Top Ten Investor / Entrepreneur Lies / Fibs, Their Posturing & What I Think

IMES works with many companies that are either raising capital, have done it or are thinking about it in the future.  Many of the companies that want to raise capital won’t be able to and will need to bootstrap it (which I often encourage when possible).  Some will get it via the 3f’s Friends, Families and Fools and some will get it from Angels or Venture Capitalists.  Where ever the money comes from to either seed or expand a business the bottom line is that you have to make a pitch to get the money to start from someone.

Raising capital isn’t easy and we have blogged about ways to do it, keeping your VC slide deck short & sweet and executive memorandums.  However, on the more humorous side I thought I would add some commentary to a post from one of the more entertaining and semi famous VC’s I follow (Guy Kawasaki).  He recently posted the top ten lies of entrepreneurs and investors and I took the liberty of adding some tongue in cheek comments in bold (& where appropriate).

Guys post:

I leave you with two sets of top ten lies: one of entrepreneurs and one of investors so that you know what not to say and what not to believe.

Top Ten Lies of Entrepreneurs

1. “Our projections are conservative.” (But if I don’t show a hockey stick of growth you won’t listen and tell me I can’t make enough fast enough)
2. “Jupiter says our market will be $50 billion in ten years.” (And if I show you it is only $500 million you will tell me it is to small for a VC of your stature – as you’re only interest in home runs – not singles)
3. “Several Fortune 500 companies are set to do business with us.” (yep and If I don’t have name clients ready to go, you’ll tell me to get go get them before you can consider funding us)
4. “No one else can do what we’re doing.” (and if I tell you there is lots of competition and we’re not very different except for our positive attitude…………..)
5. “Hurry up because other investors are about to do our deal.” (we all know you’re going to drag your feet and take your time to do your due diligence and you know / we know we need your money  yesterday – so what would you like me to say, take your time you’re the only game in town?)
6. “Our product will go viral.” (hockey stick again – Entrepreneur speak “we’re posed for slow steady growth and although you won’t get your money back within the life of your current VC fund you can’t lose!”)
7. “The large companies in our market are too big, dumb, and slow to compete with us.” (If we didn’t think we could beat them why would we be here and why would you invest in us..?)
8. “Our management team is proven.” (would you prefer “we’re a bunch of propeller heads but we will learn on the way – with your money – forget about it………..we’re good to go”)
9. “We filed patents so our intellectual property is protected.” (And if we didn’t file you would tell us we don’t have any IP so if we fail you have nothing to fall back on so go get some IP or you can’t invest)
10. “All we have to do is get 1% of the market.” (yep, didn’t we hear that with China?)

The average number of these ten lies that I hear in most pitches is ten. At the very least, tell investors new lies.  (I like that at least Guy is being honest – twist the pitch in a new way so I don’t get bored with the same ten slides I tell everyone to show me:-)!)

Top Ten Lies of Investors

1. “I liked your company, but my partners didn’t.”  (happens, VC’s don’t want to be the only to pick a company within their own VC team – if something ever goes wrong guess where the finger points!)
2. “We are patient investors who want to help you build a great company.”  (Ha, Ha – my fund is a 10 year closed one and I have 3 years to invest 3 more to re-invest and 4 to divest – you figure out the timing)
3. “If you get a lead, we’ll invest too.” (Ummm, I didn’t say I would invest with just any other lead investor, did I?)
4. “There are no companies in our portfolio that conflict with what you’re doing.” (yep, there is also this game called liar’s poker and man are we good at it!!!!!)
5. “Show us some traction, and we’ll invest.” (can’t laugh at this one because it is fair … most of the time – but if I don’t have money to gain traction – how can I do it……?)
6. “We love to co-invest with other firms.” (as long as we take the lead, they follow what we want, our lawyer is bigger than them, we get our equity out first, we choose the next CEO+Board+management and………….)
7. “We’re investing in your team.” (but wait, didn’t we already say we don’t think your team is proven….?)
8. “We have lots of bandwith to dedicate to your company.” (As long as it doesn’t interfere with our golf and sailing schedule – we’re so busy you know. Oh and don’t forget if one of our companies starts looking like the next Google, Facebook etc., we’re really really busy )
9. “This is a plain, vanilla termsheet.” (except for all the perks for us that will hurt you down the line – you have no idea how much we pay our lawyers to slide stuff in – and we know you can’t afford a good lawyer)
10. “We will get other companies in our portfolio to work with you.” (right…………………..)

Do you know what the difference is between the lies of entrepreneurs and the lies of investors? The investors have money.

It’s not all bad news. Think of everything that an entrepreneur needs (tech ones, anyway), and you’ll see that most things are free or cheap.

• Marketing: use blogs and social media to promote your products.
• Tools: most tools are Open Source and free. Microsoft offers free versions of applications like Word, Excel and PowerPoint in the cloud!
• Infrastructure: More cloud goodness—you don’t have to buy servers anymore.
• People: callous for me to say, but in a recession, people are free or cheap.
• Office space: what office space? You can work out of your garage (like David Hewlett and Bill Packard) or just form a virtual team.

(I think the above is great advice!  Keep your posts coming Guy – they are always entertaining and more often than not have some great pearls of wisdom!)

Angel Network Review

Attended a Keiretsu Forum investor presentation in Silicon Valley last Friday which was long overdue.  I had met Randy Williams the founder and CEO of Keiretsu during a Berkeley Executive Venture Capital Class ( VC Executive Program) run by Jerry Engle (Monitor Ventures) a few years ago.  Jerry ran a great VC class digging into the meat of VC financing, valuation and perspectives of VC’s you don’t often see as the entrepreneur looking for investment.  I have also hired Jerry to go over the VC landscape in Silicon Valley with some of my Australian clients and I highly recommend him, David Charron and their VC classes.

