For Entrepreneurs:
Why work with Sweetwater Partners?

Sweetwater Partners takes an alternative approach to investing in new companies which reflects our direct experiences as principals in multiple start-ups. We believe our approach is aligned with the entrepreneur’s and subsequent management team’s perspective. Here are some of the principles and concepts we use when we approach a potential investment:

• Entrepreneurs who have experienced venture funded start-ups realized that ideally they want different non-traditional sources of funding. There is an understanding that traditional ventures firms add value in terms of capital, some cache, perceived stability (deep pockets) and occasionally some business introductions. However, if you are looking for true technology, product, strategy, sales, marketing and business development value-add, traditional VC’s are challenged to offer value in those areas. This happens because the VC business model involves raising large funds and making a large number of investments across many sectors, which limits the time they can dedicate to each investment and the depth of their domain expertise.
• Many entrepreneurs believe that the valuations and investment structures that traditional venture investors use are unfavorable to founders and management, particularly when they compare that to the true value the investor has added to the startup. Complaints most commonly heard include the preferences associated with the preferred stock structures including: vesting terms, participation, anti-dilution and others.
• Today, start-ups can be “boot-strapped” and grown using exciting new technologies and less capital. The IP infrastructure and open source movement is maturing and offers existing components and services to help create products and services faster with less capital. Many entrepreneurs believe that traditional VC’s have raised large funds and need to put that money to work whether the company necessarily needs it or not. Many times a VC is not interested in a deal unless they can put a minimum of $3+ million into an early stage start-up in return for 30% to 40%+ of the company in the first round.
• Since the rise of a worldwide IP infrastructure companies can now be created which reach directly to the customer (with lower requirements for channel development – business or consumer) eliminating the need to build a large inside/outside sales organization using more capital.
• Today there is an absence of the easy and early Initial Public Offering (“IPO”) market. This leaves M&A as the most likely liquidity event for emerging start-ups. M&A events typically offer lower valuations. It is much easier to sell a company that has taken $5 million - $10 million in capital over its lifetime for $30 million to $50 million and deliver a great return for everybody, than it is to sell a company for $100 million to $300 million, that has taken down $25 million to $50 million in capital. Because of the current environment the traditional venture model of get big fast and take a lot of capital represents a riskier approach for an entrepreneur. This approach results in more outcomes where only the venture investor receives a return and the founders and management (common stock and option holders) realize little, to nothing.