Too often, investors and entrepreneurs think of themselves as being, “on opposites sides of the table.” Raising capital is a negotiation that regularly pits investors against entrepreneurs (and vice versa). This adversarial relationship is quite common, and the relationship between investors and entrepreneurs (many people describe it as a marriage) regularly falls apart. Sure, when money is raised and publicly announced everyone (for the most part) is exuberant, and press releases contain wonderful quotes from the entrepreneurs and investors. It’s the beginning of the honeymoon. But getting to that stage can be extremely difficult, and for inexperienced entrepreneurs it can be somewhat shocking. When it comes time to negotiate terms, investors are looking for the best deal. And the same holds true for entrepreneurs. Tempers flare, demands are made and the process can be challenging, stressful and drawn out.
Entrepreneurs and investors are on opposites sides of the table.
But that’s starting to change. The advent of super angels and micro-VC is pushing deals to happen more quickly with better terms (for entrepreneurs.) We’re seeing a better alignment of interests between entrepreneurs and investors and that’s going right up the food chain from bootstrapped startups raising a couple thousand dollars to later stage VC deals. The table is shrinking.
I don’t think it’s possible to get rid of the table completely; and in fact there are very good reasons not to do so. Investors need control over certain things and have to be able to exercise their rights from time to time. They are providing much-needed capital after all, and they deserve rights along with that. So there will always be points of negotiation in any investment agreement, even as funding documents become more public and/or go open source. But the table is shrinking.
This is one of the reasons I wanted to start Year One Labs along with Raymond Luk, Alistair Croll and Ian Rae – to further shrink the table. We’re all entrepreneurs, we’ve all raised money. Raymond and Ian also have experience as angel investors. We’ve collectively sat on “both sides of the table” and seen the struggles and frustrations firsthand. Raising money shouldn’t be easy or automatic (money doesn’t grow on trees, let’s be realistic, even as frothy as the market may seem of late), but the process should be done as quickly as possible, transparently and honestly. Bickering over terms that will more than likely be meaningless doesn’t move the process forward. Having founders spend the bulk of their time raising capital to the detriment of growing their business doesn’t help either. And having investors that write checks but do little else is also very clearly breaking down. The value proposition just isn’t there.
For me, shrinking the table means moving more quickly, being transparent, helping entrepreneurs through the financing process and then rolling up my sleeves, post-financing, to add as much value as I possibly can. At Year One Labs we think of the entire process as “co-creation” where we’ll be sitting right next to the entrepreneurs making things happen. I know a lot of angels, super angels, micro-VCs and venture capital firms that are doing much of the same (although not likely to the extent that we’re planning.) You can clearly see the direction things are going.
The table is shrinking, and that’s a good thing.
Originally posted on http://www.yearonelabs.com/shrinking-the-table/.
Image courtesy of shutterstock.