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Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com
http://www.smashwords.com/books/view/53236
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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
- 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?”
- 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.
- 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.
- 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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42 Responses to “The Money Chase: Who They Do Not Invest In”
Sorry, the comment form is closed at this time.
Thanks to all for contributing to a very interesting discussion. Have a happy new year – may 2010 be prosperous for you all. Dr. Smith
Shaifali Veda wrote:
TOOOOOOOOOO gooooooooooooooooooood.
It was full of insight.
Thank you soooooo much
And wish you a very great New Year..
fundingroadmap.comfundingroadmap.com
Ruth Hedges wrote;
We built the http://www.fundingroadmap.com , where you plan, organize, benchmark, post and pitch in a completely virtual multiple choice business plan and due diligence reporting system platform to improve upon so many of these issues that both sides of the funding process have to deal with. Our process provides a more level playing field for access capital.
Michael Durwin wrote:
Thanks Joseph. Good to know. Of course we wouldn’t be pitching if we didn’t have multiple independent revenue streams to back up our financials and a highly experienced team behind our business model!
Joseph Barr wrote:
I’ve posted here once before. Truth is, I don’t care how cool, nifty, disruptive, earth changing or fantastic your idea is, if you can’t show me a valid and viable revenue model and if YOU can’t prove to me that YOU can execute on that model, you don’t stand a chance with me or the investors for whom I screen opportunities.
Gail, Thanks for the comment. You highlight two very important points. Entrepreneurs who ‘don’t want to know’ are dangerous. Even if you do enlighten them through the business plan, this tendency will most likely recur. Investors with any experience at all quickly learn how to sort out the snow jobs. One particular investor delights on ‘keeping them on the hook’. A bit sadistic, but it is his way of dealing with the insult. Dr. Smith
Gail Wallace wrote:
Dr. Smith,
Great article. As a writer of business plans that have achieved funding goals, I can’t agree with you enough about knowing and understanding the competition. Over the years, I have done most of the research on a client’s competitors because they “didn’t want to know.” However, once they understand the valuable information that can be gleaned from analyzing the competition, they come on board.
Another significant failure that I have seen with great regularity is lack of good rationale for the financials. Savvy investors know a “snow” job when they see one. Sometimes, one of the most difficult concepts to get through to a client is that honesty and erring on the side of caution are the best policies.
Joseph Barr wrote:
Earl,
I’ve been in the business of pre-screening for Angels and VC’s for the past 33 years and I’ve seen all of this; each and every time I meet an “inventor”. I have one major rule” I don’t take anything forward to the capital formation process unless I believe that the senior people are “bankable”.
Tim Smith wrote;
Dr. Smith- if you were looking to invest in a startup would you consider a green product company or a technology company? And why?
Robert Bartlett wrote:
I thought this was a great read, and shared with many people. Many of whom are “hunting” for angel money and fit the Characteristics! Thanks!
Desmond and Tim, Thanks for two great comments. Both were well worth reading. Thanks for adding to the discussion. I agree with Desmond’s suggestion that ‘every major project in any company should get the same rigorous and critical examination that a start up operation gets’ but would observe that sometimes start-ups don’t get the kind of scrutiny that those projects get. Tim: My experience is that investors are now regularly demanding that companies be farther along. although they sometimes do not want to hear it, I think that change is better for the entrepreneurs. For one thing, it filters out the flash in the pan boys. Dr. Smith
Tim Smith wrote:
Dr. Smith- excellent article. I actually read it through and applied each type to myself. I would say, “Is this me?.” Interestingly I saw other people I know reflected in the types listed, but not me… that was a relief. I am caring for two startups that are just coming up on their first birthday. Any investor we talked to during 2009 were gun-shy of a company with less than a year of operation. In fact one VC said to call him in 2010 and we will talk
Desmond Cleary wrote:
Very good read as well as the related articles. Indeed many of the traits and behaviours referred to are common practise in ongoing business.
The difference is that in an ongoing business scenario these basic flaws and their negative consequences can be absorbed by a company at least in the short term. However in a start up there is little leeway for error as eventually the investor will pull the plug on the funding.
