Beware The Counterfeit Investors

After a few years of being on the ‘funder’ side of the desk, I’ve vaulted across to start a new technology venture, and to begin the least pleasant part of entrepreneurship – fund raising! (Feel free to contact me once you have read what follows).

There are plenty of people out there who will tell you how to make the perfect pitch, how to write the perfect business plan, or how to pull together the perfect deal, which validates the old adage, those who can’t do teach (with my apologies to any academics who usually manage to ‘do’ and ‘teach’ very well).

The process isn’t horrible because of the amount of time and effort you have to put into financial forecasts, marketing plans or even explaining the technology, that’s all part of the fun, but what I won’t put up with is time wasters.

Time wasters are all too prevalent in the investment community and fall into two broad categories, those who don’t actually have any money, and those who do but aren’t allowed to spend it. As if we didn’t have enough to put up with counterfeit goods and drugs, we now have counterfeit investors. Just like a counterfeit watch, some of them can be very convincing.

Let me explain.

Back in the days when investors were nuts for nanotech, I received numerous offers to join investment companies, none of whom actually had any money but who thought that adding me to the executive team or advisory board would help them get some. It’s a chicken and egg problem for most new funds – investors want to know what deals are on the table and what the team looks like before they will consider investing, and the deal targets want to know how much cash a fund has before they will do much talking.  It’s quite a conundrum, and a tough one to solve which is why you don’t see too many brand new venture capital funds popping up. Quite often this type of fund is happy to waste everybody’s time by negotiating terms that they don’t have the financial capability to follow up on. It’s unfortunately very common and incredibly frustrating for all involved.

Those who have the cash but can’t spend it are almost as bad. They often work for a large established fund and show lots of interest, demanding rewrites of business plans and getting picky about IP portfolios and financial forecasts. As an entrepreneur you are happy that a sovereign wealth fund with billions of dollars to invest is interested in you, but only after multiple meetings does your new best friend realise that your business is actually too early stage, or that they actually only invest in property.

Over the past few years, the credit crunch has thrown up a whole new class of investors whose motives defy description.  This breed, mainly high net worth individuals outside Europe and the US is quite happy to sign term sheets and contracts, and then simply disappear for a few months. When and if you finally track them down, it turns out that some other business or investment vehicle hasn’t been doing too well and they don’t actually want to go ahead. Thanks for letting us know.

So the strategy is always to pick your investors carefully. There are good funds and sane individuals out there, but if you meet your ‘investor’ at the local Travelodge, or he expects you to pay for lunch, be very very wary!

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