Question: I own a small advertising firm. One of my associates had an idea to kick off an online advertising service for young and growing businesses. We would develop templates that companies could use for their advertising and direct marketing programs, as well as provide some basic advice. This would be a very inexpensive service, and we believe it would benefit young entrepreneurs who can't afford the big bucks usually charged by the larger ad firms. We don't have a lot of staff or a lot of working capital. Do you think we should launch this now, or wait until we raise some money?
Answer: It's the chicken-and-egg issue, that's for sure. My only concern for kicking it off without deep pockets is that one of your well-financed competitors could steal the idea and run with it.
So I'd recommend raising capital before you launch. Plus, an Internet-based service may not take a lot of working capital to get started, but it takes money to get customers. (Even an advertising business has to advertise its service!) How else will customers even know that you exist?
If you've developed a unique form of Web site or Internet program, you may want to approach some of your larger competitors and offer to joint venture with them. This way, you will have the money and the clout to protect your back while you're starting up.
Obviously, this has its downside. Like, you'll probably have to give up a big chunk of equity and may not have the freedom you'd like to develop the business on your own.
Q: My brother and I have developed some really neat new music software. We never dreamed this would happen to us, but we're being courted by some big venture capital firms. Both of us, while very flattered, are scared to death! We don't know how to evaluate their offers or what we should do to protect ourselves. Where should we begin?
A: You need two good people: an intellectual property lawyer and a financial advisor. You're in a good place, but you don't want to give up too much and get too little.
I've heard many horror stories about software companies that were approached by venture capitalists and then co-opted to joint venture with some of the financiers' other companies. Or even worse, dragged along only to find out that the venture capital firms weren't going to make an investment in them and were only gaining access to information for other companies they wanted to fund.
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