In the second instalment of Startup Tales, Talent Founder and Executive Chairman, Richard Earl, talks about the importance of financial backing when starting up a new business…
It is vital in any new business to have the right financial partners and support. Financial backing for startups these days normally means venture capitalists or private equity as banks won’t typically touch businesses without revenue and profitability – in other words, they won’t take much risk.
Beware of ‘Gold Fever’
This rise in venture capitalists or private equity interest is why we’ve seen such an explosion of startup activity in recent times. Wealthy private investors and fund managers have been prepared to take considerable risk; normally in expectation of a very healthy return. This is especially prevalent around tech related ideas, where the meteoric and almost overnight success of certain companies has been unprecedented.
It has created ‘gold fever’ in some circles so be careful about who you team up with and their motives. Your investors must possess the right values, be realistic and not be driven by excessive greed. A fascinating case study that is playing out right now is what is happening with Uber.
Choose the right financial partner for the right reasons
Before I launched Talent, I approached the commercial arm of my bank in Perth with a pretty solid business plan and a request for $25,000 to help get going. After a delayed response they agreed but only if I pre-paid $25k of mortgage payments at the same time. Crazy – it wasn’t really a loan at all!
Moving on, we had early success which put pressure on cash-flow. We soon had a large payroll bill as we built up our base of contractors. I had countless arguments with the bank to release funds on payroll days to fund these guys. On one occasion when refused I personally turned up at the bank screaming at them that they were potentially taking food off people’s family tables and that they would be accountable. They relented, but their parting words were ‘We see people like you all the time and they never amount to anything’.
And he was my business relationship manager! I’m glad that today we have excellent, supportive financial partners – and ‘partner’ is the key word here.
This is an important anecdote. You have to work with financial partners who truly believe in you and your vision. A true entrepreneur should detect and sense this in people. The problem with the guy in my story was that it wasn’t me he resented – he resented himself, his job and his own inability to take a risk. Trust me there are plenty of people like that out there.
– Richard Earl
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Miss ‘Startup Tales #1: Taking the Plunge!’? You can read it here.