Mike Butcher’s post about the concentration of VC activity in London struck a chord with me and many others who are not based in the metropolis. Among other things, Mike says:
But what really makes me boiling mad is that he is not getting a fair hearing from potential backers. Yes, maybe he is barking up the wrong tree and doesn’t need VC funding. Maybe he just needs a friendly push towards a different type of backer.
But it behoves people like VCs to give an entrepreneur a straight answer, not waste their time, and – from first principles – hear their idea first and not care where they come from.
Last week, my CEO and I spent a couple of days running around the capital, meeting customers, potential partners and a VC. For us, getting there is time consuming and expensive, made even more so when you know we’re bootstrapping. In our case we have a chicken and egg situation to manage. On the one hand we know we have revenue coming down the pipe. On the other hand, we need to ramp a number of activities but are less clear about when revenue will kick in the way we need in order to fund everything we’d like to get done. What do we do? (Hint: a lot of scenario planning, budgets, what-ifs etc)
As a former partner in a firm of CAs I should know when and how to fund but in truth that’s far harder than you can imagine. It should be a walk in the park but it isn’t.
There are so many ‘what-ifs’ in play that simply figuring out the correct funding method is difficult. The ideal, least hassle scenario is that friends and family stump up but then I know what it’s like working with that kind of funding. It sometimes gets ugly, especially when things don’t fall into place the way you thought. And they never do, right?
What about government backed loans? That might work but then there’s the paperwork. Hardly makes it worthwhile because by the time you get the funds, the need has long past. Have you ever tried selling a software backed venture to a bank for loan capital? It’s really hard when the main asset comprises intellectual capital locked up in a few people’s heads. Which leaves the VC/angel route.
I have a number of friends who have been there and know the risks and opportunities that external funding bring. It’s a lot more than just worrying about the money. The pros and cons need careful weighing because the funding provider is going to want a significant say in how the business is run. For some, that’s a welcome relief, for others, a PITA.
The question for professionals is this: How would you advise this type of start up? What factors would you take into account and how would you lead your client towards the best fit solution? More important, why do I see very little written about this incredibly important topic by professional accountants? They’re at the heart of getting these things right and yet there is a paucity of material out there.
In the meantime, the comments to Mike’s post make clear there is a genuine issue to which you might want to contribute. Interestingly, Paul Fisher puts the hand out with excellent advice.
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