Investor: Are You Listening?
Listening, really listening, is hard.
Microsoft conducted a study last year showing that the mobile revolution has shortened human attention from 12 seconds in 2000 to 8 seconds today — even a goldfish (9 seconds) can hold a thought longer! (Link here.) The day’s tasks, constantly flowing content, push notifications… each of these makes it hard to stay focused, be present, and listen.
In his TED talk “We’re losing our listening” Julian Treasure comments that “the premium on active and careful listening has simply disappeared.” In her blog post Lisa Marshall makes the observation that “we practice tuning-out, not tuning-in.” We’re all listening less.
Losing our ability to listen affects how successful we are in our work. It affects how we interpret what’s said (or not said) and what we perceive or miss. For investors, not listening closely can mean missing that one opportunity that could have driven significant investment returns.
I try to be a good listener to be a great investor. A recent comment by a VC colleague — -“I keep hearing such nice things about you” — -got me thinking. I’m not going for nice. I try to listen out of respect for the entrepreneur and to do my job better: to discover what might be a diamond in the rough that will generate outsized investment returns. Our philosophy at Converge Venture Partners is to earn the right to invest in and partner with exceptional entrepreneurs. Reputations are built with every interaction, especially when entrepreneurs are pitching their businesses.
Our unconscious bias plays tricks on us, and focused listening can help us avoid the dark side of ‘pattern-matching.’ Bias is the dark side of pattern matching and in investing, relying too much on pattern-matching and not listening can be dangerous. Every investor has biases and, for instance, can look at that seasoned team as stuck in their old ways; at that young team as not knowing anything; at that woman as not pitching a big enough vision; the list is long. One way for investors to combat bias is to listen hard.
I’ve worked at being a better listener to try to really hear the entrepreneur. I try to be mindful of being present. Am I listening? No, seriously, am I really listening? Am I half-listening because I’ve seen 7 companies doing something similar? Do I think I know the answer already? Is my pattern-matching wrong because of my unconscious bias? Any of these might mean I’m not listening closely, so I try to work at not falling into these traps.
Being a good listener has other benefits too. By listening intentionally we can hear what is not being said, pick-up on the non-verbal cues, and perceive intra-founder dynamics. If I am not intent on listening and observing, I might miss subtle but telling nuances. Investment returns are also affected by the investments not made.
Two key criteria I look for in investments at early stages are: a solution that is meaningfully better than the current offerings AND a team who can sell the solution to their customers. At a first meeting with an enterprise software start-up, a co-founder’s articulation of the product and the value was pretty good. Then, at a follow-up meeting, closer listening helped me hear that he had only a peripheral understanding of the solution, despite his resume and pedigree, causing us to hold off on an investment.
Another benefit from listening well is finding a gem where an investor does not expect it. When my colleague, Ash Egan, came across SocialRank, it could have been easy to pass it over given the crowded dynamics of the social media analytics space. But meeting CEO and Co-founder Alex Taub later that week in New York, and listening to his company’s progress, product vision, and hearing how deeply they have been thinking about their customers’ needs, I was impressed, and shared Ash’s excitement. We moved forward with an investment and closed a few weeks later. Alex and his co-founder Michael Schonfeld are building a robust and differentiated offering that has big potential.
The fund-raising process is hard and mostly unpleasant for many entrepreneurs. If a prospective investor isn’t even listening, it’s frustrating and maybe even humiliating. To be heard feels good — -especially for founders going against big odds. Regardless of the outcome of a pitch, genuine listening helps investors build relationships in the entrepreneurial community and identify those off-pattern, unexpected investments that can hopefully drive big returns.