This week has brought two examples of the agony of defeat for entrepreneurs. Both cases involve a round of financing lead by a corporate VC.
In the first drama, this technology startup is inking a scrumptious deal with an industrial partner that, in exchange for a technology license, will invest a significant amount in the startup at an equally significant valuation. After months of agonizing fund raising, you can only imagine the relief of the management team. With the company offices suffused with this new sense of optimism, the team - not without some guilty pleasure of giving back some of their frustration to the VCs - promptly rejected a VC lead term sheet that was promising a fair but clearly lower valuation. Alas, a few weeks after their peremptory refusal of the VC term sheet, their industrial partner has a sudden change of heart, and now the startup is back to square -1.
The second drama follows the same familiar scenario. Our Cinderella startup, after years of toiling in the technology kitchen, is about to reap the reward of a good round of financing lead by a corporate VC. Good plans were drawn, good people were prepped and ready, with visions of twinkling treasures lifting people's hearts. Alas, right before the GPS satellite signals the local midnight, the corporate prince declared that cash is now King, and since the startup cannot promptly produce any ounce of royaltiness, the investment was summarily cancelled, and our Cinderella is back to living from specks of largesse from our Small Business Administration.
This two tales highlight a simple truth: corporate VCs are just too unpredictable, because they have too many cooks in the kitchen. Remember that when cook #1 (the person you are discussing the investment with) acquiesces to a deal, several other cooks can at any time override the whole thing (including that Big Enchilada CEO sweating over his bonus). Yes, VCs sans corporate may not give you the highest price, but they are much more dependable to close a deal, and to support you in the long term.
Until next time, happy chasing!
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