It all starts so well.  You meet a VC and deliver a knockout pitch.  They love it, you exchange business cards and they set out the next steps.  First, you have to meet a few other people from the firm: they’re busy so it could take a few weeks to secure the appointments, but they’re genuinely interested and ensure that you are seen quickly.  You meet again for lunch, then dinner, then drinks.  You become friends.  You discuss the wondrous opportunities for your business and ways in which they can help in reaching them. Watch out: you’ve started to fall in love.  You discuss generalities about the deal terms, big stuff like valuation, how much they’ll invest (a lot) and, of course, they’ll want a seat on the board.  You’re excited; this will transform your world.  In no time, you’re planning how you’ll spend the money, looking at new office space and thinking about recruiting new team members.

One of the senior partners you needed to meet with was travelling, so you wait six weeks for the meeting.  It’s promising too; he wasn’t as excited as the junior guys, but he likes them to be autonomous, and allows them to pick their own deals.   The senior partner suggests you meet a friend of his who runs a big company that, he says, would make a great partner for your business.  It sounds helpful but you know he’s checking out what his friend thinks of you.  The company is based in Melbourne; you have to travel and the meeting takes two more weeks to set up.  All goes well and after a week you hear the team at the VC wants to move forward with your deal.

Phew.

Next comes due diligence.  This starts with a long list of requests and a promise that, once all the information is together, this won’t drag out.  They assure you’ll receive the term sheet within two weeks.  You pull in your team and work late — very late — to assemble the material quickly.  It may include questions like, ‘who holds all these shares on the cap table?  Is there anyone here without an employment contract, why did you model revenue a particular way, will you really need all those engineers? (Looks expensive.)  You diligently answer all their questions, repeatedly rework your financial model, and make changes to or write new contracts.  More than a month passes; you’ve spent money you don’t have getting help with contracts, accounts and a revenue model to satisfy the VC.  You’ve answered almost every tricky question about your business plan, competition and the market that could be asked.  Everyone seems happy and the VC reassures you that due diligence is almost complete.  The term sheet is only days away.  Four months have past since you first met and then there’s one more thing – a meeting, a problem, a question – something that’s going to take more time.   Finally, you start talking about investment terms.

Then something happens.  It could be any number of things, but it’s a knockout blow that kills your deal.

The first time this happened to me, I negotiated for six months with a big name brand.  They proposed to invest $3 million dollars and the association would have catapulted Posse’s profile to the stars.  I liked the executives leading the deal and couldn’t wait to build the business with them.  They assured me they could move quickly, and would reach a decision within a month.  But the months dragged on and more people became involved, asking more questions.  I wasn’t even worried; I was so sure we’d close the deal.  After all, they wouldn’t have invested so much of their company’s time if they weren’t serious.  But the terms they came back with killed the deal; they were nothing like the proposal we discussed when we initially met. They would invest, but placed a valuation of less that half our expectation.  I might have accepted, but our board refused.   Another time (last year), I spent five months attending to the whims of a New York Women’s Angel group.  I answered their questions, recreated financial models and met every relevant person full-time for months.  They said they’d invest over a million dollars, and the process required only four to six weeks.  Then they discovered they couldn’t invest nearly as much as they claimed.  The exercise had been a gigantic waste of time, distracting me from talking to other, serious investors.

I remember venting my frustration during one of these drawn out funding situations to Matt Barrie of Freelancer, who mentors me from time to time.  He said, “Never start due diligence until you’ve agreed on a term sheet”.  With hindsight, it seems so obvious.  If I refused to do any work until a term sheet was worked out upfront, then I wouldn’t have spent months and tens of thousands of dollars pleasing investors who weren’t serious, didn’t have the money, or whose deal expectations were vastly different from ours.

The problem is, refusing to do any work until a term sheet is signed sounds great but is hard to implement.  When you first meet, you’re excited and the investor promises that the process only takes few weeks.  You can afford to invest a few weeks.  Even as time drags on, everything appears to be proceeding well; you’re certain the deal will close.  As more time drags on, costs pile up and cash reserves dwindle. You realise that, with so much time invested in this deal, you can’t afford to start the process again.

To any investors reading this: for the good of the industry, respect the time and resources of entrepreneurs.  An entrepreneur can only afford a few months to launch a business; if you string them along, you’ll distract them from building the business and talking to other investors.  Then if your deal doesn’t go through, there’s a good chance you’ll kill their company and their spirit as well.

I will never get stuck in this situation again.  I’ll never let an investor seduce me into believing that a term sheet is around the corner while I invest time and money into more meetings and answering thousands of questions.  I will ensure that a term sheet is agreed upfront and then start the due diligence process.  Of course, if the VC finds something they don’t like during due diligence they can always back out of the deal, but at least I’ll have established that there’s a deal to be done in the first place.   Even though I know your firm is big and my company is small, I’ll do this because I know that time and energy are my biggest assets.

