The Other Side: Lies, Fibs and Myths Entrepreneurs Tell Venture Capitalists

William Paiva has heard it all. A partner with Dallas-based lead venture capital firm Sevin Rosen Funds, Paiva, who lives in Tulsa, has been a venture capitalist for nine years.
And he? heard every myth, fudge of the truth and outright lie VCs and entrepreneurs tell one another. He spilled the beans about common lies VCs tell entrepreneurs in the Tulsa Business Journal? Oct. 12 issue.
Now, he? turning the tables.
Paiva said the following fibs commonly fly from the mouths of young, inexperienced entrepreneurs. But to venture capitalists, they?e red flags.
Paiva, in the same humorous, tongue-in-cheek tone in which he spoke to TBJ the first time, advises entrepreneurs to avoid these pitfalls.
10. ?e?e close to a large deal with a big company.?br>?ots of entrepreneurs come to us and tell us they?e close to signing a big company to distribute or sell their product,?Paiva said. ? generally discount it because, if you really had the deal, it would already be done.?p>9. ?e have a key employee ready to join our company.?br>Paiva said entrepreneurs often indicate that key employees are on board with the company but aren? ready to be revealed yet. He said before he invests in a venture, he wants to know who the team members are.
?e invest in teams, not businesses,?he said.
8. ?everal venture capitalists are interested in our deal.?br>Entrepreneurs try to use this tactic to entice VCs to fund their businesses. What they don? know, Paiva said, is that VCs communicate with one another and can often call this bluff.
Paiva knows what deals other venture capitalists are interested in and vice versa.
?f there was a health care deal in Oklahoma and another venture capitalist, even out of state, was interested in it, I? be shocked if I didn? know about it,?Paiva said.
7. ?his is the best deal you?l ever see.?br>Paiva said this line is an immediate red flag to any VC.
?here is a fine line with marketing your deal to a venture capitalist,?Paiva said. ?ou want to show that you?e passionate but not come across as too arrogant.?br>Even though it? your business, there is a lot you probably don? know about it, he said.
6. ?ig companies are too slow to be a threat to us.?br>Entrepreneurs often think that big companies ?General Electric, Merck, Johnson & Johnson, etc. ?that might be potential competitors are too slow to keep up with them.
That? sometimes true, Paiva said, but what they lack in speed they make up for in money.
?f Big Company is really interested in your market share, it can deploy a lot of resources your way and be a significant threat,?he said.
5. ?ur intellectual property position is airtight.?br>Patents are never as airtight as you think they are, Paiva said.
He likened IP security to a kid being chased by his older brother. He? drag the lawn mower behind him, providing a road block, but if he didn? keep moving, his brother would eventually get a hold of him.
?atents are like throwing road blocks behind you,?he said. ? patent won? guarantee that your business will be successful. You?e got to keep moving forward.?p>4. ?e?e chasing billion-dollar markets.?br>If an entrepreneur tells a VC this, he likely has not sized his market appropriately, Paiva said. He hasn? defined what or how big his market is.
3. ?ll we have to do is get 1 percent of the market.?br>Paiva said entrepreneurs will tell VCs they?e going after a $300 billion market, and, if they get only 1 percent of that, they could generate $3 billion in revenue.
What they?e saying is they haven? thoroughly researched their market.
?hey?e gotten sloppy with their market analysis,?Paiva said.
?Cs would rather hear, ?his is the total market. This is how big it is. These are the subsets we?e going after and how we?e going to do it. This is why we?l be successful. These are the risks of doing so.?
One must analyze the market, define a strategy for penetrating the market and present that plan to the VCs.
2. ?his cannot fail.?br>Paiva said this is a classic sign of an entrepreneur not thoroughly understanding the risks involved with his business.
?enture guys aren? risky investors,?Paiva said. ?hey?e people who manage risk.
?hen entrepreneurs say, ?his cannot fail,?our interpretation of that is that they haven? quantified and don? know the risks involved with their opportunity.
?o say ?his cannot fail?is a very short-sighted view.?p>1. ?hese financial projections are conservative.?br>This is likely the most common line heard by venture capitalists. Paiva joked that he?l fund the next entrepreneur who comes to him with wildly overestimated projections.
?he reality is, it? so hard to do financial projections,?he said. ?ou almost always overestimate how much revenue you?l generate and underestimate your expenses.?p>Paiva said the lies he listed aren? necessarily deal-breakers; they?e barometers for judging the entrepreneur? level of sophistication. Most of these lies are told by young, inexperienced entrepreneurs who think they have to present a potential funder with a perfect package, a risk-free deal.
Experienced entrepreneurs are more likely to present VCs with the risks as well as the potentials involved with their opportunities, and young entrepreneurs should be encouraged to do the same.
?e know everything? not perfect,?Paiva said. ?resent a realistic view of your business. If you know what the risks are, you?e a useful business manager to me.?br>Paiva said if he has to search out the risks involved with the business ?which he will do, and he?l find them ?he? likely to lose confidence in the entrepreneur who wasn? straightforward about them in the beginning.
?ell me what the risks are, and we?l manage them together,?he said.
BOK Financial Reports $51 Million 3Q Income
BOK Financial Corp. reports net income for the third quarter of 2009 as $50.7 million or 75 cents per diluted share. Net income for the previous quarter totaled $52.1 million or 77 cents per diluted share.
