Venture capital is similarly awash in liquidity, although VCs remain skeptical of unproven business models, says David Brophy, finance professor and director of a venture fund operated by the Ross School of Business at the University of Michigan, Ann Arbor. "There's tons of money available," he says. "But everybody has gotten religion from that last crash." Venture firms want seasoned teams, big market opportunities and proven technologies in business models already generating significant revenue with profits not far off, he says.
The $21.7 billion worth of VC deals done with a total of 2,939 businesses in 2005, according to the "MoneyTree Report," matched 2004's numbers. Funding for later-stage companies rose significantly, while early stage companies experienced a decline. Tracy T. Lefteroff, global managing partner of private equity and venture capital at PricewaterhouseCoopers, says that while due diligence is up, so are the valuations VCs place on firms they buy into. "Valuations are tipping back in favor of the entrepreneur," Lefteroff says. "Over the past year, that trend has been [toward] higher valuation."
One thing about VCs certainly hasn't changed: Bringing them in affects your business in ways that few other sources of capital can. A venture-funded company will almost always eventually either go public or be sold. "If it's your vision to run a company and hand it over to your kids, [VC funding is] out of the question," Simon says.
Most entrepreneurs probably find one or more financing avenues closed to them for one reason or another. A few, like Doruk, can employ several on the way to building a growing business. But even now, when the robust state of entrepreneurial finance means that more doors are open to more firms than at other times, it's worth remembering that obtaining growth capital, in reality, is rarely easy or certain. "There are more opportunities than three years ago," says Doruk. "But it's a marathon, not a sprint. Once you commit to it, you have to follow through. And you need a little bit of luck."