Fin24

How entrepreneurs can attract funding

2011-09-15 06:54

THERE is an old parable about the concept of commitment when it comes to breakfast. The story goes that when looking at a plate of the traditional fare of ham and eggs, it's obvious that the chicken is an interested party, but the pig is truly committed.

When I tell this story to entrepreneurs, my point is usually to contrast the approach venture capitalists have to startups as compared to entrepreneurs. The VC is an interested party, but at the end of the day if their startups live or die they typically still have their job, their office and their portfolio of other investments.

The entrepreneur, on the other hand, is the pig - truly committed to the outcome, with no fallback.

But lately I've been thinking about the parable of the pig and the chicken in the context of the characteristics that make a great entrepreneur - and the kind of entrepreneur that we VCs in general, and my firm Flybridge Capital in particular, like to back.

In short, we like to back pigs - entrepreneurs who are truly and completely committed to the outcome of their venture, have a lot of stake, and no fallback.

Too chicken to go all out

How do we discern the difference between the two entrepreneurial archetypes? It's usually relatively easy, but sometimes subtle. Here are a few of the top characteristics we see in entrepreneurs who appear to be exhibiting behaviour that suggests they're more like "chickens" when it comes to their startup:

  • Prefer to wait to start their venture only after they receive funding. ("We are ready to go, as soon as you give us your money." Um, does that mean you won't start the company if I don't give you my money?)
  • Don't quit their day jobs before receiving funding. ("This has been a side project for a year, and I can't wait to focus on it full-time." Um, if you can't wait – why are you waiting?)
  • Don't physically move themselves or their teammates to be in the same geography when starting their venture (think Eduardo Saverin in the Social Network spending his summer in NYC).
  • Prefer to play a hands-off chairperson role or look to quickly hire a chief operating officer/president in the early days rather than operate as the hands-on CEO/president. (I'll leave out the numerous examples to protect the innocent, but as a rule of thumb companies with fewer than 40 employees don't typically need a COO.)
  • Are unwilling to fully leverage their own personal and professional networks to drive recruiting, fundraising and business development.

Bringing home the bacon

On the other hand, the top five characteristics we see in "pig" entrepreneurs include:

  • Commit to the new company everything they have - even if that means moving their families, quitting their jobs, or even dropping out of their schools (as much as I don't want to condone or encourage this).
  • Put themselves "out there" publicly and visibly with the industry, their relationships, family and friends. If the company is a failure, it will not be a quiet one.
  • Have not yet achieved a mega success already and/or yet achieved wealth beyond the point of needing to work again. (I remember my mentor and boss at Open Market, CEO Gary Eichhorn, congratulating me when I became a first-time homeowner in the mid-1990s and observing: "I hope you got a large mortgage so that you are locked in and highly motivated to create wealth.")
  • Participate in a minimal set of outside interests and hobbies that aren't directly related to their business. Starting a company is a consuming, obsessive, 24-7 endeavour. Raising a family and remaining healthy is enough of a battle. When we see entrepreneurs with long lists of hobbies and outside interests, it's a red flag.

One of my partners went so far as to look up the number of times an entrepreneur played golf one summer (which apparently is public information somehow, although I'm not a golfer so still don't know how he figured this out) as a barometer for how hard they were applying themselves to their new venture.

  • There exists a rare breed of entrepreneur that have already had mega success but are so special and driven that they remain obviously hungry and scrappy. For these entrepreneurs, the key is to watch and see if they're still as hands-on as they ever were (eg, obsessed with the product, knee-deep in the financial model, out in front of the organisation in selling). Again, these entrepreneurs are very special.

So what are you - the chicken or the pig? Investors clearly prefer one model over the other, not just in the founder, but in the entire team. As a result, as you are assembling your startup team, be careful not to hire chickens.

In the eyes of prospective investors, you may find it's even less kosher than hiring pigs.

*Jeff Bussgang is a former entrepreneur and partner at Flybridge Capital Partners. This article originally appeared on his blog Seeing Both Sides. The views expressed are his own.  

