Entrepreneur Office Hours - Issue #139
Who wants to raise some $$$$$?
You may have noticed I write a lot about raising venture capital. It’s not because I have a huge affinity for VC. I don’t really dislike it, either. I mostly just write a lot about VC and fundraising because it was such a big mystery early in my entrepreneurial career and I want to do what I can to demystify it for other entrepreneurs.
In this issue of EOH, I take another couple steps along that path, with two articles about VC and fundraising. I also answer a reader question about my favorite investor.
So… yeah… lots of fundraising advice this week. I hope some of you find it useful.
Taking investor money isn’t necessarily a bad thing, but I promise it’s not what you think.
Have we all been starting our fundraising pitches the wrong way? Unfortunately, I think the answer is “yes.”
Office Hours Q&A
You’ve worked with lots of investors. What’s the favorite investor you’ve worked with and why?
I’m not looking for specific names or anything like that. More curious what makes investors good.
First of all, without a doubt, my favorite investors have always been my angels. Even in my companies that have failed, I still speak with some of my old angel investors. Definitely can’t say the same about my institutional investors. Haven’t heard from any of them since our last professional conversations.
To be clear, I don’t blame them. And I also recognize that a phone works both ways. I could just as easily call them as they could call me, and I’m sure they’d be happy to chat. But, for whatever reasons, my relationships with my institutional VCs were always much more professional than personal.
In contrast, my favorite investor is an angel I still regularly grab beers with even though the company he invested in hasn’t existed for nearly a decade (and he lost all his money). So what’s going on? What makes him my favorite and why?
In a word: friendship. To be clear, the investor and I didn’t start as friends, but, over the course of our time working together, we became friends. Because we were friends, anytime I went to him for advice, the advice he gave was always with a goal of helping do what was best for me.
That kind of advice was great. I always felt like I could trust him more than any of my other investors. As a result, I often sought his opinion before everyone else’s.
But… and it’s a HUGE but… in retrospect, the thing that made him my favorite investor also probably made him one of my worst investors.
I think part of the reason my relationship with my institutional investors always stayed professional was because an institutional investor’s responsibility is to a fund rather than to entrepreneurs. In other words, the job of VCs isn’t to do what’s best for their founders. The job of VCs is to do what’s best for the companies they’re invested in. It’s a lot harder to do that if you become friends with your founders.
I realize this answer probably isn’t what you’re looking for. However, I hope it challenges your thinking. While we all might think our “best” investor would also be our “favorite” investor, those two things aren’t necessarily correlated. At least, they’re not positively correlated. Your best investors are probably the ones who prioritize the needs of your company above everything else. But your favorite investors are probably the ones who feel like they’re prioritizing you (even if it’s at the expense of the company).
Got startup questions of your own? Reply to this email with whatever you want to know, and I’ll do my best to answer!