David S. Rose’s opinionated views on the early stage ecosystem.
When I began raising outside capital for Ex Machina, my first venture-financed deal, I was convinced that the concept of wireless connectivity software was a sure-fire winner that would be obvious to anyone who looked at it. It came as a bit of a surprise, therefore, that although VCs were almost always polite and encouraging, there was a very big gap between supportive talk and actually getting their money in the door. Like most entrepreneurs, I took my business very personally—a virtual extension of myself—and perceived rejection by potential funding sources to mean that they didn’t like me (because, of course, the idea and the company were perfect!)
This personalization of the capital raising process accelerated post-funding, when we needed to go back for follow-on rounds. By now, the investors knew the company well, and they knew me even better. So when it became clear to me that we were thisclose to a home run success if only we could bring home just one more round of financing, that fact that an existing investor was prepared to see the company fold, rather than re-invest, could only mean one thing: they had a personal vendetta against me. Was it because they didn’t like my hair color? My religion? My New York speech patterns? Did they have a problem with my politics? My family? The schools I had gone to? Whatever it was, it was clearly THEIR issue, because I knew it wasn’t the company’s situation, and it certainly couldn’t be me, could it??
After fifteen years of pure, full-throttle entrepreneurship during which I raised many tens of millions of dollars from more than half a dozen venture capital firms, I branched out and began investing in other promising entrepreneurs as an active angel investor. Now that I’m on the other side of the table, I see a much different picture: YES, it is all about you, but NO, it is not in any way personal.
Having heard hundreds of pitches over the past five years, and invested in dozens of companies alongside of dozens of other angel and venture investors, I can’t think of a single case where I (or another investor) did [or didn’t] invest in an entrepreneur simply because we did [or didn’t] like him or her! Indeed, I have a number of investments in which I personally think the CEO is a jerk, and I have passed on many, many opportunities where the entrepreneur was someone I would have been delighted to invite to dinner.
What, then, makes the difference? When I look at a potential investment I try as best I can to figure out if this particular entrepreneur has what it takes, in this particular case, to create an enormous home run. Whether or not I find him or her personally attractive, I look for things like integrity, passion, vision, domain expertise, startup experience, leadership qualities, functional skills, ‘coachability’ and other factors that directly affect the enterprise in which I’m being asked to invest. I then look at this entrepreneur in light of the business plan, the market, the team, the product, the traction that has been achieved to date, the potential upside, and all of the other factors that go into the magic stew of a successful startup. And it is only in those rare cases, fewer than one in a hundred, where everything comes together, that I commit my own time, energy, money and passion to helping launch what I hope will be the next potential Google.
The bottom line? It’s not personal…”it’s only business”.