The Founder Ferrari Syndrome
Switters just sent me a good piece from the Australian IT, that continues the (old, regurgitated) flavour of the month about Australian startups and VC. (with Cam Reilly now surfing the Malibu waves) This quote's pretty funny tho.
"The founders tended to be a bit greedy prematurely. They wanted to go immediately to market, take their cash and buy their Ferrari. They weren't prepared, in most cases, to dilute their positions to get the right people and the right capital to do the job."
Can't say I've met too many entrepreneurs that drive Ferraris; Although I have seen the odd Macquarie Banker drive Bentley Continental GT's around Sydney Financial District. (we all know the real money's in private equity at moment :)
One of the big lessons I learnt last time, is that venture investments are not success in themselves (often it's the opposite) When it is the right thing, it's more the beginning than an exit. And now you have to make (insert Kerry Packer or investors name) 10 to 30 times back on the money. (which investors also prefer not be spent ie the best companies that raise money dont need it etc :) So you'd want to look at your business and think conservatively your business can be worth that much in 2-7 years. (and not by wishing or blue sky analysis)
Entrepreneurs that have literally been around a business when Kerry asks for his money back know that venture funding is only taken when they are certain that Kerry will be paid back (It's not free money to explore your dreams with a Hallmark lesson about failure at the end : "I spent $60m to learn to use a computer and email" etc is not what you want to hear at the end of a venture, and certainly not what an investor wants to hear.)
VC for a business that is executing on its space (which it has enough proprietary data on the industry to know financial attractiveness and the business model to unlock these untapped dollars : Let's face it, web 2.0 is like a new restaurant opening or any new business - you need to know how many bums on seats, how much you can charge, and how much less your costs are versus revenue : From today till exit)
Anyway I was saying VC is the best way to put a business into positive margin hyperspeed : And lock out other competition. It can also help attract and retain staff, which feedbacks to a better business. But more money will not solve fundamental technical, product or people (read structural) issues, nor buy momentum. For the wrong business, it's a noose; For the right one, it gets you to the real destination as quick as a Ferrari F599 GTB.
"The founders tended to be a bit greedy prematurely. They wanted to go immediately to market, take their cash and buy their Ferrari. They weren't prepared, in most cases, to dilute their positions to get the right people and the right capital to do the job."
Can't say I've met too many entrepreneurs that drive Ferraris; Although I have seen the odd Macquarie Banker drive Bentley Continental GT's around Sydney Financial District. (we all know the real money's in private equity at moment :)
One of the big lessons I learnt last time, is that venture investments are not success in themselves (often it's the opposite) When it is the right thing, it's more the beginning than an exit. And now you have to make (insert Kerry Packer or investors name) 10 to 30 times back on the money. (which investors also prefer not be spent ie the best companies that raise money dont need it etc :) So you'd want to look at your business and think conservatively your business can be worth that much in 2-7 years. (and not by wishing or blue sky analysis)
Entrepreneurs that have literally been around a business when Kerry asks for his money back know that venture funding is only taken when they are certain that Kerry will be paid back (It's not free money to explore your dreams with a Hallmark lesson about failure at the end : "I spent $60m to learn to use a computer and email" etc is not what you want to hear at the end of a venture, and certainly not what an investor wants to hear.)
VC for a business that is executing on its space (which it has enough proprietary data on the industry to know financial attractiveness and the business model to unlock these untapped dollars : Let's face it, web 2.0 is like a new restaurant opening or any new business - you need to know how many bums on seats, how much you can charge, and how much less your costs are versus revenue : From today till exit)
Anyway I was saying VC is the best way to put a business into positive margin hyperspeed : And lock out other competition. It can also help attract and retain staff, which feedbacks to a better business. But more money will not solve fundamental technical, product or people (read structural) issues, nor buy momentum. For the wrong business, it's a noose; For the right one, it gets you to the real destination as quick as a Ferrari F599 GTB.
posted by redbarren at 10:36 AM
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