Who’s Afraid Of The Big Bad
Wolf…. Pre-Revenue Startup?
Of course, there’s more risk investing in early stage, pre-revenue companies, is that really a surprise to anyone?
With greater risk comes greater reward – if you know how to manage it – and have the cojones for it but risk taking doesn’t come easily to many, and most in NI are risk allergic. Or worse, risk-intolerant.
OK, Dr. Venture, therapist, is now in session. Please sit comfortably on the couch and we’ll start:
Dr. V: When did you first start experiencing anxiety when talking about investing in pre-revenue companies?
NI VC: I think it was during my M. Acc, one of the lecturers really emphasized that we could only produce valuations of revenue generating companies. Later, when I became a Chartered Accountant, 99% of my clients and projects were revenue generating, so the first time I encountered one that was pre-revenue, I froze and panicked.
Dr. V: Did that feeling reoccur in other circumstances?
NI VC: Not until I joined a venture fund. I could crunch-out valuations based on my accounting training with no trouble. But one meeting we had with a scrappy young startup rattled me. They didn’t have any revenue, in fact they didn’t even have a real product. I didn’t know how to do anything so I just said that “you’re not a good fit for us and our portfolio”. That I had to lie to cover my inadequacy brought my anxiety attack back even worse.
Dr. V: Ah. This sounds like a classic case of Pre-Revenue, Investment, eXtra-punitive Syndrome (PRIXS), a condition very local and common in NI VCs. I’ve dealt with a number of cases like yours, all with great success. I can send you home with some reading and exercises, and we can schedule a follow-up appointment in a week. Interested?
NI VC: Dr. V that’s FANTASTIC! But I don’t want any alternative stuff, just solid financial techniques.
Dr. V: Oh this is! If you learned DCF and IRR/TVM techniques – which I know you did, then this layers on proven and defendable techniques of risk management.
NI VC: That’s brilliant, I …
Dr. V: But I need to warn you of possible side-effects … for starters, the first time you actually get a valuation of a pre-revenue company, you will doubt yourself and your colleague may even ridicule you … that’s common … usually they are also suffering from PRIXS and in denial. But after a few times and a few investments, all doubts will pass and your first exit at fund saving exits will address all previous anxiety and may even garner respect and admiration from those doubting colleagues.
NI VC:I feel….at peace
Dr. V: If you feel these feelings of anxiety again, I recommend a course of remedial action. Make sure you register your concerns with the RAISE team and come along to their Investor Forum and related events. Talk to them about your fears and they will introduce you to others, just like you, who have conquered their fears and are now functioning members of investment society.
NI VC:*sighs contentedly*
Dr V: My work….is done.