I like to tell people I have one of the best jobs in the world because I work both with entrepreneurs and capital sources.
The enthusiasm and drive of the entrepreneur is invigorating, and the sharp bottom line and Internal Rate of Return orientation of the capital guys keeps me as sharp as they are. However, even in the best of jobs, there is frustration, and I find nothing more frustrating than having a professional conversation with people who only want to talk, but never to listen.
What set me off was a wonderful lunch meeting with a sharp venture capitalist and an equally sharp angel investor. When any of us spoke, the others listened — really listened to what was being said. All three of us are working in the same general field, yet each knew we could learn from what the others had to say.
There was no “eureka moment,” and none was expected. We met to discuss opportunities. We did, and we learned from each others’ experiences. There was nothing revealed that we probably didn’t know before, but certainly not with the timeliness and emphasis of the current investing climate.
Professionals take the time to meet, discuss and explore opportunities. We listen carefully to others’ thoughts and seek out these golden opportunities. Now to my frustration: Why so often don’t entrepreneurs listen the same way?
Why shouldn’t an entrepreneur be as open and receptive to business ideas as the capital guys? I know I use too broad a brush when I say “entrepreneur” vs. qualifying it by saying “some” entrepreneurs, but more often than not, the entrepreneur believes he or she knows “The Truth” about valuation, getting funding, preparing the business plan, running the pro formas, operating the company, heading the marketing, writing new computer code, partnering, and on and on.
Why do some entrepreneurs fail to realize that the market has changed and that the valuations of two years ago are no longer the norm? And more important, why will they allow a fundable deal to die before agreeing to valuations that, though tough, are still worth doing? Sweat equity is being valued at a much lower level, but that doesn’t mean the entrepreneur still cannot be extremely successful.
In this ongoing series of articles, I relay some of the best practices and methodologies that give the entrepreneur a better chance at getting the funding or partnering relationship he or she seeks. I have given tips and hints of what to do and what not to do, of what can help a deal and what can hinder it.
On occasion, I address capital sources with the same goal. This mirrors what my job consists of, which is serving as a professional who helps the entrepreneur get the business plan properly structured, modeled and written to appeal to capital.
One thing I cannot do is change the rules of the marketplace. Supply and demand, return on investment, risk premiums, scarcity of intellectual and monetary capital, among other things, are beyond the control of any single individual or opportunity. That is why it’s called the marketplace.
A deal is consummated not at a theoretical level, but at the price and terms a buyer is willing to pay and a seller is willing to sell. That simple equation is the marketplace in action.
An essential requirement for an efficient market is the free flow of information. Capital sources know this, and there is a huge industry built to support this flow of information. Whether it be the Wall Street Journal, Red Herring, Forbes or a midday lunch meeting, information is shared and listened to.
I only wish that entrepreneurs would be as willing as the capital people to listen to what the market is saying.
Erwin Bruder ([email protected]) is managing director of emerging enterprises for Cleveland-based Prim Capital Corporation. He can be reached at (216) 830-1111, ext. 2220.