Structuring Random Thoughts

Full-time entrepreneur, part time angels investment instigator and one of our partners at MSU, Austin Hill, likes to ask an entrepreneur looking for finance:

“What’s the bet i’m making with this investment ?”

It’s a great question … but what a lot of first time entrepreneurs don’t appreciate is that the answer to the question depends on who is asking it ……. and this is particularly so when you are raising capital from angel investors.

Let’s say an entrepreneur’s ambitious vision for his/her company is to become the Trip Advisor of the financial services industry, but right now the company is just in its infancy.

If the entrepreneur was pitching to a VC that had relatively deep pockets and was looking to fund a good idea to it’s conclusion (or at least for a couple of rounds of financing), the answer to the question might be along the lines of “You’re betting that people will be as willing to share their financing experiences to help others as they are their holiday experiences”

If however our entrepreneur pitches an angel investor for a few hundred thousand dollars, thus enabling the business to have been fleshed out more before approaching a VC for a larger investment, the answer should be very different “You’re betting that with a few hundred thousand dollars I can develop a website that will have enough traction to prove to a VC that their is a good chance that people will be as willing to share their financing experiences to help others as they are their holiday experiences.”

This bet is more about short term execution than long term vision. The long term vision is important to the angel investor, but typically he/she won’t able to fund the idea to its conclusion thus increasing the risk and changing the bet.