Another disfunctional and self-satisfied financial market?
I was pretty disappointed by the lack of insight and articulate views on finance that I heard sitting in on the “Entrepreneurship and Investing “discussion panel at the Supernova 2007 Challenge Day. The professional ‘VC’s’ on the panel were actually very articulate and – although I didn’t really think they said anything insightful – gave measured intelligent answers to the questions they fielded. Unfortunately, everything the two ‘angels’ on the panel said could at best be described as banal, and at worst was just a plain dumb amalgamation of platitudes, irrelevancies and inarticulate generalities, and did a huge disservice to an audience made up primarily of aspiring entrepreneurs.
Question from the audience: “How do you approach valuation in the companies you invest in?”
Angel answer: “I don’t worry about valuation, it’s around $2-5million for a start-up…”
Ummm… right man. THAT makes sense. No sense wasting time on valuation…it’s a couple mil, right?…btw what does the company do?
Everyone knows that valuing a start-up is not an exact science, but that doesn’t mean that there is NO science…there are many different approaches – based on option theory, discounted cashflow, discounted terminal value, etc. – that can be used to frame the discussion. Together with a probabilistic approach to outcomes, they can frame the valuation and the process of working through such a framework is helpful in terms of testing and adapting assumptions and building a more robust business case and execution strategy. As long as one doesn’t confuse precision for accuracy and over-engineer the process, a robust valuation discussion is the perfect vehicle through which to make sure the entrepreneur and the investor are on the same page.
One of the most ridiculous assertions to come from the (angels on the panel) was that the only place in the world where you could innovate and raise capital (for innovation) is Northern California. I’m not even going to bother wasting my breath deconstructing this idiotic and parochial worldview – and I’m going to try really hard and convince myself that this view is just one/two man’s opinion and not representative of a commonly held view – but all I can say is that I think there is a huge opportunity to connect smart (non-Valley) money to smart entrepreneurs everywhere.
There is a certain irony in the lack of innovation in the financing of innovation, don’t you think?
