Yes, Checks…But Also Balances. Provide Honest Feedback to Entrepreneurs.

I recently met an entrepreneur who was working on what he seemed over-excited to label a ‘crazy idea’. My team at Lux routinely invests in ‘tech rebels’, the misfits and technology contrarians who challenge the status quo, and create the future. We are not scared off by ‘crazy ideas'.

But unfortunately this idea was more bad and half-baked than crazy. It was in a technically complex space, but there were lots of badly thought through assumptions in the business case, and not enough details were flushed out. The optimism was not only apparent, but also over the top.

While it was clear we would not invest in the company, unfortunately I also felt this was one of those ideas that would get funded by someone in the current investing climate. I provided feedback to the entrepreneur on some specific things in the plan, but as a parting thought I also asked the entrepreneur to think and then rethink if he really felt he should commit the next 5–10 years of his life to this plan. It was tough to do that. I didn’t want to crush his dreams. But I also wanted to give honest feedback that could help him.

Below are some more thoughts I shared on twitter on the current financing landscape, and the need for investors to provide more honest feedback to entrepreneurs.

  • These days early stage VC $$ are flowing like wine/LaCroix. Everyone wants ‘in’ on the game. And many want to invest in ‘crazy’ ideas.
  • The +ve is that entrepreneurs chasing difficult technical problems are finding the $$ support to pursue their ideas. It’s awesome.
  • But there are also some with less than half-baked ideas that ideally should be getting critical and constructive feedback, but are not.
  • Investors not providing critical feedback to entrepreneurs, when it makes sense, are not doing them a favor. It’s a disservice.
  • It’s not whether you can raise a hyped seed round with some celebrities, or got someone to bite on a Series A with FOMO, that matters…Those $$ might represent just 1% of their fund. For you, it’s 5–10 years of your life. Do you have the right model, the right team?
  • Have you considered the risks in the business? Can you alleviate those risks in time/money you have planned for?
  • Ask yourself tough questions. Expect investors to ask tough questions. Make them ask those tough questions. Learn as much about your industry and business as you can. Of course be an optimist, and want to change the word. Challenge assumptions, status quo.
  • But maintain a high bar for yourself, and others you talk to. Don’t let early stage money flowing like wine fool you. Or get you drunk.