Grim Fairy Tales – Part I

You learn something new every day (they say) and I certainly find this to be the case. Whilst I am often asked how to raise money or attract investors, I often find it is easier to demonstrate how not to do it, based on my own experiences (and those of people I know).

Last week for instance I heard about a company raising equity finance which seemed to confuse investors with fairy godmothers and I tweeted about that particular lesson.

They say there is a fool with money to match every CEO’s aspiration, but I don’t work that way. My reputation is important to me – it is how I get referrals and introductions, and how I meet investors around the world. So, I try to encourage companies to understand how investors think and what information (and what format) they want to see it in.

Having recently watched the US series Grimm, I decided to write my own version based on fund raising and business advisory experience spanning nearly 30 years. For obvious reasons all names are changed, and in some cases the details are “blurred” to protect the feelings & identities of the not so innocent players.

I am frequently told that investment decisions are based 60% on the management – although I used to work at a fund I don’t think this is true, but it conveys the right idea. So it is fairly fundamental that management teams act and look like grown-ups, who know their role and responsibilities, understand how to behave like adults in public and realise that a team is an entity made of disparate parts.

My fairy tale is this category is pretty simple.

Once upon a time, in a board room not so far from Grosvenor Square, I sat across the table from a CEO and CTO of a small, pre-revenue software company. It was a niche business, providing a specialised software solution to a moderately large and unsophisticated market. The CEO had once been an operator in the space and the CTO had experience developing the solutions for the market. So far so good.

As the presentation progressed, I was moderately impressed – they had thought about the needs of the market, devised a cost effective solution to a prevalent problem and had some beta sites ready to go online with the full product and pay. At which point we came to the future sales strategy (they had sold their beta sites directly). Sadly at this point the wheels came off the machine because whilst the CEO was presenting the strategy for an indirect approach through IT suppliers and service providers, the CTO was clearly getting agitated, and finally could not contain himself.

He pretty much exploded with anger, shouting at the CEO that this was the wrong way to go and they’d agreed to sell direct. A row ensued, the sort that requires grown men to stand up and sling insults at each other. I observed the battle for a short period before advising them that I’d probably seen enough and suggested we take a break for them to calm down. It dawned on them where they were (in someone else’s boardroom) and why they were there (to pitch for investment). Though they calmed down enough to be civil to each other (and me), apologised, asked if I had any questions (I didn’t) and left. The recriminations continued as far as I could see all the way to Park Lane.

Next time: Valuation

Permanent link to this article: http://www.concap.cc/2012/05/grim-fairy-tales-part-i/

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