Startup Investors Keep Secrets from Their Entrepreneurs(techvibes.com)
techvibes.com
Startup Investors Keep Secrets from Their Entrepreneurs
http://www.techvibes.com/blog/investors-secret-code-corporate-governance-2012-11-23
6 comments
Always nice to get an insider's POV and an education about what is going on in at least one angel investor's head
Investors are probably more guilty here - entrepreneurs, most of the time, are trying to "create value", in PG/HN speak. Investors who swindle entrepreneurs are just making money off others' efforts.
I'd recommend the book "Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist" for any entrepreneur seeking funding, especially if you feel in over your head with all this due diligence talk.
This is a very important article. Its not about good guys and bad guys, its about differing perspectives and varying expertise.
1) quote "...investor is bluffing to cover a lack of knowledge..."
-- read: the investor has no idea what you are doing and never will. They only invested because someone else they trust thinks its a money maker.
-- note: this is not a bad thing, its a reflection of what they are good at: money handling and profit making.
2) quote: "What most entrepreneurs don’t realize is that by failing to complete a deal structure, a cap table, and an exit model in advance, they greatly extend their due diligence period and ultimately hold up the cheque writing, sometimes for months."
-- read: and ultimately hold up the cheque writing, sometimes for months... and sometimes for fucking ever. Why? Because they are too naive or lazy to do their business homework, and the money boys walk away with their baby.
-- note: This is also not a bad thing, it is something you must be prepared for; you're a hacker right? Immerse in some VC, finance, management and negotiation books. See the world from their perspective, wiser is better.
1) quote "...investor is bluffing to cover a lack of knowledge..."
-- read: the investor has no idea what you are doing and never will. They only invested because someone else they trust thinks its a money maker.
-- note: this is not a bad thing, its a reflection of what they are good at: money handling and profit making.
2) quote: "What most entrepreneurs don’t realize is that by failing to complete a deal structure, a cap table, and an exit model in advance, they greatly extend their due diligence period and ultimately hold up the cheque writing, sometimes for months."
-- read: and ultimately hold up the cheque writing, sometimes for months... and sometimes for fucking ever. Why? Because they are too naive or lazy to do their business homework, and the money boys walk away with their baby.
-- note: This is also not a bad thing, it is something you must be prepared for; you're a hacker right? Immerse in some VC, finance, management and negotiation books. See the world from their perspective, wiser is better.
The bottom line is you get what you negotiate.
If you act like a patsy you'll be treated like one. If you sell your value to the investors you'll be in the position to drive terms.
That's why early stage fundraising/investing is tricky by definition. The value is purely speculative and is little more than guesswork based on a mix of intuition, guesswork and sheep instinct. The term "spray and pray" came into being for a reason.
But once you are later stage you raise on revenues / cash flow / profit / growth rate. Entrepreneur rightfully should be in the driver seat for this type of deal.
If you act like a patsy you'll be treated like one. If you sell your value to the investors you'll be in the position to drive terms.
That's why early stage fundraising/investing is tricky by definition. The value is purely speculative and is little more than guesswork based on a mix of intuition, guesswork and sheep instinct. The term "spray and pray" came into being for a reason.
But once you are later stage you raise on revenues / cash flow / profit / growth rate. Entrepreneur rightfully should be in the driver seat for this type of deal.