Venturing into venture capital? Be ready.

Amar Goel posted a great writeup on venture capital. It is a must read for anybody who wants to raise money for their business:

The 3 lines I liked the most are:

“Raise VC money only … If you would like to build at least a $20M business over 3-5 years and ideally a $100M+ business over 5-7 years you are a prime candidate for venture capital. If you want to build a $3M business over the next 5 years do not raise venture capital.”

“It takes a lot of time to raise venture capital. [At Chipshot.com] Turning that interest into funding took 4 months of almost full-time work. I basically spent 15 hours a day on phone, email and in meetings selling the heck out of my company and our team. ”

“Most VCs will be loathe to invest in some “idea” you have that will change the world that nobody has ever done before.”

I have met many entrepreneur-aspirants who want to raise VC money, but have very little idea of how soon they can get paying customers, and how much those customer are going to pay them and why. I believe it is very very very important to have a clear idea of the business - who is the customer, why will he use your software (or hardware), why would he pay you for the product, how much will he pay you for the product, how would you approach this customer, how often will the customer pay you, how sticky is the product (I mean will they pay once and that's it), etc.