Questions about investments from venture-capitalists

[ChanceUSC]

I have an idea for two websites which are founded on the same principals but target two markets. The only need for capital I have is for advertising and compensation funding. As a result, I am not seeking a large initial investment.

Whether or not to seek out a VC is an idea I have been throwing around because I can theoretically develop and launch the sites without funding. However, I am still a senior in college and I am running my own web design / development firm. As I have to pay my own way through school, I lack the ability to forfeit building sites for paying clients in sake of my own websites.

This leaves me with a few concerns / questions. I have done some initial research on VC's and their claims to their investments but that has all been primarily from the source itself (venture capitalist websites or companies trying to earn an affiliate income). I would much rather hear people's opinions on the matter that have been on the other side of the fence so here it goes:

• For a small investment (under $25,000) what percentage of the company am I likely to have to forfeit?
• Are there specific investment ranges for start-ups that fair better in the eyes of an investor?
• Is it appropriate to ask for business advice from a VC? The way I see it, they have money for a reason.
• There aren't any VC firms for start-ups in my area that I am aware of (Columbia, SC). What's the best method of finding a good VC that is remote?
• If I go with a remote investor, what is the best method for ensuring an NDA?

I apologize for the length of the post and I appreciate any form of input, even if it is criticism. In terms of preliminary questions, I do have a business plan but it lacks some research on statistics. I will certainly perform as much research as possible prior to an investment meeting if I decide to seek out financial support.

[jasaunders]

I'll jump in right here and tell you straight up you are on the wrong path. Here are typical investment range guidelines:

Pre-Seed
Investment: $25k-$100k
Source: Founders, Friends, and Family

Seed/Start-up
Investment $100k-$500k
Source: Individual Angels

Seed/Start-up
Investment $500k-$5MM
Source: Angel Groups

Early/Later Funding Rounds
Investment $2+MM
Source: Venture Funds

This is a general guideline. If you are not on either coast, the typical levels will be lowered a bit. ie. in the midwest, a lot of angel groups will start investing around $200k.

For $25,000 your funding options are your savings, the three F's, Friends, Family, and Fools, or financing from banks, government programs, maxing out your credit cards, or any other way you can boostrap. And by the way, very few VC's or Angels will invest in your company to pay yourself compensation, otherwise you have no skin in the game.

[ChanceUSC]

Thank you for the response jasaunders. I kind of figured that was what I was going to hear. My personal pay would be hardly anything at all since I could have the site up and running in about two - four weeks. After that, I could return to developing for a profit while promoting the site. Without a large investment (or none for that matter), I plan on taking a grass-roots approach to marketing (everything from SEO to handing out fliers at my initial launch city).

[Cole Taylor]

Chance,

Have you though about doing the development (sounds like you can do it in your spare time) and then taking on a partner with capital for the launch?

It'll be much easier to get capital, whether that be via a partner, family, friends, etc., when you have a working model.

[ChanceUSC]

Chance,

Have you though about doing the development (sounds like you can do it in your spare time) and then taking on a partner with capital for the launch?

It'll be much easier to get capital, whether that be via a partner, family, friends, etc., when you have a working model.

I have considered that approach and have about 1/4 of the project complete but I am strapped for time to finish the rest. I am taking 16 hours worth of senior engineering courses and to support myself / pay for college I do website design & development. I will have it built though, its just a matter of when. I fear that if I wait too long someone else will come up with the idea. As of right now, its a massive untapped market and its only a matter of time before someone's light bulb goes off.

If I proceed with the approach of developing it without funding, I don't plan on seeking investors or partners. The hard part of this project is the development.. everything else can be accomplished through grassroots promotion. The time it will take to become successful may be delayed a bit but thats alright.

[rogercbryan]

What is the basis for your business? I'm always looking for partnership opportunities...

[ChanceUSC]

I can't afford to give specific details without an NDA being signed but I will provide a general overview.

Services: The site(s) are location specific offering a free service to visitors.
Revenue: The initial revenue will be had through localized advertising at targeted markets. After an audience is captured, there is potential for a second major source of capitalism.

