November 3, 2011 Leave a comment
Following on my note on rating ideas against execution, I’m thinking about what gets funded and why. While many people view the three key areas of product, market and team – the truth is that the third one of these is very hard to evaluate. This is where the whole momentum criteria comes into play. To a degree, momentum trumps all the others but that’s a potentially short-sighted approach.
If you have track record that is relevant (clearly there are shades of grey here) then investors can make a judgement that assumes a level of execution capability based on the past. And I’m sorry but you can’t look at the board’s track record as a substitute for management track record.
If this entrepreneurial track record is missing it’s very hard to assume any level of ability to execute in a small business environment on any basis other than what you are achieving with the resources at your disposal right now. Put momentum and track record together and you probably get a bumper valuation. If you have one or the other you get a good valuation, with neither you probably won’t land a professional investor.
To compound the disadvantage that a first time entrepreneur faces, the repeat entrepreneur has both some of his own capital to make initial progress and then the ability to raise more to achieve momentum.
So if you are entrepreneur scratching your head at capital raises that you hear about, perhaps this helps to explain why the lucky just keep getting luckier. However a lot of the biggest success stories come from first time entrepreneurs who are hungry and innovative so that’s not necessarily the right recipe.