Ted Spencer
Veteran
I'm by no means an expert where matters of investments are concerned, but it has been pointed out to me numerous times in different ways by people who are that many investors, particularly venture capitalists (and we're talking individuals here, not companies), are not interested in playing 'small ball'. According to my more-expert-than-I friends (one is an executive at Citibank), these guys aren't even willing to talk about investments of under a few million. What they're looking to do is *make a killing*, and will make a number of venture capital investments (which means high risk/high reward, as a rule) of a sufficient size *concurrently* so that if only one out of 10 of them 'hits', it'll offset all the losses from the other nine and earn enough more to make the whole thing highly profitable.
This incidentally is the exact paradigm used (at least in the past) in the record business, which is where I have spent much of my career (as a recording engineer). Record companies would sign ten bands for various amounts, maybe averaging $150-300K or so, and *expect* nine of them to tank. Hopefully, #10 is the next Springsteen or whatever, and they clean up overall. Like the VC investors, all losses otherwise get written off for tax advantages. Not that that helps if all 10 tank though - when that happens, the record company/venture capitalist risks going out of business, and this certainly does happen.
But the point is that while many people think the smaller the amount is the easier it will be to obtain outside funding, the opposite, at least for many investors, is the truth.
In order to deal with these bigger players of course, it's only logical to assume that you not only need to be talking bigger budget money, but *very* well organized business plans, general credibility/expertise etc. They expect to lose money on 90% of the deals, but that doesn't mean they're not trying their best to win each and every one. The tricky part (for them) is knowing which of them will succeed, and almost no one can do that consistently. That's why they make 10 bets at a time. If your deal looks promising enough to them, these types will happily give you millions to have a stake in it. If it's too 'small-potatoes' for their plate, they won't even consider it...
I've always found the fact rather interesting...
This incidentally is the exact paradigm used (at least in the past) in the record business, which is where I have spent much of my career (as a recording engineer). Record companies would sign ten bands for various amounts, maybe averaging $150-300K or so, and *expect* nine of them to tank. Hopefully, #10 is the next Springsteen or whatever, and they clean up overall. Like the VC investors, all losses otherwise get written off for tax advantages. Not that that helps if all 10 tank though - when that happens, the record company/venture capitalist risks going out of business, and this certainly does happen.
But the point is that while many people think the smaller the amount is the easier it will be to obtain outside funding, the opposite, at least for many investors, is the truth.
In order to deal with these bigger players of course, it's only logical to assume that you not only need to be talking bigger budget money, but *very* well organized business plans, general credibility/expertise etc. They expect to lose money on 90% of the deals, but that doesn't mean they're not trying their best to win each and every one. The tricky part (for them) is knowing which of them will succeed, and almost no one can do that consistently. That's why they make 10 bets at a time. If your deal looks promising enough to them, these types will happily give you millions to have a stake in it. If it's too 'small-potatoes' for their plate, they won't even consider it...
I've always found the fact rather interesting...
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