Will I invest in your Startup?
I get this question several times a month and the Short answer is: Probably not.
I heard 45 deal pitches last year. I said no to 42. I’ll probably turn you down too.
To succeed, founders need applicable skills, unreasonable commitment, strong character, and good judgment. If you want an investment from me, you’ll need to demonstrate that you have all these things.
What they’re not telling you
Nobody will tell you this because it’s not nice and they gain nothing by being frank with you. So, I hope you’ll take it as I mean it - a sign of respect for you as someone trying to make an impact on the world.
Your business will fail.
Most likely, it’ll consume your life for years before it ends in a whimper. You’ll be tenacious, of course. But, in the end, you’ll throw in the towel and be poorer and more cynical than you are today.
On the off chance you do “succeed”, to you it’ll still feel like a failure most of the time. Even if it makes you rich, you’ll often wonder if it was worth it.
And because of this, if I invest in you, I’ll probably lose 100% of my investment. And, if I do get a return, it’ll take 7+ years before I see a penny.
I say this as a guy who’s started more than a dozen businesses; as someone who’s financially free, but has failed more often than not. I failed so badly that I lost everything and ended up sleeping on my mother’s sofa… Twice!
I’ve succeeded too... Thankfully. I worked every day of my life between the ages of 9 and 35. I worked my ass off, but I recognize how damn fortunate I am to be in the position I am in.
Every successful entrepreneur I know has a similar story.
And I say this as an angel investor who’s invested in nearly 50 non-public businesses.
When evaluating an investment in you, I ask myself, “Are you the kind of founder who has a chance of pushing through the gauntlet and coming out on top? How would you even know?”
Domain Expertise
What do you really know about the market you’re trying to serve? Great businesses emerge from founders who build the product they themselves need. As customers themselves they know viscerally how the product they plan to build can add value.
These founders know their ideas solves a real problem. They can imagine customers like them seeing it as a “no-brainer” because it solves a real problem. As customers, these founders know they’d pull out a credit card and buy it themselves... in a heartbeat. Companies sometimes succeed without the intuition gained by being a real customer yourself. But not most.
A founder who knows who the customers are, what product they’d happily buy, and how to talk to them has a huge set of advantages over others.
This visceral, “I’m a customer” understanding acts like a superpower for a founder. If you have it, I’m interested in hearing more about your plans.
What’s in it for me?
It’s not all about you, your background, and your business plan. If you expect me (or anyone else) to invest in you, you need to put yourself in our shoes.
Recently I sat through a pitch from an entrepreneur with a few modest successes under his belt. He was starting a fund and he wanted me to invest. And he wanted me to introduce him to my even richer friends.
His pitch outlined his strategy, showed some examples of good investments they’d already made, and explained how they planned to deliver 20%+ annual returns.
I went into the meeting wanting to invest. I assumed I would because I really like this entrepreneur turned fund manager. In the end, I passed on the investment for two reasons.
First, he’s new to managing a fund. And even though he is a successful entrepreneur, he lacks the domain expertise superpower discussed above.
Second, I didn’t really see what was in it for me. The big promise was 20%+ annualized returns. If he can deliver, that’d be an impressive result. But, on balance, the potential payoff wasn’t compelling enough based on my current situation and goals.
He doesn’t really know his customer.
He knows I have the capital to invest, but he has no idea what my motivations are. His pitch was a one-way conversation. He assumed my problem was simply that I needed or wanted 20% returns. And he assumed that the fact I didn’t jump at the chance to invest meant I didn’t believe in him.
Yes, returns matter. But, it’s more complicated than that. The world is full of great ideas. There are other impressive entrepreneurs and worthy causes out there. If you want my support, you’ll need to figure out why investing in you is good for me.
Stop talking and ask a few questions. I get it. As founders we feel a need to project confidence and competence. But, nothing demonstrates competence like a sincere give and take conversation. And great questions are the gateway to meaningful conversations.
Will My Investment Help or Hurt?
I often see smart, capable people engaging in activities that are, in my judgment, “not a worthwhile pursuit”. Businesses that don’t create real value in the world, but can - for a short time - generate some cash are a good example.
I view these businesses more like an arbitrage opportunity. It’s more like executing a complicated trade than building an enterprise. While business pursuits like this can be excellent learning tools for founders, they aren’t things I want to own.
I ask myself, “If I give you money, am I buffering you from the market feedback that would make it a real learning experience?”
I’ve invested in plenty of businesses, but I’m not an investor. I’m an entrepreneur and I’m biased toward entrepreneurs. I believe it takes something special; something few can understand to build a successful enterprise.
As a founder, you literally trade your life’s energy to bring something new into the world. Most folks aren’t cut out for that trade and who can blame them?
If I give you money, am I encouraging you to put yourself through a grinder that’ll chew you up and spit you out? Most likely, we’re both better off if I keep my money and you give up the ghost and keep your job.
Tell me why I’m wrong.