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Oct 11

The Loan Wolves Rarely Get Funded

I recently attended the NJ Tech Meetup (http://www.meetup.com/njtech/) event at Howe Center – Stevens Institute of Technology, NJ, where the topic was Angel Investing Secrets. The speaker, Fabrice Grinda, was excellent. Unfortunately I think a lot of what he said may have been hard for the young entrepreneur to follow, based on the discussions I had after the event. The investors and veteran entrepreneurs, on the other hand were easy to spot due to their head nodding and audible confirmations…myself included.

Fabrice made the point that he will not invest in the "lone wolf entrepreneur", a.k.a. solopreneur, unless there was some extraordinary justification. But rather looks to invest in a 2 to 3 co-founder startup., which is the norm for angels. What was interesting to me was how this escaped the solopreneurs, that approached me after the presentation looking for funding. So I thought I should do a quick blog to reinforce this point.

I have pointed out in previous postings that investors are risk managers, so when they see a deal (a startup looking for investment) they use a physical or mental checklist to eliminate the opportunities. For example, Fabrice, referred to above, uses a 9 point checklist. Common to all lists is The Team. A solopreneur is not a team, so is considered an extremely high risk. Thus, if the first item in the checklist is "team validation" and there isn't one, then the investor won't continue down their list, they'll simply move on to the next deal.
 
So what do you do about this?
 
If you are a solepreneur and you need outside investment, your first activity is to sketch out a basic Org Chart (a diagram that identifies the roles/responsibilities within a company, starting or ending with the CEO / President). At the beginning your name will be assigned to every position, but what this will do is help you to identify who you need to bring in as co-founder. My first tip is DO NOT MAKE IT A CLONE OF YOU!!! E.g., if you're technical, such as a programmer, DO NOT bring in another programmer! Bring in someone who gets your idea, is passionate about it, but has other skils, such as marketing and sales. With two or more of you each representing different roles, especially with prior experience in those roles, you are becoming investment material.

How do you build a team without revenue to pay for it?
 
Investors are smart people. They know that a startup doesn't have the money for a staff, but they do need to see a Team. This means the people on your team do not have to be on the payroll. But, if they are crucial to the success of the startup, they need to be committed to joining the company once it's able to compensate them. BTW, I deliberately use the term compensate and not pay, because everyone's situation is different, so you'll WANT to negotiate separately with each member of the team. E.g., some people may be able to accept 100% equity for the commitment to you. Some may want a 50-50 mix of equity and cash, and so on.
 
The Team is important for various reasons:
 
Again, investors are smart people. They understand how hard it is to build a team and attract people when you only have a dream, a wing and a prayer to offer. So having a team is a sort of right of passage in that if you're capable of assembling a group of people, you must have a decent idea, you must be a people person or at least a person people trust, which are all good attributes for growing a business.

 

"This article may not be reproduced in whole or part without including the name of the author (James Naylor) and an acknowledgement of the fact the article was originally published in Shoestring Advice for Technology Startups (http://www.KENOVATech.com/blog). Any other use of this material is unauthorized and is a violation of law."

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