By Matt Pross, Staff Writer
You don’t often hear the terms balance sheet, financial model and cash flow statement thrown around in conversations around the proverbial water cooler, but after spending some time at AlphaLab’s Southside offices, it would seem that financial terms like the aforementioned were recently added to popular lexicon. On top of building companies from the ground up in about four months, the entrepreneurs at AlphaLab all take a crash course in finance before pitching to investors at Demo Day in mid May.
To ensure that its portfolio companies understand and are conversant in the necessary particulars to close investment deals, AlphaLab brought in a variety of experts over the last few weeks to answer questions regarding the financial side of building a company as well as gaining investor interest and closing funding deals that will set a company up for future success. Representatives from Birchmere Ventures, Pittsburgh Equity Partners and Cohen & Grigsby P.C. all spent considerable time with the AlphaLab companies answering questions and sharing war stories from previous relevant experiences. These roundtable sessions were eye-opening to say the least and really helped me to understand all of the financial variables that must be understood and planned for to start and grow a successful company.
A consistent theme throughout all of the roundtable sessions was the importance of coachability. Like anyone who invests their time and money in a person, project or company, venture capitalists desire to work with and invest in entrepreneurs that will listen to their advice and avoid costly mistakes that others have made in the past.
“Coachability is very important to us,” Ed Engler, Manager Partner at Pittsburgh Equity Partners (PEP), said. “You can listen to others, take their advice and avoid their mistakes, or you can ignore them and make all of the same mistakes yourself, which happens to be very expensive for your investors.
“On the other side, entrepreneurs need to look for the right investor as well,” he continued. “You want an investor who can provide mentorship, experience and information that you don’t already have. Like any healthy relationship, the relationship between investor and entrepreneur should be give and take. You also want to make sure that your expectations and goals are aligned with your investors.”
Engler and his partner, Steve Robinson, have provided mentorship to every AlphaLab round since it’s founding in 2008. Robinson echoed his partner’s advice regarding finding the right fit in an investor.
“You want to look for value-added investors,” Robinson, Managing Partner at PEP, explained. “People that bring more to the table than just money. Also, you need to make sure you are totally aligned with a VC before you take their money in terms of expectations for the company and the direction it will take.”
Of course, at the incredibly early stage that all of the AlphaLab companies are at currently, the exact direction that each company will eventually take is not set in stone. But, as both Engler and Robinson said, it’s all about being on the same page with investors, being realistic regarding customers and future goals, and most importantly, being honest about every aspect of the business.
“Integrity is the most important thing to us when we are doing our due diligence,” Engler explained. “Just like every other potential investor, we will call every customer that is mentioned in your pitch to check and make sure the information we received is accurate. Never embellish customer numbers when speaking with investors because we will find out!”