Entrepreneurship, Second Edition

10.6. CONCLUSION

When an entrepreneur accepts money from a financially sophisticated investor such as a business angel or a venture capitalist, there has to be a future harvest when the investment can be realized. Generally, that harvest occurs when the company is acquired; occasionally, it happens when the company goes public. The harvest is primarily for the investors rather than the entrepreneurs. If entrepreneurs are not careful, they can give would-be investors the impression that they themselves are planning to exit the company at the harvest. That is not what professional investors like to hear. They want to invest in entrepreneurs whose vision is to build a business and continue building it after the harvest, not in entrepreneurs who are in it to get rich quick. Remember that Bill Gates made almost all his huge fortune by the appreciation of Microsoft's stock after its IPO; so did Microsoft employees and investors who held onto their stock for many years after the IPO.

After a long negotiation between a Boston area entrepreneur and a venture capitalist for seed-stage financing of a medical device company, the venture capitalist asked the entrepreneur, "Where do you personally want to be in 10 years' time?" The entrepreneur replied that he hoped he would have built a $200 million company that was the leader in its market niche and that he would still be the CEO. The venture capitalist immediately shook the entrepreneur's hand and said, "You have your money." The entrepreneur ...