Why You Should Pick Your Investors Based On Their Failures
Paul Graham says that startups die for two reasons:
- They run out of money
- The founders give up
When I first heard that, I was ecstatic. Those were two things over which I felt I had complete control. Then, my sister was diagnosed with a brain tumor.
At first, working was a respite. I was spending long days at the office and longer nights at the hospital. I kept busy and, though it was stressful, it was a way to cope.
Originally, we had built a moderately successful product but never truly found product/market fit. We weren’t growing like we used to and we had been spending the last few months trying to pivot. By industry standards, we were an orphaned investment. Two weeks prior, my co-founder, and one of my closest friends, decided to go back to school.
Upon hearing the news, I decided to take a pause.
And ultimately, after taking some time and helping my family, I decided to return our remaining funds to investors. Simply put, it was not the time to re-start our startup.
This experience showed me how important it is to have the right people by your side during the tough times.
With co-founders and teammates, it’s more straightforward. You build stuff together. You build a relationship over time. With investors you don’t have 5 years to build a bond. Sometimes, you don’t even have 5 weeks. Yet, with both teammates and investors, you hope to be working together for a decade.
So how do you choose?
Each investor’s contributions are often placed under the umbrella of “value added.” Each is a “value add” investor and can do X, Y, Z (connections, partnerships, product, prestige, hiring, etc.). The list is endless. All of these are important but there is one crucial factor I recommend adding to the list:
How did they interact with the companies in their portfolio that failed?
You learn different things about people during difficult times and these are arguably more important in startups. It is easier to be a great investor when you don’t need to be a great investor.
You want the investor who you can email saying something happened, asking if they have time to meet — and seconds later they reply, “Call me.”
You want the investor who calls randomly to talk product when he is driving and then, after hearing news of a family member falling ill, starts emailing you youtube videos on different treatments.
You want the investor who sends you WeChat Gifs to check in.
You want the investor who recommends physicians, friends, founders, or family members to talk to.
You want the investor who, even after they just had a child, still emails frequently to see how you’re hanging in there.
Startups are hard; you know this. We often hear stories about how even the most successful startups had near death experiences. Every startup, regardless of it’s relative success, will experience hard times. How the team handles adversity, not success, will be the single largest factor in whether or not they reach their ultimate goal.
We often think about these characteristics when hiring but less so when choosing investors. We get distracted by the logos on their website.
So my best piece of advice is to go through those logos and find the ones that represent nothing more than memories and old t-shirts. Speak to those founders. They will provide a unique and valuable perspective.
Each of our investors took a chance on us, an opportunity that I appreciate on an intensely personal level; they invested in us, not just an idea. In addition, during an extremely difficult time, they provided me with the opportunity to care for my family. They have my loyalty, my heartfelt gratitude, and my friendship.
So, when choosing your investors, do your research. These are people you will be working with for the next decade. You want the ones who will be in your corner in good times and bad.
Thank You: David Tisch & Adam Rothenberg of BoxGroup, Dalton Caldwell, Aaron Harris, Brian O'Malley of Accel, Terrence Rohan of Index Ventures, Jessica Livingston, Paul Buchheit, Shana Fisher of High Line Ventures, Jay Zhao of Granite Ventures, Marcus Segal, Stephen Davis of Goodwin Proctor, Roee Adler of WeWork, Dave Morin and Kevin Colleran of Slow Ventures, Ben Li of Zillionize
