Other reasons

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Time and time again, I’ve emphasized the monetary gain, IRR for investors.

It’s the easiest one to point to, and like most models, money is a proxy for “benefit”.

But some investors are concerned about the process as well as the money itself. So that making $X by making the world a better place, and making $X+$1 by clubbing baby seals. The investor is willing to sacrifice that $1, and go with the former investment. This might be an extreme situation, but it highlights the point that money isn’t the only return some investors want.

Some funds will address this additional requirement as part of their filter. “If the company isn’t in the high tech field, we won’t invest.” This does mean it is important for the entrepreneur to understand the additional hurdles that must be cleared when going after funding.

When looking at angel funding, remember that the story you provide the angel is also of value. Some angles are looking to get back into the game, without having to put in the long hours, early morning meetings, and delays in the airport. Others are looking for ways to establish their legacy, and still others are only interested in the cash return. Approach all of these people the same way: as an individual.

Show you've been there before.

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In an earlier bit, I said, that if you're going to be asking for people to give you $5 mil, you're going to need to give them peace of mind that you'll do well with their money. And I stepped down from Partner, until associate/analyst.

But how do you get into that group initially?
I said I was lucky, but not everyone will have the same path. However, the more opportunities you give yourself, the 'luckier' you will be.

Volunteer to work with nonprofits in the area that target entrepreneurs. Look to work with SCORE/ SBA/SBIC's etc. Even if it's for free. What you need is experience, and referenceable companies. It always helps if those companies are still in business, when you use them as a reference.

I've worked with the MIT Enterprise Foundation of Washington DC/Baltimore. They've got many chapters around the world. Look to the local university, see if they have an entrepreneurship program, and see what you can do to help. The people at these programs are networked into the local business community.

Proving in a volunteer organization that you were able to help companies, 'save investments', etc. will put you in higher standing than someone who is fresh to the industry and has no connections. However, you must be cautious in which companies you help and how you provide assistance. Those choices will create your personal history and portfolio.

The one thing wrong.

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In rejecting companies, there exists a subtle trap when saying no to any investment. If you’re asked, what’s the “one thing” we did wrong, be careful in answering. There’s never just “one thing”. And the implied statement of, “If I fix that one thing, then you’ll invest in me,” is misleading.

Some entrepreneurs have the chutzpa to get funding in this way, present their b-plan to several local angels, getting input and feedback. Then closing each meeting with a statement of “So, if I fix this, and get some other backers, you’ll invest?” After contacting 15 angels in the neighborhood, one entrepreneur was able to get financing, because she closed each meeting with that type of statement. She went off, fixed everything they suggested and came back to collect. Some of the investors felt obliged to invest in her. Fortunately for everyone involved the company did well, was sold at a higher valuation, and everyone made money.

I don’t recommend this approach, but use it, as an example why fixing the ‘one’ thing should not get you funding. It might have worked before, but in today’s environment, investors have learned, and are less willing to part with their money.

You can ask questions

But make sure you understand how, and who you're getting the financing from. It's easy, when you're a desperate company, to take any dollars that are waved your way. The hard part is going fundraising when you don't need the cash, and being able to discriminate among all the funds out there.

Take the money before you need it, and don't give away too much of your company. This is a hard balancing act. However, if you're going to err, err on having enough money in the bank to keep the company alive, not, in taking too little money, and seeing your dreams flush down the drain.

Do your due diligence on the fund. Ask for permission to speak with their portfolio companies, and then call and ask 'positive' questions to the entrepreneur. No one likes giving negative answers. But you're smart enough to read between the lines. Open ended questions such as: "What's the best thing you VC has done for you?" Or "Who was the most active investor you've had." Etc. Give the company every opportunity to praise their investors with REAL compliments, not "he showed up to the board meetings on time."

Ask for examples of when they helped during a crisis. Get a sense of which partner/associate was working with the company. You'll find that the stars will shine through, and in part of your negotiations with the investment group, see if that star has taken a liking to your business. If so, great, if not, understand who is your champion in the firm, and what his/her role is there.

And for those folks trying to find a job in VC, it's not a crime to ask this of potential employers as well. I had my hand slapped when I was making some of these phone calls to portfolio companies. Yes, the entrepreneurs will go back and talk to the investors. And No, I did not end up working at that fund. But it was enlightening for me to understand who were the real workers at the fund. Which names I'm on the look out for when considering an investment or a follow on. And which names I'm wary of in the industry.

Be polite, be considerate, but ask.

How to tell luck from skill

It's hard, actually, it's impossible given a single shot.
In poker, it's well known that anyone can get lucky (good or bad) on a single given day. But the concept that some people win more money in the long run gives rise to the belief that there is skill involved. The skill is often overwhelmed by the noise, but long term trends bear out a winner and a loser in the game.

It's a poor analogy, but one I'll continue to use.

A strong stable company usually takes years to create. Relationships, transactions, year over year commerce with customers are necessary. Quick fads can make a lot of money, but the danger is building a business based on a fad, not a need.

In poker, there's a similar caveat. The guy who's sat down and won a big pile of money in an hour is usually playing too many hands. He got lucky. If he stays at the table, he will regress back to the norm, and start losing again. If he continues to play in the manner that got him up so high: risky cards, chance gambles, then he will lose all his money. The best thing he can do is get up and walk away, the hardest thing for him to do is get up and walk away.

This is why it's so hard for a successful company to really examine what it is doing, and why people are buying. They're trying to ride the tornado up, and fail to understand the underlying pressures of the business. If it's a fad, a quick run, then enjoy the ride, and evaporate when the fad's over.