Keiretsu Forum is now the largest Angel investor network in the world with 750+ members on three continents and growing.  They have invested over $200 million in 225 companies and their presentations are run like a well oiled machine!  I have spoken to Randy a few times since our initial meeting about opening up a branch in Australia and think that might happen sometime in the not too distant future (hint, hint Randy!).

Five companies presented at the forum: Windpower, Anza International, iVoiceNetwork, Vesuvio Entertainment and Reality Gap.  The members are provided with a presentation from each CEO followed by a Q&A session.  Having run these investor forums for Australian companies entering the US I’m well aware of the amount of preparation required prior to the event and how challenging it can be for CEO’s to step out of their “what they think is important world” to focus on what “investors think” is important.

As you can imagine the presentation quality varied wildly.  Some of the chaps had fancy video’s (which sometimes worked – note to presenters always test prior to delivery in front of an audience – don’t leave it up to the in room “techies”) and others were your standard vanilla PowerPoint you see in any investment pitch.  The presenter from IVoiceNetworks (Guy Morris) was a bit of a showman and was able to create some real excitement which glossed over some of the issues they’re facing.  That being said I think it is an interesting play that will attract investors.  Reality Gap seemed to focus on the games portion of their business when in reality the business was about Gamebux / monetizing virtual currency for social media networks and online gaming.  WindPower reminded me a little bit of another company I saw at AlwaysOn awhile back Mariah Power – but, the difference was a focus on wind turbines for commercial vs. individual home owners.  They have some issues but I think they might be the most investor ready of the group.

Vesuvio Entertainments play was all about making low budget ($100K), profitable movies from the get go with the CEO’s (Greg Sims) claim to fame being the discovery of George Clooney.  Hollywood is littered with the carcasses of startup movie studios but I think these guys may actually be able to make a go of it and I look forward to seeing if they can.  Anza International seemed to be the least polished of the group and I heard someone say they had completely changed their presentation (likely from a prior Keiretsu presentation) and unfortunately it showed.  Having worked in international business for the past two decades I can honestly say firsthand how much I abhor the ridiculous rates the big banks charge for international and domestic money transfers.  Randy Gutierrez (CEO) talked about the margins they charge vs. what he is doing with Anza.  His presentation wasn’t “great” but this space looks like a good one and flashy presentations don’t always translate to success.  I’m hoping he succeeds if only to bring the big banks down to earth from their exorbitant fees as well as my vote for a clamp down on the excesses of Goldman Sachs and Wall Street.

Keiretsu events are invitation only.  However, if you’re an entrepreneur or someone who is interested in investing in startups I highly recommend you contact these guys and attend one of their presentations.

Angel / VC Investment Patterns Changing?

I was reviewing a linked in email today from LinkSV and noticed a new profile for http://www.milo.com/ which is another site enabling shoppers to research stores, best buys and purchase locally.  That in and of itself was interesting but what was really interesting was the investors.  Traditionally in a $4.0m raise you would generally see 1 or 2 VC’s that would be in the investment to ensure they had good leverage and would not unnecessarily dilute their equity position.  However, in this case there were over a dozen investors from the Wharton School, to Angels to standard VC’s.  A fairly eclectic mix to what we would normally see in a social marketing venture.

So this begs the question, is there a new trend starting where the inside Angels are looking to get into bigger rounds with smaller chunks of capital replacing the traditional VC model?  Stay tuned this maybe worth watching.

Bury your head in the Sand, Or Hit the Gas Selectively?

So much doom & gloom has been written about how to run a business in a recession I thought I would pose a contrarian perspective to see what other bloggers / readers were thinking.

Everyone in Silicon Valley is now familiar with the “PowerPoint” that Sequoia Capital www.sequoiacap.com sent out last month. They were the buzz of Silicon Valley when they invited their portfolio entrepreneurs & CEOs into a meeting and greeted them with an image of a tombstone that said “RIP Good Times”. The premise of the meeting was to cut costs immediately and figure out how to survive and successfully emerge on the other side of what they predicted would be a long downturn. From a historical perspective they also had a similar all hands on deck meeting before the last downturn.

Sequoia’s speakers (including Uber-investor Mike Moritz) told the Financial Times www.ft.com/home/us “It’s pretty clear that demand is going to soften across the board for every company – it doesn’t matter if you’re selling to consumers or companies.” They went through each functional area and showed their investees how they could/should cut costs to decrease their burn rate and increase their survivability in an extended down turn.

Now, as a fellow entrepreneur I’m very familiar with the need to extend your burn rate and believe that some cost cutting is in order in downturns. However, I take a different tact than many when it comes to marketing. When most companies and people are burying their heads in the sand I believe it’s the best time to get going and create some head wind for your company! Your marketing / advertising efforts will get more bang for your buck because there is less competition for head space. Your dollars will go farther and marketing / advertising is cheaper because they’re happy for any new business they can get. Last, this is the time to gain market share on your competitors and strike while they’re scared and sitting around wondering what to do because “the sky is falling”, we better not do anything and just wait it out. Your more experienced Angels/VC’s get that and the ones who do usually get the best valuations / long term deals because they kept at it during a downturn but became more focused and used their marketing budget proactively. However, we all know it is much easier to be a sheep than strike out (especially in Australia w/the tall Popeye syndrome!) and hit the gas judiciously.To my mind, more entrepreneurs should take the contrarian Warren Buffet approach and when all the sheep are headed to the pens go out in the field and look at this time as an opportunity to take advantage of, rather than to run scared and miss out on an opportunity to position your company for the coming up turn!

Check out the American Marketing Associations survey www.marketingpower.com for more information on this topic.