"Avoid "Vulture Capitalists" like the
plague! Flee into the night!"

Agreed, VCs are not your best bet for financing a game title; there are publishers for that. But again, VCs in Malaysia could have a different investment profile than in North America.

"Venture Capitalists are *NOT* interested in the
welfare of their buisnesses."

Having been on the other side of the VC fence once, I can tell you this is not totally accurate. The VC firms that mushroomed in the late 90s were made up of greedy former execs wanting a quick biz buzz while looking for their next CEO job, and dot-com horror stories like yours abound; but that''s not the majority.

VCs work under the principle of "nose in, finger out", i.e. the involvement is largely with the CEO and the other directors (exec hiring & compensation, mergers & acquisitions, financing, looking for business partners, negotiating sales/distribution channels, joint ventures, marketing contract, consulting on various business and legal issues, etc). There is thus no involvement into the day-by-day affairs, including management of employees, unless it threathens the business.

VCs invest in a business plan and a management team, and expect the management to execute the plan they have themselves written. As far as demanding ludicruous ROI figures and such, you have to remember that the figures VCs work with come from the company''s executives and accountancy. Some entrepreneurs put insane numbers in their proformas and sign the business plans with their blood; there is usually little negotiation room to scale them down to more realistic levels because that would mean a lower valuation. We managed to avoided those fruitcakes, but some unexperienced VC firms tended to love them for some greedy reasons.

And that''s the key here: the more insane the numbers, the higher the valuation. It''s not abnormal that some nosegrinding VCs - who have fully paid the high valuation - expect the entrepreneurs to execute the plan they have themselves written, including achieving the insane ROI and growth rate figures...

The lesson here is that as much as VCs shop for investments, you the entrepreneur should also shop for VCs.

"What will happen is that the VCs will end up
being the owners of the business, not you."

In a typical investment, $50K comes from the entrepreneur and the remaining $20M comes for all the other investors. That''s a 400:1 ratio. Get real.

quote: Original post by Anonymous Poster

Having been on the other side of the VC fence once, I can tell you this is not totally accurate. The VC firms that mushroomed in the late 90s were made up of greedy former execs wanting a quick biz buzz while looking for their next CEO job, and dot-com horror stories like yours abound; but that''s not the majority.

I hope this is true. Most of my exposure (first and second-hand) comes from the late 90''s forward, and even so I''ve had the layman''s mouse-eye view of matters. My most favorable experience was the most recent, in late 2001. Even in that instance, we did find ourselves pushed to use facilities and services from specific vendors - ones our investors had a stake in. Relatively speaking, however, this was minor. During the late 90s, it seemed like so many companies were being pushed up the valuation chain with long-term viability traded for just enough short-term gain to pump up its sale value to the next buyer.

quote: "What will happen is that the VCs will end up being the owners of the business, not you."

In a typical investment, $50K comes from the entrepreneur and the remaining $20M comes for all the other investors. That''s a 400:1 ratio. Get real.

True. But there are a number of intangables that the founders will be bringing to the table - their "sweat equity," contacts, unique abilities, their personal risk, etc. They will place a higher value on these things, quite naturally, than will their investors. So as in your example, you might see it as a 400:1 ratio. The founders will naturally see that their "fair" stake in the company should be significantly higher. Where the line gets drawn depends on what both sides can negotiate.

In the end, though, it doesn''t change the fact that when you bring in outside capital from investors, you are in effect selling a portion of your business. Probably a big portion if you are a start-up - you are ceding ownership to someone else.

Fair? Yes. I''m not saying it isn''t. It takes money to make money. But when this happens, one should be aware that the goals of the business are not always the same as the goals of the investors. Both sides of course want to make money, but how to go about this may differ, particularly when it comes to long-term vs. short term. When this happens, the golden rule applies ("He who has the gold [or has invested the gold] makes the rules").

It can get even worse when your company is bought up by another company (which is often the direction your investors are steering you - I know some shy away from the troubles associated with an IPO). The original intentions on BOTH sides may be that the newly-purchases company will retain its autonomy, keep doing what it''s always done, and just make its parent company money. But a CEO change or two later, all bets are off. Anybody remember Origin?

Again - this may not be a bad or even undesired thing. And it sure beats the heck out of being unemployed, paying off a double-mortgage and other debts accumulating from a business venture that failed years earlier because you tried to go it alone. But the important thing is to go in with your eyes open, do your homework, and be sure to explore all your options. And don''t ever go in desperate. And if you do, don''t let ''em know that you are desperate.