Wow I didn’t realize I’d taken a whole month off from blogging. We’ve been busy with the holidays (and spending time with the four of our five kids who are home from college). But also – more to your interest – trying to put together an angel investment deal. Looks like the deal is dead (but there is some slight hope so I don’t want to name names at this point).
I’m finding a huge disconnect between investors and entrepreneurs. And not just their needs – their entire outlook on the process. It seems like they both believe they’re doing the other a favor by offering them an opportunity to be in the deal. That may sound like a win-win but it’s really a situation where each won’t accept the other’s point of view. So it makes coming to an agreement difficult.
The other problem I’m seeing is that angel investors seem to believe they are just mini VCs. So they are looking for companies they can cash out in 5-7 years for 20-plus times their investments. The chances of that happening are not strong, so VCs hedge their bets by being in a lot of deals, and trying to cut their losses when things go south. But that’s not usually what the entrepreneurs want. Especially the large numbers of entrepreneurs who have viable companies that aren’t venture companies, yet need some investment. As Paul Graham has said VCs prefer a 20% shot at making 100 million over an 80% shot at making 10 million over 100% shot at making 1 million. Entrepreneurs prefer the opposite. [I can't find the exact quote, this is a paraphrase.] I found the quote: “The founders, who have nothing, would prefer a 100% chance of $1 million to a 20% chance of $10 million, while the VCs can afford to be “rational” and prefer the latter.” It’s from The Venture Capital Squeeze
Takeaway:
[tags]Angel Investing, Finance, Raising Money, Capital, Small Business, Entrepreneur[/tags]
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3 Comments
Jude McArthur
Dear John,
I was checking out the internet to see if there was any small business coaching available when I came across your Blog.
My partner and I have had our preserving business for a year now and are excited with the response.
Check out our web-site and let me know what you think.
Thanks, Jude
08 Jan 2007 02:01 am
Tanner
I would actually love to invest in a string of companies, boring ones, that produce income. I’m talking about daycare centers, gas stations, ect. Anything that has able management. Even people that I know who want to start a business but don’t have the cash but the expertise would rather NOT start a business than accept money. How odd is that?
01 Mar 2007 04:03 pm
John Seiffer
Tanner,
I know what you mean. I think there is a lack of a method or infrastructure for this kind of investment. Of course, when someone takes money from an investor, it means they can’t play as fast and loose as they can if it’s their money. Sometimes that lack of oversight is one of the appeals of running your own business – though most people don’t say it exactly that way.
01 Mar 2007 07:03 pm
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