Raising venture capital in Dallas?
May 8, 2008
Over the past three years I have been writing about entrepreneurship and startups and as a result I get to see hundreds of deals each year. This afternoon I was meeting with a local entrepreneur/investor and he showed me a deal for a ‘new’ social network he was considering investing in. The deal was a prototypical ‘Dallas’ deal. The team was stellar, lots of people with important titles from important companies like EDS, Nortel and Belo. These guys simply need $5MM to build the next big social network. What do they have to show us besides a PowerPoint and a business plan? How about the social network - i.e. the site? I wanted to touch and feel the site. I wanted to ‘get’ why it was so important we fund their venture. But I had nothing more than a few impressive resumes and hockey stick projections to review. It was frustrating, but I have no doubt they will be able to raise capital (just not from me).
Had that same deal be located in San Francisco, New York or Boston, it would have likely included a link to the site and an extensive demo of the application. We wonder why the vast majority of deals are done on either coast, but we fail to realize it is because we, as Dallas-based entrepreneurs, keep pitching the same crap over and over. The same crap being, “give me your money and then I will build it!” Want to get funded? My advice is to become a ‘maker’, become a ‘builder’ or if you can’t make or build find a partner who can. Build something, show it to customers, get some traction and then raise money. Quit paying $10,000 to a ‘broker’ to write your business plan and use that money to actually create whatever it is you want to build. Stop sending business plans out like hotcakes before you have something to show potential investors. Get it? Sorry for the rant, but I sorted all of the plans I received in 2007 and my findings were startling:
In 2007 I received 230 business plans/pitch sheets. Around 100 of these were for Dallas based startups and 130 of them were for Bay Area startups (I threw out the rest of the country for purposes of my research). I classified each startup in two categories a) Green (i.e. there was no business, only a concept for a business) and b) Real (i.e. there was already a business or they had built the thing they needed money to grow). Only 11 of the Dallas startups were real, out of 100 submitted. The Bay Area numbers were completely reversed, with 121 real startups, out of 130 submitted. What is wrong with this picture:
