Last summer, Ajay Shah and three of his friends went about shopping their idea for an Internet company to various venture capitalists. Shah was confident of the efficacy of the idea, but being 23 years old, he didn't know what kind of response he would get.
"We expected that the first 100 firms would slam the door in our face," he said. "The actual experience was quite different."
To say the least. Of the first seven venture firms the four young entrepreneurs saw, five offered them term sheets detailing how much they would be willing to invest for a certain percentage of the company.
In August, the young entrepreneurs decided to go with Pasadena's Idealab Capital Partners, and within a month they had $4 million in financing for their company, Handshake.com.
Recently, the Marina del Rey-based company, which links consumers with service businesses, closed its second round of funding, garnering an additional $25 million.
Very few companies get off the ground so fast with so much cash in the bank, and most business plans are rejected by venture firms outright. But the speed at which Handshake.com has taken off isn't particularly surprising these days. The rise of the Internet and strength of the public markets has dramatically changed the relationship between venture capitalists and entrepreneurs over the past few years.
Deals need to get done in weeks, not months, and the competition to get in on the ground floor of a new company makes it a sellers' market for many Internet startups.
"It really has been the venture capitalists who went from being the buyer to the seller," said Idealab Capital Partners' Jim Armstrong, who sits on Handshake.com's board. "We're letting (entrepreneurs) know what ICP brings to the table."
"The entrepreneurs are more confident than ever," agreed Brad Jones, managing partner of Redpoint Ventures and Brentwood Venture Capital. "They come into meetings confident they're going to succeed, and never even think of failure."
Of course, the vast majority of business plans still get rejected by venture capitalists. But those compelling enough to warrant a meeting with VCs are often drawing bigger investments than ever.
Relinquishing the reins
Besides gaining more clout in their relationships with venture capitalists, entrepreneurs are also becoming more willing to cede control of their creations. Handshake.com, for example, is already looking for professionals to bring on as senior management.
More and more, entrepreneurs who do get funding realize they may not be the best ones to take the company past a certain stage of growth. Venture firms tell their partners up-front that new blood is often necessary to take a company public. And an increasing number of the entrepreneurs are agreeing.
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