Collateral damage
Thursday, 2 October 2008
By Doron Ben-Meir
If the recent meltdown in financial markets has taught us anything at all, it’s that there is no substitute for fundamental value. One might have hoped that this lesson would have been learned after the tech wreck, or the Asian financial crisis, or the 1987 crash… oh well… we live in hope!
Even though the turmoil is playing out in public markets, it is affecting the psychology of investors across the spectrum. Early stage investors are suffering collateral damage as less institutional money is available for new VC funds. The impact for early stage entrepreneurs is that the options available for early stage capital are fewer in number. This holds down valuations and makes it much harder to get investor attention.
Those with money to invest are substantially more risk averse thanks to the climate of fear and uncertainty delivered courtesy of our greedy friends on Wall Street and the herd mentality that routinely drives markets during both good times and bad.
It’s time to remind ourselves that true entrepreneurial skill lies in the ability to generate fundamental value by virtue of delivering a product or service that people want in a manner that simultaneously generates healthy profits and happy customers.
For those entrepreneurs looking to create a new venture and/or raise new capital, the key message of the day is to focus on substance.
There is nothing new in this, but it is clear that under current circumstances investors will have a heightened sense of suspicion and paranoia across the whole financial spectrum, and so any early stage company looking for funding would do well to tap into this emotional reality and focus on a nuts and bolts articulation of value rather than selling speculation.
We’re all still eating food, driving cars, raising families,watching TV, surfing the net etc, so there will always be an opportunity to build real value.
Just make sure you’re building a house of bricks, not sticks, because the big bad wolf may be just around the corner.
Doron Ben-Meir has been an active venture capital manager for the last eight years. He founded Prescient Venture Capital and prior to that was a consulting investment director of Momentum Funds Management. He was a serial entrepreneur over a 12 year period, co-founding five new technology based businesses.
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