Don’t be a bonehead, tell angels what they want to know

Last week I wrote an article for Enterprise in the Australian Financial Review that compared and contrasted the different pitching styles of entrepreneurs. It sparked a bit of debate on Twitter, so I thought I’d elaborate.

I was an observer in the audience of an angel investment dinner, held by the Innovation Bay network. The contentious point was that two of the four pitching start-up founders – Pascale Helyar-Moray from Style Rocks and Kym Huynh of WeTeachMe – wouldn’t discuss financial details. No mention of revenue, even though they have customers, and both were coy on what equity stake they were willing to give up.

This irked a few members of the audience and I have to admit I thought it was a bit odd.

I talked to both Helyar-Moray and Huynh afterwards. Both had their reasons for staying quiet on dollars and percentages, but I’m not convinced.

Nor is Startmate founder Niki Scevak and consultant Mathias Kopp who responded to my pondering on Twitter. I asked whether other entrepreneurs felt comfortable discussing financials. “Under normal circumstances entrepreneurs don’t have two shots ... there is an imperative to get it right first time,” Kopp says.

Scevak says it’s “boneheaded” for entrepreneurs not to grab the opportunity and discuss financial details in such an angel investment environment. And I have to agree.

At an Innovation Bay angel investment pitch dinner there are 40 men and women in the room who have money to spend. The group is a heady mix of entrepreneurs, investors and advisers. And while the question and answer session is tough and serious, I would describe the vibe as very welcoming and educational to a degree.

Co-founder Ian Gardiner tells me that about $11 million in angel funding has been raised since 2009. Start-up companies in the past that have successfully raised capital from the group include ImageBrief, which netted about $600,000 last year and group buying website Spreets, which raised money from the group in 2010, and went on to a $40 million exit when it was bought by Yahoo!7 in 2011. This is not amateur hour. This is the real deal.

But as well as the missed opportunity, there’s another angle to this.

I think the attitude that an angel investment dinner is not the right forum to discuss financial details stokes an “us and them” division between investors and entrepreneurs. And this is dangerous for the local eco-system, which although it’s growing, is fragile at the best of times.

Others tweeted in support of holding back information. Jon Rout, who is the founder of a start-up called Bundl, suggested that giving “too much away” made him look like he was begging, rather than negotiating. And Athena Prib preferred a dating analogy “you don’t give everything away on the first date”.

But as the debate surrounding young entrepreneurs fleeing the local technology start-up community for Silicon Valley rages, I think a bit more openness and trust would go some way to plugging the brain drain. And while that must come from both sides, I think it should start with entrepreneurs being willing to discuss financial details at an angel investment dinner. If you can’t do it in a welcoming setting like Innovation Bay, you can forget playing with or against the big boys in Silicon Valley.

What do you think? Write and tell me your views.

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