Getting to "yes" in a world of "no"…

Archive for the ‘Dave McClure’ Category

Upcoming UCL “Entrepreneurship Guest Lecture”… please help!

In a few weeks’ time, I’ll be giving a lecture at University College London as part of their Entrepreneurship Guest Lecture series. Between you and me, my guess is that the organizers asked me because I’m specifically not one of the numerous “startup success theatre” aren’t-I-clever-for-getting-funded-don’t-you-wish-you-were-as-clever-as-me types you typically find putting themselves forward for lectures. Rather, what seems to have attracted their attention is simply that my whole funding startups blog tends to come across as a bit combative and controversial, and everyone loves a bit of a fight. :-)

Naturally, I’d be a tad disappointed if my lecture didn’t actually run into some kind of stand-up disagreement. Given that just about everything I’ve written here runs counter to how startups are generally (you would think, from the toxic blather usually passed off as startup wisdom) supposed to work, I would probably be somewhat sad to discover that I had become the voice of the mainstream. :-)

Anyway, to prepare for the lecture I’ve put together a minimalistic set of slides on the theme of “40 Reasons Not To Start Up” This quickly runs through forty distinct single-line reasons that you shouldn’t start up a company (and, as a punchline, the one half-reason why you should).  Yes, it has more than a passing similarity to Dave McClure’s well-known “Why Not To Do A Startup” 2010 talk (slides here, video here), but I like to think I’m talking from the right other side of the fence. ;-)

Right now, I have no idea if this presentation is overly sensible, overly negative or overly antagonistic: should it be even stronger (have I missed some really big reasons?) or dramatically toned down? I’d really appreciate your comments, thanks!

The problematic wisdom of angels…

As a UK entrepreneur looking for finance, I’ve managed to meet a good number of angel investors (130+), encompassing the good, the bad, and (indeed) the ugly faces of capitalism.

For all their differences, many have strikingly similar attributes:-

  • the Home Counties mini-mansion;
  • the trophy wife (yes, to surely nobody’s surprise most UK angels are male);
  • the small ‘Me Plc’ working office;
  • the constantly beeping Blackberry;
  • the enthusiastically overachieving hobby/-ies;
  • …all paid for by having cashed out their interest in some financial services variant right at the top.

When you meet them, they’re almost all relaxed, powerful, lovely blokes: and I’m not just saying that to kiss their virtual <whatever>s, they really are – basically because they can afford to be. That easy state of being is precisely what their success has bought them.

Yet the burning drive that pushed them to wherever they got to still smoulders not far beneath the now-comfortable surface, and they typically look to startups for a kind of surrogate adrenaline rush (which is perhaps a bit of a paradox, given that startups normally take several years to succeed or fail). All the same, I can’t help thinking that most of them will lose money from angel investing. And the reason for that comes down to what I call “the problematic wisdom of angels”.

You see, there are – broadly speaking – only five main investing paths UK angels tend to follow:-

1. Confetti mode - “Invest in almost everything that comes your way

Many angels start out like this, throwing small (£10K-£20K) lumps at a fair few of the entrepreneurs resourceful enough to network through to them. Investing like this can give angels a great buzz. However… they soon find themselves with a scraggy portfolio they simply don’t have the time or attention to follow. How would you track twenty £15K punts, particularly when they might be on your books for 5/6/7 years? It’s a tough one.

2. Goldilocks mode -Not too big, not too small, but juuuuust right

Many angels end up here: they still look at (OK, ‘skim the first page of’) every proposal that comes past, but are aiming to invest in £25K to £40K (occasionally £50K) tranches – their “house rules”. ‘Too small’ can’t justify the amount of effort needed to get on board (even if most do expect entrepreneurs to buy them lunch, ha!), while ‘too large’ is just too dangerous in what will always be a volatile asset class (which, of course, is why the returns from successful startups are so high). The problem is that, for most angels, this is still too small to warrant leading a round, but it’s still a large enough tranche that they can frequently feel the urge to micromanage the entrepreneur (which, incidentally, has been shown to cause startups to underperform). Should £25K buy an angel a seat on your startup’s board?

