Steve Huey’s Blog

It is hard if not impossible to get a “Fair” price for your business if you are pitching the business to people who do not understand the (1) business or (2) industry in which the business operates.  Just as the title to the post states why would you try to sell your cow in a pig market?  Why would you try to sell you business in a market that does not understand what your business does.  You may be able to sell it but not for a “Fair” price.

Two examples:

1. Was listening to a pitch the other day for a Health Care company.  After the pitch the room was dead.  No excitement. No questions. No discussion.  What was wrong?  Was it the company or the presentation.  I don’t believe so – it was that the people in the room were not Health Care people.  I myself simply did not listen to the pitch because I know nothing of health care and since I do not trust myself on the industry, I do not invest.  It was not that the idea was bad necessarily it was just the wrong venue.

2. Met with some great guys the other day.  Brilliant company concept, smart implementation.  They are totally on track.  They are having trouble raising funding.  They are starting to question themselves and their company.  Their problem is that their company is pre-revenue.  My message to them, “Don’t doubt yourself just recognize that your company is at a stage where most people you have pitched to will not invest.  It is outside their risk profile in “THIS” market.

In both cases the companies were selling cows in a pig market.  It is still possible, don’t doubt yourself,  but recognize that you will have to lower your price.

I believe that traditional Venture Firms are competing more and more with Angel Investors and that Angels are helping start-ups receive investmentswith better terms.  Why is this?  Below I list my top XX reasons:

1. Organization & Resources: Angels are better organized and have access to resources previously only available to VC firms.  They have tools like Angel Soft and information more publically available on the internet.
2. Deal Flow:  Because Angels are better organized they share deals and see more deal flow than in the past.  They are also known to have less preditory terms – does “Full Rachet” ring any bells.  Also there is a sense (neither right or wrong) on the part of the entrepreneur that Angels like their name are more trust worthy.  These factors add up to deal flow.
3. Lower Capital Requirements: Let’s face it many businesses need less money to get started and once they are started the same businesses become breakeven or cash neutral quicker.  A recent review of my company’s budget reveiled such a low capital budget that I almost dismissed the whole as inconsequential.  Smart start ups are using shared resources (Amazon for bandwidth, work from home (Starbucks) employees and outsourced everything to get started and only bring things or people on board as they have the cash to pay for them.
4. Sophistication of Angels:  Angels are smarter (for the most part) about how to get a deal done.  There are real professionals who have made their money and are now operating their “mini-funds” instead of buying into a fund so that they can have more control over their investments.  I call them retired Angels and I know several.  They are sharp people who could easily work in a venture fund but instead have “fun” doing their own deals.  To these people I say, “Bravo!”

If you are looking for money – even if it is three to five million try the Angel side of the tracks first.  There are a lot of Angels out there looking for you.  Remember – Good Deals always get funded!