I grew up in small town New Zealand.  I was an only child so I spent a lot of time alone thinking up things to do.  My first day as an entrepreneur was a failure: I cut flowers from our garden and set up a stand outside our house, selling them for 1 – 20c each.  We lived on a main road and as the cars roared by, no-one saw seven year-old me and my flower stand.  I passed a whole day without a single customer.  That night I asked mum to buy me some balloons at the supermarket, and the next day I tied these brightly coloured balloons around my stand and erected signs and balloons down the street, so oncoming traffic would notice my enterprise and have time to stop.  It worked!  That day I sold all my flowers.  Mum asked me to pay her back for the balloons, so I only made a small profit but I had set the foundation for a life of entrepreneurship.  I learnt many business lessons that weekend: marketing, profitability, but most important of all – resilience.

Poster advertising my pet business (age 10) made on our Commodore 64

By the time I reached high school I’d set up five businesses.  I had run my flower stand, collected golf-balls and sold them back to a shop, set-up a dog-walking and cat-minding business, for which I also employed my best friend.  I sold rides on a friend’s pony at a Saturday market, which made me one of the richest twelve year-olds in school, and ran a pamphlet distribution business where I’d get delivery jobs and subcontract other kids to do the work.  At high school, we were taught our ultimate goal: to build an impressive resume so we could land good jobs.   Every year I’d endure a mandatory appointment with the careers guidance counsellor.  I always told her I would start a business but I wasn’t sure what kind (and I’m still unsure!).   She made me write a CV anyway, writing out the types of companies that might want to employ me.  This was how my school taught us to think about our careers.  I suspect it’s the way most schools continue to persuade kids to view their careers.

This is why programs like Club Kidpreneur matter.   The camp runs from 9am – 1.30pm for four days, with a market day on Saturday.  The Kidpreneurs set up their businesses either as a sole founder or with a partner with whom they’d need to split the profits.  They choose a product to make, set a goal and budget — how many they hope to sell and for how much — design a prototype, make the products, and ultimately sell to real customers.  I worked with the Eastern Suburbs camp, where I mentored kids making candles, greeting cards and jewellery.  They were all so excited, creating real products for real customers; I enjoyed sharing my skills and then watching them learn the fundamentals of business.  Eight year-old Ellie decided to make greeting cards.  The program allowed three hours for the kids to make their products; after 90 minutes I noticed Ellie had only made 4 cards when she’d set a target of selling 25.   She was making each card individually, thinking up a new layout each time.  I suggested she start a production line, doing all the card-folding, then the cutting, the writing, finishing up with touches like stickers and feathers.  We laid out 21 pieces of card, and planned how many ‘Happy Birthday’, ‘Thank-you’ and ‘I love you’ cards she’d make of each.  We decided against phrases like ‘It’s a girl’ — one that she’d initially considered — as it would limit our potential market.  Then she started in earnest.  An hour and half later, Ellie was proud to finish her 25^th greeting card, ready for market.

Danielle lights up after making her first sale!

On Saturday morning, we set up the Club Kidpreneur stand at Bondi market.  The kids came early to assemble their stands, price stickers, and company incorporation certificates, and had business cards ready to hand out to customers.  At first, they stood nervously behind the table waiting for people to approach them.  Along with the other mentors, I encouraged them to stand in front, approach people, and ask if they’d like to look at the products.  Danielle, age 9, was the quietest kid in the group.  All week, alone in a corner, she’d made beaded bracelets.  At the market, she was scared to talk to strangers, so was not selling at all well.  I coached her to walk up to people and ask if they’d look at her jewellery.  Imagine a tiny nine year-old girl tapping on your waist, whispering.  Most said, ‘not today thank-you’ or, ‘I’ll come back later’ but it didn’t matter.  I told her that it’s fine for people to say ‘no’, and she was doing a great job.  After ten minutes, Danielle made her first sale — to another young girl who was shopping with her Mum. Her eye’s lit up as she sold her creation for actual money.  She started approaching more people, didn’t care when they said no, made more sales and her confidence soared.  By the end of the market, Danielle had ripped her stand from the table and carried the whole thing around to other stalls, hustling for sales.  Right on closing time, with a smile as wide as the Harbour Bridge, she sold her last piece of jewellery.  In two hours, Danielle had blossomed from a shy little girl into a confident hustler.  It was incredible to witness the birth of an entrepreneur.

A hustler is born!

Club Kidpreneur is a wonderful organization.  They make money running paid camps, secure sponsorship from companies like Google and St George, and with it take the program to disadvantaged areas.  The company itself is non-profit-making, and through it, kids develop both business and life skills such as innovation and resilience.  They encounter failure and develop self-confidence.

Reflecting on my own entrepreneurial journey, I know my early business experiences shaped my view of the world.  Most people grow up thinking of shops or banks as big faceless organisations that one day might give them a job.  They don’t think about the person who had the vision to start the business, or that they could be that person.

I’m sure many of the Kidpreneurs will go on to high school with ambitions to start something, rather than build an impressive résumé and land a job.   For kids like Danielle, that entrepreneurial sparkle in their eyes guaranteed that life would never be the same.  I’d love to see more kids gaining access to programs like Club Kidpreneur.  Better still, business creation could become part of the school curriculum.  Club Kidpreneur are always on the lookout for adult entrepreneurs who’ll act as mentors and advisors.  Find out about them here and email me if you’d like an introduction.