I just read a great article by Anthony Ha about the web startups and their need of venture capital. He quotes venture capitalist Randy Komisar who says his money is not for the web startups.
But doesn’t a startup need money to develop the next big thing?
I agree with Komisar. If you’re building something great on the web, money is one of the last things you need. Why would anyone trust a person/team who is incapable of developing a simple website with their own money?
Obviously no one should. The best part is that this really helps both parties enormously:
- The business angel avoids the huge unnecessary risk related to investing in an early-stage website idea. Websites do have about 99.9 % track record of not becoming business at all.
- The team would be stupid to sell a part of an idea that they believe in themselves. The later the stage of development the better terms they can negotiate with the angel.0 If the team can prove their idea works in smaller scale, there is a chance that someone believes it can be scaled up. Money works pretty well for that purpose.
So if you’ve concluded that money is the only thing stopping you from making a great new website, think again. Big corporations have truckloads of money and still they rarely achieve anything remarkable on the web. Just do something remarkable first and the money will follow.
Today, I met a man who wants to be a business angel. He has made his money playing Internet poker and aims to retire as a business angel. He will fail.
Why are most business angels experienced entrepreneurs?
It’s easy for people to think that being a business angel is all about the money. I will argue that it is in fact everything but the money.
First of all, money is just money. Money has never done any work by itself. In wise hands, money can work for you. In foolish hands, it can work against you. A good business angel can tell from experience whether the entrepreneurial team can use the money or not.
Secondly, if the team has a great idea why would they need an angel? Let’s assume an idea is so simple that the entrepreneurs themselves understand what they are doing. Why would they exchange a part of that fortune for money?
In real world, only the people with bad to mediocre ideas contact the business angels in search of money. The business angel is an expert in spotting the best of the bunch.
Who is qualified to invest in your ideas?
I’ve said openly that I will be looking for a business angel to invest in my ideas and my team through the end of this project. But the dilemma is here:
- The ideas get constantly better when developed with people.
- Making the ideas happen doesn’t really need that much money when you already have the people who believe in them.
- The investors should have an increasing amount of knowledge to really contribute to the things we do.
But even so, the thought of getting a real business angel interested in what we do is fascinating.