The World’s Greatest Term Sheet
I have the distinct pleasure of owning and advising many startups that have received “Terms Sheets” from would be investors. Some are good, some are bad, and then there are some have hidden catches that make you lose millions. It all depends on how badly the investor wants your stock or product. I’ll be the first to admit that not every company I have created was a home run on the first pitch, usually there are long innings and stretches you are not sure you will survive and a single or double is what keeps you in the game. But by far the best term sheet you will ever get is a Bill of Sale. This is why Crowdfunding intrigued me at first. Through crowdfunding, not only do companies gain customers and drive some revenue, but it also engages a conversation around the product, drives awareness, and funds the next version. I initially reviewed Kickstarter, IndieGogo, Perti Dish for our FairCareMD product that while very interesting to about one in 1,000 Americans, had failed to achieve lift-off for the other 999. I had version 3 ready to go but to do it right a small capital raise seemed like a good idea. So I went to Angels and VCs and got a great deal of “talk to us when you have more success” or “sorry, we just don’t know your sector well enough.” The bottom line, no one really wants to take a chance on a product or company until it is obviously successful. This is smart and right, otherwise their investment portfolio would depreciate rapidly. Not every company is facebook or Amazon. So I understand the situation, but I wasted a tremendous amount of time and neglected other key aspects of what I needed to do.
So in a small startup you have three choices of what to do with your far too limited time:
1. Raise Capital
2. Make Sales
3. Make Product and Ship!
One of these is not revenue generating. All three are important but without # 2 the rest are irrelevant.
These three activities are also why CrowdFunding is so perfect for healthcare startups. The big companies that control most of the money in the healthcare system are so far removed from innovation that they can’t do it on their own very well. Aetna alone bought 1.5 Billion dollars worth of startups last year.
Several reasons: They are too big to “experiment” beyond a certain level. Second, it isn’t in their DNA. They may have an innovation division, but after a while even the most entrepreneurial leaders lose their innovator mojo. I know, it happened to me and I had to relearn entrepeneurship Your brain gets stuck in a “thinking inside the box” mode and you need to drill out the hinges to escape, or do like my friend Jack did and make with the tin snips. Finally, innovation takes faith and it is hard to really believe in change if your business is not built on it. This is also why post acquisition failures are common too. Money can’t but that kind of faith.
On the other hand, if you have a great idea and can engage with the public on it, then Money Can Be Invested on Faith and this makes all the difference. If you believe in the idea and enable the entrepreneur to Fundraise, Sell, and Ship all in one click after an hour or two of effort.
Give me a bill of sale any day over a term sheet. Give me enough of them and I never need to raise capital and can keep the vision going on the most important terms – those of my customers.