| Of course it is;
you have a company with a young operating history, which
hasn't turned a profit yet. You can't expect a traditional
bank to be able to make a loan to a start-up that is losing
money. But consider the real cost of venture capital.
In the February 15, 1999 issue of Business
Week, the author, Linda Himelstein wrote an article about
Benchmark Venture Capital. She points out an investment that
Benchmark made in 1997 when it bought 22% of Internet- auction
highflier eBay Inc. for $5 million. In February of 1999, that
stake was worth about $2.5 billion. That is a whopping 49,900%
return in less than two years, she reports.
Now that
may be an extreme example, but it makes you think twice about
the true cost of capital. Additionally, be prepared to give up
some control of your company to the venture capitalist in the
form of Board seats. They want to make sure you spend their
money wisely. With Venture Factoring you are not required to
grant Board seats.
Frankly speaking, Venture Factoring
can cost anywhere from Prime plus 3 or 4 with a warrant play,
all the way up to 3% per month. But even 36% annually is a lot
more reasonable than 24,950% (half of the 49,900% that eBay
gave up in two years). |
