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Funding for dummies…three

We met Wilson Tan on a trade trip across China. In just over a week, thirty technology companies from the Asia Pacific region covered 3 cities and one hundred Chinese partners, trying to understand the opportunity that was China. Wilson was the President of the organizing body, (the outgoing President of Mercury interactive and on his way to take charge at Singapore Post) and made an amazing effort to spend enough time to get to really know us well in that ten day adventure.

Four months later, as part of another trade delegation Wilson ended up in Karachi and spent a day with our team in our office. The objective was to get an independent assessment of our chances of raising funds from a group of investors in Singapore as well as do a reality check about our future. He listened patiently to all of us, made his notes and in a very concise and caring tone told us exactly what we were missing and how we could go about fixing it. That fifteen minute prognosis became the basis of our current roadmap.

In essence Wilson said:

  1. The opportunity in Pakistan is not big enough and the domain in which you operate, you have to expand internationally
  2. It is not worthwhile to look internationally with just one product. You need to grow your product portfolio
  3. You are not ready for a venture capital round. Your best bet is angels and individuals. An institutional investment round will suck your capacity to focus on the core business and the time it will take to close it, is at least at this stage, better spent in growing the business.
  4. Remember that raising institutional money is a full time job. You can only focus on it if you have someone else to take care of your day job.
  5. You need to fix the business development group in this shop. Without it, you are not going to hit your numbers.

Six years earlier I had edited 60 editions of the business plan for Avicena trying to incorporate feedback of investors and the impact of the changing economic environment. The editorial process for the plan had become larger than the underlying business. In December 2006 we had closed a small angel round and raising that money was easy as a simple hand shake. And yes we had backups and number twos for all the teams except marketing and business development. Wilson’s advice was on the spot and on the money.

My reason for doing the dummies series on funding and coming out in the open with our own recent round experience is simple. I find that there are too many misconceptions floating around capital amongst fresh entrepreneur. You have to get one thing very clear: As a small business your only source of funds is your customer.

As you grow and the opportunity around your business becomes clearer you may be lucky to find friends and family who would open up their wallets so that you can break barriers and get to the next stage. Every now and then a select and lucky few may end up with Angels who would write checks that would change the way we do business. But for the large majority of us, funding will always remain out of reach and elusive. Over time as we grow and mature, we will find alternate sources of capital; but in the very beginning, capital and access to capital will remain a challenge.

There will always be exceptions. In Avicena’s days grandiose competitors ran through 50 million dollars in funding and got on the road to nowhere, while home grown shops hit 20 million dollars in revenues and 250 million dollar valuations in less than 10 years. Another classmate from Columbia raised 30 million dollars to buy an airbus and start an airline in the midst of a recession, while we searched in vain for two hundred thousand and change.

But as an average Joe, that’s not going to be you. You have a higher chance of being randomly picked, discovered and casted as the male lead against your current celebrity heartthrob, than you have of picking up that million dollar wire transfer for 35% of your dream.

The smart money is on Wilson’s advice. Find your Wilson Tan and listen to him.

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