Editor’s Note: This post was originally published on Seattle 2.0, and imported to GeekWire as part of our acquisition of Seattle 2.0 and its archival content. For more background, see this post.
By Rebecca Lovell
Maybe it’s that highschool reunion evite that just graced my inbox, but I’ve been thinking back on those glory days and remembering with chagrin the age-old party game “I Never.” Here’s how it works: one foolhardy soul makes a statement starting with “I never…” and any of the party-goers who have committed the act that follows that statement must drink. This post is dedicated to creating new memories for this phrase, and inspired by entrepreneur pitches and investor meetings since my last post. Pour yourself a frosty beverage– game on.
This past month has made me a liar (fortunately I’m already drinker), so I’d take two big swigs. Don’t get me wrong: sky-rocketing valuations are still passe, and preferred equity is still chic. Entrepreneurs and attorneys seem to be getting the memo that deals are getting done, but at a deep discount; this week we reviewed a deal where the company cut its valuation by 2/3 halfway through fundraising. All that said, this past interview cycle has brought us a unique set of investment opportunities that we’d likely never have seen in a different economy (i.e., four months ago):
- deals that would otherwise qualify for debt financing. We’re talking about companies with assets and collateral…revenue-generating entities that in many cases have a round (or two) of professional financing under their belts. No offense to our friends in banking– we know that the most intrepid amongst you are as busy as ever– but the lack or perceived lack of debt financing is sending some really interesting companies our way. They’re further along than a “typical” angel deal and have a correspondingly higher price tag, but are still priced to move.
- deals that would otherwise qualify for venture funding. Substitute VC’s for banks and all the above applies (yes, we know and love those of you who have successfully raised funds, are busy tending to your existing portfolio, but making new investments and/or itching to pull the trigger and fund the next big thing).
These days, atypical is the new typical when it comes to angel fundable deals. For more on angels stepping in to fill the funding gap, check out this Bay Area angel event description.
“I’ve never said ‘these projections are conservative.’ “ I expect a lot of glasses to be raised right about now. This phrase has recently been promoted from making me cringe to making me cranky, and may elicit one or more of the following reactions:
- the entrepreneur is lying. You know that feeling you get when someone says “let me be honest with you”? That little alarm that goes off, suggesting that nothing preceding (and likely nothing following) that statement is actually true? Same applies here. Adjusting projections given the current state of the economy? Yes please. Calling these projections ‘conservative’ — not so much.
- the entrepreneur needs to grow a pair. Not at all suggesting you throw caution to the wind, but be aggressively reasonable. Pick the most likely scenario given a set of assumptions, make those assumptions transparent, and investors will do their own mental discounting to the extent they believe said assumptions. And trust me on this– savvy investors and advisors will tell you if you’re cutting yourself off at the knees with truly ‘conservative’ projections, or if you need to step away from the crack pipe and re-check the math on hitting that $100 million revenue target in three years.
Granted, the only thing we know is certain about financial projections is that they will be wrong, but take a run at it from the ground-up, justify your addressable market, describe your pipeline, illustrate your conversion rates, compare the cost of sales to the lifetime value of a customer. If you can credibly sketch out a universe where everyone makes money, you can still find an angel.
And everyone out there who claims that deals aren’t getting done today should go ahead and chug that beer. Angels are still writing checks for good deals– never say never.
Author’s note: Never play “I Never” with someone you’re dating. Or want to date. Ever.
