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LivableCNY Explainer: WTF is Venture Capital?

LivableCNY Explainer: WTF is Venture Capital?

With the Tech Garden, NorthsideUP and the Southside Innovation Center, there’s a strong startup scene in Central New York. If you sit in Cafe Kubal or hang out in the Tech Garden you’ll hear a lot of startup talk, especially about VCs. For the uninitiated, that’s Venture Capital, an important source of startup money.

Crowsnest Labs, a software startup company that began Syracuse that got big boost from venture capital. The company software that helps programmers to find bugs and software problems before consumers do. A finalist in Syracuse University’s Startup Labs Competition that finished in April, Crowsnest Labs is now in the Seattle accelerator Techstars.

TechStars is a venture capital accelerator. They provides over $100,00 in seed funding, intensive mentorship, and the business expertise of mentors and alumni in return for for a seven-to-ten percent stake in the company. TechStars is willing to bet that money for what they hope will be an outsize payoff. A return of millions of dollars on their initial investment.

Techstars -

Techstars – venture capital accelerator

Venture Capital is a scary phrase for many entrepreneurs. The typical entrepreneur has a great business idea, but no idea what a venture capitalist is and what they do. According to John Liddy, Entrepreneur in Residence at the Syracuse Tech Garden there are a few key terms that every entrepreneur should know:

Venture capital – money invested in a project in which there is a substantial element of risk, typically a new or expanding business. Typically the risk is related to the expected reward.

Customers – businesses have to have a unique product that can be sold to a proven market.

Once you have those crucial pieces, you start the entrepreneur’s journey which Liddy describes as a series of key steps:

  • The first step is for the entrepreneurs to understand how much operating capital they need to build their product or service, and grow their team.
  • The second step is to prepare a pitch presentation, and do the “due diligence” research that allows them to answer all the potential investor’s questions.
  • The third step. When you finally get a ‘yes’ (after many no’s) the venture capital investor will give you an Offer Sheet—an offer for money in return for a set amount of return. That return will be in the form of company shares. The number of shares will be based on a proposed company valuation—the VC’s best guess of what your company will be worth in a few years.
  • The final step is negotiation of the full terms of the offer sheet.

Most entrepreneurs feel that by taking a venture capital, they are essentially giving away their business. This isn’t the case according to Mitchell Patterson, a former partner with Armory Square Ventures.

“A venture capitalist wants to help the company grow. They don’t want to take the business away. We base our investment decision on many things, but a really important factor is our belief in the founder” Says Patterson.

John Liddy agrees. “Venture capitalists are honestly looking out for the best interest of the entrepreneur and their business. They want to help that business grow and garner more customers, which then would grow the income.”

To learn more about Techstars and their programs, you can visit their site: http://www.techstars.com.

To learn more about Crowsnest Labs, you can visit their site: https://www.crowsnest.io.

To learn more about a venture capitalist firm, visit Armory Square Ventures at: http://www.armorysv.com.

To learn more about the Tech Garden, you can visit their site: http://thetechgarden.com.

Michael Kruk, CEO and Co-Founder of Crowsnest Labs – Twitter – @mjkruk

Crowsnest Labs Twitter – ‪@Crowsnestio

About The Author

Jennifer O'Donnell

Born and raised in Syracuse, NY. Graduated in 2012 from Keuka College with a Bachelor's of Science in Marketing with a minor in Computer Applications. Currently in the process of earning my Master's of Advertising Degree from Syracuse University S.I. Newhouse School of Public Communications.

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