There is the infamous “one pager” that used to be called the executive summary. This little gem gives the potential investor a flavour of what is to come and why they should invest their cash. Of course, the ultimate investment weapon that many still look for is “the business plan”.
However, I believe the ultimate weapon is the entrepreneur behind all of this. And this is where it gets interesting and tricky at the same time.
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Entrepreneurs or business builders always want to get the best deal possible when they are seeking investment. It is not always the case though. I’ve seen many great ideas end up with poor investment and investors simply because they were desperate for cash and, potentially, about to run out of steam.
I don’t care much for investors who want to take over and suck up huge chunks of equity just because an entrepreneur’s back is against the wall. Suffice to say, though, it may be the law of the jungle. But adequate planning should mean the business builder has enough time to bring investment in the door. However, securing a good deal is not always easy.
The large majority of early-stage investors are fair-minded people. By early stage, I mean investing up to say £300,000. They want the best for the entrepreneur they are backing and the best for the business they are investing in. So, why then do I see so many deals fail and so many crazy behaviours kill off what could have been awesome and should have been easy? It’s called Deal Heat.
I’m working on a deal just now for £425,000. It involves three investors who, to be fair, are being pretty straightforward and eager to get things over the line and crack on with things. The issue is the entrepreneur and directors in the company. For some reason they appear to have dumped their brains at the front door and entered negotiations from a position of greed or stupidity. The greed element is fascinating.
Right now their company is worth about £1m on paper, but has zero cashflow and no customers. So, in my book, that means it’s worth a big fat nothing as no one will buy it. But, in their heads all of a sudden, because they have hooked investors, the company is now worth millions and they are already spending their “lottery” money on exit – an exit that is seven years away and has as much probability of landing as Elon Musk has of setting foot on Mars.
Nevertheless, we now are in a state of flux and if reality does not bite hard soon, then this deal is as dead as a dodo. I’m enabling the entrepreneurial team to see the realities of their intransigence in wanting big share options, salaries and, indeed, compensation if it all goes wrong. Eh? If it all goes pop, then that’s your fault chums. You can’t expect a pat on the back and a golden goodbye.
The stupidity element is also remarkable. When investors intimate to you that they are going to invest, you immediately think you are the only game in town. Wrong! The investor is not short of one-pagers to look at for other opportunities.
I see so many business builders work hard to snare an investor, then treat them with some form of contempt. Many relate the whole thing to a dating game. Unfortunately, much of that initial attraction gets dumbed down by practicalities that really have no place in the start-up romance.
My advice for what it is worth to anyone investing or seeking investment in any venture is “keep the heid” and make sure you stay grounded in the reality of now and not what could be.
The investment dating game is a long one, so when you get a match after lots of swiping left and right, make sure you keep a clear head and make it all the way up to the altar.
• Agitator and disruptor Jim Duffy is head of #GoDo at Entrepreneurial Spark