This Week in Venture Capital and Artificial Intelligence

Every week I will share and summarize 3-5 ideas and insights with the LinkedIn community. Some of the summarizations I may have covered during the week, and other things may have just been passing thoughts.

1.Avoiding Mirage Deals

A deal is not a deal when it is signed. In fact, a deal is only a deal once it is paid. A deal that falls through due to non-payment is what I call a "Mirage Deal"—it appears real, but when you reach the end, you find it was never truly there. Do not make this mistake as an entrepreneur when creating your projections and pipelines. A deal is a deal when it is paid.

Here are two great examples of deals that were signed but ultimately failed due to lack of payment remittance

1). United Airlines' Purchase of US Airways (2000)

United Airlines signed a deal to purchase US Airways for $11.6 billion in 2000. Despite the agreement being signed and announced, the deal fell through because of regulatory hurdles and opposition from labor unions. The payments and finalization never occurred, leading to the deal's collapse.

2). Yahoo’s Acquisition of Facebook (2006)

In 2006, Yahoo attempted to acquire Facebook for $1 billion. The deal reached the signing stage, but Facebook's CEO, Mark Zuckerberg, ultimately walked away from the deal. Yahoo's payment was never made, and the acquisition failed, showcasing how even near-complete deals can unravel at the payment stage.

3). How To Build A Firewall and Avoid Mirage Deals

Analyzing a client's credit profile acts as a firewall for entrepreneurs, preempting potential payment issues by providing a comprehensive understanding of a client's financial health and payment behavior. By obtaining credit reports and scores, you can assess their creditworthiness and history of fulfilling obligations, similar to how a firewall scans for vulnerabilities. Reviewing financial statements reveals their ability to generate revenue and manage cash flow, while public records and legal judgments highlight any past defaults or financial distress.

Evaluating the client's business operations and industry standing ensures their business model is sustainable and reputable, similar to a firewall ensuring the integrity of a system. Ratio analyses and trade references offer additional insights into liquidity and reliability, while credit monitoring services provide real-time updates on any changes in their financial status, much like real-time threat detection in a firewall. Considering economic factors and industry trends helps anticipate potential risks that could impact their ability to pay.

Implementing credit limits and clear payment terms based on this analysis sets realistic expectations and reduces the risk of overextending credit, effectively building a barrier against potential financial threats. Regular monitoring and communication enable you to address any emerging issues promptly. This thorough approach ensures you engage with clients who are more likely to meet their payment obligations, thereby safeguarding your financial interests and maintaining healthy cash flow.

2. The Longest Walk On Earth: Destination AGI

We are a long way off from AGI, but it is feasible, just like the longest human walkable path on Earth is feasible, but HARD! Today the walk to AGI is more feasible than ever. Here is why:

The recent court decision to throw out new SEC private fund disclosure rules is significant for both the venture capital industry and the progression of Artificial Intelligence (AI).

The disapproval of the SEC's new disclosure rules has accelerated AGI progression by reducing compliance costs and allowing more investment in AI research and development. This boosts flexibility and investor confidence, enabling rapid advancements in innovative AI projects.

Going in-depth, the approval of the SEC's new private fund disclosure rules would have slowed the progression to AGI by imposing increased compliance costs on private funds, leading to a diversion of resources away from AI research and development. Higher operational costs and reduced investment capacity would decrease the amount of capital available for innovative AI projects. The regulatory burden would also make investors more hesitant to fund high-risk AI ventures and slow down decision-making processes. Stringent regulations could lower investor confidence and reduce the attractiveness of the AI sector for investment, particularly affecting smaller, more agile funds. This would result in less funding for experimental research and a shift in focus from pioneering AI advancements to regulatory compliance, ultimately hindering the rapid progress needed to achieve AGI.

This is a BIG WIN for AI investors and the innovations they fund.

This big WIN can help speed up the walk enroute to AGI as it indirectly impacts the path to AGI by influencing investment flows and regulatory landscapes.

3. Mo' Misconceptions, Mo' Money, Mo' Problems

Here is the common founder's approach to raising capital. I am going to use Chat-GPT to illustrate this using Mr. T and a fictional entrepreneur named Maxwell Bankman to illustrate this:

This will not get you anywhere with customer prospects or investors!

