Investing in Your Investor: ’Til Death Do Us Part
To begin with, allow me to provide a bit of context…for the first fifteen years of my career I held jobs as a trader/portfolio manager at a global-macro hedge fund, a large money manager, and an international bank. My first day of work on the options exchange in Chicago (CBOE) was on 9/11. I traded mortgages throughout the mortgage crisis. I built several business lines and managed multi-billion dollar portfolios. And throughout this time I would sporadically invest in startups with very spotty success. Bottom line…I have been around, seen quite a bit, and dealt with all the worst kinds of sociopaths. The ones who wouldn’t physically kill you, but just destroy your soul. Hence, the life of a trader became tiresome and riddled with a kind of stress that I no longer wanted to be involved in.
About a year ago, I decided to switch paths and have been doing CFO-consulting for startups both non-profit and for-profit ever since. It has been difficult at times with many unanticipated bumps along the way, but I am doing good work and am happy. I no longer take home anger and stress, my volatility has basically been reduced to nothing, and I’m truly proud of the work that I’m doing.
A while back a colleague of mine forwarded along an invite to a morning meetup for entrepreneurs, founders. There was very little information on the actual invite regarding the context of said meetup, except for notification that said something to the effect of ‘Breakfast will be served and pleasantries and thoughts will be passed around’. The entire event, hosted by a VC at a co-working space, seemed to be generally good-natured upon first glance. I arrived at the event and made a Bee line for the coffee. It was shit, but at least it was hot. There was a decent spread of fruit as well as some breakfast sandwich halves that looked fairly seasoned, which I shied away from. Upon a quick survey of the room I sat down at a table of around twenty men and women, and introduced myself to some folks who seemed to know one another. Turns out they were a startup out of DC who came all the way down here just for this breakfast. Each one had taken down a full sandwich and were working on thirds (Might as well get your money’s worth while you have the chance, I say). The entire team was very nice, and actually listened instead of waiting to chime in…so far so good.
A few minutes in we were interrupted by a sharp clinking of metal to glass, as a woman (our apparent hostess) in the center of the table began loudly banging a spoon into a water glass. It was instantly awkward, and I was immediately transported back to my prepubescent days of cotillion and the aged teacher with castanets. Once the clinking stopped, our hostess went into what seemed like an interminable monologue of her past achievements (sold her company for “loads of money”), her current projects (forming a venture fund), and why we were all there (bring startups here, have them tell me their business plans, pretend to offer advice, vet them for upcoming venture fund…actually, this was pretty explicit). It’s been less than five minutes and I’m already starting to not really like this person. Somehow, in the brief time that I had come to be in her presence I became consumed with the notion that she disagreed with me on a personal level.
At this point, she laid out the structure of the rest of the meeting in which we would go around the table and introduce ourselves, and describe the problem we were facing with our startup. Then, the group would commiserate on potential solutions for a couple minutes, and move on to the next individual. Knowing that I produced absolutely zero value-added to my host’s budding venture fund, I realized that I was grossly out of place and that she was bound to be none too happy about my presence. With about twenty people sitting around the table, the pitches began in sequence and I was third in line.
The first Founder began their spiel. The business was forgettable. Something to do with people and things. Same with the second. People and things. Admittedly, either of these ideas could have been the next Snapchat and I wouldn’t have given it a second thought, as I was focused on my imminent crucifixion from our host (VC). The second Founder finished and all heads turned to me, the schmuck in the suit (The only other ‘schmucks being the minions of VC). I began speaking very candidly about the fact that I was invited to this event by a friend who gave me no fair warning as to the context, and that I might be completely out of place. People laughed (all except VC) and seemed to appreciate my predicament. I was being honest and without ego. I went on to give an abridged version of my biography stated above. It’s a good story. An inspiring story, really. Ex-Wall Street trader switches careers at the age of 39 (it was my birthday the day of that meeting) to do CFO consulting for non-profits. Is it getting a little dusty in here???
Thirty seconds in I was sharply interrupted by VC.
VC: “Excuse me, I’m confused. What is your company??”
Me: “Well, my company is my consulting company that I’ve started.”
VC: “You can’t be here!!”
