In the past few months I have noticed that at many of the events I have gone to where (grown up) entrepreneurs are present alongside investors there has been a noticeable shift in the balance of power.
Many VCs, once the kings of their worlds – even the small first-fund ones – have been morose. Some of the best entrepreneurs I have been talking to saw the end of ‘Good Times‘ well before the now infamous Sequoia presentation of October 2008, have cut their cloth and altered their plans accordingly. They are heads down and leading their businesses, often without any thought of even speaking to investors – equity or debt – why waste time they reason.
They might have a point. With notable exceptions, (Atlas, Accel, Balderton, Index), there have been very few meaningful new funds in the past year and I heard that since Gordon’s grand announcements about supporting entrepreneurs with billions, approximately £ 17 million has actually been spent. You need to have a pretty strong relationship with your bank manager these days to go asking for more money from them. Most banks are happy during good times for you to run your account in breach of covenants. Mike Luckwell, a wily cove who has been making money from HIT Entertainment, Carlton, WPP and others for over 40 years made the point recently that they also know this makes it very easy for them to pull the rug when things are tough – and they do. There is no question it is hard to get funding on terms acceptable to both sides these days.
Entrepreneurs seem to be getting on with running their businesses without worrying too much about the money people. Whilst some investors hate to recognise it, investment is not the only thing that makes a company grow and despite reports of doom and gloom from many quarters, we are seeing entrepeenurial businesses getting cash from customers and from corporates who are finding that joint ventures are a way to draw on highly focused teams to innovate at a time when their R&D budgets may be under pressure.
This means that some of the investors I talk to feel marginalised. One, with a fund of multiple hundreds of millions commented that he didn’t see why he could invest in start ups when he could buy eBay at 3x cash.
Perhaps we need to reconsider what VCs do? Last time I looked they aint investing in public stock, they are trying to find great ideas and help build them into great businesses. The potential returns for this are massive but you need to have the right investors on board with you. This particular comment prompted two entrepreneurs in the room to comment privately later that they wouldn’t take money from an investor like this if they could possibly help it as they were more concerned with their own position and status than for the companies they invested in. A tad harsh perhaps but people have long memories.
If you are considering working with investors at this time, and there are some great ones out there, you might want to listen to what they talk about in public. If they are wishing themselves into other asset classes, bemoaning the state of the industry in general it could say many things about them. If they are talking about how their investments are fighting, focusing and winning, and finding ways to help them out, it might send a totally different message that people will remember for a long time – even if they are not looking for money now.