Off the grid entrepreneurs
I was on a call with an investor this week and he used the term “off the grid entrepreneurs”. I told him that I’d have to use that one for a blog post.
What he is referring to is entrepreneurs who are not familiar with the verbiage that gets tossed around in the start-up world. The entrepreneurs who walk into your office with a company that is gaining traction and gets their audience (business to business or even business to consumer) and gets the void they have filled but doesn’t really understand where to go to raise capital. Doesn’t really get what a cap table entails, doesn’t really understand how to build out a work org chart, doesn’t really have the greatest grasp of their financials, doesn’t really get all the nuances in a legal document, doesn’t fully understand what kind of equity they should give away. Enough said. Red flags? Perhaps or perhaps not.
As we move into a different fundraising landscape I worry that less of these type of truly scrappy entrepreneurs won’t get funded. As people, particularly early stage angels, start to pull back on their investments. One of the top concerns is the question that nobody says out loud but asks themselves which is “will this founder be able to raise the next round”?
The environment in Silicon Valley is far different from the other hubs such as NYC, Berlin, Chicago and others. You need to speak the language and it is scary for an investor if you don’t. I know that I am so over-extended with early stage founders that I just do not have the physical bandwidth to be of assistance to help them navigate the world until they get knowledge under their belt. Makes me just want to do investments where there are engaged investors (smaller fund investors who manage money vs their own capital) particularly when it comes to off the grid entrepreneurs.
This is something I am thinking about these days and I wonder if others are too.
That’s an interesting turn of phrase. It is exactly the kind of women that we are helping through Hautepreneurs. Most of them know a lot about their niche demographic but nothing about scaling or sustainability for their business. And what they do know is intrinsic, so they don’t speak the lingo that comforts investors. I
I think these questions become amplified when you layer in gender and/or cultural differences.
Far more risky are the opposite: the ones who know “everything” about startups and fundraising, yet don’t understand their customer or business, but feel entitled to getting an investment.In good times, this person probably has an easier time getting initial funding than the off-the-grid entrepreneur, but long-term I’d bet on the latter every time.
a totally different angle. yes the ones that know everything have their own set of issues. lol.
We all have issues. They’re part of what make us what we are. It’s how we channel them that can determine positive or negative outcomes.
I totally am. We are focused on B2B Fin Tech. There are a fair amount of companies in the space that understand the “lingo”. However, there are not a lot of VCs that do it at seed. The other problem that arises is the one you highlight. Sometimes companies are able to fill a specialized niche. They can create a great cash flow business. They might see an opportunity to scale it-but lack the network/knowledge etc to figure out how to do it. They might also be unwilling to take the risk but that’s a different problem. Different cities have a lot of inherent DNA in certain industries where this may occur. VCs need to focus on creating the network, and providing the guidance so the ecosystem can bloom.
The gap on that knowledge can be closed much more easily now than ever, with the information having been made widely available by the likes of Brad Feld, et al; and so the “off the grids” can move “to the grid” quite swiftly if they choose to. In the meanwhile, they may have to knock on a few (or many) more doors.
It is Brad’s book that I always recommend.
Do you think incubators & accelerators are the place to go for “off the grid entrepreneurs” ? Entrepreneurs can tap into their networks for advice & support.
I some of them can be very helpful educating entrepreneurs and introducing them to people.
Otoh many of the successful entrepreneurs today were off the grid when they started. Because there was no grid. (The first perhaps being Marc Andressen?) If you are smart you learn quickly. Also I would imagine that this would be golden opportunity for the first non-cynical investor to take the person under their wings and teach them what they need to know. In theory that should build trust. (In practice who knows what happens..)The other side is that by not knowing there is an opportunity to think differently and perhaps come out ahead because you question everything and most importantly think.
He might not raise the next round. But would surely exploit the off-the-grid government startup schemes. #cgtmse
This post just speaks to the reality that VC is industry unto itself, separate and apart from the businesses it deigns to fund. In fact, a VC earns money via exits and subsequent rounds, not through the sustainable success of a particular business. It needs to establish investment terms that protect its investment most often at the expense of the company and its founders. My hope would be that this ‘insight’ by a VC helps entrepreneurs truly understand the levers and pulleys that incentivize VCs. In truth, it’s the most expensive, burdensome money available and its designed to provide protected, outsized returns to LPs, which is a separate goal than funding successful companies.One of my biggest eye-openers as an entrepreneur was when I had a large Silicon Valley law firm represent my new company on a deferred fee basis. The company, mind you, was just me. There were no investors outside of my own capital. There was no one else on the cap table. It was me, my sweat equity and my personal capital investment. The firm had me sign a series of representation documents that specified they represented the company and not me, which, frankly, was not something I had ever asked for, but they assumed that was their function because of the VC industrial complex in the Valley. So, with slight trepidation, I agreed. They then advised me, with documentation, to construct an investment structure that would effectively open the door for me to lose control of my company to VC investors.While that’s horrible representation, it’s par for the course in the Valley for one simple reason; always follow the money. The VCs have built a system that provides them with preferred controls and financial returns. In fact, that’s what those things are called in the deals; ‘preferred terms’. The law firms, the founders and the employees all fall in line because the VCs won’t open up the capital otherwise. The current state of affairs is what happens when one group holds control for an extended period of time, it follows the laws of power dynamics and isn’t a surprise.Which leads to this blog post, which is a VC lamenting that the founders they speak to aren’t cottage industry, VC investment experts — most likely a totally separate industry from the business their building.This yields two conclusions on my mind;1) As an investor, I’d seek out the investment laymen as it probably means they are more appropriately focused on the job-at-hand rather than earning their stripes as insider-ey VC expert. They would know their product/service better. My job as a VC would be to handle the area I’m meant to be an expert at, which is understanding cap tables, etc.2) As a founder, it reminds me to always seek out strategic money. It’s less burdensome, more intelligent and likely has aims beyond just a liquidation in a certain period of time, allowing for a more friendly pathway for success of the business. More to the point, the founder is likely to see a greater return as they won’t be buried under financial terms that are exceedingly preferential to a VC.
There are many positive signs of taking money from VC’s as well. It just depends on the company.
I agree with that as well 🙂
Recommend the new book “Valley Speak: Deciphering the Jargon of Silicon Valley” as the perfect antidote!