Venture Finance - Reality Versus Rumor
with Dick Brown
with Dick Brown
An entrepreneur’s most common question is “How do I get funding for my venture?
Maybe: … You're sitting in the weekly Staff Meeting and your boss is droning on about profits, productivity and work ethics. You're wishing he'd finish so you could get to the golf course earlier. Suddenly a freak set of random synapses fire in your grey matter. You think of “Popovers” and how you enjoyed them in the UK. You wonder why no one ever seems to make them in the US. It’s something called “an idea” and it sticks in your head.
Over the next couple of weeks “popovers” keeps jumping into your conscientious. You spend some time on the Internet and find that cooking popovers correctly is dicey and home cooking usually results in more failures than successes. By sheer coincidence, a small footnote describes a tiny modification to the cooking-cup that produces perfect popovers, every time. More research reveals these modified cups are not commercially available … and, they're not patented. You think for a while and apply for one.
You buy a book: “How To Be An Entrepreneur” and start thinking how to find the money you'd need to make your popovers (and the “magic mix”) a success. Each time you “get rational” and instinctively pull back because you realize you're a mid-level manager in a very large company and don't know a damn thing about baking, much less selling, popovers – but the market opportunity is so huge!
Or … You're “Sarah”, a young, single woman in your 20’s. You joined the seven-million US unemployed some weeks ago. Your cash reserves are slowly disappearing and although you were a computer programmer, you can't find a job. It’s time to consider another career path. You make a small, financial commitment and take some aptitude/attitude tests.
One of the test questions really grabs you. It’s a list of different occupations to rate and one of these is “entrepreneur”. You choose “entrepreneur” first every time. You join a local “Entrepreneurs’ Club”.
Then … Two more capitalists, Mark and Sarah, have been formed, dropped into “The Game” and begin to radiate their unique patterns. Mark has already found his venture. Sarah is seeking one.
There are 2.5 million small businesses in the US, generally limited to small, well-defined markets with limited growth potential. Most can be started at very low cost and are funded by the “3F’s” (family, friends and fools). These are not the high-growth “ventures” that professional investors seek.
Mark discovered that launching his venture and locating the substantial capital he needed would require devoting full-time for several months and most of his money. After a long and scary analysis, he decided to make the commitment. He quit his job and felt free for the first time in many years.
Sarah loved her “new entrepreneurs environment” and immediately saw the potential of all the new, “social networks” and joined several. Within a short time, she'd created contacts like herself all over the world. She still hadn't conceived a venture that seemed to fit, so she hung out a “consultant” plaque and appointed herself “President”. Then she acted as support to the people that had found niches and planned to latch on to one of these ventures … most of which were really small businesses.
She (and her compatriots) became fully occupied with the technical aspects and minutia of the individual enterprises. There was no time to read business books, attend outside meetings or cultivate people that were not already insiders. Further, they all were “technical people”, uncomfortable with “business and sales types”.
Collectively, they had created an active, homogeneous community: “the world we live in, according to us”. They all believed they'd “just have to succeed” since sparkling stories of Gates, Jobes, Woz, Page and Brin danced in their heads. The cycle was easy: invent some venture; go to the VC’s; expand insanely fast; do an IPO; … finito. Easy!
Mark had hardly begun work on his Business Plan when he ran into a wall. He found he didn't understand many things. Fortunately, he had a life-long friend, Dave, that was the VP of a well-known company. Mark got Dave’s pledge to join the new company after funding was obtained – and, to help in the search for money. They added a couple of very experienced, professional managers. They also joined a social media, LinkedIn, and were able to made “deals” with both a prestigious, national accounting firm and a well-known, “entrepreneurial” law firm, both for: “little payments now; big payments when we make it – plus all the popovers you can eat.”
Together, the four insiders worked out a coherent Business Plan with hefty growth and profit potential for investors. They had play-acting sessions and prepared to the point they could exchange roles and still give the same answers to 95% of any questions. They mutually decided that VC’s could help them more than angels and narrowed the final capital search.
Sarah and her friends grew catatonic when they finished their little business plans and began to learn that VC’s not only refused to finance any of them, but hardly bothered to acknowledge their submissions. They couldn't square their myopic myths with reality - Most VC’s won't even look at deals of less than $2 million and have standard barriers to supplicants wanting: “$150K so that I can eliminate all my personal financial worries while I code my software or build my site”.
Before they began, none of these neophytes ever stopped to ask themselves if they had the type of business that could attract outside money. So, for all the hours Sarah invested, she still needs a job and just became another disappointed dilettante that proclaims: “all VC’s are meaner than Jacob Marley and won't support America’s entrepreneurs”.
Mark got his VC funding and after the usual start-up bumps is doing quite well. Dave invented a clever incentive program that attracted entrepreneurs to sign on as independent, commission-only sales representatives. They recruited these people across the US using LinkedIn and Facebook. This saved a ton of money earmarked in the original BP to hire people. Mark and Dave spent it on increased advertising.
They're currently thinking about introducing their products into England.
… And, this is why “Sarah’s” get one out of a thousand Executive Summaries funded while the “Mark’s” tend to succeed.
Dick Brown is President/Founder of American World, a consulting company that helps entrepreneurs that are seeking capital. He has known dozens of these folks and has written or reviewed hundreds of Business Plans. He is author/publisher of two books - “How to Raise Money, the Truth”, a new, “how-to” for entrepreneurs and “The PC Revolution, an Anarchist’s Journal”, a first-person history that exposes the people and events that created the most brutal upheaval in the history of the computer industry. When it ended, giants such as Digital, Data General and Wang were out of business. Dick was an active participant. He knew all the players and lived with them throughout the insurrection.
Web: http://www.amerwld.com/
Email: dick@amerwld.com
Dick’s books and more information on AW are available at: http://www.amerwld.com/
For more information, please visit Dick's TNNW Bio.
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