I see plans where there is no company, a one man army. There are obviously no customers and no revenues. There is a spreadsheet which shows an exit valuation of $50MM. The entrepreneur wants to raise $1.4 MM and is prepared to invest the princely sum of $10,000 including money from friends and family. Obviously this is the first company that the entrepreneur is doing and there is no lawyer that the entrepreneur has and no advisors.
Another plan was trying to raise debt from angels at 9% because that is higher than the fixed deposit rate ?
Would you invest as an angel? If you would there is a bridge in Brooklyn I want to sell to you.
Please do not send me plans like this. You are wasting my time and yours.
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I agree with Mr.Sanjay’s irritation – no customers, no revenues and no advisors! I also assume that there is no primary market research (since if the wannabe entrepreneur had done considerable primary market research, he would surely have gained in experience, contacts and sophistication of the plan which hasn’t happened here).
I also agree when Mr.Sanjay says that most angels/investors are not paternalistic helpers for wannabe entrepreneurs – they have no need to be.
But, quoting Mr.Balaji Sowmyanarayanan – ‘Bunch of jokers will apply for funding and track their status through Right of Information Act.’ and ‘We need detailed stories of successful Indian ventures on how they started out with their ideas and how they went about making it big.’ – I am sure that most of the “Successfull Indian Ventures” would have been termed as being run by a “bunch of jokers” before they were “successfull”.
Most entrepreneurs when they start (especially if they are fresh graduates) have nothing but passion as their tool. Over a period of time, through persistence they learn, overcome their faults and grow.
Hi ABC,
Thanks for your comment. I did want to provoke with my post. Most angels especially me are not paternalistic helpers for entrepreneurs. I want the entrepreneurs that I invest in to build “elephants” . If they do that they will create wealth for the economy, themselves and me.
I think the word “angel” misleads a lot of people. An entrepreneur may find a true angel who gives a lot of money for very little in return. If they do more power to them.
In my opinion, which may be wrong there are lot of misconceptions which lead to entrepreneurs shooting themselves in the foot. It may help to see how Amazon raised money.
In Q3 of 1994 Jeff Bezos started with $10,000 and borrowed $44,000 ( personal loan/credit card probably). In Q2 of 1995 his parents invested $250,000 ( six – nine months after he started). six months after his parents in Q4 of 95 two angels invested $50,000. Three months after that an angel syndicate invested $950000( 20 angels invested $47000 each) . Three months after that a VC invested $8MM and his siblings invested $20,000. One year after that $50MM was raised in an IPO. ( Q2, 97).
I hope the Amazon story helps put my “insanity” comment in perspective.
Hey my comment got cut. let me continue…
( IRR of not
Hi ABC,
Debt as a tool to start a business may not be a bad idea, for a growth stage venture, not a startup….because there are some excess baggage associated with the term. Secured debt calls for collateral which may not be sufficiently available with a startup founder. Unsecured debt may not wind its way to startups since they lack a profitability track record. Forecast performance metrics ( projections ) are not taken on face value by lenders – sometimes the rates of discount applied on those numbers can even fall below 50%.
That precisely is the raison d’etre for the emergence of VC / PE as a separate ecosystem / Asset Class. For startups, help can only come from someone who’s seen value in your activity and walks in with his eyes wide open. And he who values your business would certainly like a piece of your action ( read equity ).
Hence the preference for capital and not debt. But remember, a VC will always look for above average rate of return ( IRR of not
ABC, (sorry, but have no other handle 🙂
I do not think the intent is to pass a decree a la Donald Trump, but highlight some things that fail to reflect the basic understanding of the process. I am sure such frustrations are a part of our roles both as VCs and as entrepreneurs.
As I read the post, the basic point seems to be the basic appreciation of the risk that an investor takes at an early stage. It is only fair on part of an entrepreneur to try hard and retain equity as much and as long as possible, but things snap if stretched too far…