I spent a good bit of time in the last post covering capital; capital requirements, raising capital etc. Let’s begin this post by covering one last topic related to capital. A few of the companies I met with asked about agents. They had been approached by groups or individuals claiming the ability to raise money from angels and VCs and they wanted to know my thoughts. I should say that since we shut down our fund, I have been approached by no less than a dozen entrepreneurs looking for help raising money. There must be a nasty rumor floating around that I can raise money. I find this very funny and I’m sure my former partners would as well. The empirical evidence suggests that my money raising skills are far from noteworthy. If my skills were worthy of note, we would have successfully navigated the admittedly troubled waters and actually finished our raise. So, to answer their question, if you are approached by an agent claiming access to capital, approach them with caution. My experience has shown that those claiming to be able to raise money seldom can. The ones that can are too busy raising money to waste their time with cold outreach.
Most of the CEOs had yet to settle on a revenue model. Many frankly hadn’t thought through precisely how they planned to make money. I have always believed that emerging businesses should constantly challenge their business model, benchmarking off of other businesses with similar characteristics. I know that some investors get upset when the revenue model they invested in changes dramatically. Frankly, I think that kind of thinking is myopic and just flat wrong. An emerging business may change their model half a dozen times or more before figuring out how not to leave money on the table.
VCs see hundreds if not thousands of plans each year. As such, we have typically seen dozens of plans covering any given space. The sheer number of businesses seen gives us perspective and allows us to assess where a business lies in the value chain and if they are positioned correctly. This of course, doesn't make us right but we usually have seen enough similar offerings to at least have an educated oppinion. This topic is probably best left for another day as it really should at least be a solo post and perhaps a series of posts. So, I will leave it at this; emerging businesses should evaluate their position in the value chain and attempt to assess if that position is aligned with core competencies. Several of the firms in PA probably should take a swim upstream/downstream to fully realize their potential.
The final observation I’d like to cover related to my PA trip has to do with angel groups and the not so recent trend for them to attempt to be VCs. Angels in general, should leave the heavily structured term sheets and milestoned investments to the professionals. The angel organization that tries to mimic the process and criteria of a VC is creating a dangerous precedent. Don't get me wrong. Angels form a vital piece of the ecosystem and they tend to good people looking to impact their community in a profound way; but they don't do this professionally. I made the analogy during one of my meetings that an angel trying to be a VC is akin to someone trying to count cards in a six deck shoe. You are better off playing it straight unless you are really good at it and there are probably less than 200 people on the planet that can accurately keep a count on a six deck shoe.
No comments:
Post a Comment