I am the project leader of TurboCASH Accounting, an Open Source solution for small business. I am based in Cape Town, South Africa. We compete against Intuit and Sage (Peachtree). In some markets we beat them. I am looking to raise money from the VC firms in SF.
I have been in business for 18 years, but in particular in the OS business for 2 years. I saw your web site and wanted to enquire if you could help me get to the right people at the best firms?
First off, I am always delighted to see open source development teams take the initiative to try and grow their businesses, and even more happy to see that you’re working from outside of the US/Europe hegemony: the more international the Internet, the better chance we all have of understanding each other and avoiding conflict.
Having said that, I have to also say that I am skeptical you can accomplish your goal of raising investor money for TurboCASH for a bunch of reasons, and I think it’s important to enumerate and discuss them.
The first obstacle is an overseas investment: almost all the venture capitalists I know actually dislike investing in companies that are more than a few hours drive from their office. If you’re seeking investment money from San Francisco, for example, you’d have a very tough time of it if you were based in Seattle, Washington or even in Los Angeles, California, let alone a continent away in South Africa.
This is understandably frustrating for savvy startups that aren’t based in one of the major venture cities (Boston, New York, San Francisco, etc), but investors like to keep an eye on their portfolio companies and having to fly trans-Atlantic for a monthly board meeting would be pretty prohibitive, and while online teleconferencing has improved significantly in the last decade, there’s a sense of being “on top of things” that is hard to duplicate, especially for the first couple of meetings.
Secondly, there are international commerce issues with ownership of intellectual property, legal rights of investors, and similar that are considerably more complex for an international investment. If you receive funding from a Palo Alto-based VC, for example, and then decide to shut the company down and walk away with the investment capital, what recourse do they have with the South African courts to try and recover their investment, particularly as an American company?
Then there’s the conundrum of open source intellectual property. If you’re an open source accounting package, then your organization doesn’t own the TurboCASH application in a for-profit way since it’s already (I presume) available through the General Public License of most open source, which means that anyone can give away what you’d be trying to sell. (and after all, if you don’t have anything to sell, what’s your revenue stream? Investors need to see a growing company with a revenue stream, because they want to invest in growing businesses, not ideas).
Which leads to the other half of that question: what is your exit strategy for TurboCASH? Venture investors want to know that 24-36 months down the road there’s a reasonable chance of acquisition or (less so now than in the late 1990s) going public so that their investment can be “realized”, that they can cash out and actually see a profit for their investment. That’s why acquisitions are so sweet: invest, say, $2mil in a company when they’re worth $5mil total, help them grow in the next two years to a valuation of $50 mil, and when they’re acquired cash out and walk away with a cool $20 million, a profit of $18 million. If you don’t have any exit strategy, you can have the best business in the world and the majority of VCs would just shake their head without even reading your business plan.
I realize that this probably isn’t the answer you were hoping for, and I apologize for that, but I am continually surprised at the zealous queries I receive from companies seeking help with raising capital, companies that really don’t have the basics covered from an investor viewpoint.
I’d also suggest that you read through my previous article How much equity does a VC take? and also pay attention to the other sites that I link off to from that article too.
Good luck with TurboCASH, and I hope this is helpful!