However, there is a good case that every major project in any company should get the same rigorous and critical examination that a start up operation gets
However, while canny investors know there can be both reward and pain , company executives do not always share the same concerns as their shareholders and investors
Manoj Chandran wrote:
Excellent article
Thanks for the kind words. Harvey: I know investors who use knowledge of the competition as an initial screen. If they can learn more about the competition with a few sessions at Google than the team does during the presentation, they walk away. One of them once told me, “if you don’t know who you are up against, how can you figure your chances of winning?” Dr. Smith
William Jeansonne, M.B.A.wrote:
LOL, they are the exception, certainly not the the rule. I think a healthy ego is a good thing personally, but just not too much of one. But funny how you harp on the negative people with an ego. I’d prefer to focus on those with big egos such as William H. Gates, Albert Einstein, Groucho Marx, Abraham Lincoln, Teddy Roosevelt. and other great men with a healthy ego.
Hitler had an ego, so did Napoleon and Jack the Ripper. All of them probably saw themselves as visionaries. Some probably still do. I guess the Donald would see them all as ‘successful’. I’m not sure there is anything in a homily worth consuming.
William Jeansonne, M.B.A.wrote:
Yes, but Donald Trump once said, “show me a man without an ego and I’ll show you an unsuccessful man, a loser”.
dr-smith.infodr-smith.info
William, thanks for your comment. To see some comments on investors, go to http://www.dr-smith.info/angel-investors-to-avoid/ . I take visionary to be a title that you give to someone else. The ego implications of self-anointment are unavoidable. As a friend of mine liked to say, “you can paint yourself blue, cut off your legs and call yourself a mailbox; but that doesn’t make you one.” Thanks for the kind words about the article. I am glad that you found it useful. Dr. Smith
William Jeansonne, M.B.A. wrote:
Dr. Smith,
As always, I enjoyed reading your latest invective on all things entrepreneurial. I must say, it is indeed forthright, which I appreciate as an entrepreneur myself, but my God, it does come across as a bit harsh.
For one, I have described myself in the past, only in writing, as a visionary. I use it largely in place of the word, creative, since the latter typically signifies someone careless in their approach (especially with OPM), which certainly isn’t the case with me.
To be fair, and perhaps you have already addressed this in other writings, I think you should take a hard look at the different types of investors. Or which ones entrepreneurs should seek to avoid at all cost, particularly if it’s their first time out as a business owner/operator.
Suffice it is to say, your article is 99% spot on!
William Jeansonne, M.B.A. wrote:
LOL, they are the exception, certainly not the the rule. I think a healthy ego is a good thing personally, but just not too much of one. But funny how you harp on the negative people with an ego. I’d prefer to focus on those with big egos such as William H. Gates, Albert Einstein, Groucho Marx, Abraham Lincoln, Teddy Roosevelt. and other great men with a healthy ego.
Hitler had an ego, so did Napoleon and Jack the Ripper. All of them probably saw themselves as visionaries. Some probably still do. I guess the Donald would see them all as ’successful’. I’m not sure there is anything in a homily worth consuming.
William Jeansonne, M.B.A. wrote:
Yes, but Donald Trump once said, “show me a man without an ego and I’ll show you an unsuccessful man, a loser”.
dr-smith.infodr-smith.infodr-smith.infodr-smith.info
William, thanks for your comment. To see some comments on investors, go to http://www.dr-smith.info/angel-investors-to-avoid/ . I take visionary to be a title that you give to someone else. The ego implications of self-anointment are unavoidable. As a friend of mine liked to say, “you can paint yourself blue, cut off your legs and call yourself a mailbox; but that doesn’t make you one.” Thanks for the kind words about the article. I am glad that you found it useful. Dr. Smith
William Jeansonne, M.B.A. wrote:
Dr. Smith,
As always, I enjoyed reading your latest invective on all things entrepreneurial. I must say, it is indeed forthright, which I appreciate as an entrepreneur myself, but my God, it does come across as a bit harsh.
For one, I have described myself in the past, only in writing, as a visionary. I use it largely in place of the word, creative, since the latter typically signifies someone careless in their approach (especially with OPM), which certainly isn’t the case with me.
To be fair, and perhaps you have already addressed this in other writings, I think you should take a hard look at the different types of investors. Or which ones entrepreneurs should seek to avoid at all cost, particularly if it’s their first time out as a business owner/operator.
Suffice it is to say, your article is 99% spot on!
Kavitha Srinivasan, CMT wrote:
Excellent article, Dr. Smith. Being an entrepreneur myself, I really appreciate the points about knowing your competition and all the other facts mentioned in it. I am very very passionate about my organization and head of team of very capable individuals. Success in business has been my mantra in my life and people like you help in getting my thoughts together and motivating me to strive hard to get better and better in the corporate world. Wish you and all here a very happy and prosperous New Year. God Bless you all.
fundingroadmap.comfundingroadmap.comfundingroadmap.com
Ruth Hedges wrote:
We built the http://www.fundingroadmap.com , where you plan, organize, benchmark, post and pitch in a completely virtual multiple choice business plan and due diligence reporting system platform to improve upon so many of these issues that both sides of the funding process have to deal with. Our process provides a more level playing field for access capital.
