Sep 24, 2016 - 03:09 PM
The second, also related, would be the founders not having empathy for and understanding their users. As a founder you need to understand the key reasons that are driving adoption of your product, in great depth.
Lastly, I want to invest in people who are learning animals. This is a tough one to assess in the thirty minutes to an hour I have with a founder but it is absolutely critical. I don’t care if you are expert now but I do expect that you will be one in three years.
Sep 26, 2016 - 04:38 PM
Then of course there are the basics. You better know the market, have passion and be able to go off script if need be. The thing entrepreneurs need to know when pitching to an investor (and I’ve been told I am more honest than most) is most investors are going to keep it open-ended.
They say things like “this looks interesting” or “keep me updated on your progress.” I tend to let people know if it is a no and why it is a no for me.
Sep 29, 2016 - 08:57 AM
What you are trying to judge is does the entrepreneur have this reality distortion field around them and also a sense of what is possible? They need to be visionary and project 7 – 10 years and yet also grounded enough to say ‘here is how we start in the next 6 – 12 months.’
I’ll use Remitly as an example. Yes, it is a $600 billion market. Can you address it on day one? No, you can’t. It is not possible to even get licenses to operate in all of these markets, so what is a thoughtful approach? That is what Matt (the CEO) brought to the table.
He had a broad understanding but he took a Mckinsey-esque approach to dissecting it. This is a market where your success in the Philippines doesn’t carry over to Kenya. There is no overlap of the population so it is a separate customer acquisition education process.
So both execution without vision and vice-versa are turnoffs.
A second turn off is a basic lack of understanding of business models. I see plans where they say “In my third year I am going to have 78% net margins” or “I am going to drive $50 million in revenue and $42 million in EBITDA” There is no business in the world that yet we hear a lot of pitches that say things like that.
The third would probably be the entrepreneur not appreciating that venture capitalists have a business model too. We don’t know apriori which companies will be successful and so for every 10 investments we make, the one or two runaway successes must pay for all the failures.
We then price the valuations accordingly. If the entrepreneur is asking for $5 million and projecting a $150 million exit, I need to own a third of the company ($50 million) to get my 10 x or better return. Often, entrepreneurs view us as banks and think we can make do with 6% returns.
Oct 04, 2016 - 01:37 PM
- Not listening. If you can’t listen to me, you probably won’t listen to your customers either. This doesn’t mean you have to agree, but active listening is key.
- Not knowing about competitors which really just another form of not listening. If I know about competitors who tried this five years ago and you don’t, you haven’t been listening the market.
- This one is rare but occasionally, especially with young founders, you find people who are afraid to tell you certain things and get caught up in a story that isn’t entirely true. If I am in your house and I find one cockroach, there’s probably a lot more and so this is a red flag for me.
Oct 13, 2016 - 11:04 AM
I have to like you and you have to like me too! That is the way deals get done. You absolutely need to be able to say, “I want to work with this person for the next 10 years. I have been on one board for 17 years. So you really have to think of it like a long-term relationship.”
The other thing I don’t like is over-the-top exaggeration. Sometimes we’ll have an entrepreneur come in and say, “We’ve landed this customer, made this key hire or over-inflate something on a slide deck and think we won’t check.”
Nowadays integrity is even more important because you have all these big acquirers like Google, Apple or Microsoft constantly dangling tempting exit packages in front of entrepreneurs.
They might say upon an exit event, “Hey, would an extra $10 to $20 million be of interest to you? We know you have these venture capital firms but what if we give them 3x to 4x their money to keep them happy and then funnel the rest to you? In other words, let’s effectively change the cap table ex-post.”
This is a lot of money we are talking about and so it is really appealing. You want to believe that the person pitching to you will say, without any hesitation, “No, I signed a deal with this investor, and I intend to honor it.”