If it's a sustained business, then while you're growing so big/fast, reinforce your business structures. In Star Trek, there's the old joke of repairing the redundant back-up systems. Now this is the 4^th line of defense. Primary, secondary, back-up, redundant back-up. I'm not suggesting you waste your time in building up 4 levels of bureaucracy while riding the tornado up. But creating a stable secondary chain of command, just in case, is always a good idea. Having that chain of command grow along with you on a weekly/monthly basis is even better. You won't have to do a huge annual clean up.

It's hard, but that's why so few people do it well

Growth of a PHB

Was talking with an old friend over dinner, and it was amusing to see him go from a techie with the 'gift', and grow into a PHB. Talk of budgets, management, projects, staffing. All the stuff that would have been poison to his system 5 years ago starting to creep into his thinking.

He's also slowing down from the techie life, and entering a stage of stability. Wonder if I'll ever get there? Wonder if I'll want stability when I do get it?

He's on his way to management.
Where are you going?

NDA's

They come up all the time, Non Disclosure Agreements. Most investors say "NO" to these if it comes up before they see an executive summary or business plan. For the rare people who can get an NDA before presenting a business plan, none of them are reading this blog.

Why do investors say "No"? The litigation that can be involved if we pass on the first investment and then try to make an investment in a similar company later on will be horrendous. There could be many reasons why a company was passed, sometimes it's technology, management, other times it's timing, mood of the investors, etc.

We also can't help you, do research on you, if there's an NDA in place. Most of our intelligence happens outside the board room, times when there's something interesting and we will mention it in passing during a cocktail hour. If we're not allowed to talk about a deal, most of the time we hamper our own worth as an investor.

Finally, most of us are working as investors. Looking to find good investments, and manage them. Few, not many, but enough, are actively looking for a company to join. But setting up a company using your idea as basis, unless there's expertise, knowledge, and the ability to see the fatal flaw in your plan, it's unlikely that we're going to leave the spacious office, with plush carpeting to live on the processed food life of a start-up.

Do your homework on your investors, see if they understand the space, look at their current portfolio of investments, see who made those investments and when.

Happiness

I focus a bit on happiness, because it is such a personal criteria, but one that is universally applied.
Commerce, at the very end of the day is:
Buy This …….. You’ll be happy.
Now, you can fill in a lot of words between those 5 words above, but they define transactions in today’s world.

Buy This food, you’ll taste something good, you’ll be healthier, you’ll have no more hunger pangs, you’ll be happy.

Buy this dress, you’ll look beautiful, you’ll feel good, you’ll be happy.

Revlon admits they don’t sell make up, they sell hope.

They sell the hope you’ll be happy.

Take a look around

Stop and consider

Where are you going?

Is what you’re doing right now helping you get there?

If so, how?

If not, why not?

Once in a while, take a break, look up, and see where you’re going. Each path is a story. Where you’ve been, where you are now, what your next stage is, and the final goal. You have control over all these segments. But if there’s no clear path for you to draw, you’re going to have a harder time of it.

Wrong yet again

I thought I was joking when I wrote earlier about earning $X or earning $X+1 and clubbing baby seals. This article says you can go on vacation and do just that, for £110.

You might not have done anything wrong

But that doesn’t mean you’ve done anything right.

Doing ‘something’ tends to get you noticed. But once you’re noticed, you’re evaluated, judged and either kept track of or dismissed. Some folks will read this blog, many will stop after they distill the direction of my focus.

Most Chairmen/CEO’s I’ve met will take the time to assess you, if they notice you. Sometimes, they’ll go through the process, and decide it’s not worth keeping track of you again. Then you just fall into the woodwork as far as they’re concerned. Other times, you will pique their interest.

Get them to notice you for what you've done right, not wrong.

Other reasons

Time and time again, I’ve emphasized the monetary gain, IRR for investors.

It’s the easiest one to point to, and like most models, money is a proxy for “benefit”.

But some investors are concerned about the process as well as the money itself. So that making $X by making the world a better place, and making $X+$1 by clubbing baby seals. The investor is willing to sacrifice that $1, and go with the former investment. This might be an extreme situation, but it highlights the point that money isn’t the only return some investors want.Some funds will address this additional requirement as part of their filter. “If the company isn’t in the high tech field, we won’t invest.” This does mean it is important for the entrepreneur to understand the additional hurdles that must be cleared when going after funding.

When looking at angel funding, remember that the story you provide the angel is also of value. Some angles are looking to get back into the game, without having to put in the long hours, early morning meetings, and delays in the airport. Others are looking for ways to establish their legacy, and still others are only interested in the cash return. Approach all of these people the same way: as an individual.

All advice is wrong

Even this one.
Some advice is less wrong than the rest.

Change

God grant us the serenity to accept the things we cannot change, courage to change the things we can, and wisdom to know the difference.

Mostly, I’ll admit I don’t know if I can change things. So I’ve learned to accept things as they are. Accept people as they are, do not try to mold them/change them. People, I cannot change. They can change themselves, but it will be through their own doing, not mine.

If I get lucky, they’ll change themselves in a way I wanted, before they initiated their change. Otherwise, I still have to accept them the way they are.

This mentality is why I look for a good team BEFORE I make an investment. Thinking that a team can grow into their roles isn’t always wishful thinking, some people are able to grow right along with the company. However, without the luxury of time, given the choice between bringing someone new in, or hoping someone will change her ways. The right choice is ALWAYS to fire, and hire.

It’s not a nice way to put it. But every entrepreneur who has run a company for a significant amount of time has their own story of not firing fast enough. Jerry Colona had his article on firing people. The theme runs through many companies.

Don’t believe you’re unique in having to fire someone, or get fired