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Why I Didn’t Accept Venture Capital

Why I Didn’t Accept Venture Capital
By Alan Olsen

It takes a lot to get a startup company off the ground. You have to have the right people, the right product, and the right business model, and in many situations, a little luck. In most cases startup companies also need a lot of money to not only get off the ground, but also in order to grow and become successful. Although most startup companies don’t want to give away any equity in their company, many realize that in order to have the financial means necessary they will have to give up something in return. Of course, receiving money from a venture capitalist can have its benefits and many companies would not become successful without it. However, you don’t have to obtain venture capital to be successful and grow your company. It is possible to do it the hard way.

Finding Success Without VC

Ray Zinn, the author of Tough Things First knows a thing or two about building a startup from scratch and making it successful. Before he hung up his suit for the last time in 2015, Ray was the longest serving CEO of a public company in Silicon Valley. He led Micrel for 37 years, before the company was acquired by fellow chipmaker Microchip. Ray is very proud of the fact that he was able to build his company without the help of money from venture capitalists. According to Ray, even though Silicon Valley thrives on venture capital, he was able to launch Micrel without any. Ray was my guest on my weekly radio program, American Dreams, and we discussed his view on venture capital and why it might not be the best option for every startup.

Sustainable Growth or Quick Out?

I asked Ray, “Why do some companies refuse to take venture capital?” In his case, Ray said it was because he wanted to own the company. “I had a view of an enduring company, and if you know venture capitalists, they want to be out in five to seven years.” Ray said that it’s just not really possible do that effectively in the semiconductor industry. That’s why very few semi-conductor companies succeed. Ray shared with me that Micrel recently acquired a company called Discera. He said ‘there was $72 million of venture capital put in it. We bought it for $7 million; bought it for 10 cents on the dollar.”

Hoist or Fireworks?

Ray said this is an example that if you run your company like you would a skyrocket or like fireworks you fizzle out and then what do you got? He said, “We didn’t want that approach. We wanted to be able to grow the company and sustain it and to do that you look more like a hoist than fireworks.” That’s why Micrel did it the way they did without venture capital money. Ray said, “We would have had them on our backs from day one to spend the money and get in and get out.” To hammer the point home, Ray said that most companies in the “semiconductor industry raise over $50 million in venture capital money and we did it with only $300,000. The difference is that with $300,000 it takes a little longer, right? I mean you got to be patient, but you have endurance. Very few semiconductor companies survive for 37 years.”

The post Why I Didn’t Accept Venture Capital first appeared on Advisors to the Ultra-Affluent – Groco.


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