Investment Horror Stories: Part II

This is the second instalment in a periodic series of what can horribly wrong when trying to secure investments. Following are two more flesh-chilling tales from the dark side of funding:

Starved to death:

It seems like the miracle of the loaves and the fishes, the amount that has been achieved. I was amazed on visiting the company to see the spread of product – and this is real, boxed, manufactured hardware – and the astonishing wide geographical presence and the real thought leadership in the field. It shouldn’t have got so far on a shoestring – but it has.

A couple of VCs have been looking…….and looking…….and nothing yet.

They don’t buy themselves into superb marketplace positions and take bold, strategic positions, these kind of people. They sit on the sidelines, waiting for absolute proof and absolute certainty and absolute success before they reluctantly roll out their few pence, wanting them back with heavy interest as soon as possible. They don’t venture fund, they play a banking game almost totally removed from catalysing and significant value creation.

And the business owners wait and hope, wait and hope, and provide just a little bit more information, a touch more clarification, a step more progress. It’s been two long years now, the wait and hope game and still…….nothing yet…..so much time and energy diverted from business building, jumping through hoops.

But the miracle won’t last forever. In my view the international game in this market has already begun to move on. The magic moment will soon be lost, I fear. If it’s going to happen, it needs to be now.

The tyre kicking VCs will be vindicated before too long. “It was never going to scale”. “There was always too much competition”. “Management couldn’t stretch to the big time”.

Of course, when you are standing over a corpse you can say just about whatever you like. It’s not going to suddenly stir and say, “Hang on guys, it was you who starved me to death!”

The monsters always kill everyone:

Eight months it has been going on, this marathon of investment evaluation – and now it has gone horribly off. I’ve seen the fatal syndrome many times. Born of crap evaluation abilities it gets rolled out at some time when potential investors are floundering around for reasons to say “no” because they are fundamentally incapable of knowing where to look for reasons which might justify a “yes”.

On this occasion it has come at the final moment from left field, a final curveball because the story of relentless, profitable growth has somehow failed to confirm a deal already sealed with a handshake.

Obviously there is a time and a place for pointing out that majors and incumbents can dictate the landscape of the possible. I wouldn’t be minded to back a start-up chain of new coffee bars right now, given that the marketplace is saturated and consumer spending very fragile. And, however brilliant, I wouldn’t be confident in the plans of a software engineer in Kendal producing a mass market operating system that is going to strike terror into the MS product chiefs in Seattle.

However, these are some examples of rank evaluation I have heard recently – and what are the nonsense propositions they imply:

“What if Facebook does it?” – the future of social media is locked to one, existing platform.

“What if Paypal does it?” – one company will own the future of digital payments.

“What if Tesco does it?” – all other retailers are dead.

“What if Amazon does it?” – there is only space for one online retailer.

“What if someone else does this?” – I’m sorry, I really haven’t a clue and am simply wasting your time and energy talking to you, pretending that I am a competent would-be investor…….