In class we have briefly discussed the various mindsets behind investors. Venture capitalists and private equity firms only provide funding to a very small percentage of entrepreneurs - typically in the single digits. While having the right management team and having an innovative concept usually complement each other as the optimal strategy, most investment firms will put more weight on one or the other. The question is - how do we know which one is more important and what can we do about it?
The answer is: it depends.
The intuitive answer is to hedge your bet. Be able to sufficiently cover both areas in order for the potential investor to be comfortable that you have the right team with a strong business plan. I personally believe that unless the venture concept is an absolute home-run, more emphasis should be put on proving that your experience and expertise are the foundation of your business. Furthermore, the superior abilities of your management team are ultimately what will make your venture successful and that the investor should be investing in YOU first and foremost.
Again, this is a very subjective topic and one could argue that markets are efficient, consisting of other talented individuals, in which one's venture is not worth the investment unless it is truly unique. It will be imperative for all of us to identify the strengths and weaknesses of not only our concepts, but also the people behind our ideas. In order to effectively raise capital, it will be essential to prove why we are the right people to execute our ventures.
Additional resources from the Donald H. Jones Center for Entrepreneurship at the Tepper School of Business:
Hi Martin,
ReplyDeleteYou have posed a pertinent query. If we compare the process of entrepreneurship to book publishing, as authors,I do not know about how far along our classmates are in advancing the core of their projects. I have a bare outline of a story with a few written pages of introduction. I have to impress an agent, editor and publisher to give me an advance. The more parts of the book I can envision and write, the easier it will be to convince someone else that I CAN write and bring my plot to a satisfactory (as yet unwritten conclusion). What do I believe is the minimum required to present to an agent, editor and publisher to obtain my contract?
Based on the above, it seems to me that rejection(s) from each of them are expected and par for the course. Even great books (later bestsellers) have had numerous rejections. I have to continue to write my best and flesh out the story without being disheartened by the rejection letters. If I receive any feedback from ANY readers at all about plot, characterization, language etc I will need to incorporate them through my own editing and re-write after re-re-write. That is also par for the course. Since I cannot predict anyone else's reaction, If I can please my harshest inner critic before presenting it to a professional, I stand a chance. Thus refining the concept to the best of my ability is most likely to help me recruit the best team if I want to start a company or publish a book.
Sangeeta