This is part of my various Series' on Angel Investing, Venture Capital and Entrepreneurial Culture.
Every entrepreneur who has sought to raise capital at some point in their career knows that sometimes it's just really hard to get other people to invest in your startup. Also, depending on who one approaches, the reasons for this difficulty can of course be anything and everything. Furthermore, although some angels or vc's will tell you exactly why they are passing- most will simply not tell you the whole story. So whether it's the economy, the market, the team, you, the technology or any other perceived weakness, the entrepreneur sometimes keeps spinning his wheels and doesn't necessarily see a pattern forming- (if there is one at all). In today's post, however, I'm going to highlight a very specific problem that I haven't seen discussed very often by way of the following real-life scenario:
I know one fellow who has been hawking an investment in his startup in the healthcare space for at least 18 months. Not a single angel or vc has shown a scintilla of interest. He nevertheless persists and shows up at every imaginable investor forum or event he can find. Some part of me admires his determination for sure, but another part of me wishes he would take more stock of his situation. In his case, I think investors shy away from him for two reasons. First, his technology is too early and un-proven and he needs to show more proof of concept. But secondly, I think the investors perceive that he does not really care too much about returning value to them. He talks past them in conversations and the impression he leaves is of a person who isn't after building a long-term relationship in the least. He's definitely throwing off the vibe by everything he says and does that he wants to conduct his "proof-of-concept" experiments on someone else's dime- and it doesn't matter where it comes from- so long as it's not from his own pocket. He certainly won't put any of his own savings in the mix nor will he approach his family and friends. If there ever were an example of a friends-and-family-round, this would be it. Yet by insisting on relentlessly going after outside investors, he's signaling that he's all about OPM (other people's money), and that he does not have confidence in the outcomes. This is definitely not the right approach or mind-set to have if you are looking to raise money.
In my experience entrepreneurs with a sense of loyalty and obligation to investors have the right mentality. My experience is that most entrepreneurs who actually do get funded, in fact, possess this mind-set. Ones that don't seem to get weeded out right off the bat or at least after their first venture.
An extreme example of this type of commitment was shown by Ev Williams, (currently CEO of Twitter), who returned all his investors' money after his effort with Odeo did not pan out as hoped. He then gave all of these investors the opportunity to invest in his next venture, which happened to be Twitter! On a much smaller scale, a first-time entrepreneur I backed who's efforts did not pan out recently returned 2/3 of my investment to me though he certainly did not have to do so. It was an impressive gesture that took me by surprise and I'm very inclined to back him on his next venture.
Of course these last two are extreme and unusual examples. But having been on both sides of this equation (as an entrepreneur raising money and as an angel investor investing in other people's ventures), I'm merely pointing out that investors have a keen eye for whether someone they back will feel a keen sense of commitment to the investment and the investors.
Everyone in the early-stage ecosystem knows this is a super high-risk game and we're all big boys and girls after all. But if there's even a whiff of the general lack of concern about someone's else's investment on the part of a prospective entrepreneur- most investors will pick up on it right away.