Looking Under the Hood

Joseph W. Bartlett, jbartlett@reitlerlaw.com, Counsel, Reitler Kailas & Rosenblatt LLC

It’s useful to explore some of the conversations which experienced venture capitalists trade with one another, often deriding the claims which come across the venture fund’s transom.

One of the all-time favorites is the Chinese finger ring claim.  The entrepreneur will pay a call on investors and claim that, if his or her technology is able to slice off X percent (let’s say 5%) of a big market, then there is a lot of money for the owners of the 5% slice.

The industry jokesters liken those claims to an imaginary entrepreneur who came to call one day and mentioned that his company was involved in making and selling products into a huge market … and, if the company were able to slice a small piece, 5% to 10% of the market … there would be ample profits for the investors.  The “come on” is that it is  easy to get a little piece of any large market if you have anything approaching a plausible case. 

The question was: what market are we talking about?  And, he said the market for finger rings in China.  You see, he went on to say, there are a billion Chinese and each of them has 10 fingers so 5% of a market of 10 billion prospects is sure to ensue and pay off.

It is worth keeping these jokes in mind when advising entrepreneurs on how to present their newly formed companies to experienced investors.

 

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