Outside of the box; inside a small island (Part 2)

Posted on 01/04/2011


Welcome back.  We left off with me about to relay my experience as a founder seeking capital investment in my startup, Guango….

Founders of startups distinguish themselves from what many call “small business people” by the very nature of startups themselves.  While both might start off small – small office (if any), small staff (if any), small revenue (if any) – small businesses in general, tend to stay relatively small (village shops), or grow in direct proportion to the amount of resources invested in them (hotel chains).

Startups, in contrast, are usually defined by their high growth potential.  Your typical startup has (in comparison to other new businesses) lower ‘startup’ costs, a higher level of risk, and a greater projected ROI (return on investment).

The word startup has come to be associated with technology oriented companies, primarily because these companies have a high-profile history of scalability – which basically refers to their propensity for rapid growth with limited investment of capital, labour, or physical infrastructure…compared to other businesses.

Note:  I’ll soon be adding a suggested reading page for anyone interested in learning more about startups.

Because of a startup’s promise of large financial rewards, investors are usually keen – or at the very least, willing – to help fund the business on the basis that they will reap their initial investment tenfold, twentyfold, or far beyond, within the first three to seven years of the startup’s existence.

As sole founder of my startup, I knew that ROI was attractive and that Guango’s business model would stand the rigour of investor scrutiny. While it’s often true that an investment from Uncle Jimmy or Grandma Pat might be a matter of one or the other whipping up a signed cheque and sending you merrily off to live your dream, this isn’t how it works with the average investor.  Instead, investors at a minimum want to meet the founder or founders in person, to get a feel for their level of sanity and their ability to execute that which they say they will.

The business plan is also reviewed and discussed and then the process of due diligence begins.  Due diligence works both ways insomuch as any founder worthy of success ought to be jolly clued up on the history of the person offering to buy shares of his or her “baby”.  While it might be tempting to grab at any funding opportunity, the entrepreneurship highway is littered with the carcasses of founders who accepted money from Meglomaniac Ted, Cantankerous Susie, or Embezzler Jeff.  If both parties – founder and investor – are satisfied that everything checks out, the formal investment relationship is underway….

And so it was with all of the above in mind that I set about seeking investment funding for Guango.  I was optimistic. Not only because of Guango’s inherent strengths, but also due to the particular characteristics of the business environment within Barbados at this time….

Barbados is at the beginning of a national entrepreneurship drive with the government-supported goal that we should be the global entrepreneurship capital by Y2020.  Perfect!  I firmly believed that everything was magnificently aligned and that, all things considered, I should be able to find funding for my startup.

The next section is entitled More Fool Me:

For startups, there are a total of two venture capital and seed money investment entities in Barbados.  I think there should be more if we are to support our easy-to-say “global entrepreneurship capital by Y2020” catchphrase.  But, working with what exists, we have two. There are an additional two entities for “small businesses”, but startups is the topic, so for the current purpose, those two do not count.

Without naming names, one of these two  entities resembles an incubator, without expressly identifying itself as such (incubators basically provide seed capital explicitly for product development while the founder works under the incubator/funding entity’s close supervision/guidance; at some point a larger investment – venture capital funding – may or may not be secured).  The other entity, is not an incubator, but has many restrictions that IMO do more to suffocate than facilitate true entrepreneurship.

In the interest of clarity and to avoid over-elaborating on each point, I have compiled a list of what I found to be characteristic of those two entities combined.  Each list item is either what I was told during interviews or through direct correspondence with each entity:

1.  You’re not likely to be considered if you can only invest $10,000 of your own money.

2.  We are not investing in ANY ventures at this time as we are focusing on the ones we’ve already invested in.

3.  Can people really make money from internet-based companies? (that’s my personal favourite:-))

4.  (During first interview) “I don’t really use the internet, how does social media really work?”

Note that my business plan – based on social media – had been submitted, at their request, one week prior to the interview…plenty of time to do their due diligence on the industry under review…and at the very least, to read the plan which explains social media and places my enterprise within context.