Michael Durwin wrote:
Thanks Joseph. Good to know. Of course we wouldn’t be pitching if we didn’t have multiple independent revenue streams to back up our financials and a highly experienced team behind our business model!
Gail, Thanks for the comment. You highlight two very important points. Entrepreneurs who ‘don’t want to know’ are dangerous. Even if you do enlighten them through the business plan, this tendency will most likely recur. Investors with any experience at all quickly learn how to sort out the snow jobs. One particular investor delights on ‘keeping them on the hook’. A bit sadistic, but it is his way of dealing with the insult. Dr. Smith
Gail Zabel wrote:
Dr. Smith,
Great article. As a writer of business plans that have achieved funding goals, I can’t agree with you enough about knowing and understanding the competition. Over the years, I have done most of the research on a client’s competitors because they “didn’t want to know.” However, once they understand the valuable information that can be gleaned from analyzing the competition, they come on board.
Another significant failure that I have seen with great regularity is lack of good rationale for the financials. Savvy investors know a “snow” job when they see one. Sometimes, one of the most difficult concepts to get through to a client is that honesty and erring on the side of caution are the best policies.
Joseph, thanks for the comment. You are right on point. If the senior team is not bankable then the whole exercise is moot. Dr. Smith
Joseph Barr wrote:
Earl,
I’ve been in the business of pre-screening for Angels and VC’s for the past 33 years and I’ve seen all of this; each and every time I meet an “inventor”. I have one major rule” I don’t take anything forward to the capital formation process unless I believe that the senior people are “bankable”.
Tim Smith wrote:
Dr. Smith- if you were looking to invest in a startup would you consider a green product company or a technology company? And why?
Robert Bartlett wrote:
I thought this was a great read, and shared with many people. Many of whom are “hunting” for angel money and fit the Characteristics! Thanks!
Desmond and Tim, Thanks for two great comments. Both were well worth reading. Thanks for adding to the discussion. I agree with Desmond’s suggestion that ‘every major project in any company should get the same rigorous and critical examination that a start up operation gets’ but would observe that sometimes start-ups don’t get the kind of scrutiny that those projects get. Tim: My experience is that investors are now regularly demanding that companies be farther along. although they sometimes do not want to hear it, I think that change is better for the entrepreneurs. For one thing, it filters out the flash in the pan boys. Dr. Smith
Tim Smith wrote:
Dr. Smith- excellent article. I actually read it through and applied each type to myself. I would say, “Is this me?.” Interestingly I saw other people I know reflected in the types listed, but not me… that was a relief. I am caring for two startups that are just coming up on their first birthday. Any investor we talked to during 2009 were gun-shy of a company with less than a year of operation. In fact one VC said to call him in 2010 and we will talk
Desmond Cleary wrote:
Very good read as well as the related articles. Indeed many of the traits and behaviours referred to are common practise in ongoing business. The difference is that in an ongoing business scenario these basic flaws and their negative consequences can be absorbed by a company at least in the short term. However in a start up there is little leeway for error as eventually the investor will pull the plug on the funding. However, there is a good case that every major project in any company should get the same rigorous and critical examination that a start up operation gets. However, while canny investors know there can be both reward and pain , company executives do not always share the same concerns as their shareholders and investors
Thanks for the kind words. Harvey: I know investors who use knowledge of the competition as an initial screen. If they can learn more about the competition with a few sessions at Google than the team does during the presentation, they walk away. One of them once told me, “if you don’t know who you are up against, how can you figure your chances of winning?” Dr. Smith
Philip Daniels wrote:
Excellent read.
Harvey Martens wrote:
A very good read for an entrepreneur. You point about knowing the competition is particularly relevant to me right now with my most recent venture.
Excellent Reasons for failure. I was an enterpreuner once for about 6 years and failed desperataely looking for Investors I guess I knew the reasons then but ws not brave enough to start all over again. But I am ready now again and hope to succeed this time.
I agree with your coments regarding a fundable entrepreneur but probably because this is how I approach most things in life. I always plan and have lots of spreadsheets to organize my life.. some people that I have known have thought that I am an incredible pain since I am so thorough and ask lots of questions. My reasoning is that there are many ways that things can fail (or be succesful) and if you are thorough – your problems will be less and your ability to manage them will be greater. It reduces my stress and allows me to handle more things at one time.