By Alan von Kalckreuth
Stick a few finance savvy attorneys on a panel and ask Joey Tamer, President of S.O.S. Inc. to moderate a discussion about “real” money and what attracts, or repels, it in the digital entertainment world and you are going to come away wiser and more confident that some one is going to get the money, even if it’s not you. The panel was part of the Digital Hollywood summit held in Los Angeles last week.
It appears that the venture capital and strategic investment community, or VCs as these guys call these sub-species, are happy to put their money where their mouth is… BUT, Tamer warns, they have a game plan and if you take their money you’re now dancing to their tune. They have an out strategy that they will stick to and that’s the timeline you are going to have to meet.
The panel was well chosen to represent a range of VC engagers and not surprisingly they spoke with one voice.
The “next” check, a term tossed around like kindergarteners recite B is for ball, seems to be where your focus should be even before raising incubation funds. David Albert Pierce of Pierce Law Group LLP revealed in his dry, knowledgeable way that when you get money to develop your great idea and you do a great job showing how your great idea is going to make a load of duckets for everyone involved, you then have to romance the next level VCers. And this level is inhabited by VCites far shrewder and less forgiving that a ninth grade principle during a full moon.
The venture capitalist “don’t want to see a patchwork quilt,” as Ms. Tamer put it. “They want to see neat and tidy capital share.” What Ms. T is driving at is you don’t want to have given percentages to your gardener because he let you use his pick-up and the guy who printed your business cards because he took a post-dated check.
Mike McGlade former Chief Revenue Office for FastPay, a wheat-grass drinking sort of dude who has raised mega millions for digital enterprises, announced that he is firing up his own start-up and tells the room of eager learners that they should forget “the smoke and mirrors and the vapor-ware,” and get out and make sales.
“Know what the market is,” explained Pierce. McGraw agreed and being the touchy-feely sort wants to imprint on everyone’s mind that the proof of concept should be evident from the reality that someone is prepared to pay for what you are setting out to deliver.
“Go to someone already in your business area,” advised Tamer. You get to save yourself an awful lot of time explaining how your product or idea works, or why your version is the “must have” version.
Steve Masur, Managing Director of MasurLaw, and who looks like he drives an expensive Audi, said that there is a load of incubator resources in Silicon Valley to move projects to a level that the VC will expect it to be at before they run their numbers. He advises that you keep something under your hat as you shuffle through this necessary savanna region. Everyone agreed that it is easier now to set up a viable project because of the lower cost of technology and resources.
If you get through the incubation period and have a chance at this second level, which is pretty much the start of the game to these guys, you must now be as shrewd as a Trump, as focused as a cobra, and as positive as toll-booth attendant.
“VCs have time-table and it’s easier to divorce your wife than your VC partners,” warns Tamer. “A lot of entrepreneurs lose control of their company through sloppy capital deals.” Her warning resonates from the chambers of experience.
McGlade put it this way; you’re in trouble if “the horse is bleeding.” His concern is that the snappy decisions often made during the incubation stage may create “more liability for you in the future.” “Leverage your receivables so you can keep you business running,” he advises. Another strategy he suggests is obtaining a revolving line of credit, BUT “don’t give a personal guarantee, instead raise equity. And if you can’t then go do something else –this might be a good indicator,” he warns wryly.
Pierce explains that if you have momentum and you are struggling because you are cash strapped it is not a bad idea to offer a “last-in, first-out” deal to you incubation investors for the money you need. If they pass on the offer then open it up to whom every you can.
“Debt is not a bad thing”, Pierces proposes. “Take Apple this week!” Tamer strongly agrees. “Take out a small loan… and pay it back,” she proposes, “that shows you have a history.” I learned that when I was a child,” she adds. I wondered about her upbringing!
“Work with smart people,” is key according to McGlade. On this point Masur advises the audience, “you get what you pay for, so pay for value.”
Pierce summed up the struggle for money to make your dream a reality with the axiom; “If the money is coming to you it’s coming to you. You can get fast and funny with it, but if the money is coming to you it’s coming to you.”