Wow… Anthill VC Month is drawing out some very candid submissions. That’s got to be a plus – especially for any entrepreneur who needs to hear that he/she is not alone when trying to negotiate VC and angel demands and attitudes.
It’s great to see entrepreneurs telling it how it really is and having the guts to make public statements about their experiences, to save others time, effort and disappointment when dealing with these investor groups.
No wonder there is such a great divide between entrepreneurs and these two groups, with VCs and angels having a well-worn approach that requires entrepreneurs to prove that their venture:
- has a unique product or service with proven global demand
- has bulletproof IP in place
- has established cash-flow
- has a first-class management and operational team
- has distribution and sales channels in place
- has excellent prospects for long-term growth
- has minimal risk (despite being a new venture)
- will provide well-paid Directorships for the incoming investors to attend an occasional meeting and provide “vital” business input.
VCs and angels often have the entrepreneur (after providing extensive details on the venture and its potential) “pitch” to groups of would-be investors (whose backgrounds and capabilities he/she has no knowledge of whatever) – a miniscule “stand up and wow them” presentation, so that these experts can instantly assess whether the venture has any real value.
Finally, the entrepreneur must demonstrate to these groups a well-defined “exit strategy” that includes producing 10x to 15x returns within three to five years for the new investors. The VC/angel rationale for this incredible demand is that “so few projects are winners that we need to make enormous profits from the ones that succeed”. In other words, “We need your project to make up for our selection of losers!”
It is obvious that the objectives of the two sides are misaligned, hence the miniscule percentage of projects that actually secure appropriate funding from these groups.
We constantly see reports on how Australia provides such little backing for innovation. Doesn’t that tell us that something has to change? That the current vehicles, attitudes and approaches are wrong?
My suggestion to entrepreneurs seeking funding and resources is… forget VCs… forget Angels. Seek out a business partner with a need that is aligned with your project.
Yes, you will still find that in presenting to these prospects you run into all the usual roadblocks… lack of vision, resentment that you have developed the new product or service (instead of their in-house people)… executives who have their own agendas and make sure your project doesn’t get to the decision-makers, others who will take your time and information and try to apply it while getting around your IP cover.
But… you have a far better chance of finding someone who has real commitment to your project and its objectives.
There is enough being written here (not just in VC month) to suggest there might be a leading role for Australian Anthill and other interested parties in initiating a new era of bringing entrepreneurs and business partners together in a very different and more consistently successful way?
It’s Venture Capital Month at Anthill. Click the image below to attend the event!