Smart Investors Evaluate How You Start a Company (or Project)
Many of the people that approach me with projects or new companies have ideas about getting feedback, money, effort, or something else from me. As a person with an entrepreneurial spirit, I give out a lot of “free advice” and help with matchmaking with the expectation of little in return. I do this for many reasons that I won’t explore today.
But, as an investor, I am watching your intuition. When you negotiate deals, is your aim to maximize your benefits at the expense of others? When you setup projects, do you consider the best interests of everyone in addition to your interests? If the answer to these questions is ‘no’ then I can see you in a career as a transactional trader on Wall Street but I’m probably going to shy away from investing in your project.
Your negotiating intuition is my window into whether you have an exploitative personality. Turn the tables: if you are investor in my company and I need to work 100 hour weeks to make the firm successful, if you want to own 99.9% of the firm (and I get virtually nothing) then why would I do this? Thus, as a rule, investors need to let founders keep a large percentage of a company so that they have incentive to keep working at the company and using their talents to build the firm.
Similarly, if your hiring plan indicates that you expect to get a lot of work out of skilled employees for nothing. Or, worse, you intend to trick them into believing they have something when they have nothing, then what should I think of you? I know of many cases where this has happened, but I prefer deals that aren’t dependent on the founders being pigs.
This investing strategy isn’t really about idealism. It’s evolved over time as I realized that deals aren’t purely transactional, they are part of a repeated game. Stronger people do not need to exploit. And, as a founder, if it means that you only end up with a BMW instead of a Ferrari, I expect you to suck it up and realize that you probably made the big picture mistake that resulted in that outcome.
