It costs money to get money.
So, should we worry about the vulnerable entrepreneur who might pay his money to pitch to business angels even though his chances of raising funds are slim?
This simple trueism that it costs money to get money is a constant problem for entreprenuers who are usually desperate to raise funds and therefore resent spending a penny on the way to raise the funds they need.
However, within the Business Angel community there is a disagreement about whether ‘no hope’ proposals should be allowed to pay their money to the business angel network or business consultant in the hope of winning funding.
In one corner we have those who say ‘no, we must filter out the no hopers’ and in the other corner we have the ‘who are you to say this proposal is a no hoper?’
The first group – let’s call them the ‘no no hopers’ believe that they can look at a proposal and quickly decide which gets through and which doesn’t.
They are doing this on the basis that the type of business which gets funding normally meets some standard criteria, such as, it
- a) has a clear product with a clear market need and an ability to protect that product
- b) has a team of shareholder who have raised funds and sold businesses before
- c) shows an understanding of the language and needs of the investor
Okay, the consequence of this appraoch is that some entrepreneurs won’t ever get the chance to pitch. The significance of this is that not only will we miss the occasional diamond among the rubbish, but more importantly we deny many entrepreneurs to learn about the pitching process so that they have a chance of coming back a second time with a stronger proposition.
In defence of the ‘no to no hopers’, is the argument that if anyone can set up in business and take money from unsuspecting entrepreneurs then there is a risk that they will be fleeced or perhaps exploited.
However, we are not talking about your average person here, but someone who has decided to step outside a conventional life (jobs) and go it alone. We are not talking about old aged pensioners losing their meagre life savings, even though, it is quite true that many entrepreneurs lose their shirts.
It is also true that middle men – business angel networks and consultants – make a living out of doing deals just as estate agents live on the commission of selling houses. Should we deny them access to a living?
Let’s also consider the huge cost of entrepreneur training too. An MBA might cost £20,000, a government sponsored course to set up new entrepreneurs might cost the governement £000s. Why not just let them learn on the job, so to speak?
So, if the process of pitching for angel funds doesn’t succeed but results in a valuable lesson for the would-be entrepreneur, then has the process really failed the entrepreneur at all?
After all, isn’t most of our best business learning the result of failures? Julie Meyer of Ariadne Capital once described failure as a “faster way to learn”.
Of course, with the popularity of business reality TV shows like the apprentice their is a greater risk of malpractice as the volume of wanna-be entrepreneurs increases.
So, clearly, entrepreneurs should be on the lookout for bad deals from the business angel networks and before parting with any cash should be very clear about the likelihood of meeting suitable investors.
But, does any have the right to deny anyone this opportunity?