 - Reuters

Comments
  • Nasdaq7 - 2011-09-15 07:24

    No really man. These things are not what a businessman should be. He should know his products. His markets. His abilities and liabilities. And how far he can push his people. The costs of the business. Those are the things venture capitalists should look at. Pigs are too expensive to feed. And most venture capitalists should know that.

      Nasdaq7 - 2011-09-15 19:16

      In other words skills is a major requirement in addition to a highly profitable idea. Passion / Zeal is not enough. Skill, pure skill determines success. You won't call Steve Jobs, Bill Gates unskillful. You need to be a pioneer. Shuttleworth was a pioneer with immense skill. He was someone you could back financially because he had the most important thing in any business: skills and his business was positioned to grab a major share of the world market - the fast growing Internet security market. Passion is great, but it doesn't help when the markets are all wrong or the person or many of his team members are not skilled enough.

      Nasdaq7 - 2011-09-15 19:16

      In other words skills is a major requirement in addition to a highly profitable idea. Passion / Zeal is not enough. Skill, pure skill determines success. You won't call Steve Jobs, Bill Gates unskillful. You need to be a pioneer. Shuttleworth was a pioneer with immense skill. He was someone you could back financially because he had the most important thing in any business: skills and his business was positioned to grab a major share of the world market - the fast growing Internet security market. Passion is great, but it doesn't help when the markets are all wrong or the person or many of his team members are not skilled enough.

      paul.nefdt - 2012-07-04 00:53

      In real life their are too many variants to 'what would make a specific venture a success'.. Yes the VC's have an idea of what they look for in a entrepreneur but the crux of the matter is that if you have a brilliant idea & a solid business model no VC would resist making money off you.

  • starled - 2011-09-15 07:32

    Bacon or the egg - i did the whole hog and came with in a hairs breadth of that mega success after 2 years of 120hr weeks. and reality is simple, unless you commit fully, with the entirety of your being, you will never achieve true greatness or success, whether it be personal or professional, but as also is the case you can miss - and I did - lost everything - but damn it was a good run. That said, in alignment with the analogy used, once the bacon is on the plate it ain't never going to enjoy a roll in the mud again, so sometimes it pays to be the chicken, and in my case I have another venture in mind and it would be monumentally unfair to put my family through that which we survived all over again, now that I have a secured 9 to 5 that has given them some form of security, so from my end, I'll play at the chicken for a bit, till there is a bit of beef in the bank...cluck cluck

      Jane Tennant - 2011-10-24 07:51

      Not only was it a good run but I venture to suggest that you learnt very valuable lessons that you will put into practice in the long run. I understand that you are in 'recovering chicken' mode but look forward to seeing your next level entrepreneur emerge, wiser and more successful. Never never give up, in the words of Sir Winston Churchill.

      Jane Tennant - 2011-10-24 07:51

      Not only was it a good run but I venture to suggest that you learnt very valuable lessons that you will put into practice in the long run. I understand that you are in 'recovering chicken' mode but look forward to seeing your next level entrepreneur emerge, wiser and more successful. Never never give up, in the words of Sir Winston Churchill.

  • Belisarius - 2011-09-15 13:46

    Pretty good analysis, with one exception - I wouldn't hire or fund someone with no hobbies. The variety and uniqueness of hobbies is an indicator of creativity and passion. What I would look for is an entrepreneur who is developing his/her innovative business that reflects obvious hobby passions. Golf could be a fantastic networking tool - if the business is focused on networking, golf would be a bonus. It is when the hobbies and the core focus of the business seem out of sync that I would see warning lights.

  • NotnaJ - 2011-09-15 16:01

    I can mostly agree with this article and it makes sense, but share the view of @startled. Quitting your job without having finance, and having no income puts your family at risk.Even if you have enough passion, it does not feed the crowd. If I had to quit my job to get the funding I need for the project I am involved in planning, then I would have lost everything, as well as the ability to continue planning it, especially in the current funding climate. I think VC's often have limited vision as well, although they are loath to admit it.

