Money is in plentiful supply for entrepreneurs Friday, December 01, 2006
Whilst drinking with Sam Sethi of Techcrunch UK today, a chap we were talking to made the comment that still amazes me - he said that entrepreneurs can't find money to back their ideas.
This riles me - there is a huge wall of money out there desperately looking for great ideas to back. But the perception evidently exists so we discussed why it might be
- Entrepreneurs don't know where to look or people to ask. This is a case of a networking and if you can't do this well as an entrepreneur how the heck are you going to do at selling your "thing". Most investors don't advertise themselves - who wants a line of idiots with stupid ideas asking for money. So most investors will only accept meetings from trusted recommendations. There are occasional exceptions but generally you have to network.
- Investors won't back the idea. This isn't a money shortage - it conceals much more usually including its a lousy idea; the team are poor; the plan to execute is weak; the terms are unattractive
- Investors demand too much. Possibly true, but then many entrepreneurs have little to base this on. Similarly, entrepreneurs usually see their offering as a sure thing which just needs a little cash flow to oil the wheels, and thus shouldn't require any "risk premium". Strangely enough, investors usually see a risky venture lacking a few things and facing a challenge, thus requiring a premium to offset probable losses.
- Investors won't pay salaries to entrepreneurs. This is not entirely true as "porridge" allowance is permitted but an entrepreneur isn't necessarily going to be paid to live the high life. This isn't because of double standards by VCs. Personally I can't understand why someone would trade today's cash flow in the form of salary for equity in a business that you believe will be worth a huge amount. Moreover you have to be prepared to take some risk as an entrepreneur (sounds obvious) and being feathernested is just not going to happen.
Oddly, and I think Sam agreed with me, there's no shortage of money just a shortage of talent willing to take a risk with their own ideas or even ideas from others. If you can accept that challenge and your idea is sound, you shouldn't have a problem.