“You might as well fall flat on your face as lean over too far backward.” James Thurber
One of the challenges of being in a key position of a start up that is funded by outside investors is establishing a working relationship with those whose money you’re playing. Investors take many forms, from benevolent angels to ruthless venture professionals.
The old joke goes that everyone wants an investor who "gets it” until they have one. I once said to an angel investor when launching a Series “A” round, “let’s try to find some smart money”. He said, “Son, all money is dumb”. Thus the never-ending search to find investors who are smart, knowledgeable, friendly, supportive, patient, involved but not too involved. Most of all, you want your investor’s pockets to be deeper than their intellect.
The fact is, any time you’re using other people’s money they are going to have more than just a casual passing interest in what you’re doing, why you’re doing it, when you’re doing it, and how you’re doing it.
I’ve had two interesting conversations over the past couple of weeks. One was with a friend who took investor money last year and one with a friend who’s debating taking some. Fortunately they happened in that order so I was able to quote to the one debating taking investment things I had just heard from the one who just took investment.
Highlights included:
“I field ‘how’s it going?’ phone calls for three solid weeks then go to the board meeting where I answer the same questions again”
“Most of the questions revolve around ‘is there a market for the product?’. It’s like the due diligence they did 6 months ago has been totally forgotten”
“Their solution for all revenue shortfalls is ‘we need to drastically cut expenses’.
“They constantly bring up other companies they deem to be successful, most of which are in different markets, have been operating years longer and have ten times the capital to work with.”
The net of all of this is the management team gets little chance to run the business. The distraction of constant inquisition means a business flow is never achieved. It now appears that my second friend is going to continue to run his self-funded company at a slower pace without outside investment. I think he’ll end up healthier, wealthier and wiser.
However, if you choose to take the money, or if you’re in a company that already has, here are some universal truths:
One of the challenges of being in a key position of a start up that is funded by outside investors is establishing a working relationship with those whose money you’re playing. Investors take many forms, from benevolent angels to ruthless venture professionals.
The old joke goes that everyone wants an investor who "gets it” until they have one. I once said to an angel investor when launching a Series “A” round, “let’s try to find some smart money”. He said, “Son, all money is dumb”. Thus the never-ending search to find investors who are smart, knowledgeable, friendly, supportive, patient, involved but not too involved. Most of all, you want your investor’s pockets to be deeper than their intellect.
The fact is, any time you’re using other people’s money they are going to have more than just a casual passing interest in what you’re doing, why you’re doing it, when you’re doing it, and how you’re doing it.
I’ve had two interesting conversations over the past couple of weeks. One was with a friend who took investor money last year and one with a friend who’s debating taking some. Fortunately they happened in that order so I was able to quote to the one debating taking investment things I had just heard from the one who just took investment.
Highlights included:
“I field ‘how’s it going?’ phone calls for three solid weeks then go to the board meeting where I answer the same questions again”
“Most of the questions revolve around ‘is there a market for the product?’. It’s like the due diligence they did 6 months ago has been totally forgotten”
“Their solution for all revenue shortfalls is ‘we need to drastically cut expenses’.
“They constantly bring up other companies they deem to be successful, most of which are in different markets, have been operating years longer and have ten times the capital to work with.”
The net of all of this is the management team gets little chance to run the business. The distraction of constant inquisition means a business flow is never achieved. It now appears that my second friend is going to continue to run his self-funded company at a slower pace without outside investment. I think he’ll end up healthier, wealthier and wiser.
However, if you choose to take the money, or if you’re in a company that already has, here are some universal truths:
- The longest line is between an investors "yes" and their signature on a check
- The only thing faster than the speed of light is bad news
- Good news will be treated with skepticism
- No, they don’t have to understand
- Yes, it is their money
- Anything you say can and will be used against you in board meetings
- Anything your people say can and will be used against you in board meetings
- No, someone didn’t switch those nice people you met before you got the check
- No, they probably don’t remember all those conversations about how the money would be used
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2 comments:
Amen brother.
"Most of all, you want your investor’s pockets to be deeper than his intellect."
Hmmm... I think I know some who employs this strategy - in fact, I think he only dislikes his one investor for whom this is NOT the case
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