Who is professional in venture financing, and why is funding issue so hot

I bumped again into twisted world of Finnish venture funding. Instead of an effective early stage funding mechanism, venture capital, there are tens of different types of funding instruments, one example of which is subsidy that must not provide competitive advantage. Complex venture financing environment also sustains a variety of services. Numerous are those service providers who sell their services by using word “funding”. Funding is sexy, you know, funding means shifting the attention from rather unsexy selling to something less difficult – somebody else paying your costs. And that is exactly how “funding” is seen; not as an investment that must pay back itself but rather a piece of income in bootstrapping strategy, to survive from today till tomorrow.

Numerous are also the events where all kinds of public subsidies and loans and grants, even bank loans, are represented one after each other, and at the end of the event, a small slot is reserved for a venture capitalist or similar investor – if there is time left. The sequence is absurd. Funding portfolio is not a collection of pieces from here and there. Funding issue is very much of strategic nature and coherence is important. How else can you leverage your scarce resources effectively?

Equity based funding creates the heart of funding portfolio, all the other instruments are only complements, not substitutes, for that. And to get equity funding, the business must make sense. Otherwise the investor (entrepreneur himself) loses his money. Consistently, introducing any other complementary funding element makes no sense unless the equity, or revenue, side is taken care of.

Organizations that provide other funding than equity investments have their own agendas; they must fulfill their own objectives to make their business eligible. They really are not there to watch over the entrepreneur’s best interest. Events where those kind of funding instruments are introduced serve for financiers themselves (marketing), and those entrepreneurs who have no problems with equity funding, and consequently, their business. For them, non-equity funding is a good option if it doesn’t interfere with their business decisions and sets no strings on their future business and plans. Most often, you don’t see those entrepreneurs in the events. You see those who have problems with equity.

However, it is not surprising that providing funding consultation to entrepreneurs appeals to service providers. Great value propositions can definitely be designed on funding issues. Delivering the service is more difficult part as providing competent service is really not that simple. First of all, there should be an incentive: no funding equals no salary for the consultant, and vice versa – otherwise there is no real incentive. Secondly, building a funding portfolio and a roadmap requires deep understanding of 1) the business, and business model, itself, and 2) true nature of different kinds of funding instruments. Preparing a funding roadmap does not mean copying and pasting all the different instruments that possibly are available because many of them can lead the entrepreneur 180 degrees to wrong direction (see above what I said about their own objectives).

Even though I am in this business myself, personally I would never have the nerve to claim that I provide funding consultation if I had shallow knowledge on the subject. I could never do that to any entrepreneur in any business because I want to be professional. After carefully listening to the best of best people in venture financing, I realize I am nothing more than a beginner – and I hold a 10-year-old degree in finance.

Luckily many of the funding consultation services are free of charge. Otherwise, the customers, i.e. entrepreneurs, might require some return for their money. My dear friend and colleague Pasi has repeatedly introduced the issue of damages so that entrepreneurs who lost their business (or, lifetime savings, or family) due to bad funding consultation would be entitled to compensation. He also reminds that rare are those areas of life where there is no liability at all of one’s actions. Business development is such an anomaly. Pasi’s perception sounds funny but it’s relevant. However, if the emphasis of service providers’ funding consultation was focused in the best funding ever, your customer’s money, sales for you, less damage would be done and the question of compensation would be obsolete.

Finally, I have to say, many seasoned entrepreneurs seem very well versed in funding issues. They have the courage of saying no to funding which is not aligned with their business objectives. I truly admire that. At the same time, it makes me aim higher – I don’t want to be that jerk that provided non-competent, bad quality, cheap advice to an entrepreneur who obeyed it and lost his business.