  • Postman xyz - 2011-09-15 16:08

    I like the cook Jeff's idea on the egg and bacon issue and it surely is a positive opinion, but I would like to add some luck to the mix and call it timing. With technologies that can fast track development ideas in today’s business arena, you might find yourself eating breakfast in the evening. So please remember to time the opportunity and be a good pig, and then the chicken has even less to offer as the pig can still deliver spare ribs for the occasion.

  • Business Partners - 2011-09-15 18:43

    Having a brilliant idea and an excellent vision is often the number one ingredient in attracting funding.

  • Venture - 2011-09-15 22:39

    Great post. Having helped tons of entrepreneurs raise venture capital, this is dead on. You must be 100% focused on your venture and achieving success if you're going to raise VC. It may not sound fair (e.g., not too many outside hobbies/interests), but that's the nature of the game. Equally as hard (if not harder) than exhibiting the characteristics defined in the article, is finding, contacting and convincing the right VC to fund you....

  • Zing - 2011-09-16 09:29

    So you eat the pig, then what? This analogy may fly for an entrepeneur that conjures an overnight sensation. It lasts for a day and then gone, no bacon for the second day. If you had to ask the pig and the chicken whether they're willing to participate, you'd get a different kind of business. I think you'd get more out of the pig if you promised NOT to eat him. I would be more happy with a chicken business that churns out an egg EVERY morning and still have the chicken and the pig's companionship. I think I might make the pig CEO, after all, he owes me his life ;)

  • Vince York - 2011-09-20 17:27

    In a normal society a PIG entrepreneurs, but most Pigs in SA are "Dead Pigs" before even starting off - dependent on certain usual political criteria and competition from "trenderpreneurial chicklets"!

  • Albertus - 2011-09-27 07:49

    It is a pity that my comments get deleted. By nature of my work I deal with start-ups all the time. The commitment is often an obsession by the entrepreneur, not taking into account the reality. The pig scenario more than often refers to pigheadness. No entrepreneur without balance in his life will hardly succeed in the long term. Balance meaning a balance between work, play, hobby, family life and spiritual being. The high number of business failures are a direct consequence of the personal imbalance. The business school textbooks teaches the one side of the business, neglecting the phycological side.

      James Peter - 2011-10-11 18:04

      Really? I always thought the most successful people in business are fat, lazy, and often immoral beings with absolutly no balance in life, chasing the next deal. If people spend their time chasing balance and doing other things, like family, health, fitness, social, spiritual, and religous tasks their business will suffer. Those doing nothing but their business will always be more successful in it. I could be wrong, thats just my opinion.

      James Peter - 2011-10-11 18:04

      Really? I always thought the most successful people in business are fat, lazy, and often immoral beings with absolutly no balance in life, chasing the next deal. If people spend their time chasing balance and doing other things, like family, health, fitness, social, spiritual, and religous tasks their business will suffer. Those doing nothing but their business will always be more successful in it. I could be wrong, thats just my opinion.

  • Peter Müller - 2011-09-27 11:27

    @ BP. My experience is different. Brillant ideas and visions are "a dime a dozen". My first-hand experience re success points more to: hard work, working smart, test your concepts, timing, skills & experience, right-place-right-time, and some luck go a long way. Often a "simple/basic" business done well is much better than a brillant idea. "More man become great through practise than through nature" (Democritus)

      Nasdaq7 - 2011-10-05 21:57

      The best businesses to back are those with a proven sales track record and that suddenly "sees a gap". Mark Shuttleworth tried funding just ideas and where did that get him? Nowhere. HBD venture capital for start-ups is gone.

      Nasdaq7 - 2011-10-05 21:57

      The best businesses to back are those with a proven sales track record and that suddenly "sees a gap". Mark Shuttleworth tried funding just ideas and where did that get him? Nowhere. HBD venture capital for start-ups is gone.

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