Had a fantastic EO event this evening with Cal Simons who wrote the book “Every Business Needs an Angel: Getting the Money You Need to Make Your Business Grow” (Available on Amazon)
We had an intimate dinner with Cal about Angels, how it works, the angel market in the US vs. China and discussed the challenges that we face in China vs that in the US (answer: access to capital and access to mentors). With the conversation with Cal, it became quite apparent that Angels are a commodity that should be shopped for.
I got the book and am working through it now – quite interesting and very timely.
This goes on the heals of the conversation I had with one of my board advisors on late Friday night. Tom and I discussed my challenges that I’m facing (Expansion capital, risk of expansion, growing too fast). Overall, having Tom’s perspective was great. Couple of words of wisdom came out of that (actually more than few but this is the highlight). Debt financing is good BUT it does not share risk and creates a psychological barrier. Equity shares the risk and enables psychological freedom. Let me explain.
With debt, you are obligated to pay it back – so whatever funding you obtain via debt, the debt must be paid back. By very virtue of debt, the risk taking and expansion is throttled since, with debt repayment in mind, our mind is cautious and focused on how to repay debt financing. Therefore, debt financing that is used as a growth vehicle where the outcome is NOT certain is by its nature not quite ‘right’ to take risks with. Another words, when someone provides you a loan, they expect that it will be paid back. Therefore as the person responsible for debt, we exercise caution, so that funding is spend in a predictable, low risk activities.
Equity on the other hand is from the onset understood that is has inherent risk – it may 20x its value or it may go to 0. The person seeding the funds, know the risk, knows the outcomes. The company also knows that its risk – and both the angel and the CEO share the BET of where the business is going. Both parties know that the BET may be wrong – and that things could not work out – such are things. But, the key here is that both parties know the risks and expectations with equity. High risk, high rewards. Debt on the other hand, is low risk, low rewards.
So, through Tom, this became very clear to me – if I reach a point where I’m no longer comfortable with the risk profile and need to psychologically shed the risk – equity position from an Angel would allow me to do that.
So, what does this mean. Well, at where I’m at – I’m comfortable with risk at the moment – but I’m still relatively cautious. I’m staffing up cautiously, with a debt financing mentality (ie. I MUST pay funding). Having a $1MM of equity – would alter my thinking and growth (and risk). So, I’m reading Cal’s book – and will be getting more intimate with the process and finding out if its good for me.
Along with Cal, Luigi Peccenni (pecce) joined us for dinner. Pecce owns Wall Street English – a very cool, wise gentleman that made it up to the top (he just sold Wall Street English for $100MM+ last two weeks). Great wisdom, charisma and personality. It was a pleasure to have a chance to gain 30,000 ft perspective.