How to Organize and Fund Your Big Concept Web Site

Best tactics for timing solicitations to venture investors who fund startups

Q.  I have a completely unique idea for a website that has huge revenue streams in the social networking arena. My problem is I'm a web designer without many business skills or experience. Will I be more successful raising money by telling my idea to VCs and then asking for their help to form a company or should I quickly put together a starting management team with my buddies and then pursue investors? What do you think?

A.  In college dorms, coffee shops and evening hangouts, you can find eager Internet entrepreneurs scratching out prototype designs and happily talking through their next big idea with friends and co-workers. These are the paper napkin days of Internet startups when entrepreneurs seek reassurance of just how cool and important their idea will be in the marketplace.

You ask very good questions. How far along should an entrepreneur's concept be before soliciting investors? And, is presenting the perception of a management team better than having no management team in place at all?

In the raw startup world, I've found angel investors and true seed venture funds to be very forgiving. Unlike funds which seek to invest in "early stage" companies, seed stage investors don't look for specific measures of business plan progress (filed patents, prototype completion, first customers, etc.) to help them determine which companies will be invited to make a presentation.

Actually, waiting for feedback from knowledgeable investors before handing out founders shares to best buddies may improve your chances of securing startup funding. Why? Because you won't have to unwind mistakes.

Empire Ventures fund manager, Wade Bradley, who has invested in 27 startups says "Smart investors avoid situations in which a founder has to potentially demote unqualified friends in order to raise capital. Entrepreneurs should wait until a business plan is complete so they can hire people with the specific skills needed to move a company forward, not before."

Another advantage to presenting your hot concept to experienced seed stage investors is the opportunity to get tactical feedback from the fund's managers and affiliated experts at no cost to you. In addition, the fund may employ seasoned business executives who can complement your code writing and web design skills. In this way, you are creating early momentum by partnering with people who already know how to side-step common rookie management mistakes.

How do you find venture capital firms that are willing to help you incubate new ideas? Some venture funds make it easy. For example, CambridgeLight Partners' web site reads "No venture is too early for CambridgeLight. We work with our portfolio companies to fully develop their plans." Also look for funds that invest as little as $250,000 to help young companies reach their first operating milestones.

Some seed-friendly funds include Frazier Technology Ventures, SmartForest Ventures, Blueprint Ventures, Zone Ventures, Camp Ventures, American River Ventures and Pinpoint Ventures.

Start your solicitation by preparing a 3 to 5 page outline of your concept. You can be candid with potential investors that you want to "discuss the viability of an idea and opportunities for commercial advancement." You can also state that you seek an active investment partner who can help you identify your startup management team.

Here's one last nugget of advice. In coaching sessions I frequently remind startup Internet entrepreneurs that while angel and seed fund investors can be encouraging, they are not pushovers. They help build companies, not just web sites. If you approach them with this objective, more business building doors will open for you.

Take Command Action Step

It's helpful for first-time entrepreneurs to learn the lingo of angel investors and venture fund managers. Words and phrases such as "staged-funding," "preferences," and "milestones" can determine much of a business founder's future. Visit http://www.takecommand.org/special_main.htm to boost your knowledge of venture community lingo. You can do it!