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Investors vs Entrepreneurs

This article is written by Mohammad Eslim, a Contributor Author at Startup Istanbul.

Dave McClure is an entrepreneur and angel investor based in the San Francisco Bay Area, who founded the business accelerator 500 Startups, serving as CEO until his resignation in 2017. He was present at Startup Istanbul where he talked about investors and entrepreneurs.

As an entrepreneur, investors might seem ruthless, evil and business-manipulating people. And for some of the few that might be correct. Don’t get mad, there are a few times when the benefit of the business is for the entrepreneurs’ side of the deal and not the investors’, and for the most of it there are these times when the investors are the more benefitted side.

One of the reasons why entrepreneurs don’t like investors is because the number of the entrepreneurs is much larger than that of investors, and to top it off most of them are either evil or, for lack of better words, stupid. The entrepreneurs are yet to get a steady foot in the market, yet investors lay out a lot of nasty terms like demanding half of the company for cheap prices which is low valuation. And however entrepreneurs view investors as evil, mob like people, not all of them are like that; it is just that the demand is much larger than the supply. Thus, due to the lack of competition in the emerging markets and not having enough supply for the current demand, there are not many investors in emergent markets as there is in Silicon Valley and Beijing.

That explains why investors in new markets can afford the wait, and why they lay crappy terms, give you low valuation and demand a perfect business plan and revenue projections. However, it doesn’t explain why you, entrepreneurs still sign a deal with them! Of course, for those newbies in the emerging market might still want to take what you could, but the key word is that you don’t have to; you might borrow money or raise it yourself either way which is challenging.

I tend to disagree with investors in the point where they believe that business plans are the source of great business. I actually think that actual, functional products and growth strategies are what is useful to build big businesses. And I rather see expense projections than revenue projections, for they are more accurate and precise on where the money is spent or invested. In addition to these points, marketing plans are equally important because investors shall have a look on your test cases on how to acquire customers and some proof on how actual campaigns work.

Let’s have a look on the other side, entrepreneurs. There are a few issues that need to be addressed and acknowledged in both sides, more often found in entrepreneurs than investors, which is them being clueless. They would like to have mentorship, meet people who have gone through it before. And there are a lot of talented engineers around the world but there is still growth in product management, user experience and design and probably what I find lacks more attention which is online marketing or analytically driven marketing or growth hacking as the terms come.

This changes as you have the first generation of entrepreneurs that have wins and have exits. The employees and the teams of those companies start their own new companies, moreover those first generation winners become mentors and hopefully they become investors as well because investors for most cases don’t understand where entrepreneurs come from as they don’t share internet entrepreneurship experiences or any expertise in a lot of the areas that you may need.

20 April 2019

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