New Venture Lab: Equipping Christian Entrepreneurs

Question

I am the CEO of a successful and profitable content-based Internet company that leverages licensed content over a proprietary technology infrastructure developed over the course of the past several years that I believe to be best-in-class.  I am considering leveraging my extensive technology platform by using it to develop a spin-off of another content-based business for a different market space, but I will need to raise $6 - 10 million of venture capital (something I've never done before) for content development and sales and marketing.  Is that something you would be interested in helping with?  What advice do you have for me regarding this potential venture?

Answer

Feel free to browse our content in our Raising Capital section of this site and download and read this presentation to help give you some insight into the venture capital world.

 

New Venture Lab is a business incubator and therefore we invest in the very early seed stage in Web 2.0, IT services, and software plays with investments in the $100K range.  Therefore your capital need is well beyond our target investment. 

 

Our Consulting page lists raising capital as one of our services.  We've raised a number of deals in the $1M - $5M range, some in the $10 - $20M range and one deal of $75M.  We would structure those arrangements much any investment bank with a monthly retainer and commission.  Again, we focus only on our areas of technology specialty.

 

Here are some top-of-mind thoughts on your spin-off idea (without knowing too much yet):

 

The concerns you should have in considering a venture investment are as follows:

• Timing: it will take around a year to get the capital raised if at all (the vast majority of deals never get funded)
• Ownership: you will lose the majority of ownership and your ownership would be structured as 5-year vested options so if your relationship with the investors doesn't work out and you are foreced to leave, you lose the rest of your unvested shares.
• Control: you will lose control and only be given common shares with a minority position, while the Venture Capitalists will get Series A preferred shares in a majority position and control the board.
• Yoking: you will most assuredly be yoking with unbelievers since there are no explicitly Christian venture funds that I am aware of that invest at the level you are asking for.

The concerns I would have as a venture capital investor looking at your deal:

• Technology platform:
  • It sounds like you will be leveraging your technology platform, but creating content from scratch, yet I feel most of the value of a company you describe would likely be in the content and not the platform, so there is much at risk investing in a deal with no content at this stage.
  • Since you've developed your platform over several years, potentially the technology base and code base is outdated compared to what could be built with the current available development tools kits, widgets, etc.  It is likely that a seven-year old platform could be duplicated in only seven months with better performance.  I am involved in one deal right now that has seen that exact scenario pan out.
• Value: Given the fact that you are starting with an existing technology platform and no content, the pre-money value of your deal is likely to be less than $5M, so a $10M raise would mean the VCs get 65 - 75% and you would only get 25 - 35% ownership in that scenario.
• Time commitment: the fact that you have another thriving company and this is merely a new spin-off means you will give divided or limited attention to this deal, which is untenable.  You would be forced to choose and no venture investor every likes it when an entrepreneur has plenty of upside in other deals and is therefore not wed to their deal.  Even if the deal got funded, the likelihood of someone else being hired to run it is high.

If your software is really good, you may want to consider just licensing it out to other content companies to extract some value that way, rather than try to build another content-based company just to leverage the software.