She bemoans the following:
The problem is,
refusing to do any work until a term sheet is signed sounds great but is
hard to do. When you first meet, you are excited and the investor
promises that the process will take only a few weeks. You can afford to
invest a few weeks. Even as time drags on, everything appears to be
proceeding, and you are certain the deal will close. As time drags on,
costs pile up and cash reserves dwindle. You realize that, with so much
time invested, you cannot afford to start the process again. I will never get stuck
in this situation again. I will never let an investor seduce me into
believing that a term sheet is around the corner while I put time and
money into meetings and answering thousands of questions. I will ensure
that a term sheet is agreed upon up front and then start the due
diligence process. If the V.C.s find something they do not like during
due diligence, they can always back out of the deal, but at least I will
have established that there is a deal to be done. Even though I know
their firm is big and my company is small, I will do this because I know
that time and energy are my biggest assets.
Now I was involved in my first VC backed start up in 1969. Most likely one of the very early ones. The lesson is that you always have to be ready with the due diligence packages. It is standard, it is expected, and you better get your act together as part of any business, you will be doing it again and again.
I had it down to an art. You know what is expected and what is asked for is what any business should have ready at hand. Dealing with investors takes time, so expect it.
This write up in the Times is a display of the generational changes we have seen. These folks seem to expect everyone to see how great they are and when one asks for some form of proof, they seem affronted. They believe they are perfect and should be taken at face value, whatever that may be.
Raising money is like any other sales effort, but not the "buyer" is dealing with money, theirs and their investors. The entrepreneur must understand that and demonstrate that they will take care of that responsibility.
The term "seduce" is foolish in my opinion, for to me it demonstrates a level of arrogance and entitlement that one sees in young inexperienced start up players whose understanding of business is limited.
As for a term sheet, it can be drawn but it still has outs, namely the due diligence outs for whatever reason the investor so chooses.
So folks like this had better get used to having due diligence packages ready at hand, on line, sent with the push of a button! In fact one can even send it via this new service called the "Internet". cool thing this new technology!
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