working prototype
...
What she'll invest: $5 million for a team of five engineers to create a prototype in less than two years
...
What he'll invest: $10 million over three years for a functioning prototype, software to manage wireless data, and early-stage trials
...
What he'll invest: $6 million to get the auction site developed and running in 18 months

etc..etc..etc..
Shane Harter Send private email
Thursday, October 12, 2006
 
 
An idea is to a working business what an orgasm is to labor and delivery.
Steve Hirsch Send private email
Thursday, October 12, 2006
 
 
"For example, an old friend of mine,  Allen Graber, got funding for a free business webhosting company-- HyperMart.net --when he and his partners will still at Georgia Tech.

Allen is an Angel now after selling HyperMart to Go2Net in 1999."

Psst.  Shane, in terms of VC funding, the mid-late 90's are fundamentally different than today.  Besides, if you believe that those Business 2.0 guys will fund some random person that contacts you... well, I have some great ideas for you to fund.

Realistically, unless you have:
a)  a track history;
b)  an advocate like Woz, Joel, Andreesen, etc;
c)  a personal, direct connection - like a college roommate;
d)  current backing;
e)  a prototype with some research, planning; OR
f)  a product with revenue;

the likelihood of getting VC $'s from just an idea are tiny if existant at all.  You need to get some of the above.  The more you have the better.
KC Send private email
Thursday, October 12, 2006
 
 
Shane-

1. Any anecdote from 1994-1999 should be inadmissible in a court of law. Simply put, people were freaking crazy back then. 2006 is a whole different ballgame for VC.

2. Business 2.0 and Business Week are terrible sources if you want information on how the real world of business works. The 37Signals folks have this pretty well covered so I'll turn it over to them...
http://www.37signals.com/svn/archives2/how_to_shoot_a_bullet_through_your_startup.php
http://www.37signals.com/svn/archives2/dont_believe_businessweeks_bubblemath.php

3. Even if we were to give credence to the article, none of those excerpts are about a 'website' idea. With today's toolsets, the cost to build a website is so minute that you will not get VC funding in order to build a prototype.

Now, there are always exceptions to any rule. If you are Marc Andreessen, you will get funded. If you are related to John Doerr, you will get funded. If the 'VC' that you are talking to is a third-rate bit player, you might get funded.

However, the OP is asking, anonymously, on the JoS forums, how to approach a Venture Capital firm armed only with an idea. We can conclude that they are not Marc Andreesen and are not related to John Doerr.

The OP may very well *be* the next Marc Andreesen, but he or she won't get there by pitching ideas and business plans to Venture Capitalists. At this early a stage, any time spent pursuing the idea should be spent building.
PWills Send private email
Thursday, October 12, 2006
 
 
Shane, my experience only comes from the Venture Capitalist I know, and my previous employer's attempts at getting VC.  In most cases these were with more conservative institutions, so perhaps I am missing out... but if you can set me up with a VC that will fund me $20 mil for just an idea, hit my email up... I have a whole PDA filled with ideas.
Phil Send private email
Thursday, October 12, 2006
 
 
I never said all you needed was an idea. I did say that you didn't need a prototype.

What do companies do that tackle a problem that's too large/complicated for a single person? They just don't get funded?

And I love the "anything that doesn't support my opinion is invalid and total crap" approch that JWills takes to supporting his claims.

The truth is that a lot of very tough problems get tackled by startups and they get VC cash to do so. Do you think people in molecular biology or aerospace or whatever are building prototypes before getting cash? Do they have DNA labs in the garage?
Shane Harter Send private email
Thursday, October 12, 2006
 
 
This thread should be called the "Everyone give the under-informed opinion about something they can only speculate about"-thread.

Because that's what EVERYONE is doing.

But saying something like "you can't get funded w/o a prototype" is just fundamentally wrong. Evidence of this is that a lot of companies have been funded w/o prototypes.

The funny thing is, I'm the only one that hasn't said any absoloutes. I didn't say you WILL get funded w/o a prototype. But you CAN. And that is true.

And, FWIW, the last time I talked with Allen, he mentioned that the Angel group he's involved with has been a lot more bullish over the last couple years. VCs tightened up a bit after the bubble but it's not hard to get funded if your qualified.
Shane Harter Send private email
Thursday, October 12, 2006
 
 
Shane, to be fair the above didn't use absolutes, we used terms like "rare" and "tiny percentage". ;) 

You hit it on the head with "VCs tightened up a bit after the bubble but it's not hard to get funded if your qualified".  Qualified being the keyword.  If you bring your background of having ran X sucessful companies, you probably can get funded on just an idea. 

And yes, people do get funded for big projects without a prototype, but the OP has an idea for a WEBSITE.  Show me an example of a random person in the past 5 years (that didn't have existing VC connections) that has gotten funding, on an idea alone for a website. 