3. Go big or go home – “Small investments are for wimps

At the other end of the scale to ‘confetti mode’, some angels take a high-risk, bet-the-farm approach by placing large amounts (say, £100K+) into startups so as (presumably) to get all the upside of a single investment winning big… to multiply yet further the proverbial “home run” of VC speak. Even though the downside – one angel told me rather ruefully how he had lost £235K on a single investment – is almost too bad to consider, I can easily see how the stars of future wealth could firmly fix themselves into an angel’s eyes. Once you’ve convinced yourself how unbelievably good startup X is, why not take the whole round all for yourself?

4. Stick to the knitting – “Invest in what you know

Rather than trying to finesse the size of the investment (as per 1/2/3 above), many angels instead buy into the much-vaunted “smart angel” mindset: the notion that their deep experience and extensive contacts in industry X and/or market segment Y and/or business structure Z dramatically increases the effective value of their investment. (To be honest, this frequently comes across as a negotiating tool to help them argue for a better price: I’m not aware of any research supporting the suggestion that such “smart angels” are significantly more successful than so-called “dumb angels”.) In fact, sharply limiting the number of proposals to areas in which they have ‘history’ probably makes their portfolios more fragile (i.e. more susceptible to market shocks), as well as forcing them to invest in lower-quality investments to scale up their portfolios to a reasonable size. This narrow focus can then lead them to make sizeable single-startup investments (‘go big or go home’-style), which is normally a fairly bad idea.

5. Hydra mode – “Pool or syndicate investments with other angels

In many ways, this is an optimal approach because angels somehow always manage to completely fill their available time, so ‘sharing the load’ in some way would seem sensible. However, syndication comes at a high transaction cost – much higher levels of due diligence and raw contractuality are needed in order for angels to work in a group, because it’s essentially a mutual mini-VC fund. What doesn’t gel so well is that most angels paint a heroic mental picture of themselves as solo hunter-gatherers - yes, although angels like to preach the virtues of teamplay to entrepreneurs, they’re rarely keen on applying it to their own investment practice. How can they reconcile the self-justifying notion that they got rich as a result of their own personal merits (whether or not this is actually true) with the idea of surrendering control to a group of their peers?

* * * * * *

Effectively, each of the above five patterns of behaviour represents a ‘strategic decision’ – yes, a business school “strategy” – about how to invest: small size only, mid size only, big size only, close to (business) home, or syndication. All of these (even #3!) are totally rational… and yet they all largely miss the point, which is that startups are not West End musicals.

You see, startups pretty much all share a basic set of building blocks – products/services, markets, customers, development, promotion, uptake, overheads, runways, distribution, etc – which every half-decent exec summary should cover. So when they’re all built from the same conceptual Lego, why should angels even need an investment strategy? Why not treat each proposal on its own merits?

I believe the reason for this perceived need for a strategy lies in bookshops. On their Business Section shelves, you can find countless titles claiming to teach entrepreneurs how to perform an angel-attracting ‘waggle dance': they baldly assert that anyone with half a brain and a book token should be able to use their templates to knock together a “killer business plan” without great trouble.

And many do.

I suspect that the resulting deluge of plausible-looking (but ultimately content-free) ‘killer business plans’ has gamed the whole system: it has caused angels to disbelieve that whole class of document – in fact, cynicism and doubt have become the default position. Business plans have been relegated to the fiction department, while few angels or entrepreneurs have any tangible idea of what Business Plans V2.0 should look like (in whatever brief gap that lasts before they too start being gamed).

