{"id":34023,"date":"2020-03-26T10:41:54","date_gmt":"2020-03-26T02:41:54","guid":{"rendered":"https:\/\/zegal.com\/?p=34023"},"modified":"2020-06-02T13:59:22","modified_gmt":"2020-06-02T05:59:22","slug":"entrepreneurial-arbitrage-funding","status":"publish","type":"post","link":"https:\/\/zegal.com\/en-gb\/blog\/post\/entrepreneurial-arbitrage-funding\/","title":{"rendered":"Entrepreneurial Arbitrage: Funding"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-large wp-image-34034\" src=\"https:\/\/zegal.com\/wp-content\/uploads\/2020\/03\/christine-roy-ir5MHI6rPg0-unsplash-1024x685.jpg\" alt=\"\" width=\"1024\" height=\"685\" srcset=\"https:\/\/zegal.com\/wp-content\/uploads\/2020\/03\/christine-roy-ir5MHI6rPg0-unsplash-1024x685.jpg 1024w, https:\/\/zegal.com\/wp-content\/uploads\/2020\/03\/christine-roy-ir5MHI6rPg0-unsplash-300x201.jpg 300w, https:\/\/zegal.com\/wp-content\/uploads\/2020\/03\/christine-roy-ir5MHI6rPg0-unsplash-768x514.jpg 768w, https:\/\/zegal.com\/wp-content\/uploads\/2020\/03\/christine-roy-ir5MHI6rPg0-unsplash-1536x1028.jpg 1536w, https:\/\/zegal.com\/wp-content\/uploads\/2020\/03\/christine-roy-ir5MHI6rPg0-unsplash-2048x1371.jpg 2048w, https:\/\/zegal.com\/wp-content\/uploads\/2020\/03\/christine-roy-ir5MHI6rPg0-unsplash-640x428.jpg 640w, https:\/\/zegal.com\/wp-content\/uploads\/2020\/03\/christine-roy-ir5MHI6rPg0-unsplash-1200x803.jpg 1200w, https:\/\/zegal.com\/wp-content\/uploads\/2020\/03\/christine-roy-ir5MHI6rPg0-unsplash-1920x1285.jpg 1920w\" sizes=\"auto, (max-width: 639px) 98vw, (max-width: 1199px) 64vw, 770px\" \/><\/p>\n<\/p>\n<p><em><span style=\"font-weight: 400;\">This is the second post in Paul Murphy&#8217;s series on <a href=\"https:\/\/zegal.com\/blog\/post\/entrepreneurial-arbitrage\/\">Entrepreneurial Arbitrage<\/a><\/span><\/em><\/p>\n<\/p>\n<h4>VCs are smart<\/h4>\n<p><span style=\"font-weight: 400;\">I\u2019ve met hundreds. Individually, of course, some VCs are dumb as doorposts, but as a class, they\u2019re brilliant. They\u2019re particularly good at two things:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Figuring out how to not lose money, and<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Figuring out where money is likely to be made.\u00a0<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">These are obviously two different sides of the same coin.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">VCs structure deals to avoid as much downside as possible. It takes some of us entrepreneurs a long time to figure this out. Initially we buy the \u201cwe\u2019re aligned and on the same team\u201d talk hook, line, and sinker. Eventually, we figure out that it can\u2019t be true. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">When I first realised this, I was annoyed. However, I eventually realised the behaviour was not only rational, but forgivable.<\/span><\/p>\n<h4>Failure<\/h4>\n<p><span style=\"font-weight: 400;\">As entrepreneurs, we are given many chances to fail. It\u2019s built into our culture. Failure is expected. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">In most places \u2013 America always; Europe sometimes; and Asia, we\u2019re getting there \u2013 an entrepreneur with a failed business behind them is more bankable than an entrepreneur without a track record at all.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">VCs don\u2019t have that advantage. Raising a first fund is hard. Raising a second fund is 100% dependent on the success of the first fund. A failed first fund means no second fund. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">In other words, failure is absolutely not an option.\u00a0<\/span><\/p>\n<h4>Show me the money<\/h4>\n<p><span style=\"font-weight: 400;\">Now, let\u2019s look at the second thing VCs are so good at: figuring out where money is likely to be made. That\u2019s where entrepreneurial arbitrage comes in. To illustrate it, I\u2019ll tell you my recent fundraising stories:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Five years ago, I ran a speech-recognition company in Austin, Texas. It was a hot field at the time. VCs loved it.<\/span><span style=\"font-weight: 400;\">\u00a0I spent a lot of time fundraising in the Bay Area. <\/span><span style=\"font-weight: 400;\">About 75% of the contacts I had wouldn&#8217;t\u00a0 even give me a first meeting because they would say, \u201cWe only invest in companies in the Bay Area. We like to be able to drive to our portfolio companies.