You might be thinking that the question was cunningly posed, designed to elicit my level of understanding of the industry.  I wish.  But sadly, it was not.  I deduced this because there were two interviewers and upon the revelation by the first, the second was shockingly keen to declare that she too, did not know much about online enterprise.  I spent the next 10 minutes explaining the routine ins and outs of social media, its popularity, and possible revenue models…before I was invited to return to the specifics of Guango’s business plan.  The interview ended with interviewer #1 promising he’d go home that evening and attempt to create a ‘social media’ account to see what it was all about before I returned to them for interview #2…..

5.  We offer seed capital for you to pay a mentor that we assign to you – don’t worry, if you don’t like him/her just let us know…and we’ll assign another.

6.  If we invest in you, we keep the money here with us.  Every time you need something to develop your business, just let us know and if we agree that you need that (and aren’t misguided…or out and out lying), we’ll write a purchase order (same properties as a crossed cheque, for those unfamiliar) to the retailer for that precise amount.

7.  Re #6 – just one other thing:  you have to buy local.  If you can get that item or service for much less money elsewhere, we don’t care.  We only care about buying local.  If the service can be provided locally, but at sub-standard levels, we don’t care…are you deaf?  Or just stupid? (they didn’t actually say the deaf or stupid part)  ONLY IF you can demonstrate that you absolutely cannot – under any circumstances whatsoever – get the required (if we, with no knowledge of your industry agree) product or service HERE, only then will we consider writing a purchase order to an overseas entity.

8. We know the economy is bad, salaries have been frozen, people laid off, and cost of living keeps on rising (food, electricity, petrol, insurance….).  We also know that we’re supposed to become the world entrepreneurship capital by 2020.  We also also know that many Barbadians really struggle to make ends meet and that personal debt is a huge national problem.  So what?  We suggest you bootstrap your business by maxing out credit cards (an actual suggestion mid-interview) and when your company is doing well – as we have every confidence it will – come back and see about funding.

By the end of that particular interview, I had successfully pointed out the many flaws in that specific suggestion, and was back within their funding sights, discussing items 6 & 7 (as above).

As you might have guessed, I was – am – none too enarmoured with this country’s support of entrepreneurs who dare to dream big.  We as an island have a long tradition – beginning immediately post-slavery – of bootstrapping our way from subsistence to an acceptable standard of living.  Our ancestors worked long, hard, and often under degrading and inhumane conditions to provide the basics for themselves, their spouses, their children.  Barbadians today – by no means all, but many – own land, houses, vehicles, as a result of hard work and personal enterprise.  I would not wish this to be the forum in which that is being questioned.

This progress that we as a country have made is commendable, but why do we support only more of the same?  Why must our vision continue to be obstructed by the limiting brick wall of smallness?  Why do we look at the success of startups and previously small business men and women overseas and praise, envy, marvel at what they have achieved? Why not the same for ourselves?

I don’t know where I stand in terms of funding.  Both of the entities discussed above remain options. I just have not committed to progressing with the process.  Funding would enable Guango to achieve so much more  so much quicker.  But at what cost?  Would I really be helping my business by bringing on an investor who knows nothing about my industry but yet who wishes to micro-manage?  Or by holding out hope for an investor who is “not taking on any more businesses at this time”?

Barbados talks beautifully, poetically, but fails to accommodate the culture of our island.  A culture where there are no known angel investors, no (known – they may exist, unlisted, undercover somewhere) 100% private venture capital (VC) firms.  It is then left to the government – the people’s elected voice – to notice this gap…and to address it with more practical funding options, since this is the same government which speaks of the country’s entrepreneurial drive. Where is the vision to support the dream?

To me, real vision is noticing an opportunity and going after it…doing everything you can do to ethically and morally turn that opportunity into cold hard cash.  I do not know how many entrepreneurs have gone, hopeful, even desperate for a chance to improve their lives, to either of the investment capital companies discussed above.  And left broken, hopeless, crushed.  Lacking their own disposable income to invest, ineligible for credit or already all maxed out, unable to fund a prototype in order to gain pre-investment revenue. This is the Y2011 reality in Barbados.  Our citizens should be encouraged and supported in ideas beyond the traditional farming, tourism, brick-and-mortar retail.  There is a world full of ideas that we too can adopt…if only…..

There is something far worse than Meglomaniac Ted, Cantankerous Susie, or Embellezer Jeff….  Feel free to end the sentence yourselves.