1. Venture capitalists want to take control of my company.

No, we don't! Many of us have run startup companies in the past; for various reasons, we're not doing so now. Most VCs will tell you that they want a fair portion of the company in return for their risk capital, but that they're not worried about control. As an individual data point: as of this writing, ATV has investments in five venture companies; we have majority ownership in none of them.

Venture capitalists invest in a management team that has the potential to grow a company. If we don't believe in that potential, we don't invest. Unless that team falls apart or dramatically demonstrates its inability to run the company, we would rather let them run the company; we have other fish to fry.

2. Venture capitalists load their deals with all sorts of unfair terms.

When negotiations proceed to a state where both parties are serious about a deal, a venture capitalist will produce a "term sheet." This is a summary of the proposed investment written in clear language so that the two sides can agree on intent. A term sheet can be anywhere from two to twelve pages. If both sides agree to the terms, the lawyers get called in to translate those pages into a stack of documents an inch thick.

Some of the terms may seem unusual or even unfair to an entrepreneur. For example, there may be a provision for requiring the company to redeem the investors' stock at a certain price after a certain period of time. Keep in mind that such a redemption represents a failure on the part of the venture capitalist! An active investor will do everything possible to make the company successful through an IPO or merger. Redemption is an unpleasant exit, and almost never exercised.

3. Venture capitalists are only interested in the numbers.

You will find as many different styles as you will find venture capitalists. Some have pure finance backgrounds and want to dig into the numbers. Some have technology backgrounds and want to clearly understand the technical innovation. Some have general management backgrounds and want to spend time with key staffers.

You will find that venture capitalists, by and large, will focus more on market, technology, and people than purely on the numbers. Investment bankers have a different mission, and there you will indeed find some pure "numbers" players.

4. Venture capitalists have unrealistic performance expectations.

Do the arithmetic. Our limited partners invest money in our funds with a clear expectation of high-risk, high-reward. If we want to stay in business, we're clearly going to have to provide an overall return significantly better than the S&P 500! Then account for the fact that some of our investments will fail altogether (dragging down our average)... and that ATV's limited partners have signed up for a ten-year investment term (increasing their opportunity cost, since they can't shift the funds to other investments).

It quickly becomes clear that the "unreasonable" performance targets of 40% to 50% growth per year are the baseline necessary to make a venture portfolio successful. The good news is that, in the United States, top-quality venture-backed startups have consistently proven that it is possible to achieve these targets.

5. Venture capitalists are always harping on "exit strategy."

Remember those limited partners? They are expecting a return on their investment in a form they can use. That means cash or negotiable securities. If we own 20% of a business that doesn't have an exit strategy, we can't return any value to our investors. Our shares need a "liquidity event"... normally an IPO, sale, or merger with a public company.

Your company may be stable, profitable, and turning out a quality product. But if it doesn't have a clear exit strategy--a path to that liquidity event--it's not going to attract venture capital.

6. Venture capitalists give me a lower valuation than a private placement.

Sometimes. Keep in mind that a venture capitalist--especially an early-stage investor like ATV--will spend a significant amount of time with entrepreneurs. We participate in business planning, sales strategy, even key hiring decisions. In addition, we represent an important link to larger capital markets when the time comes for additional venture investment, or for an IPO.

Participants in a private placement are usually individual investors, who tend to be less involved--and who tend to be unable to support a company with large sums of capital when necessary. You may get a higher valuation for your shares today, but a venture investment can add far more value in the long run.

7. Venture capitalists won't invest in small deals like mine.

One trend during the 1990s has been the rise of venture capital "megafunds." These big-name funds have been very successful over the past few decades, and have attracted hundreds of millions of dollars in capital. Unfortunately, life is too short for their limited partners to invest that much money in $1 million chunks. Therefore, these megafunds tend to focus on venture investments that require $5 million, $10 million, or even more.

On the other hand, this has opened up opportunities at the lower end of the market, where smaller funds (like ATV) specialize. We tend to invest between $500,000 and $2 million at first, often syndicated with one or two partners. This means that smaller venture deals can get financed; you just have to look in the right places.

8. Venture capitalists are too quick to pull the plug when trouble starts.

Almost never. If we pull the plug, we drag down the overall performance of our portfolio. That hits our pocketbooks now, and in the future (by making it harder to raise future funds). You'll find that most venture investors will do whatever makes sense to keep a company afloat.

9. Venture capitalists don't like signing non-disclosure agreements.

True. Ideas are our business, and good ideas tend to crop up in more than one place. If we sign overlapping non-disclosure agreements, it can become impossible to work with a portfolio company without violating covenants with someone else.

The venture industry is based on mutual trust; an investor who violates an entrepreneur's confidence won't last long. A non-disclosure often makes sense later in negotiations, but seldom at the first meeting.

10. Venture capitalists are impossible to get on the phone.

Guilty as charged! Most venture capitalists review dozens of business plans a week, in addition to attending board meetings, strategy sessions, and presentations by new investment prospects. We're seldom in the office; when we are, we frequently have visitors in.

In the early stages, it's far more effective to communicate via fax (or, if appropriate, e-mail). Once an investment has been made, believe me--the VC will return your call from the road, from home, or wherever necessary. It's our money too!