“The first rule of any game is to know you’re in one.” Sandy Lerner, Founder of Cisco Systems
According to the movie, “Something Ventured,” 45% of founders receiving venture capital will be replaced within 18 months. Before you head down the path of venture capital or angel investment, be very clear on the potential risks you’re taking.
The heartbreaking story in the movie “Something Ventured” is seeing the founders of Cisco Systems get fired by their venture capitalists. It’s the last chapter of the movie and if you watch nothing else, skip ahead and watch this section. In separate interviews with Sandy Lerner, and one of the major investors, they unravel a story of a company’s internal cultural problems.
Cisco had a fantastic product- the first computer router that connect computers to talk to each other. It was revolutionary technology created by an amazing team, but a team that argued bitterly, and spent much time on internal team politics. The Lerners, who founded Cisco did have massive growth, accumulate wealth, and saw their product transform the way computers work, but in the end, the were asked to retire, and when they said they still had much to do, they were fired.
The movie “ Venture Something” doesn’t hide the reality that there are tough outcomes for venture investments. When things aren’t going well, the venture investors depending on the contract arrangement, can demote a company founder to no longer being president/CEO but have a lower title of “researcher” or “chief development officer” of the company. The founder/entrepreneur may still have significant ownership shares in that new title, but they no longer have the title. The point the venture capitalists make several times at the end of the movie, is that if the entrepreneur didn’t put together the right team to take the company to the next level, the venture capitalists will hire the right team in order to protect their investment, and that sometimes sadly means removing the company founder from leadership or even any role in the company.
If an entrepreneur/founder doesn’t clearly see their own shortcomings and can’t lead the company to the profit levels that was projected…. The venture capitalists will do what it takes to get their return on investment. It will be tough for them, but if the clear choice is to replace the founder, they will do it.
So what does this have to do with marketing you ask? Marketing can make an entrepreneurial team and new product look great. It can make it look investment worthy. However, as a conscientious marketing firm, part of doing our best for our clients, is letting them know the challenges we perceive.
When we get to know a new client and are crafting the pitch, creating an integrated marketing plan, writing resume’s for the team, and doing public relations work, we believe that part of our “best practice” is to provide some understanding of history and risks of venture capitalism. If you become our client, it’s because we do believe in your product, and we believe in your team. It will break our hearts too, if you end up being demoted or fired by your investors.
The best defense is to provide you with knowledge and give some guidance based on our 15 years experience with start-ups and mature companies. To seek investment, we know a successful entrepreneur needs a full team which includes: financial planner/CPA, legal advice, distribution chain/customer service expertise, and successful project management of your product or service. Get the team that is experienced and works well together. Then depending on the industry there will be more to consider, but you need to identify great people and their role in your company. Marketing can make a product shine and a team appear to be superstars, but we must caution entrepreneurs –make sure you have the right superstars to get the job done in eyes of your investors.
We want to see your company go all the way, and the best way to achieve that, is for you to understand the game. Yes, it’s a game.
If you’re still interested here’s links and currently listed deadlines for some Angel Competitions.
January TBA, 2013 Gorge Angel Conference
January 15, 2013 Oregon Angel Fund
January 18, 2013 Future Energy/Energy Technology Startups (Shell Oil)
January 31, 2013 Southern Oregon Angel Investment Network
February 14, 2013 Willamette Angel Conference
August TBA, 2013 Bend Venture Conference