3Fs, pre-seeds and the “walk away” start-ups
The hardest hit market for capital remains the very earliest seed rounds. Angels have always tried to leave this to the founders and for good reason. This is where the very basic commitment of the management team gets measured and where inventors morph into entrepreneurs. This is where their metal is tested – how much are they willing to put in themselves and are they willing to bring family and friends along?
Deals started with OPM (other peoples money but it’s like opium) continue to support the lifestyle of an entrepreneur, which has become a bit too cool, and a bit too gritty. Today’s entrepreneur can seek pre-seed funds, play around with an idea while being centre stage in the new pop culture. Then, once the money is spent, they can do the right thing by failing fast and having the courage to fail. The real problem is failing fast and having the courage to fail is completely different when done with other people’s money. Today, we need more entrepreneurs willing to stay with a start-up longer.
Investor’s should not under-value having a strong pool of insiders on the cap table. The 3F stake the greatest risks of all and set one of the best measures of a start-up’s management teams commitment and capabilities.
If the founders didn’t bring in a serious pre-seed round of family and friends, they don’t have a very strong commitment to succeed. When my dad’s personal friends invested in my company I knew there was no turning back. My angel and venture investors knew the same thing.
At BWA we spend our own money and we seek investors that bring money they’ve sourced and have a personal tie to honor. Accelerator money is still not the funds that bind.
Show us a cap table with skin in the game!