A simple 2-step process to protect you from bad investor advice …
A couple of years ago, I was approached by a serial founder. She was ready for success & had found the right opportunity: partnering with an existing startup that had great tech, but needed a capable biz lead.
I was excited and said I would lead the round.
Then, the disclosure: they had legacy investors.
So, I met up with them … IMO, they represented zero value-add.
I pulled out.
There’s no room for baggage in a fast-growing, early-stage startup.
In a 2007 US study of >3k angel investments, there was a bias to success for startups that engaged with their investors.
There was an even stronger bias when the investor had domain expertise (perhaps, they had made their money in the same industry?).
But, the bias isn’t strong, and a similar UK study from around the same time even warned:
failure was greater where investors were perhaps too involved
Does this explain why I’m ‘hands off’ with the companies I’m invested in?
Nah, I’m just lazy …
Taking on an investor is like taking on a long-distance relationship: it’s a lot more difficult — and, nowhere near as romantic — as it seems.
I have a simple 2-step process to protect you from bad investor advice:
Firstly, meet with any aspiring investor (once you’ve completed the suck-up-and-hope-to-hell-they-want-to-invest bit) and apply the Beer and BBQ tests (created by the founder of 1800-GOT-JUNK):
I developed what I call the Beer Test, narrowing interview questions down to one: “Would I enjoy grabbing a beer with this person?” It’s a hypothetical (most of the time), but it’s incredibly powerful. If the answer is yes, it’s likely the start of a great working relationship … the Beer Test determines if the candidate [investor] is culturally compatible. Sure, it’s simple, but it cuts right to the chase.
The BBQ Test is all about the group dynamic. It’s a matter of asking, “Would this person fit in at a backyard barbecue with my corporate ‘family’?” If you threw the candidate into a group social situation with other employees [&investors], would she be able to hold her own, or find someone to connect with?
Would you have a beer with me and invite me to your next BBQ?
If so, shut up & take my money!