For me, ‘wisdom’ – which I define as explicitly knowing less to try to implicitly know more – is far too often used as a cosy theoretical retreat from the difficulties and political compromises of the world: which is, of course, why business school platitudes usually fail when applied to real-world situations. Hence to me these angel “strategies” come across as typical of B-school high concept investing wisdom – they look great on paper but fail miserably when applied to real startups and real portfolios. Yes, there are things angels should aim to avoid (unbalanced portfolios, too many board seats, unmanageable portfolios, etc), but none of these should be considered so overwhelming that they should be allowed to dominate their overall thinking.

My point is that, contrary to the five investment behaviour patterns described above, there is probably no universal answer to the challenges of angel investing. In fact, there is precious little “investment by walking around” (i.e. actually meeting entrepreneurs) going on these days – and despite the moves to disintermediation everywhere else in the digital economy, it is puzzling why UK angels and UK entrepreneurs now seems further apart than ever. To be brutally honest, I would expect that more UK entrepreneurs are now connected to Dave McClure (yes, the D-man even follows my tweets, bless his sweary heart) than to UK angels, which I think speaks volumes about the structural problems this side of the Pond.

Hence the key contradictions of UK angels are that (a) for all their rejection of business school / templated business plans, they still rely on business school / templated ways of thinking when judging proposals; and (b) for all their espousal of disintermediated business models, they still (for the greatest part) fall in with pay-to-pitch angel networks. Sorry, but from where I’m sitting, if that is what currently passes for “angel wisdom”, it seems to me a very problematic kind of wisdom indeed.

Technology Strategy Board’s “Tech City Launchpad 1″ launch…

Ohhhhhh dear: Monday evening saw a group from the Technology Strategy Board (TSB) come to TechHub in Old Town Street with a £1m grant giveaway, fully expecting to have rose petals strewn in their path by hordes of grateful self-funded digital entrepreneurs (à la #StartupBritain launch). Unfortunately, they were not so much “egged on” as “rotten-egged on” by a crowd of digerati who can sniff a bad ‘un at a hundred paces. How did something so good go so badly wrong?

Firstly, in this TV age of Dragons Den and The Apprentice, everyone knows the anatomy of a bad pitch: the inability to make properly coherent points, not being on top of your brief, not really knowing your location or understanding your audience, responding to specific questions with the same over-general simplifications… and I’m sorry to say that checking these boxes was merely the start of the evening’s pain. For the audience, it was a lot like watching a slow-motion car crash: and it must have been close to torture for the other TSB people in the audience.

Secondly, it became increasingly clear as the presentation continued that they hadn’t thought through the implications of what they were proposing. The TSB’s “Tech City Launchpad 1″ grant is designed to back sub-12-month explicitly collaborative projects (though they fudged the issues of who would own what, and what exactly was being funded) “between small, medium-sized enterprises and micro firms” (though they fudged the issue of how these are defined) in or around Silicon Roundabout (though they fudged the issue of exactly where qualifies) “to develop a digital product or service to proof-of-concept and/or a user-facing trial” (though… you get the idea). The problem with all this? The vast majority of Silicon Roundabout startups are self-funded single-digital-project vehicles, not R&D labs with ample spare capacity to try something new. Digital startups’ key challenges are (a) surviving while prototyping their existing single digital project, and (b) customer development in a vast, largely hostile online world, while (c) trying to build critical mass to gain [supposed] angel funding. So… where in this landscape does the TSB think starting an entirely new project explicitly in collaboration with an SME would fit? Where’s the ‘product/market fit’?

Thirdly, the whole application format they’ve chosen – 2 minute video pitch, followed by a traditional business pitch round for the best 20, with the best ten getting a promissory note and access to VC / angel workshops to help them build a full funding round – would seem sensible in the hands of (say) Dave McClure, but seems somewhat misplaced for the TSB. A bit like asking your granddad to judge a street dance competition, I have to say. Oh well.

