By: John Cambier, Managing Partner
In working a prospective new investment recently, I was reminded that a VC’s process of considering a company/founder/CEO for investment, and their considering from whom to take an investment is, essentially, a courtship. To extend the metaphor, you are going through a dating process to decide if you want to get “married”. Sometimes these interactions lead to a union, but most times they do not.
Whether you’re the investor looking for the right company or the entrepreneur looking for the right investor, there are going to be a lot of “first dates”. One material difference in how the investment dating process differs from an actual dating process is that, with few exceptions, there is an inherent imbalance in the power dynamic between the investor and the entrepreneur. Generally speaking, it is easier to be the person with the money than the person looking for it (I’m reminded of this every time we go out to raise a new fund, by the way). As the investor, I know I have been guilty at times of abusing this power dynamic; not via intentional or malicious actions, but in some of the more subtle, yet important ways in which I interact with the person on the other end of the pitch. It is important (for me) to keep in mind that, regardless of any real or perceived power imbalance, I am being evaluated by the entrepreneur at the same time that I am evaluating them.
As with an actual first date, we’re both trying to quickly size-up the person on the other side of the table/zoom/phone to determine if we want to get to know each other better. In my case, I’m probing as much about the business as I am the entrepreneur. [While I agree that early stage investing is more about the people than the idea, I just can’t bring myself to back a founder that I really like if I don’t also like the business they’re pursuing.] The entrepreneur, on the other hand, is trying to determine if: a) I’m a jerk (see above) and b) I know anything about their business and/or are at least asking good questions.
While this process is transactional, it is also relationship building, and I’m better at the former than the latter. Given the number of “first dates” that I need to go on and the low percentage of which will lead to a follow-on conversation, I need to get as solid of an understanding of the team and the business as possible during that first interaction. What I need to avoid in doing so is turning an exchange into an interrogation. There is a person on the other end of the line, and what we’re discussing is something of pretty great importance to them. Tone matters and so does the manner in which a question is posed, and I can improve on both.
Circling back to the actual dating world, I’ve always been amazed and put-off by people who are completely different when they’re wooing a date (or prospective date) versus when they’re interacting with friends and associates. “Ugh” I’ve thought, can’t (that person) see through the act? Judging by the (short-term) success of such a playbook, I’m guessing they can’t in many cases. I have to think the same thing happens as part of the VC/startup courting process, though my visibility into those interactions doesn’t extend beyond the walls of my firm.
I, on the other hand, am much more of a WYSIWYG person; what you see is what you get. This isn’t always the best for me in the short term, but I think it’s better overall as you’re not going to get surprised. For better or worse, I call things as I see them and you’re not going to have to guess whether I like something or not; from Day 1. I’ve found that most entrepreneurs, and certainly the ones I’d like to back, aren’t put off by this as they’re: 1) confident in their own abilities, 2) have a solid grasp of their business model and competitive environment, and 3) are willing to push back when appropriate and make their own decision regardless. I realize that my questions and ideas aren’t always the right ones and that I have things to learn from the entrepreneur as well. One of the best things about my job is how much I get to learn through these exchanges with entrepreneurs on a weekly basis.
So what’s my point with this post? My hope is that in drawing the analogy between dating and the startup/VC fundraising process, I’m drawing attention to the human element of the latter. As I work the process and try to quickly and accurately evaluate a company, I should be thinking not just about the questions I’m asking and answers I’m getting, but about whether and how the interaction is building a positive relationship. It’s not just the VC that is looking for the right match, it is also the entrepreneur, and the good ones have options.
