Money and MEGO Featured

9:33am EDT October 31, 2002
The lunch I had at a nice downtown Cleveland restaurant began with me being asked, "Have you seen anything new?" Ten days later, another person asked, "What opportunities do you know about that I don't?"

These questions were not asked by people from struggling start-up firms, but by the head of a significant venture capital fund and by an attorney highly regarded as a deal-maker.

Each was disappointed at not finding outstanding investment opportunities, and was looking for deals in which they could become involved. These conversations in Cleveland were indicative of the national surplus of venture money as capital searches for worthy deals.

This imbalance of more VC dollars than suitable investment opportunities has many venture capital funds returning money to their investors. This doesn't mean it's easy for entrepreneurs to get money, as investors are particular when assessing opportunities, but capital is available for outstanding deals.

Some excellent start-ups are having difficulty finding funds. However, I have seen incredible actions by entrepreneurs who, rather than attracting investment funds, have induced MEGO (Mine Eyes Glaze Over). I am certain these entrepreneurs blame the economy, the gods or capital's not getting it for their lack of funding success, yet each found a unique way of scaring off funding.

The first brought me a finished business plan that forecasted a negative internal rate of return. His numbers shouted, "Keep away." It's possible he didn't know what an IRR was. In any case, his business plan made an extremely strong case against investing in his company.

The next told me his product might not work, but that wasn't important because his competitors' products didn't work either, and success was, therefore, only predicated on better marketing. On that one, in addition to MEGO, my jaw went slack.

The last was a physicist whose documents might have been well-received at a learned symposium, but somehow failed to incorporate anything about making money. He was annoyed with me when I asked him about the business aspect of his optical technology, reacting as if having a profit motive in some way sullied his elegant science.

Funding sources are actively seeking great deals, so craft your business plan, numbers and presentation to get you money rather than induce MEGO. Erwin Bruder (ebruder@primcapital.com) is chief economist & managing director of emerging enterprises at Prim Capital Corp. Reach him at (216) 830-1111, ext. 2220.