Venture capital is a hot topic in the industry because many investors believe e-commerce and B2B Internet solutions are driving a new economy, and they are willing to invest heavily in new, risky ideas. This opportunity has spurred many entrepreneurs to develop Internet-related plans, partnerships, and technology in an effort to get funded with VC money, take first-mover advantage, and eventually go public (IPO). It is interesting to note that venture capital once seemed to belong only to an elite group on Wall Street (or Sand Hill Road, for that matter). However, with the advent of e-commerce, we suddenly saw VC funds operated by a wide variety of people (even sports figures and celebrities, who ultimately may have played a part in the dot-com shakeout).
The VC appeal is understandable-it's money. Venture capitalists typically expect a 20 percent to 50 percent annual return on investment (ROI) at the time they are bought out. Venture capitalists invest in high-growth companies with the potential to generate revenues of $20 million, but typical investments range from $500,000 to $5 million. Management experience is a major consideration in evaluating financing. However, in Silicon Valley, if you have "the next best idea" and the VC firm is willing to fund you, the investors will hire the suits and form the board of directors. This kind of input and guidance is intended to be in everyone's best interest.