Route to venture funding has potholes.

• Author: Taylor, Mike
• Position: Money Matters - Column

CARL FITCH LAUGHS AND CALLS THEM VULTURE CAPITALISTS, BUT even he admits there are times when they're an entrepreneur's only friend.

Fitch and Brad Weydert have developed three companies together, two financed out of their own pockets and a third--the middle company--funded with venture-capital money. There's no question when Fitch believes it's time for an entrepreneur to seek VC money: Never, if he can help it.

"If you have to go there for money, it's not quite loan sharks, but boy, it feels like it, because you have to give up control of your company, you give up board seats, you give up rights," says Fitch, the CEO of Statera, an IT consulting firm in Greenwood Village launched by Weydert in 2001.

"At the time you're like, 'Yeah, yeah, yeah, but if I get the couple of million dollars, I'm in like Flynn. My idea will be awesome.' But then two or three years later, if you do need more money, you go back to the well, and it gets even worse. Eventually when you go to sell your company, everybody else makes more money off your effort than you do."

Fitch went to his own well to fund his first venture. He launched Raymond James Consulting in 1992 with $50,000 pulled from credit cards, savings accounts and second mortgages. Weydert joined him in 1993, and by the time they sold the company in 1996, it had grown to 550 employees and 11 offices. Fitch speaks of those days fondly: steady growth, no boss, no one looking over his shoulder.

But Fitch readily admits that while some businesses with low overheads and instant revenues can be launched with cobbled-to-gether personal funds, ventures such as software firms with steep startup costs need the deep pockets of a VC.

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Weydert and Fitch went the VC route in 1999 when they formed the enterprise software company E-Exchange (now IQ Navigator). In an initial fund-raising effort, the pair convinced the buyers of Raymond James to invest $1 million in the new startup in exchange for 10 percent of the company. In a second round of funding, they gave up controlling interest of the company to John Raeder, currently the president of IQ Navigator.

"We vacated our seats on the board and then went over to start Statera," Fitch says. "For me it was way more fun to just have something of my own that I owned outright."

Of course, Fitch's opinion of VCs isn't one that many tech-based startups can realistically afford to take into account as they confront high overheads, expensive R&D and a...