Did you know investors are people too? Sure, some have earned their deserved reputation as “vulture capitalist,” but most are actually humans: they have their good days and their bad ones. Like my father said about important people, “They put their pants on just like you and me, one leg at a time.” So add investors to your task of picking the best people. And like choosing people as employees, do not compromise. Go for outstanding investors, only.
Here are some traits to look for in your investors:
· You would enjoy living with them a long time: Half a decade of endurance is required. That is how long you will face investors at monthly board meetings. Can you stand them that long?
· They come with more than money: You get people, not money, with a round of financing. Focus on people you want to give you advice and smarts, not just money. They should think the same way about teaming up with you.
· They fit your way of behaving and thinking. Culture fit. Chemistry fit. That is what this trait is all about. Basically, how well will you get along with your investors during the dark times?
· They understand what it means to be a manager of people: These are veterans of managing. They are not former consultants or bankers or lawyers. They are manager-wise. They know how to do RIFs, fire vice presidents, and tell bad news to employees. They know how your gut wrenches each bad day.
· They know how to get out of trouble: These people are skilled at repairing bad finance deals, re-negotiate caustic contracts, persuade customers to continue buying and keep strategic partners optimistic.
· Their character was shaped by very hard personal situations: They have made difficult choices when companies were nearing disaster. Their personal lives have often included near-death experiences (leukemia attacks a two year old, heart attack, auto crash, war wounds are some I have observed).
· They see the world from a special perspective: They have a special view of business and people. It was formed by their experience. They observe and speak in ways that make you think differently.
· They are deep in wisdom: In the real world, they have seen how people behave, what decisions work and do not, and how startups get into and out of trouble. They give you advice based on calculated thinking.
· They are ethical beyond doubt: They will share with you their difficult ethical decisions. You will have no doubt about their ethical responses to the tough decisions.
· They are startup clever: They know a lot about what makes a startup work and fail. They have formed strong opinions about what to do with new enterprises and their leaders to make them successes. They have outstanding startup records.
· They understand your industry: Industry savvy is not in doubt. They do not have to learn about what makes it special. They know the people and jargon and technology, customers and suppliers.
· They deliver: Be very careful what they promise compared with what they deliver. Most are well intentioned. Most fall short of the expectations of first-time founders.
EXAMPLE: When I serial entrepreneurs by asking “What made you successful?” they do not hesitate answering. This is a typical response: “I psych out the venture capitalists before I take their money. I dig into what their personality is, how honest they are, their quirks, their past history. I call everybody I can to find out who this person is that I will have to live with on my board of directors for the next three to five years.” Veterans say they live by that discipline. It was central to their string of outstanding new enterprises. Investors are people. Pick very carefully.
Tomorrow: Picking boards of directors