Where there is smoke....Ok, there are definitively many war
stories to be told. My fellow startup veterans Alex Muse, Gabriella
Draney, Darlene Ryan could give you similar run downs. Most
seasoned investors could do it too. It also contributes to why we
enjoy what we do. No single entrepreneur, story or pitch are the
same.
However first a few problems that are probably hard to fix and
that might mean a "no go" for your budding firm:
1) Wanted: Dead or Alive.
One of my first due diligence targets was an entrepreneur who came
to see us. For some reason we were meeting at a restaurant instead
at NTEC's HQ. I didn't know how I'd identify him so I googled him.
This is several years ago, so maybe I "yahooed" him. OK, I did find
a good quality photograph of him. However, it was on a "wanted
poster" online. He was wanted for being a "deadbeat dad" on a
similarly named website. Clearly I wasn't in a position to figure
out whether this was legit or not (website stated a series of
requirements that had to be fulfilled for the grieving party to be
able to post), but I wasn't feeling so great about meeting him
anymore. At the very least it was distracting. After we met, and I
determined that he was working on an interesting startup, I asked
him if he could do me a favor and google himself. I simply said
that whatever the truth in this case, he'll have a hard time
fundraising with that kind of publicity. (He later told me that he
settled the dispute, and he disappeared from the "wanted" site)
Try not to be on wanted posters, no matter what you are
wanted for…
2) Caution, your investor may actually
know more.
An interesting conversation ensued after a lengthy presentation
that was star studded with claims and "cool invention bells &
whistles". The startup was playing in the bio-photonics
world. The entrepreneur was not the technical expert, but sure
claimed to be. Problem was that I had spent many years doing
research using such technologies. I had even co-authored
scientific papers and book chapters in the field related to
the invention and while NOT claiming to be an expert, I had gotten
to know many of the limitations of the technologies involved. We're
talking hands on, doing experiments that didn't work, because of
some very clear limitations of the techniques involved. All that is
fine except that this person insisted on being right…I didn't claim
to be but I also wasn't about to just let it all go. It became
pretty uncomfortable fast and he didn't do himself a service by
arguing instead of getting backup data. Maybe I WAS wrong and
incredible breakthroughs had happened unbeknownst to me. The
attitude of the entrepreneur told me otherwise. Also, the only
thing I learned was that this person wasn't going to be easy to
live with. Any investor in my place would have walked. Of course,
so did I. Because if the investor walks, then I am backing
something that cannot be financed. Not my end-game.
Try not to get into an argument on your first visit, the
person across from you just might actually know what he/she is
talking about.
3) Patents, it matters what's
protected
Patents are great to have and can be a real non-starter if you
don't. Not every company needs them because it could be that your
intellectual property is protected as a trade secret or handled in
some other way. In most cases, however, a patent or a pending
patent is the signal that you have something special/unique.
Recently, I spent some time with a company that had a patent but
it wasn't immediately clear what the patent was actually
protecting/claiming. It turned out that the part of the business
that was attached to the patent was rather small, and it would not
have been hard at all to do things in a different way circumventing
the patent.
Another time a technology simply wasn't going to be protectable.
When we conferred with our IP attorney friends, it became clear
that the claims weren't going to make it. You can always submit
your IP and claim a "pending patent", but expect extra scrutiny
because most patents will initially be rejected. We shared the
respective feedback with the applicant companies, of course.
Good IP counsel is crucial, if your IP is going to be
crucial to your business.
On the bright side, there are many things an entrepreneur CAN do
to attract interest and make a compelling case. When we vet a
company we look for things that cannot be fixed, because we stop
right there and don't waste ours or the entrepreneurs' time.
Most things can be fixed and that is where entities like NTEC can
make a difference.
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