Overall, the paradox here is that the TSB seems to have assumed that the community of digital startups is a vibrant, static body of micro firms that are already making money consistently, but who need funding in order to take it to the next level. The reality is that it’s a dynamic (i.e. fast churn) community of hot desking mayflies trying to bootstrap their small companies to the first level - nobody’s funded right now, that’s just the way it is. Really, the minute I heard them quote Wired magazine’s statistics on Silicon Roundabout I knew that they had inhaled the fumes of the Tech City mythology – that they had built their proposal on the back of an acutely Cameronesque (i.e. optimistically distorted) view, that High Growth Digital Startups Can Turn The UK Economy Around.

Errrr… riiiiiiiiight.

Though it was good to see David Willetts (the current Minister of State for Universities and Science) at the launch too, I can’t help wondering whether the TSB and indeed the Government are currently outreaching to the wrong people. As I said to him afterwards, we clearly have no shortage of entrepreneurs, no shortage of ideas: what we’re missing is active angels, and indeed any kind of culture of investment. In fact, I have to note that, despite his fabled ‘Two Brains’, Willetts did leave me wondering whether any of the Powers That Be grasp the gratingly sharp differentiation between VCs and angels (hint: VC funding typically has one or more extra zeroes on the end). Does the TSB already have much in the way of dialogue with UK angels? If so, did they think to run this proposal past any of them before launch? (I guess not).

In summary, then…

On the one hand, I have long thought that the TSB’s quaintly anachronistic view of the way external funding works has meant that their competitions have only been applicable to SMEs with (say) £1m+/year turnover – I suspect that checking past applicants’ profiles would quickly bear this out. So let me be at the front of the queue applauding the fact that – following the repeated prodding of Glenn Shoosmith, it would seem – the TSB has at long last constructed a funding scheme based not around private pre-funding (which rules out the vast majority of self-funded tech startups) but around a 12-month promissory note to gain external funding.

At the same time, however, there is often a vanishingly small distance between ‘pilot’ and ‘pivot': and what the TSB presented on Monday night was most definitely a pilot scheme in need of some pivoting if it is to make a real impact. In the context of European funding rules, I fully understand that it is hard for a body such as the TSB to construct a grant that isn’t perceived as distorting some market in some way. But sometimes these kinds of constraints lead grant-making bodies to put together grant packages that are highly impractical (e.g. the way European FP7 grants implicitly insist on cross-border collaboration is good in an idealistic way, but horrible expensive to arrange and manage). Like this one. :-(

Some voguey startup things I just don’t get…

A few quick thoughts before I head off to the TechHub seed funding meetup this evening. Note that the following list is neither definitive, ironic, sarcastic, nor even grumpy: it’s just a whole bunch of contemporary startup things I genuinely don’t get, however much in vogue they may be.

(1) Whatever Sweary Dave McClure says, 500startups seems exactly like mentored spray-and-pray to me. Given that Dave’s a self-professed metric fan, talking up the merits of a proposed 85% fail rate before barely any investees have got round to failing seems somewhat, errrm, anti-metric. Perhaps I’m missing Something Really Important here, and bless the Sainted Dave for trying, but… nope, I don’t get it.

(2) Eric Ries’ “Lean Startup” movement. Look, I do truly understand why customer development and iterative engagement are hugely important – if not indeed utterly central – to effective product development. However, as a way of presenting startups to the investment community, I think it is an abject failure, a weighty conceptual millstone placed around entrepreneurs’ necks at the precise moment they’re starting to swim against the external economic tide. Maybe in ten years’ time (when a handful of self-funded lean startups have somehow managed to go big) angels will see it as some kind of “contrarian bandwagon” to jump on and it’ll make sense: but not now, not even slightly.

(3) The UK Government’s bipolar attitude to technology. On the one hand, you have Vince Cable who seems to want to singlehandedly bootstrap a manufacturing technology revolution in the UK (oh, as long as it’s nowhere near the South-East: ta for that, Mr C) – while on the other hand, you have most of the rest of the government for whom “technology” now seems operationally synonymous with “web technology” *sigh*. Either way, I can’t honestly say this makes any real sense to me.