\u201d <\/span><\/p>\n<p><span style=\"font-weight: 400;\">I used to fly Austin-SF and back in a day. But the VCs wouldn\u2019t do it. They didn\u2019t need to. There were plenty of AI companies in the Bay Area, and it didn\u2019t make sense for them to worry about a place as far away as Texas.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This year I\u2019ve been fundraising for my new company, a credit bureau for crypto. We\u2019re based in Singapore. A long way from San Francisco. Now, how many first meetings with Bay Area VCs have been turned down because of our location? None.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Not only is it a long flight to a Board meeting, it\u2019s also a different legal jurisdiction that&#8217;s far from standard for investors. This means the legal review takes longer and costs go up. So why the change in VCs\u2019 attitude?\u00a0<\/span><span style=\"font-weight: 400;\">Opportunity.<\/span><\/p>\n<h4>Opportunity<\/h4>\n<p><span style=\"font-weight: 400;\">The US regulatory environment is not terribly crypto-friendly. So, entrepreneurs are establishing their businesses in other jurisdictions: Singapore, Hong Kong, Switzerland, Malta, Gibraltar, and a few other, mostly-small States.\u00a0 <\/span><\/p>\n<p><span style=\"font-weight: 400;\">As I said, VCs are smart. Big US funds aren\u2019t going to sit on their hands just because businesses are being founded elsewhere. The ones who truly believe that there\u2019s money to be made in crypto are going to follow it.\u00a0<\/span><\/p>\n<p>To find out more about the subject, read the first in the series here: <a href=\"https:\/\/zegal.com\/blog\/post\/entrepreneurial-arbitrage\/\">Entrepreneurial Arbitrage<\/a><\/p>\n<p><strong>Watch for Paul\u2019s next post in this series publishing April 20th.\u00a0\u00a0<\/strong><\/p>\n<p style=\"text-align: center;\"><em>Paul Murphy\u2019s software career has primarily focused on financial services and voice. On Wall Street he worked on a broad range of front and back office systems. He then became obsessed with the human voice as interface, building tools and applications that interacted with users over telephones. This obsession culminated in the founding of Clarify, which developed cutting edge speech recognition and language processing software for conversations. With\u00a0<a href=\"https:\/\/credmark.com\/\">Credmark<\/a>, Paul is re-entering the finance space because he firmly believes that crypto is the foundation of the next global financial system.<\/em><\/p>\n<p class=\"p1\" style=\"text-align: center;\"><b><i>This article does not constitute legal advice.<\/i><\/b><\/p>\n<p class=\"p2\" style=\"text-align: center;\"><i>The opinions expressed in the column above represent the author\u2019s own.<\/i><\/p>\n<p class=\"p3\" style=\"text-align: center;\"><span class=\"s1\"><a href=\"https:\/\/register.zegal.com\/\"><b>Start managing your legal needs with Zegal today<\/b><\/a><\/span><\/p>\n<p><a href=\"https:\/\/zegal.com\/blog\/post\/opinion-identity-and-crypto\/\">FURTHER READING:OPINION: Identity and Crypto<\/a><\/p>\n<p><a href=\"https:\/\/zegal.com\/blog\/post\/customer-story-credmark\/\">READ MORE: Customer Story: CREDMARK<\/a><\/p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This is the second post in Paul Murphy&#8217;s series on Entrepreneurial Arbitrage VCs are smart I\u2019ve met hundreds. Individually, of course, some VCs are dumb as doorposts, but as a class, they\u2019re brilliant. They\u2019re particularly good at two things: Figuring out how to not lose money, and Figuring out where money is likely to be [&hellip;]<\/p>\n","protected":false},"author":84,"featured_media":34034,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_editorskit_title_hidden":false,"_editorskit_reading_time":0,"_editorskit_is_block_options_detached":false,"_editorskit_block_options_position":"{}","inline_featured_image":false,"footnotes":""},"categories":[41,133],"tags":[10080,10448,7995,10307],"usecases":[],"businesstypes":[],"country":[],"class_list":["post-34023","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-funding","category-startup","tag-crypto","tag-entrepreneurial-arbitrage","tag-funding","tag-z-syndicate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v20.8 (Yoast SEO v27.3) - 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