Which is more important – investor funds or entrepreneurial innovation?

Many entrepreneurs look at the control provisions in venture deals and think twice about proceeding.

The extent of control over the company required by investors can sometimes suggest that the investor thinks they knows more about running the business than the founder.

It’s important for everyone in a venture transaction to understand that the opportunity exists because the founder/entrepreneur has done the hard yards to develop a business worthy of investment.

In fact, the most important investment criterion is that the investor should be convinced that the founding management team can execute the business plan. If there is substantial doubt about this then the investment should not be made.

Cash may be king but without quality management and a sound business plan, the cash would simply stay in the bank. So we don’t really have a chicken and egg situation… the business comes first!

Some controls are justified and, if structured correctly, will actually assist the business by delivering good governance and access to quality advisors, etc.

As investors we must always recognise that we need quality businesses…as entrepreneurs we must always remember that investors are our customers…the product we deliver is a return on investment.

The truth is that for all the value add claimed by many investors, to most entrepreneurs the primary purpose of securing an investor is getting the money. Value add, to the extent it really exists, is a bonus.

The line between entrepreneurial self-belief and foolhardy arrogance can be blurred but without an overdeveloped ego, it’s very difficult to withstand the peaks and troughs of running a start up.

So yes, the entrepreneur is the cornerstone of all start up investing but don’t forget your customers… all of them!

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Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology-based businesses.

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