Hair on the Deal

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Generally, more hair is best, except when it come to venture capital deals.  "Hair on the deal" is a quaint expression used at venture partner meetings to denote when a potential investment is going south.  It could be going south for many reasons, but when the phrase is uttered, it is generally curtains for the poor start up under discussion.  David Lerner recently had an interesting Blog post on the subject that is worth reviewing. 

David missed a few reasons, including one of my favorites--that a deal is "too hard", meaning that the venture partners can make as much money on other deals and not have to work "too hard" themselves. But I digress...

The important point is how you can avoid getting hair on YOUR deal. And not have to fund your start-up out of your piggy bank. Here are a few suggestions:

1. Keep it Simple--too often, entrepreneurs try and solve world hunger in their presentation. They present "disruptive" business models designed to change an entire industry. While this can happen, and Amazon is a great example, most investors shy away from start ups that require many value chain participants to change the way they do business. Focus initially on the key area where your idea can make money, with a roll out plan for the other opportunities.
2. Remember Romance--I often meet entrepreneurs for the first time who insist on launching into the power points without any polite introductions, etc.  First meetings with investors should be conceptual, unless the investor has asked for a full-blown presentation right out of the box. Explain the basics of your idea and how you plan to make it happen, being ready to dive into details if requested.
3. Research Potential Investors--it is easy to get a list of local investors and start dialing for dollars.  Many investors will likely do a meeting if you have an interesting idea. And many of those may not be able to add value to your start up.  There is a big difference between passive and active money.  If you know exactly what to do,  passive money-where an investor is like a bank-may work. If you need a lot of introductions and help along the way to make your deal happen, then an active investor who knows the space and can provide valuable advice is best.