Venture Capital – Help of Hinderance?
Almost weekly we see that venture capitalists are investing in start up companies in our business. I’m told the scenario goes something like this:
A person gets and idea and then scrapes together initial funding from their friends and family. They get to a stage where they can show their idea in some reality to a potential customer or an investor.
They then approach a potential investor and if they pitch it right get an investment. There are certain goals to be reached. If they are all is well, if they aren’t, well…They then move forward with their company and typically a year or so later, they still have no substantial income but have increased their visibility and they go back for a second round of funding.
This time, noting that the goals weren’t reached, the VC received a percentage of the company, lets say 30%, sets a new set of goals, and provides more funding.
A year later, nothing again the goals weren’t reached, the VC now receives a greater percentage of the company, lets say an additional 30% and puts someone on the board to oversee the operations of the company.
You might note what just happened. The original founder of the company is now an employee and the VC is for all intents and purposes running the company.
The time frames may vary, but VC companies know that they are risking their money. They are looking for substantial return and will do whatever they can to ensure it.
Remember, the idea may not be to ‘make money.’ The goal may be to develop the idea so it can be sold to Yahoo or Google for millions. That works too.
The problem with the parking business, it seems to me, is that the technology acceptance is glacial. The larger companies take time to get their technology in place and then stick to it. Cities and Universities find that changing is risky and often balk.
The term “nobody every got fired buying IBM” fits well in our industry. Even though new ideas may work better and save money, few want to take the risk before someone else does. Buying the tried and true may be a stodgy approach, but its safe.
This means that start ups had better be in it for the long haul. They need to convince their VC folks not to expect quick turns on their money. Or they need a rich uncle.