I am currently employed at a large software company and have recently sprouted a new business idea which I believe (as all true entrepreneurs would) has big potential. The concept would likely require smart money to build and scale quickly - and I am hoping, would also help provide a salary for me so I can continue to support my family of 3 (soon to be 4).
My main question is this: would venture capitalists balk at my current status as a full-time employee of large corporation? i.e. would they forgo investment due to risk with IP ownership/moonlighting clause, etc.?
Sub-question : would there be potential legal ramifications for me if I approached a VC and gave full disclosure of my employment status while in search of their funding? i.e. would word potentially get back to my employer?
Any recommendations on how to navigate these waters would be appreciated.
I think it depends largely on you and how you present the concept.
When it comes to finding an investor On face value there is no reason they would worry about your current employment status if the idea was good and they believed you were the one to do it, this will be a stumbling block if you have never done this sort of thing before and don't have any partners helping you.
Depending on your employer, they might be the best ones to be "Your VC". If you say your going anyway, but would they like to be involved, point out where it would benefit them to either use or resell your product ... and for a fee (that resembles 2-3 years wages), they can get an interest in the end result and get to contribute in order to ensure it meets their needs.
We managed to get a version of this going about 6 years ago and it has been very beneficial for both parties, we even won and award for the results a few months ago.
When it comes to your IP/Ownership You would want to check your employment contract carefully regarding the moonlighting clause. Normally they don't say "anything", they can say "stuff that competes with us" or "stuff within our scope".
If you haven't done any work on it so far, your pretty safe to walk out and then start doing your thing. If you have written code and they pay you to write code on the same sort of system ... then your in trouble, especailly if you have done it in the same language, they can easily point saying it is part of what they were paying you to do as an employee.
(The word is unlikely to get back to your employer unless the VC has an interest in your employer)
VC's want to know you are dedicated to the venture they would be backing. So if you told them you are prepared to leave your job to do this full time then yes they should be okay with that. They are looking to see you will be 100% dedicated to the business ant not focused on anything else. So no they dont need to talk to your employer but will require you to leave their job if they fund you.
Rest assured though if they believe your concept could of been stolen by your employer they might not move forward with you. Yes you have to disclose that you are working full time now but again "you will leave your job" if they fund.
Without having a startup/exit track record it'll be tough to get a VCs attention with just an idea. You'll spend a lot of time just trying to get in to see them. Your time is better spent fine tuning your business model and working through your customer development. Start with a simple business model canvas and see if you can get others to buy in to the concept on paper. No need to jump right to funding. The first rule there is if you don't need it don't take it. Get your MVP out and get some traction. Working with VCs will come later.
I can't vote yet, so I will chime in here. LeanStarter is right on the money. Start lean, check out http://www.steveblank.com, and http://theleanstartup.com/