Me: “I don’t know where HERE is! I have already stated that I am not sure I’m supposed to be here.” (chuckles from the crowd)
VC: “This meetup is for Founders only!! You shouldn’t even be here!” (no more chuckles…people have begun to shift uneasily in their seats)
Me: “That’s fine! Would you like me to go?? Can I finish my coffee first, or would you be more comfortable if I just exited immediately?”
VC: “No, you can finish your coffee, but you just can’t speak and/or ask any questions…”
My pulse had quickened and was elevated. I could feel lower back-sweat seeping into my shirt and beads of perspiration on my brow. And there was anger. Significant anger. I did not like this woman. In fact, everything about her pissed me off, and I was instantly transported to a number of different scenarios in my life that had produced similar reactions. The time in Princeton when Alan Blinder kicked me out of his empty office during his office hours because I wasn’t a student. The time at the money manager when I confronted my boss who had hired a recruiter to find my replacement. I was let go two hours later and four years later she was convicted of fraud, kicked out of the financial industry, and fined $150,000. The time at the investment bank when my boss, who was hiding millions of dollars in trading losses, blamed the losses on my partner who was subsequently let go without cause.
I closed my eyes for a brief moment and took a long, slow breath. I slowly sipped my bad coffee. Calm down, Adam. Calm down…
Three more Founders presented with slightly more interesting pitches. The team from DC (something about housing and builders), one Founder doing a Bot, and another trying to compete with Bloomberg Financial. The irony being that I could actually have given this Founder some good advice had I been allowed to speak. With my coffee finished, I turned and shook hands with my new acquaintances from DC, wished them good luck, and quietly exited the room. Happy Birthday, Adam.
In the weeks that followed, I reflected quite a bit on the events of that day and what, if anything, do they mean or suggest about people in the startup/VC industry, in general. Maybe nothing more than some people are assholes. Maybe I was just being too sensitive at becoming one year closer to 40. Maybe sometimes you just have bad experiences. Any of these are possibilities, but I think there are some valuable lessons to be learned here for Founders and those attempting to raise money for their respective companies. And most notably of these lessons, which is often overlooked: Choose your investors wisely. I understand that this may sound like an odd and somewhat difficult statement to digest (especially when one is in need of cash), but it is so so important. A founder should look at an investor as someone who can act as an ambassador to the company, and not just a source of funds. And this will ALWAYS be the case. If, say for instance, one of your investors is at a social gathering and is acting particularly obnoxious and offensive. At some point during the evening he/she mentions to several people about having invested in your company. Well, in this instance, they have now pulled you AND your company into the fray. They are a reflection of you and your judgment, and both parties have been intertwined indefinitely. YOU made the decision to join forces with this individual and this decision is on you.
In essence, each investor you choose (especially in the early stages of your company) is a long-term relationship. And it is one that you will have to live and deal with throughout the entirety of your company. So choose wisely and be judicious. I understand that the need for capital often trumps the necessity to be discerning, but these are the important decisions that a CEO/Founder has to make for the betterment of his/her company. I have worked with some startups that have brought on strategic investors who have helped forge massive partnerships with clients and greatly added to both revenue and brand. And I have worked with other startups whose relationship with their investors had become so degraded and cantankerous that the founders had threatened to basically cease operations in order to restructure existing agreements that were initially predatory. Obviously, not an ideal scenario, but one that does often occur when one side feels that the other adds no value or just detracts from progress.
Going back to the breakfast meetup, VC gave every founder in that a room a brief glimpse of what it would be like to have her as an investor/influencer in their company. I mean, really just laid everything out on the table and showed all her cards. Here’s what I’m like and here’s how I treat people. So, if you make some kind of business decision that I don’t agree with we WILL have problems. God forbid, she actually puts in a sizable stake, and tries to exert as much of her influence as possible…
And the last, and perhaps more important, lesson in all of this is: don’t be an asshole. In an interview with VC/entrepreneur Mark Suster on ‘This Week in Startups’, Jason Calcanis stated “It costs you nothing to be graceful. It costs you nothing to be considerate.” It’s difficult to understate these words. This world (and any particular industry, for that matter) has been made infinitesimally smaller over the years with social media. Everyone knows everyone or they have a friend who knows this or that person. And at the end of the day, all we have is our reputation based off of how we treat others and how we conduct ourselves. And I assure you that this will precede us ahead of our checkbooks.