Why it might be even harder to swing for the fences?

I met with an equity analyst a few weeks ago who used the term fast money. The term really resonated with me as a description for what I’ve been seeing in healthcare [aka: out-of-network strategy, balanced billing strategy, inflated pricing strategies, kickbacks etc.] and in the broader economy.

The US economy is built on a lot of fast money. The problem with fast money is that it is usually dependent on timing and evaporates with new regulation, policy changes or when the asset bubble pops.

That’s why a lot of people are trying to predict the next stock market correction and worrying about the student loan bubble. In my opinion, they should be.

Foundation

As a consultant, I often talk to clients about problems with their foundation because they are trying to do too much on a weak foundation. Structurally a weak foundation is a recipe for future problems that usually cost more to fix than doing it right the first time.

As leaders, we can’t look at revenue and profit without looking at what’s happening on the balance sheet. In simple terms, the balance sheet represents the foundation. It tells you whether someone is robbing Peter to pay Paul. We all know that behavior can only go on for so long before the foundation crumbles and disaster ensues.

The US balance sheet is a mess. There are four areas where governments should be spending: healthcare, eduction, innovation [aka: game changing investments] and infrastructure because they are key to sustaining the workforce and a healthy business environment. Unfortunately, we’re likely going to see some big cuts in these areas which will further weaken the foundation unless business leaders fill the gaps. 

It’s likely why the Stakeholder Capital movement is picking up steam and philanthropic organizations and other investors are making some big investments.

Slow Money

Last week I attended a workshop to educate women about angel investing. There are some really stark contrasts between how entrepreneurs and investors in Silicon Valley interact versus what this new crop of potential angel investors are learning.

1/ Timeline: Ten and twenty year investments with no clear exit timeline are okay as long as the founders were still making progress. The Silicon Valley timeline for an exit is often 3-5 years.

2/ Structure: Convertible Notes and SAFE instruments are too risky for this crop of investors whereas these instruments are the norm in Silicon Valley because they are easy to work with.

3/ Cap Table: Changes to the cap table may cause trust issues. Cap tables in Silicon Valley often get restructured to facilitate growth. 

4/ Tax: Lots of talk about tax credits and managing the business to preserve tax credits. Silicon Valley doesn’t talk much about tax until there is a windfall to discuss.

These angel investors are reportedly doing rather well taking a more conservative approach.

Fast and Slow

There are also some similarities in the match making process and criteria.

Match Making: Personal networks and warm introductions are the best way for entrepreneurs to meet investors and vise versa.

Criteria: There has to be alignment in interest, expertise and values. 

Investors also consider the 4 t’s:

1/ Team

2/ Traction/Market

3/ Tech/Product

4/ Timing

The question that remains to be answered…will there be enough slow money invested to fill in the gaps?