Start-ups will do anything for money. And by anything, I mean give up huge percentages of equity, board seats, hey, even some close relatives if they could! Investors know this and too many to count are taking advantage of it in Spain.
What’s the real issue here? Let’s take a look at the bigger picture. Of course we all have a price; there is a number for everyone out there. Remember Indecent Proposal? You get the idea. Well then, the ISSUE is: How much money does it take for me to give up my idea, my company, and eventually my freedom?
Having established the main question, there is a huge difference between real VCs who are willing to invest up to $5M in a new venture and those who are putting $100K into two dozen startups like they’re playing roulette.
Ideally, we all want to find that big VC willing to invest and get out of the way, let the founders do their job, but many Spanish startups are accepting tiny investments from small investors who want to know exactly where every penny of their investment is going to end up. Sorry folks, but that’s totally uncontrollable. You know that, and investors should know that.
These small VCs, and we’re talking about those investing between $100K to $300K per venture, make up most of the usual suspects in Barcelona. And here is where the “tyranny” begins. As I mentioned earlier, companies get investments of $100K-200K from random investors who think they can control every move in the company, and who think that just because they put $100K in a $2M pre-money valuation company, they have a say in every aspect of the company. I believe, and we will talk about that in some other post, VCs should “put the money in and disappear until the exit event”, letting the entrepreneurs run the business they created, and the one the VC invested in, the way they want, and wait for revenue to come back to them (We all know that’s what they want…)
Everyday, we run into entrepreneurs who have been imposed shareholders agreements, attached to little investments asking for 20-30% of the company’s equity, from small VCs demanding a seat on the board, with…well, many outrageous caveats not proportionate to the size of the investment.
Do I know the best way to help? Is there one better way than another? Which one is that way? As I mentioned earlier, I believe that entrepreneurs should be left free to fly and make mistakes and learn from them. An over controlling VC won’t do any good since the entrepreneur can’t fully focus on the project at hand and has to be looking over the shoulder constantly to that VC lurking in the shadows. In trying to help the start-ups, I believe that they should work to get it their way. To get a sweetened deal than the one offered from the VC. To fight for their own pride and regain some of that freedom they were willing to give away for a few pennies.
Keep your freedom William Wallaces out there! Do not settle for less than what you are worth! Do not give up your freedom for a few bucks! The real VC will come to Spain (we all hope it does), and when the time arrives, you will see that if you were able to stay strong against the small VC, victory will taste so much sweeter!
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