Over the weekend I received an email from man who had been badly burnt by a venture capital finder or middle-man. Here's a part of what he wrote:
I have just recently sent $2000 to a company for a "consulting fee" after they said they had gotten me a loan for the amount i needed. Then they disappeared with everyone's money that sent it to them. So i do not have the trust to send people money anymore ....
I'm probably starting to sound like a broken record on this topic, but please do not fall for these scams. There are a number of variations on the theme of , "I'll find you money if you first pay me up-front."
There are two kinds of startup entrepreneurs. There are those who announce their intentions to start a business, write a business plan, and then make no further progress for the next 6 to 12 months as they await some stranger to drop money into their laps. In most cases, they then abandon their plans. These are the majority. Then there are those who announce their plans to start a business and have cashflow within a month. These are the savvy minority who focus on creating a positive feedback loop from the get-go.
Find out the secrets of the latter group. Don't waste 6 to 12 months of your life with the wrong startup strategy.
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Here is a key point to remember about the process of dealing with venture capitalists:
Venture capitalists invest in movies, not snapshots
When you first see a deal as a venture capitalist, you see it at a point in time. If the entrepreneur tells you that you have only three weeks to make a decision, the decision is almost always an easy, "no". No venture capitalist likes to be rushed into a decision. Instead they prefer to observe the company and team perform over time (like a movie) as opposed to viewing them at just one discrete point in time (like a photo snapshot). If a team walks into the first meeting and outlines what they plan on achieving in the next two months, and then returns two months later having achieved each of the milestones plus two others, it's very impressive and gives the venture capitalist confidence that this is a team which knows how to execute on its plan.
Often you will feel as if a venture capitalist is stringing you along without being truly interested. This maybe the case, or he maybe watching to see if you are hitting the targets you said you would at the first meeting. You never quite know with them.
Bottom-line: don't expect a decision and a term sheet in the first meeting. Raising money is a long drawn-out ordeal that takes many months.
Well, my list of the Top Ten Books for Entrepreneurs isn't quite finished yet, but here's a start. I read everything that comes out on entrepreneuship and startups but find most of the best sellers little more than regurgitations of earlier books. So my list will be comprised of lesser known but better books.
Just to prove to you how difficult it is raising venture capital, angel capital, or any kind of capital for a startup, look at the latest financing ploy by some entrepreneur. He's resorted to selling pixels on a website to try to raise the million dollars needed to kick-start his main venture. So far it appears to be a slow slog for him but perhaps pixel sales will pick up if the blogging fraternity promotes his idea? Link
If you really pay attention to what entrepreneurs do, you will begin to notice that savvy entrepreneurs know how to create cash while the not-so-savvy try to raise it. Big difference.