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April 06, 2005

AEA Presentation about funding growth

Chris Scoggins of Sequel Venture Partners invited me to be part of a panel discussion on "funding growth" at our local AeA Chapter.  AeA was founded in 1943 by a group of Silicon Valley entrepreneurs, including Hewlett and Packard (the people, not the company) and it now serves companies in the high-tech industry internationally.  I felt that there were many people who had more experience than I did in the audience who could have taken my seat on the panel, but it was fun in any case.  I don't know if Chris realized that when he came up with the VC and the Banker to join me on the panel that he picked MY VC and MY Banker.  That made it all the more fun.

Chris Wand of Mobius Ventures represented the VC point of view.  Until recently Chris was an observer on my board. (Actually he did a ton of work - the title didn't fit the job, and he's contributed a lot to Gold Systems over the years.)  Frank Amoroso from Silicon Valley Bank represented the banker's point of view.

Taking money from a VC is a little like signing up for a "No interest, no payments" deal with a big balloon payment at the end, except the credit check is much tougher (usually) and it isn't always clear when the note will come due.  In fact the due date can change based on how your company is performing.  When I took VC money I felt like I knew what I was getting into, in fact I still have the date and time written on my whiteboard wall when my team and I decided to go for it.  (2/14/01 2:48PM)  I said then that taking VC money is like lighting a fuse, and time will tell whether it is a fuse to a rocket to the moon or a bomb.  I don't mean for this to sound at all negative.  My experience (so far) has been very, very positive, but I think that entrepreneurs should be very clear about why they are taking outside investments and they should understand what is going to be expected of them and their company.

Chris reminded people that ultimately bringing in a VC investment is about money.  If you are lucky (he says) you will also get access to contacts, a discipline will be instilled and you get to benefit from the VC's "pattern recognition" ability.  I've benefited from all three.  I've met people I couldn't have met on my own, my planning and reporting is better than it ever would have been without someone looking over my shoulder, and the "pattern recognition" has saved me from more pain than I can imagine.  Chris, who's a fairly young VC, has seen more stuff go wrong and right in companies than I'll ever see in my lifetime.  Just knowing that there could be a problem is a great help.  Having a VC who can point out problems in a constructive way is invaluable.

Frank talked about how banking is different for VC backed companies, and how SVB is positioned to do things that other banks might not be able to do.  When we switched to SVB soon after we were funded, I failed to do something that I had done well with our previous bank.  When we worked with Bob Sinton at Bank of Boulder, now First National Bank of Colorado, I did my best to educate Bob on my business.  In the early days I went so far as to give him catalogs of companies that bought telecommunications equipment just so he would feel good that our equipment (which secured our loan) was valuable.  I think we are past that now, but I should have spent more time educating Frank on our business, why our customers always pay us and why we were a good bet.  It was a case of delegating too much, and I've done my best to take this on personally more recently.

Frank made the point that "debt funds assets, not expenses."  In other words, a bank can loan you money to buy things that generate cash, but they aren't there to pay your bills for you.  Assets that a bank can fund include equipment, but they can also fund accounts receivables and provide cash for acquisitions in some cases.

I'm still indebted (figuratively, not literally) to Bob at First National Bank of Boulder.  He loaned us money to buy AT&T equipment, to do work for AT&T, when AT&T wouldn't even lease the equipment to us.  Frank at SVB has done a great job of working with us now that we are no longer a boot-strapped company.  I'd recommend either without hesitation.

Too many entrepreneurs in the past have declared victory when they successfully raised VC money.  In my mind, it is just another way to fund the growth of a company and it is the beginning of a process, not the end.

April 6, 2005 in Entrepreneurship | Permalink

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