Thursday, September 30, 2010

Cries of Collusion

There are certain words in business with negative connotations.

For instance, it's seldom a compliment when an executive is tagged as a micromanager.  Yet, in some environments an all consuming, hands on approach is an absolute must for success.   Consider the expectations of BP's leadership related to the clean-up of the Deepwater Horizon disaster.

Now let's consider collusion.  We know it's bad, right?  It limits competition and potentially creates an unfair advantage for certain parties. 

Recently, uber-blogger and soon-to-be AOL employee Michael Arrington busted in uninvited on a group of angel investors dining in Silicon Valley and accused them of conspiring to cheat entrepreneurs through unfair valuation and negotiation practices.  Other investors who were not in attendance at the dinner were quick to weigh in with their outrage.

While I recognize the illegality of collusion is certain situations, in this particular case I have no problem with investors coming together to share best practices, compare notes and set parameters.  Why?

For starters, there is a friendly coopetition that exists in the investor community.  Yes...they co-invest on deals and all maintain a shared interest in limiting valuations.  However, an investor is ultimately motivated by their own personal gain and will act accordingly.

Second, the angel community (as well as other sources of capital investment) is not geographically limited to the Valley.  While this dinner apparently included a set of the most profile angels in the region, it excluded well qualified investors in other technology hubs such as Los Angeles, Chicago, Boston, Austin and Washington, DC.

And finally, the decision to accept the terms of an investment ultimately resides with the entrepreneur.  They have choice with a myriad of funding options -- both private sector and government backed.

So, let's knock off the cries of collusion.  Investment terms and valuations are determined by the market, rather than a group of wealthy investors sharing a meal.


Anonymous said...

When was the last time you went in search of funding for your business?

Marc Hausman said...

In Strategic's 15 year corporate history I have pursued angel funding on two separate occasions.

Currently, we run our operations from cash with investments paid for via debt financing from our commercial banking partner.