In this series, I will comment on the written feedback I received after my presentation. Also, I will answer the online questions asked by students I had no time to amply reply to during said presentation
Lehren für Unternehmensführer – das Leben, das Wissen, die Informatik und die Ethik
(Lessons For Managing Directors – Life, Knowledge, Computer Science and Ethics)
„Innovative Entrepreneurs“/ Summer Semester 2010
Leadership in growth-oriented enterprises
Today: Capital
Question:
Your company foundation is now 26 years in the past. Do you think it is easier today – with all those Venture Capitalists and Business Angels – to install a new enterprise than it was in those days?
Answer:
Both today and 26 years ago, I see more happy entrepreneurs who did it without Venture Capital and Business Angels than with.
Venture Capital: No – I am not in favour of Venture Capital (VC) at the initial phase. What is the consequence? Before long, you will only be a salaried employee of the company you founded yourself. The support you agreed to by contract is, basically, more like an obligatory counselling. Its only goal is to transfer some of the invested money immediately back into the hands of those who gave it and their accomplices.
VC might make sense in special cases, for instance if a young enterprise enjoyed a huge initial success with a product (such as a browser game) and then has to secure this success at the market but lacks the necessary capital. Even then, however, I would advice caution. Fair VC is rare. As a general rule, I would prefer a private investor. However, if you want to finance new developments as a green-field approach with Venture Capital, you will usually not be a success. In my estimation the failure rate tends to be higher than 90 %, rather than lower. On the other hand, it is quite lucrative for the capitalist if he succeeds with every hundredth project, thereby more than compensating for the loss of the others. That means that 99 enterprises of this sort are left behind or swallowed up after a long phase of struggle.
If your Business Angels are experienced managers and entrepreneurs who “mirror” and coach young people, then I find the idea very helpful and a good idea. These people, however, will usually not call themselves Business Angels. If you see the title “Business Angel” on a visiting card, alarm bells should ring. Mostly, you will not be dealing with an entrepreneur or manager who offers to share his experience with you, but to a talkative know-it-all who more often than not has his spiritual home in the financial world.
I am quite glad that we at InterFace never needed money from banks or VCs (which, incidentally, is rather typical for a service enterprise) and that I always had experienced coaches.
Question:
Were you dependent on Venture Capital when you founded the company? Or had you been able to put some money aside during your time with Siemens or Softlab?
Answer:
During the foundation, I had one active partner – my friend Wolf Geldmacher – and two silent partners (Peter Schnupp, inventor of the InterFace idea and Claus M. Müller, managing director of InterFace Computer GmbH). These two names were among those with the best reputation in the IT scene and therefore, because of their connections, reputation and experience, on top of my wish-list. Having them on the boat was more like the price for getting their support.
For the foundation, I needed 30,000,- DM. Since both my wife and I had been working, this was possible, even though we had bought a small semi-detached house. We had saved a bit of money.
My next post will answer your questions history and change.
RMD
(Translated by EG)
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