Some tech start-ups say "no" to venture capitalists

By David Lawsky

PALM DESERT, California (Reuters) - No matter how tough the times, some technology start-up companies are just saying "no" to venture capital, figuring they have more to lose than gain.

Many of the dozens of companies displaying their wares at this week's Demo.com conference in California came looking for backing from venture capitalists, whose dollars are increasingly hard to attract.

But a select few who can afford to starve themselves of funding plan to hold out. They seek press or customers instead.

"We came here looking for customers and we got offers for money -- $2 million or $3 million -- on terms we weren't willing to take," said Radford Laney, a founder of Document Depository Corp, which helps companies store and access documents securely in the Internet cloud.

The recession has played havoc with the value of start-ups, which are priced by comparison to public companies operating in a market where stock prices have collapsed. These days, venture capitalists expect a bigger piece of the action for each dollar they contribute.

Laney fears his Andover, Massachusetts, company would have to give up a huge stake if it took money now, and upon its sale later the founders would end up with a pittance.

The sticky issue of valuation will remain up in the air until the economy regains its stride, something even forward-looking entrepreneurs and venture capitalists dare not predict.

"Venture is a hits-driven business, but now it's not two out of 10 but two out of 50 or two out of 100," says Perry Wu, a former Silicon Valley venture capitalist who is now chief executive of BitGravity, which helps customers stream high-definition video to the Web.