Playing the VC game

Recent metrics and my own experience working with entrepreneurs shows a marked improvement in the environment for new tech companies. IT budgets are growing, VCs are writing checks again, Google is going public soon, and, most importantly, smart people are starting companies. Last time around, many otherwise level-headed entrepreneurs got caught up in the froth and engaged in a multitude of unnatural acts. Many investors counseled their companies to "get big fast" and spend lavishly to get ahead of the competition, if only in number of press hits. Last time around, money was basically free. This time around, it won't be free. Hopefully the advice you get on growing your company will be better as well.

Some excellent advice offered here for those entrepreneurs who are ready to seek funding from the usual suspects. Martin Tobias, founder of Loudeye, went public at the top and now is a VC (with Ignition), provides some insights on How to Shop for Venture Money in a posting over at alwayson-network.com. It is a timely reminder that while money is becoming easier to raise, it still pays to shop wisely.

One thing the article does not touch upon though, is the tendency among entrepreneurs to believe that when money is easier to raise that any business idea or product might be suitable for venture funding. That is simply not the case. VCs fund under 5% of the capital new businesses use to get started and even a smaller percentage of the businesses that get going - simply meaning that the vast majority of start-ups are not candidates for VC money, expertise, relationships and sophistication. That said, Martin's article is solid and reminds entrepreneurs who start businesses that might qualify that VCs bring much more than money to the table and that non-financial talents and energies are usually the more important.