(4) Old Street / Shoreditch / Tech Cities / Silicon Back Alley. Why is anyone seriously suggesting that the UK needs more office space for startups? The UK is full of empty offices – that’s what happens when an entire generation of businesses gets suddenly squeezed by the banks and is forced to downsize just to retain sufficient day-to-day liquidity. What’s so wrong with home offices, shared offices, garages, etc?

(5) Super-angels. To my ears, this phrase always has echoes of Terry Jones saying “He’s not the Messiah, he’s a very naughty boy“: for most so-called super-angels are neither “super” nor even “angels”, but just naughty boys micro-VCs. Can a super-angel represent a group of other angels and still manage to make a £20K investment? Or even a £50K investment? I suspect probably not.

(6) Early stage VCs. Come on – how’s that going to work, then? To make a minority investment of £2m+, an early stage VC would need to find a whole set of early stage startups that it could sensibly value at £4m-£5m. But outside of pharma and energy, startups just don’t work at that scale any more. I don’t get it.

The recession sales formula: 2 x 2 x 2 = 8

One thing that can be annoying about Internet startup people is the way some of them act as though they themselves invented the whole idea of using metrics to improve their business. These people seem to extend Dave McClure’s well-known AARRR model all the way to AARRRGH (“Acquisition – Activation – Retention – Referral – Revenue… Grandeur… Hubris“), which I’m sure wasn’t Dave’s intention at all. Well… mostly, anyway. ;-)

Putting a historical perspective on it, even today few companies are as raving metric-mad as the British catering company J. Lyons & Co. was in the first half of the 20th century. Rapid feedback was so central to its business mission that it not only extensively promoted the idea of decimal currency (from 1928 onwards, its back offices converted £ s d to decimal to get maximum use from their mechanical calculators) but also designed and built the world’s first business computer just after the second world war (in fact, here’s a short paper I wrote on LEO-1 back in 2002). Now that’s what I call an obsession with real-time metrics!

Anyhoo, I was chewing the fat lean with my developer friend Martin a few days ago when he suddenly began regaling me with recession sales stories from many years ago. What was a little unusual was that the company he worked for back then kept a particularly close eye on sales metrics, and so was able to compare almost every aspect of its business before and during that long-ago (but now oddly resonant) recession period.

What my friend learned from these comparisons was a little unexpected, and yet somewhat depressing: that there would appear to be a recession sales formula, and it looks like this:-

“2 x 2 x 2 = 8″

What this means is that, during a recession…

  • It is twice as hard to get a good quality sales lead;
  • It is twice as hard to close any individual sale; and
  • You typically end up working for half the margins.

That is, their comparative figures suggested that selling during a recession is roughly eight times harder than normal. Moreover, it was clear that if you hand over any of the individual sales stages (i.e. opening, negotiating, closing) to people who aren’t absolute sales monsters, pretty much nothing gets through at all, leading your overall pipeline to empty within a matter of days.

As far as startups go, the biggest single early sale most entrepreneurs have to make is (of course) equity to angels. So perhaps the current entrepreneurial world of pain here in the UK (where everything to do with startup finance seems ~10x harder than you’d expect) is just a straightforward expression of this same recession sales formula. After all, raising equity is just a sale like any other, right? And you are a sales monster, right?

(Well… strictly speaking, it’s not quite the same. Here in the UK, my understanding of the Financial Services Marketing Act (2000) is [*] that entrepreneurs aren’t allowed to promote any single investment proposal to more than 99 sophisticated investors (etc) at a time: yet I suspect that they now probably need to pitch to 200+ in order to stand a statistically reasonable chance of closing a round. Just so you know that both the odds and the law are against you right now!)

[*] I’m not a lawyer, none of this is legal advice, so make your own judgment call on this, etc.

UK angel investing, RIP…

Time, gentlemen, puh-lease!

