Week 1 - VC Rejected

It has only been a week since launching LMNTRIX and I've already had my first call from a VC looking to invest in the business. 

They said they're having difficulty identifying any Australian security companies to invest in, that have real IP that can be commercialized on a global scale. They specifically wanted to invest in cyber because it's a hot area and not one covered in their portfolio.

They wanted to invest between  $1 million - $2 million and take up to 20% of my early stage business just on the back of my reputation. They didn’t even understand what we did!

I said I'm already investing more than that myself, if I wanted to raise money I would be looking to raise more than $20 million. The phone went silent…

After a 15-minute conversation, they agreed that diluting the business at such an early stage would be foolish of me. 

In the last five years of my previous company (earthwave), I used to receive 10-20 confidential calls, letters, emails and offers of acquisition or investment every year and I never bothered responding to any of them because I had no desire to sell the business. 

My advice to all entrepreneurs is to not dilute yourself too early and too much if you are able to bootstrap and build revenue without having to give away any equity. Raising money with revenue behind you de-risks the investor and empowers you exponentially when negotiating for a far better outcome for yourself. 

Second lesson from my experience is to try and build a company that everyone wants to own and one that has global relevance. This means making sure that you have intellectual capital and a differentiation strategy that is difficult to replicate (similar to what Pieter is doing with Secure Code Warrior). Additionally, try to develop a one-to-many model, meaning a product or a service that you build once and sell many times, and – if possible – has a network effect kind of like Facebook and Whatsapp where the more people use it the better it gets. 

Finally, if you do want to raise money and have the opportunity, then I would highly recommend engaging a strategic investor. One that brings with them a global brand and sales force. Only a handful of VCs globally (like Andreessen Horowitz) can give you more than just money despite what they say. 

I'm no management consultant and there are exceptions to the above, but speaking from experience this is what I would do every time. 

So how does this advice apply to LMNTRIX? I’ll cover that in my next post.

Stay tuned…

On 2017-04-26

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