Nov 112014

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Dr. Earl R. Smith II


The Money Chase is the graveyard of many a start-up. It can drain the energy and resources out of a new company and leave the founders frustrated and bitter. For many, seeking angel or venture capital investment is the most complex and subtle effort they have ever made. Most money chases fail because the founders do not have an investment quality company. The others fail because they either mismanaged the process or misunderstood how a successful money hunt should be managed. Yet others fail because they are simply not credible as entrepreneurs. This article is about that last group. Experienced angel investors and venture capitalist are always on the lookout for them and seldom take them seriously. Here are some types that they normally see and, for the most part, avoid:

The Crazy Eights

  1. Man Have Got a Great Idea: The first group is the lazy and simple minded. Their clarion cry is, “I have this great idea for a business and want to find somebody to make it into a going company. I am the ‘idea man’ but lousy at doing anything. So I am looking for a mule to pull my wagon and for somebody to give me five million dollars for the idea.” Ideas are a dime a dozen and nine hundred and ninety-nine out of a thousand are pedestrian retreads of ideas that many others have had. Any angel investors or venture capitalist will tell you that they are constantly bombarded by these types. One of the reasons that they will not normally sign non-disclosure agreements is that they have seen almost every idea at least a dozen times and mostly from teams that have almost no chance of actually implementing and monetizing. If you are presenting to an investor who is experienced in your space, you should always start with the assumption that they have seen your idea before. Their questions will be, “is this the team to implement?
  2. Down the Rabbit Hole: Then there are the people who combine a Napoleonic complex with a rather loose grip on reality. These tend to be dismissive of the ‘business world’. They regularly wrap themselves in the cloak of ‘visionary’. (Beware of those who self-describe as visionaries as they almost certainly do not have the vision sufficient to see that they are not visionaries.) The details and ‘little people’ are of only minor interest to them. The world and the value of their company is self-manufactured and repeated over and over until it becomes a mantra. They have never subjected their product or service to potential customers for their consideration. Many will indicate that this is beneath them and the responsibility of the ‘business types’ that they will bring on board after funding. Whatever wonderland they may inhabit, I can assure you that it is of no interest to investors. They are interested in making a sound investment that will yield a big return; period, paragraph. Let the Mad Hatter and the March Hare enjoy their tea in private.
  3. It Is Just Me and the Mice: I call this type the ‘Lone Ranger’. One of the essential skills that a founder needs to have is the ability to draw together a well-balanced team that can refine and monetize a value proposition. If they cannot get A-level people to join their team and put shoulder to wheel during the early stages, their leadership, value proposition and ability to actually build a company comes sharply into question. You have to have a good team that can prove that there is a significant market for your product or service. Venture capitalist and angel investors may take meetings with Lone Rangers but they generally are just doing research into an area that interests them and seldom will consider seriously making an investment. One may have a good idea but it takes a team to build a profitable company.
  4. I Had Some Spare Time: I call these the casual entrepreneurs. Their approach to starting a business is passionless and often very clinical. Successful entrepreneurs are a blend of dedicated, focused passion for their value proposition and hard-headed, parsimonious persistence. They are easy to spot because both of these characteristics are consistent over time. Good entrepreneurs are also always restless; searching for ways to increase their chances of success. They are constantly asking about their competition, the strength of their value proposition and how to improve their team. Casual entrepreneurs present a stark contrast to this. They are diffident about their company, slovenly in their attention to details, less than interested in the competition and confident that their chosen level of engagement and energy will be sufficient to win the day. The key work here is sufficient. It almost never is.

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