I am always raising money; it's what I do by nature as a venture capitalist. So let me tell you from my experience. It's tough at first but it gets easier over time; it's an art that has to be refined. Think about say some of the larger investment firms like Sequoia Capital or say for example Jeff Bezos of 亚马逊 . When they first started fundraising they were likely met with a lot of objection, but now they can likely raise hundreds of millions within weeks if they need to, but that does not mean it is easy for them. They have to trot through regulatory hurdles, complex contracts, and massive stakeholder preferences. The first thing I will say is that fundraising is one thing, but true intentions about people are another, and you won't really learn much about fundraising until you raise millions because fundraising is all about people.

Fundraising is one thing, but true intentions about people are another, and you won't really learn much until you raise millions. And that's when your real problems begin!

I was recently approached by someone I don't know who seems to know me, asking for help in raising money for their company in exchange for equity. While equity is always appealing, it holds less value to outsiders when it is solely being offered as a reward for chasing money, especially when a company is in its early stages and relies heavily on hypotheticals and market projections to justify its potential. There is value in a dream that has the potential to become very real, but there is no intrinsic value in equity alone. You have to convince people to believe in your dream. If you are having trouble doing that, then you need to spend more money, more time, and more critical thinking about how you can make this work. If this is your situation and you need to use other people's expertise to do so, that will come at a price as well. Fundraising is not waving a magic wand, which is how some people approach it.

Here is an analogy:

Fundraising is like owning a full service autobody mechanic shop. Think of all the different parts of a vehicle you'd have to know how they work well and as well how they don't work well. Anyone can change oil, but if you don't know other things to look for (such as bad hoses) when changing the oil then you may miss other issues and have even bigger problems. That is what fundraising's like; it's not one-dimensional, it's kaleidoscopic.

Listen, if you're an entrepreneur, you gotta get money one way or the other, you can either bootstrap, obtain venture capital / equity finance, secure loans / debt finance, or get awarded government programs / grants.

Let's get rid of some misconceptions.

Venture Capital is not the only way to raise capital; that is a misconception. Experienced and scrappy founders have many options besides venture capital. There's a common belief that venture capital is the main source of start-up funding, but that's not the case.

The reality is you will most likely have to bootstrap which means you will have to hustle just to survive. Thriving takes more than hustle and more than money; it takes becoming a pro at bootstrapping. It takes out-hustling the hustlers. When people start trying to emulate your hustle, then you know you're doing something.

In a recent LinkedIn post, the I addressed several common misconceptions about venture capital and startup funding and I also explained that the reality of entrepreneurship is bootstrapping. Over 65 percent of respondents to my post said they had to bootstrap. Here is a summary of the key points:

1). Venture Capital is Not the Only Funding Source: Many believe that venture capital is the primary source of funding for startups. However, there are multiple other avenues such as angel investors, crowdfunding, and strategic corporate investments that startups can explore.

2). Not Only Tech Startups Get Funded: While tech startups often dominate the headlines, VC firms also invest in a variety of sectors. The key is having high growth potential rather than being in a specific industry.

3). Location Isn't Everything: It's a common myth that startups need to be based in Silicon Valley to attract VC investment. The pandemic has further demonstrated that startups can secure funding from anywhere.

4). VC Funding is Not About Luxuries: Contrary to the stereotype, most of the funding raised by startups goes into essential areas such as staffing, facilities, and marketing rather than extravagant expenses.

5). VC Firms are Selective: Unlike banks, VC firms are highly selective and often rely on introductions from within their network. This selectiveness is due to the high-risk, high-reward nature of their investments.

For more details, you can read the original LinkedIn post Post

I hope you enjoyed this week's newsletter stay tuned for next Saturday's edition.

1. ) Upcoming - Stay tuned for:

-- Show release with Serg Masís on my podcast titled Explainable AI

2. ) Upcoming publication

-- On IdeaScale, a well-known global innovation platform I write for

You can find out more about these by tuning into my LinkedIn profile daily and peaking my CV that is listed below from time to time. Also if you would like to be a guest on my 2 podcasts, Capital Unscripted, or Explainable AI, or if you would like to be a contributor to any of the medias I write for or am partnered with, -- includes AI Accelerator Institute , Idea Scale, or AI news -- then please reach me by inboxing me.

I hope you enjoyed this week's newsletter stay tuned for next Saturday's edition.

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