[jasaunders]

I fear that if I wait too long someone else will come up with the idea. As of right now, its a massive untapped market and its only a matter of time before someone's light bulb goes off.

If the business is that repeatable and has such low barriers to entry, it may not be a good idea after all.

Everyone has competition. Being the first in something does not guarantee success. In fact, it plays only a very small part.

[rogercbryan]

I can't afford to give specific details without an NDA being signed but I will provide a general overview.

Services: The site(s) are location specific offering a free service to visitors.
Revenue: The initial revenue will be had through localized advertising at targeted markets. After an audience is captured, there is potential for a second major source of capitalism.

The wonderful chicken and egg theory. You have to give some sense as to what the company is about before anyone will sign an NDA. What if I’m in the planning stages of a similar business? I can not afford to risk any type of competition issue. Seriously think about your idea and if it is that original that you can not share its basis with potential investors.

Based on the quoted comment above you sound like every other website out there. You’re going to have a hard time getting interest from investors with this approach. I can say this because I’m looking to invest but would not start a conversation with someone when I have no idea what they are trying to do.

[ChanceUSC]

Any website is repeatable and you're correct, being the first doesn't guarantee anything.

What being the first does allow for is time to grow at your own pace and are insured a period of which there is no competition. This allows for someone without a six-figure bank roll to become a major player against potential mock-ups that are being funded solely with the intention of capturing your market.

During the lull state of no competition, you have the opportunity to brand yourself. If you do manage to create a brand, you certainly have a much higher chance of success. Can you name 5 other online auction sites? I'm sure there are tons of them out there but they can't compete with ebay simply because it has been branded as "the online auction." If another online auction attempts to succeed at this point, it has to offer some advantage over ebay such as lower fees, insured auctions, yadda yadda yadda.

With a free service, there is minimal extra features that you can offer. With that said, being the first to get branded is far more important to a free service site over say, a website that sells car parts.

[ChanceUSC]

The wonderful chick and egg theory. You have to give some sense as to what the company is about before anyone will sign an NDA. What if I’m in the planning stages of a similar business? I can not afford to risk any type of competition issue. Seriously think about your idea and if it is that original that you can not share its basis with potential investors.

Based on the quoted comment above you sound like every other website out there. You’re going to have a hard time getting interest from investors with this approach. I can say this because I’m looking to invest but would not start a conversation with someone when I have no idea what they are trying to do.

I mean no offense Roger and I understand where you are coming from but here's my point of view.

We are communicating behind the greatest form of anonymousness possible. On top of that, I didn't find you through a reputable source such as an investment firm's website but rather you vouched your interest on a message board. Also, half of the websites that you have listed in your war-chest are no longer active. This could mean a magnitude of things both positive and negative but I'm not willing to jeopardize my idea with so many ifs in question.

[ChanceUSC]

The more and more I consider the potential for rival companies the more comfortable I become with the idea that there won't be any. The first company to make this idea work pretty much has the market.

The reason for that is there are two primary parties in this, both of which will benefit. The first party being the every day user which will have no stock in the company's success. The second will have a time investment. This party will generally be less computer savvy and will unlikely want to commit to more than one site of the same nature. The second party will also have (initially) free advertising for what they generally have to pay for. Their other forms of advertising are not targeted and have a large overhead, causing the price to be inflated. With both sites combined, this is the most heavily advertised market in the US, none of which is occurring on the internet due to the nature of the business and a lack of consolidation. My idea capitalizes on this massive market.

There is a third party - the paid advertisers. They obviously have an investment in the site as well. The advertising will be handled in such a way that clients will only be charged after their advertising contract has been fulfilled, they have a far less investment than the second party.

I am more than willing to provide a preliminary summary prior to an NDA but there has to be a level of trust established by both of parties. For you, I am a blank face sitting behind a computer asking for a large sum of money and you are someone that I am entrusting an idea that I know will be successful hoping that you will not run with it yourself. Therefore I would like to communicate via a more trusted source - face to face would be ideal but obviously that is not always an option. A phone call over a non-VOIP service would be the next best option. If we agree to proceed, I would like to meet in person to close the deal.