Wednesday, May 14, 2008 did say conception to proof of concept, didn't you?

I could have sworn that's what you said. In fact, right here, right on your website, "Inspiration focuses on non-capital intensive companies that need proof of concept capital".

Needless to say, I was a bit surprised that you thought we were too early for you? You want users - and lots of them? Well, how are we supposed to have users when we're building our proof of concept? You want non capital intensive? You can't get any less capital intensive than we. 8 people involved...all taking equity. Oh, you want to be involved in our operations and strategy too... yea, no other VC does that.

The conversation started off normally. The partner spoke about how they're a different VC. How they provide seed capital, invest early, and get out even earlier. They take part of their investment off the table when series A comes along (they cash in part of their stake for some of the new round). I'm not sure I like that piece. That just gets them their investment back, with commission, in a very short amount of time - I think he said they only invest if they think you'll get a series A in 2-6 months. Since they process takes 3 months or more, I guess you already have to be shopping around for a series A. They're bridge lenders or middlemen. Who needs middlemen? I also don't think series A VC's will really like that component all that much. Why would they want to give you money that's only going to go out to pay other investors, immediately.

He continued to explain how he and his partners were in my shoes once before, so they know what it's like. He also added, for posterity, that he didn't like to string along entrepreneurs. That he hated when VC's did that to him.

Then came my pitch. I'll admit, it wasn't a "blow you away" pitch - I'm still working on that. But it wasn't bad. After I got through it, the pause, the "that's an interesting idea" and then he began working his "strategy" into the idea. Well, what if you release a Facebook app? What if you get users now through some sort of widget on Facebook, and then you see if there's any interest in what you're doing? To which I politely responded that a) Facebook has a prohibitive user agreement - which means, in essence, that they can pretty much control any app. Shut it down, copy it, steal it, whatever. While they haven't done anything to date, I don't like giving FB that option. And b) if we release a widget on Facebook without any sort of value add to the user, just as a way to gauge interest in what we're doing (which was his recommendation), we're bound to lose those same users when we're really ready to launch our product. They'll be "one and done" because we couldn't give them anything of value when they signed up. You got one chance to make it or maybe a few more than that. But I'm not using one up on a FB widget.

So we chatted a bit more and then he proceeds to tell me we're too early. That we need to have users and prove that people were going to be on the site. And then we should call him. Unfortunately, my rebuttal came to me, as it often does, just after I hung up the phone. Wait...too early? I thought you were early stage investors? And you want me to call you and keep you up to date on where we are? I thought you didn't like to string along entrepreneurs...but isn't that what you just did to me? Anyway, sure, I understand he wants a sure thing. Who doesn't? If this was a sure thing, I wouldn't be asking someone I didn't know for money - I'd ask my parents so they could get paid back for all the cash they've invested in me over the years.

While we're still talking to investors, we've all but rules out VC's. Friends/family and angels only at this point.


Mocha said...

I think there is no true VC who is genuinely enough to invest in an early-stage company. VC wants to know that they can get a huge ROI.

I completely agree with you on the FB application. In a way, most people don't believe in a "new" idea. If your idea is so new that almost no other companies have it, then you are guarantee to have a harder time to sell it to VC.

Time to find a rich friend!

Lefty said...

Time to find a rich friend is right! Or two...