Net income for the nine months ended Sept. 30 and totaled $157.8 million or $2.33 per diluted share, compared with $117.8 million or $1.74 per diluted share for the nine months ended Sept. 30, 2008. The 2008 net income was impacted by $67.6 million of pretax charges for loan and energy derivative credit exposure related to a customer bankruptcy filing, which reduced net income by $43.9 million or 65 cents per diluted share.
?OK Financial is pleased with solid performance this quarter, especially considering the continued challenges we see in the economy,?said President and CEO Stan Lybarger. ?arnings for the third quarter were based on continued net interest revenue growth, solid fee revenue and controlled operating expenses. The fair value of our securities portfolio improved by $159 million, which further strengthened our balance sheet and capital position. However, we recognize the banking industry is far from the end of this depressed credit cycle, and we added $19 million to our reserves for credit losses in response to an increase in our nonperforming assets.?br>Highlights of the third quarter of 2009 include:
?Net interest revenue totaled $180.5 million, up $4.9 million compared to the second quarter of 2009. Net interest margin was 3.63 percent for the third quarter of 2009, up eight basis points over the second quarter of 2009, largely due to higher loan yields and lower funding costs.
?Fees and commission revenue totaled $120 million, down $3.1 million from the previous quarter. Mortgage banking revenue decreased $6.7 million due to lower volume of loans originated during the quarter.
?Operating expenses totaled $178.7 million, up $3 million over the second quarter of 2009.
?Combined reserve for credit losses totaled $293 million or 2.52 percent of outstanding loans at Sept. 30, up from $274 million or 2.27 percent of outstanding loans at June 30. Net loans charged off, and provision for credit losses were $36 million and $55.1 million, respectively, for the third quarter of 2009.
?Nonperforming assets totaled $490 million or 4.19 percent of outstanding loans and repossessed assets at Sept. 30, compared to $446 million or 3.67 percent at June 30. ?p>BOK Financial paid a cash dividend of $16.3 million or $0.24 per common share during the third quarter of 2009. On Oct. 27, 2009, the board of directors declared a cash dividend of $0.24 per common share payable on or about Dec. 2, 2009, to shareholders of record as of Nov. 16, 2009.
UMB Financial Reports Increase in Net Income
Kansas City-based UMB Financial Corp. announced earnings for the three months ended Sept. 30, 2009 of $24 million or $0.60 per share ($0.59 diluted). This is an increase of $2.2 million, or 10.2 percent, compared to third quarter 2008 earnings of $21.8 million or $0.54 per share ($0.53 diluted).
Earnings for the nine months ended Sept. 30, 2009, were $65.6 million or $1.62 per share ($1.61 diluted). This is a decrease of $12.2 million, or 15.7 percent, compared to the prior nine months ended Sept. 30, 2008 of $77.8 million or $1.91 per share ($1.89 diluted).
A $1.1 million pre-tax gain was recognized in the third quarter of 2008 as a result of the final contingent payment received on the sale of the securities transfer product. Excluding the securities transfer product transaction, net income for the three months ended Sept. 30, 2009, increased $2.9 million, or 13.9 percent, compared to the same period in 2008.
?e are pleased to report double-digit earnings growth given the challenging economic environment and considering what continues to happen in the industry,?said Mariner Kemper, chairman and chief executive officer.
Commerce Bancshares Declares Stock, Quarterly Dividends
Commerce Bancshares Inc., which operates two locations in Tulsa, announced a 5 percent stock dividend payable on Dec. 15, 2009, to shareholders of record at the close of business on Nov. 30, 2009.
Shares issued as a result of the stock dividend will be entered by Direct Registration System on the records of the company? transfer agent, Computershare, and statements reflecting the issuance will be mailed on Dec. 15, 2009. No fractional shares will be issued and shareholders will receive cash for such fractional interests based on the market value of the stock on the record date.
The board of directors also declared a regular quarterly dividend of $0.24 per share on the company? common stock payable Dec. 15, 2009, to stockholders of record at the close of business on Nov. 30, 2009. The dividend will not be payable on any shares to be issued pursuant to the 5 percent stock dividend which was also declared this date.
OOK Advisors Launches Oklahoma-based Fund
OOK Advisors LLC has launched of the Oklahoma Exchange-Traded Fund, which invests in a portfolio of securities that represents a benchmark index of publicly traded, Oklahoma-based companies. OOK trades on the NYSE Arca with the symbol OOK.
?his fund is one of the first of its kind,?said Keith Geary, chairman of OOK Advisors. ?nvestors now have a vehicle to invest in several Oklahoma-based public companies all at once through OOK.?br>OOK is based on the SPADE Oklahoma Index, a modified market capitalization weighted index that seeks to measure the performance of publicly traded companies that are headquartered in or have significant operations in Oklahoma. As of Sept. 30, 2009, the SPADE Oklahoma Index weightings include 67.57 percent energy (drilling, exploration, pipeline and oil and gas), 13.58 percent utilities, 7.53 percent finance, 4.94 percent coal energy and the remaining percentage includes companies within industrials, services and food and consumer goods classifications.
At least 10 percent of the OOK management fees will go to support Aaron? Bridge, an Oklahoma nonprofit organization working to establish and provide more treatment options in Oklahoma and Texas for children with developmental disabilities, including Autism Spectrum Disorder.



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