Yes, I’m calling time on UK angel investing – it’s the end of the line, take all your bags with you, thank you for travelling with the UK startup industry, nothing to see now, move on.

And here’s why.

As with most complex systems, there’s no single reason for UK angel investing to have slowly died on its feet in the way that it clearly has. But there are some big trends at play, some of which I discussed in yesterday’s post on The sucky Tao of bootstrapping:-

  • The accelerating speed of change – this means that opportunity windows are ever-narrower
  • Withdrawal of matched startup funding by UK banks – these days, unsecured facilities over £25K are rare
  • Loss of faith in business plans as a means of communication – angels feel these are being used to ‘game’ them
  • Loss of faith in MBAs and business school training – hence only successful serial entrepreneurs need apply
  • Lack of European role models – many high-profile angels have exited with singed (if not actually burnt) wings
  • Loss of grants as an effective R&D development tool – apart from R&D tax credits
  • Startup support aimed at regenerating deprived areas – far, far from angels’ Home Counties mini-mansions
  • Loss of IPO as a viable exit route for the immediate future
  • Ever-lengthening time to trade sale – was five years, then six years, now who knows?
  • Pervasive inability to confidently value startups using any basis
  • UK angels’ increasing time-to-invest – in the last 3 years, this has gone from ~6 months to 12+ months
  • Strong desire to excessively delay investment – getting better valuations by letting startups burn themselves into desperation
  • Strong desire to avoid leading a round – everyone (and I do mean everyone) now wants to come in second

What’s there to like?

Furthermore, UK angels’ investment practice is very rarely economically pragmatic. Any sensible economist would tell you that a robust investment portfolio should contain investments that are unconnected, so that you don’t lose the lot if sector X just happens to catch a cold (one big market sneeze can kill a startup) – yet the mythology of the “smart angel” would have you believe that you should only invest in areas closely linked to your experience and business expertise. As a result, I think the unbalanced portfolios held by UK angels are partly to blame for so many of them having been burnt over the last few years.

UK angel networks have tried to semi-professionalize startup investment, but it seems they have been more effective at spreading some kind of canapé-carried indecision virus than in promoting positive investment action. For a £200K angel raise across multiple UK networks, an entrepreneur would probably have to write off ~£20K to account for the costs of making that raise if successful, and ~£10K if (more likely) unsuccessful. All of which means that pitching to the rich is currently little more than an expensive hobby – who could honestly deny that UK entrepreneurs would generally be far better off putting spare £10K tranches into product development and customer development?

So, does the end of UK angel investing mean (shudder) the end for UK startup financing? Actually, no – not even close. I think that in 12-ish months’ time, UK entrepreneurs will come to see all this as no more than the end of an era, as we all move from the bad old days (i.e. now) of jittery, parochial angels towards the strangely inspiring new days (i.e. soon) of virtual angels.

But Nick“, I hear you ask, “How will we recognize these semi-mystical ‘virtual business angels‘ you’ve just made up?

Simples“, I say, “I have a list of bullet points describing them you can pin beside your PC. You’ll just know. Oh, and relax – they probably won’t look much like Dave McClure.” Here you go!

  • Where they aren’t: paid-for angel networks (so don’t even bother looking there), other intermediaries
  • Where they are: LinkedIn industry groups, Facebook (maybe), Twitter, informal networks, other timezones
  • Things they don’t like: small rounds, being on the board, putting more than $30K in, paying for a CFO, seeing money burn
  • Things they do like: transparency, monthly progress updates, Skyped pitches, productive engineers, hungry salesmen, due diligence bedtime reading
  • Turn-off phrases: bootstrapping, viral, Freemium, pivot, Minimum Viable Product
  • Turn-on phrases: economical, PR, sales, Minimum Sexy Product

Really, all this comes down to is that angel networks offer exactly the kind of intermediatory function that you’d have thought the Internet ought to have killed. Well, maybe – indirectly – it has. It’s now time for people to invent entirely new ways of connecting angels and startups – but the big trick will be doing this within FSMA guidelines (specifically, the part dealing with making a promotion to more than 99 people) and other international regulatory investment guidelines.