Not speaking in absolutes...if it did happen, it's probably the exception not the rule.  I'm not completely speaking out of my ass because I have a friend who is a VC at a major bank, and he tells me the kind of deals they are funding these days.  We are just trying to tell the OP what to expect if he goes up to Sequoia and says he has an idea for a new Tag-Based CRM that provides an RSS feed.
Phil Send private email
Thursday, October 12, 2006
 
 
"The funny thing is, I'm the only one that hasn't said any absoloutes. I didn't say you WILL get funded w/o a prototype. But you CAN. And that is true."

Shane, you're kidding me right?  I laid out a half dozen things that improve the odds of getting VC $'s and explicitly left the window open that without those some may be possible.


"Do you think people in molecular biology or aerospace or whatever are building prototypes before getting cash? Do they have DNA labs in the garage?"

Actually, I have a close friends who secures funding for these sorts of thing (pharma and biology) and most of the time - according to her - the $'s happen because it's a spinoff from a larger company that doesn't want to have the risk in house, is based off of graduate or other budding research, or they get a very small amount to get to a prototype.
KC Send private email
Thursday, October 12, 2006
 
 
Shane: "The truth is that a lot of very tough problems get tackled by startups and they get VC cash to do so. Do you think people in molecular biology or aerospace or whatever are building prototypes before getting cash? Do they have DNA labs in the garage?"

PWills: "Even if we were to give credence to the article, none of those excerpts are about a 'website' idea. With today's toolsets, the cost to build a website is so minute that you will not get VC funding in order to build a prototype."

I believe that we're saying the same thing. Apologies for not being as articulate as I could have been. And I certainly didn't intend to sound combative.

I am trying to answer the OP's question about an "internet website" that is "just an idea". For the benefit of the OP, then, let me restate what I was trying to say earlier:

In October 2006, it is highly improbable that an unproven, unconnected entrepreneur will raise Venture money with an 'idea' and a 'business plan' for a web site.
PWills Send private email
Thursday, October 12, 2006
 
 
I figure that for my next idea, I need to get Joel, Paul Graham, Sergey and Larry, and Bill involved... then I could get $10M with a call.

Then again, if I could convince all of them, I wouldn't need VC $'s.
KC Send private email
Thursday, October 12, 2006
 
 
How about this:

KC, JW, Phil and me will go to the local bar, enjoy a Corona or some Grey Goose and Water or something and leave the OP to worry about his own VC issues. Because this thread is just getting silly.

Good Luck. When you get funded, don't forget us little guys =)
Shane Harter Send private email
Thursday, October 12, 2006
 
 
I'll buy the first round... I think Phil and PWillis are both in the DC area too, so you'll have to come here.
KC Send private email
Thursday, October 12, 2006
 
 
Nick Tredennick's view on venture capitalists...
http://ycombinator.com/tredennick.html

...Followed by a VC's take on Nick's essay.
http://www.spectrum.ieee.org/careers/careerstemplate.jsp?ArticleId=i120101
Mark Space Send private email
Thursday, October 12, 2006
 
 
"An idea is to a working business what an orgasm is to labor and delivery."

I prefer my version: "Having an idea compares to running a business just as having a willy compares to raising a child." ;)
Berislav Lopac Send private email
Thursday, October 12, 2006
 
 
OP: the following website will make an interesting read
http://ycombinator.com/lib.html

In particular essays like the following:
http://paulgraham.com/ideas.html

Your best bet is to talk to or read articles / essays by people who have acutally done what you want to do: get VC funding for an idea. Or a website.

In my opinion, you would be far better served to build it first, prove it, then sell it. See youtube.com for an example :-)

HTH
Aaron
Aaron DC Send private email
Thursday, October 12, 2006
 
 
And what did exactly did youtube prove?  That crime pays?

Thursday, October 12, 2006
 
 
Hell, we learned that from Napster.  Copyright violation means big bucks.  And, if you can get google to buy you before the lawsuits, you'll be very very happy.  ;)

Thursday, October 12, 2006
 
 
Fred Wilson wrote this in his blog:

"There is one thing I know for sure about raising money from investors. If you don't want the investor's money, they will want to invest even more. It is a sure thing.

Lately I've been taking a lot of meetings with entrepreneurs I've known for years, many of whom are starting companies again after taking some time off. They call me up, and ask to come in and get some advice from me, but tell me they don't need money. I take the meeting, they lay out what they are doing, I give them some advice, then we break. Never once do they ask for money.

It's a great strategy because the best way to raise money is to ask for advice and the best way to get advice is to ask for money."

http://avc.blogs.com/a_vc/2006/05/vc_clich_of_the_2.html

You may evenly really need advice on your idea.
Senthilnathan N.S. Send private email
Friday, October 13, 2006
 
 
Watch Guy Kawasaki's video, read his book "Art of the Start," and prepare your 10-20-30 PowerPoint presentation as he describes on his site.  Read a Gordon Baty book on Entrepreneurship to learn how to prepare the 10 slides Guy says you'll need.

For a share of the profits, I'll help you with these steps.
Flow Send private email
Friday, October 13, 2006
 
 

This topic is archived. No further replies will be accepted.

Other recent topics Other recent topics
 
Powered by FogBugz