May 132010

Dr. Earl R. Smith II


Driving a Broken Wheel

One of the most frustrating things about getting a business off the ground, up and running, is the money chase. There seems to be no end to the meetings without tangible results or the polite ‘don’t call us, we’ll call you’ responses to a polished and passionate presentation. I regularly encounter founders who are at the end of their rope and absolutely certain that potential investors have simply been toying with them in some perverse game of cat and mouse. Their teams are disintegrating, creditors are knocking then pounding on the door and the future looks bleaker each day. Worse, the time spent in the money chase has bled effort and resources away from building out the team and refining the business plan. It is sad that this is such a frequently occurring experience. It is even sadder that it does not have to be that way at all.

It is widely accepted that the current model for venture capital and private equity investment is broken. Investors, who provide funding, are increasingly intrusive and, at times, overbearing. One recently told me that “we like to be in control of our destiny”. My response was to ask, “does that mean that the founders have to give up control of theirs?” The question was clearly seen as irrelevant and an inconvenience. These investors operate more as shadow CEOs. Founders and their teams become their captives. Their business instincts and understanding of their space become subordinated to the ‘one-size-fits-all’, soft Machiavellian vision of the investors. It’s past time to find an alternative.

Shallow Focus Yields Shallow Results

One of the reasons that the model is broken is that institutional investors have ceded the final investment decisions to a group of fund managers who have insisted on a process that suits them but does not serve the process well. The first weakness is an insistence on an ‘elevator speech”. Investors prowl the networking events listing to one thirty-second pitch after another as if they were using a metal detector and listening for the squeal of a find.

A second weakness is the preference that presentations be in the form of a PowerPoint slide deck. If elevator speeches are the poster children for shallow thinking, slide decks are the very definition if it. A mentor was fond of telling me “if you can sum it up in 30 seconds or a set of bullets, it is either not worth your time or you don’t understand what you are talking about. If the people you are talking to either demand or assume that you can do that, they are not worth talking to.” Personally, I prefer conversations that start off “it’s complicated”; followed by evidence of a sophisticated grasp of difficult and complex issues. That conversation is worth my time – speed dating is not.

Founders would do better with an approach that allows their team to focus on building out the plan, sharpening the value propositions, developing customers and refining the financial model. Time spent in the money chase does not advance the value of the company nor does it increase the probability that it will succeed and flourish. A different approach is needed; one that significantly improves the viability of new companies by reducing the unproductive burdens on the team

Shifting the Focus – Resetting the Priorities – Distributing the Burden

We maintain relationships with a range of funding sources. Our strength is in matching the investment objectives of those sources with the teams we are working with. For the most part, these are directly with the sources of investment. This disintermediation allows us to assume the burdens associated with arranging funding and frees the teams we incubate to focus on building their businesses. We organize and streamline the money chase and them manage it. In addition to streamlining the funding process and relieving your team of its burden, we bring a number of other benefits to the teams we work with:

  • We allow you to focus on building your team and the business:
  • You get relief from the senseless and time wasting grind of the money chase
  • Ours is a process that is designed, from start to finish, to meet the investment criteria of our investor partners
  • We provide support for building out your team and developing and testing your business plan
  • The Federal Circle provides governance and oversight on behalf of the investors post-investment
  • We support teams that are interested in growing by further acquisition
  • You receive ongoing strategic advisory from high-level individuals and companies

The net result is that:

  • you have a greater chance of actually getting funded
  • on terms that are competitive with those that the venture funds offer
  • will spend much more time developing your business and customers
  • will not have to suffer the intrusiveness of the typical VC oversight
  • can focus on building your business rather than setting off on the money chase

I am not interested in running your business. I do not want to manage your business or team. My objective is to build partnerships which open doors and opportunities for the companies and teams we work with. Working together, one and one can sum up to far more than two. If you would like to explore how a partnership could benefit you and your team, contact me and we will set up a meeting.

© Dr. Earl R. Smith II

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