The advent of the Internet and such things as private equity blogs and newsletters have proved advantageous in many ways. Wider and faster dissemination of information allowing investors and entrepreneurs to benchmark and measure their operations, terms and attitudes against those of other players in this realm all seems quite positive, and interesting, to me. What seems less so to me are the endless hashings and re-hashings of subjects, the essence of which are so simple as to make the amount of digital ink applied to them by otherwise intelligent and thoughtful individuals unfathomable to me.
I’ll address just two. There was an article/editorial in one prominent newsletter just this week rehashing the complaints (dare I say whinings) of entrepreneurs as to the length of time it takes private equity firms to make their decisions and provide funding, as if this alone was holding back the nation’s recovery from our economic distress. This essay included the expected responses from private equity professionals, some defending and explaining and others touting their empathy for the entrepreneurs and their own magnificently quick response times (dare I say marketing ploy).
I’ve heard this back-and-forth regularly over the more than 30 years I’ve been a private equity professional. It seems like those logging in on both sides of this issue either choose to ignore basic and long-standing human traits or, for some reason, they just like to perpetuate a meaningless, ongoing debate.
Newsflash for entrepreneurs: Private equity providers are not arms of the government, paid for with your taxes and therefore charged with providing you good service. They are hired by individuals and institutions and charged with making them money. All other things being equal, more time means more ability to do due diligence and make better decisions. They already make bad or subpar decisions approximately two-thirds of the time.
Who among them is likely to think that cutting the “dating” time will lead to better decisions, higher returns, more compensation from those who hired them and the ability to continue to raise funds? Is your whining likely to change this basic human drive and consequence? No, so save your breath, time and resources and keep the blogs and newsletters clear for useful and interesting information. In fact, let another aspect of the basic human condition handle this for you: competition. If your company and investment opportunity are hot, or at least worthy, any private equity professional has to worry that taking too long with his or her decision means you end up in a competitor’s portfolio. Trust me, this is why due diligence and dating periods are not endless.
A few months ago the newswires where full of indignant reports from many quarters of the entrepreneurial finance universe over the payment of fees to individuals/entities to present their funding proposals. Hmm. Lots of things have been free historically — the Internet, air, water (oops, not really true anymore), and presentations to investors. Why have these been free? Not because of any dictates from a supreme being or Congress, but because no enterprising entrepreneur has developed a way to charge for them without free competition taking them to the cleaners.
I’ve managed venture and private equity funds for 30 years, chair an active and longstanding angel investment network and have been active in founding and operating two of the earliest venture fairs in the country. We’ve never charged anyone for presenting their plan to our venture and private equity funds. Would I have liked entrepreneurs to have paid for that? Sure, why not? My investors would have liked it, also, since one way or another, those profits would end up being shared with them.
Similarly, we have never charged anyone for presenting to our angel network. Again, it would have been nice. Why didn’t we? Competition. Would it have been immoral? Hard to see why. All of these funds providers incur costs in maintaining the ability to provide a presentation forum. Entrepreneurs face a boatload of costs in their efforts to obtain investment capital: legal fees, printing, travel, intermediaries, etc. So, why the outrage over presentation fees?
Contrary to this experience, entrepreneurs have always been charged (and, in fact, line up to pay) for participation in the venture fairs we have played roles in. Hmmm. Gets me back to my wonderment over why anyone would even bother to log in on this issue of presentation fees. Newsflash No. 2: Just like every other expenditure any businessperson considers, one should weigh the cost vs. the return. Some presentation venues command and are worth a fee while others are not. It’s that simple.
Do you homework and keep the blogs clear for more interesting news.
Stephen Harris has 20 years of direct venture capital investing experience as a principal. He is a founder and vice president of Private Equity Management Company (PEMCO), which has been responsible for the management of over $70 million of venture capital investments made through a series of TDH investment funds for which he was a general partner. Harris is also co-founder and managing principal of MidCoast Capital, a merchant bank in Radnor, Penn. He may be reached at firstname.lastname@example.org