Monday, March 13, 2006

This article by Griotech( griotech at phatbytes dot net) may be useful to some:

When we started up African-American Resources the one key that got us
funding was that I had a proven track record of writing and deploying
applications and my partner was a filmmaker and was selling the hell
out of a video he made. Some of you may even have this video. If
memory serves correct it's called "Kwanzaa: An African-American
Holiday" or something to that effect. It's the one in the Kente'
colored box and is actually one of the best videos (if not THE best)
on the market today.

When when the angels (VC investors) looked us over we had nice
individual track records to the point that they had faith we could
upscale these skills into building a business. The key piece of the
puzzle is my partner and I had proven that we could sell products and
services to the majority (non-ethnic) market.

This I cannot stress enough. the Angels could care less what market
we eventually wanted to focus on, they only cared that we could make
enough money to sustain start-up and growth. Once we were up and
running we could then refocus so that eventually we could sell
specifically to the African-American market. Investors only want to
see a return on their dollars and if you can't show that on paper
then you're dead in the water.

To our favor, at that point in time (mid 90's) no other DOT.COM
startup had gone belly up. The whole VC picture would radically
change in the late 90's.

To digress a moment, this is why I tend to be particularly suspicious
of new-jack "socially conscious" businesses. It's also why I have
said in the past it's all about the money and the social
consciousness stuff should be left out of it. You can't quantify
social consciousness in a business plan and I doubt any angel would
be eager to bet their bucks on it. Outside of Ben & Jerry's, Newman's
Own, and the Body Shoppe you just don't see businesses intimately
linked to causes that are either startups or doing gangbusters
financially. The two goals just don't mix that well, at least not in
the sart-up phase of a business.

Many African-American entrepreneurs make the macro-micro mistake.
They take the micro approach and say "I want to start a business
selling products to the African-American consumer", or "to help my
people/community/family". Well good luck, IF you get funding
consider it mana from heaven. You have much better luck taking the
macro focus and saying "I want to sell products to everyone with
dollars and here's my strategy" then later on focusing on the African-
American market once the cash flow starts happening. In these skitish
times you won't get VC funds selling snow in Antartica.

As far as playing in the game, if you are not generating a technology
or product in-house yourself (which you can control) then you are
subject to both the whims of the market, changing technology/market
trends and any inherent limitations of your product(s). And that last
item, the limitations of your product(s) can sometimes creep up and
bite you in the ass when you least expect it.

The battlefield is littered with great products that either outlasted
their usefulness/functionality (anybody still use Lotus 1-2-3 or
Wordperfect?) or were eclipsed by a changing market (anyone still use
floppy disks?). Bet on the wrong horse and you're either out of it or
so far in left field it'll be hard to come back.


I posted this as an education item from someone that has been down
the VC road. VC money is not a magic money machine. And believe me,
there are MANY strings attached. It's not uncommon for them to
completely re-write your business plan AND to take a majority stake
in your business. Our VC guy once told me "ideas are like assholes,
everyone has one. Some though are just bigger than others". And he
was correct. What's not common is funding and when you seek out VC
money you better believe you are in the gladiator pit slugging it out
with other gladiators and they will be making critical blows in order
to be the last man standing.

Although it's a little over the top, having a VC partner is best
described with a quote from the movie Goodfellas: "That's the way it
is with a wiseguy partner. He gets his money no matter what. You got
no business? F@ck you, pay me. You had a fire? F@ck you, pay me. The
place got hit by lightning and World War Three started in the lounge?
F@ck you, pay me." They always get paid FIRST.

Of course, I'm too much of a control freak for venture capital, so I use my own money. I'm a bit suspicious of the assertion that politics doesn't do gangbusters, since I'm in the land of Christian bookstores and Dixie Outfitters, but I understand that the money men need their money and they need it now. Of course, since buttons of the political sort are my biggest seller from my website, I am of course biased. Also, I agree about controlling your product inhouse, which is why I'm a designer of jewelry and buttons instead of a person who distributes for other people or dropships for someone else. It's pretty easy for the market to get flooded with identical mass produced items, but by doing it yourself you can move faster than the market flood.

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