Hope this is a helpful guide to the future!

“Business Plans, R.I.P.”…

Mike Maples hates them (he thinks they’re static, when startups are dynamic), and that the way business plan competitions are promoted by business schools sends out completely the wrong signals to entrepreneurs. Dave McClure hates them too (and for all his sweariness, he’s not actually much of a hater), while Fred Destin says:

It’s been said 150 times, “Nobody reads business plans.” Let’s make it official. Nobody reads business plans.

Does any well-known angel or angel blogger actually endorse business plans any more? Even Guy Kawasaki seems to have gone quiet on the subject of BPs since 2007 (I’ve emailed him to ask what he thinks now, so we’ll just have to wait and see if he answers).

For my part, I suspect that business plans are just a hangover from the MBA-business-is-good-business mythology: relative to the IPO boom party, they’re the morning-after bottles-of-Cinzano-with-cigarette-butts-in. Which is to say that business plans are like ‘certainty dinosaurs’ trying to hang on an uncertain post-Cretaceous world. A bit like MBAs, really. (And I say all that as an MBA, not as an MBA-hater.)

Really, somewhere along the line, the whole ‘send me your business plan‘ notion seems to have died a quiet death: UK angels are now far more interested in a persuasive verbal pitch, an exec summary and a Y1/Y2 cashflow projection (even though that’s arguably no more than a ‘management accounting prØn’ take on business plans). The view seems to be: just prove you can survive 18 months, everything beyond that is a business fairytale.

All the same, I do still get asked for business plans, but I’ve edited mine down to seven pages, which comprises things like (a) a handy industry primer for investors (because angels don’t generally know about manufacturing), (b) the company’s business vision, (c) an ultra-short-term roadmap, and (d) description of the people. Yes, it’s basically a literate presentation deck, because that’s all that people want to see.

Probably the best thing you can say about a business plan is that it is a snapshot of where your conception of your startup is at. But of course, at the semi-glacial speed that angels typically move at, a lot can change in the three or more months that pass between drafting a killer business plan and any angelic money hitting the company’s bank account. Not only has your startup changed, but so has the world around it:-

  • Your competitors have repositioned their products.
  • Other new market entrants are making a lot of noise.
  • Some of your key customers have closed down or merged.
  • Money costs more or less.
  • Liquidity is looser or tighter.
  • Investor tax breaks have changed.
  • The key exchange rates for your supply chain are better or worse.
  • One of your suppliers has gone out of business
  • Several of your designed-in components have gone EOL
  • etc etc etc

All of which inevitably leaves your “business plan” constantly out of date. I can only repeat: the value of your startup lies not in its business plan, but in its ability to improvise and execute business tactics to help the company attain its overall business vision. And a properly-articulated business vision should fit on a single Powerpoint slide (and in a 30-point font). So… what were business plans for, again?

So it seems to me that you either believe in the whole package (i.e. that it’s a big enough round for the key people to move the startup towards the vision of its core marketplace despite inevitable market or development turbulence) or you don’t: hence I suspect that accepting or rejecting a particular business plan has only ever been a post-rationalization of other factors entirely.

But conversely, if you cut business plans out of the investment process, a whole set of related questions – each of which has been taken as a given for many years – becomes open again:-

  • Ultimately, how rational are individual angels’ investment decisions?
  • Can the members of an angel syndicate ever think alike enough to delegate due diligence to one person?
  • Does due diligence achieve anything apart from sometimes finding out obvious mistakes?
  • Is ‘spray-and-pray’ the only sensible investment methodology for 95% of angels?
  • Can modern high-speed startup business ever be planned?

Tricky stuff. :-(

Follow

Get every new post delivered to your Inbox.

Join 418 other followers