The Little Red Hen – A Venture Capital Fable

12.7.11 by Dov

Remember the fable of the Little Red Hen?  I’ve been hearing stories from entrepreneurs lately about their interactions with various investors, and I was struck by the similarity to this wonderful childhood story.  For those who can’t recall, the story goes like this:

The Little Red Hen found some extra wheat seeds lying around on the ground.  She goes around to all of her ‘friends’ in the barn and asks if anyone will help her plant them so she can bake a loaf of bread.  Unfortunately, they’re all too busy to help (or perhaps they can’t see the value of the future loaf?)  When the wheat grows, she asks if anyone will help her harvest it.  Same story.  This goes on and on until she finally bakes the loaf of bread.

“Who will help me eat this bread?” she asks, and guess what – now they’re all more than happy to help!  And then, depending on the storyteller, she either shares it anyway or eats it herself.  Funny how there’s a lesson there no matter how it turns out, isn’t it?

It struck me that many investors act like the animals in the yard to the entrepreneur/hen.  Early-stage investing is hard work, and people (even me, sometimes) are lazy.  But to lead an investment in a young company, you have to be prepared to do a lot of work.  There’s due diligence, term sheet negotiation, management team and compensation issues, operational questions, strategic turning points, and so much more.  And who wants to do all that?

When the due diligence is done and a term sheet is negotiated, it’s not infrequent to find investors starting to increase their interest level in the “baked” deal.  And when the company has proven its business model and needs some expansion capital, there’s no shortage of folks ready to come to the party.

So, here’s to all the Little Red Hens out there, along with our assurance that we at Allos love to get our hands dirty and won’t stand by waiting for others to finish the baking.

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