I get the question all the time:
“What kind of investor should we take..“
Well its really hard to say – I will go as low a making a small list of things that it depends on:
THE “How hungry are you for cash” TEST
1) Its too yearly – we dont need $
a) It would be fun to try – but we havent got a clue
b) We are confident and have an uncle who can help with the language
c) We have done it before and know some VCs
d) We are just teasing until someone talks to us
e) We are silly bad at selling but the product is HOT LAVA
2) We have quit our Jobs (if you ever had one)
a) and forgot to raise (product ate the attention)
b) we heard it was so easy / but shiaat…
c) running this so much more exspensive the we thought
d) we are selling a bit and have interest
e) my partner Joe can pay the kids school
3) We are burning CASH IKE HELL and the end is near/here
a) The investor are smoking us out
b) the big client is delayed
c) my Grandmothers money is gone
a) My Car is gone
b) My house is gone
c) Im thinking about robbing a bank
d) We have already fired 50% and rent is an issue
e) Things r A OK – but we think 9 mothers can deliver a baby in 1month
f) The VCs are at the door – so why not
e) The big Ass VCs have started their Electric Jets
f) We are GOOD – and it “Fuck You Money” time…
When you have gone trough these questions 5 times – and added 10 new points (please put them in comments underneath). Then you will have a fine clue – weather its the local drug dealer or the big boys from Accel/Kleiner/DJF’s of the world – you should talk to. There is not that much difference :) (did I just use a smiley).
Advice on investors
No matter the size of the deal – its all about chemestry. Find someone you really respect HIGHLY (dont need to be a new best friend – that will only happen if you make an exit and become richer then him). But think about the fact that you will 99% (for sure) go trough REALLY UGLY SHIT TOGETHER – burning his money and your name/brain/vision/youth or marriage…
On the other hand – if you cant get the one you love – then love the one you can get. And get moving – speed matters and fundraising takes all your time (away from PRODUCT – SALES SALES SALES & MARKETING). Off course you should not give your company shares away – but dont shop too long. Get a good lawyer – or take a VC that dont want TOO MUCH BAD PUBLICITY if they fuck you.
IMPORTANT NOTE: VCs are my friends (I will be one again – one day) and I love the Venture Capital model – its where I work every day!!! I really thank the american foudners of venture capital – otherwise we would not have has this very sophisticated investment climate and ecosystem).
But some VCs and specially old school private Angels – they steal companies.
All in all I think you can do the math on mytest on top – and see there are endless stages – and therefor there are endless number of investor types. But somewhat Most important is:
1) Does HE have the MONEY and POWER to invest
(quite some funds cant fundraise them self now – and some (specially associates/juniors) at the VC funds pretends to be Warren Buffet – with the attitude of Godfather. And those guy cant even buy you an Ice cream without asking upstairs.)
2) Does He/She look like an idiot
(then he probably is)
3) Does He/She Understand Your Idea
(some dont – but if they are nice..)
4) Can He/She SELL
(most cant – they are money nerds who lured the trick of starting a fund – while everyone else in the class tried to build a business. And VCs are important when/if you want to SELL the Company – but also when you have to raise ore cash. Sales skills are required. You dont want an investor who are not friendly with the bigger fish in the foodchain. And He/She even has to be able to sell this to his partners)
5) Is He/She Trustworthy
Dont be afraid to ask for references and call most of the people they say they know – be extremely hard on EVERYTHING that He/She promises in the beginning (just like girl/boyfriends) – here you need it on paper. And dont be shy to demand A LOT – specially from the non MONEY PART. They wil try to get in as cheap as possible (well thats the game) – but you have to put all the promises you get while they are talking down the price – into the contract.
CONCLUSION: There is no rule – its all one big illusion game. And my only real advice is to inform everyone about your weeknesses and be clear about the fact that this is HIGH RISK. The only thing you can give away is your word – so be carefull and act with all the possible honesty you can.
If you fail (and sometimes you do – its a huge part of the game) – very soon after you will be back at the knocking the same doors.
NOTE2: I think “The Social Network” Facebook movie – gives the wrong impression of how companies are build – ists a movie it is NOT REAL and IT HAPPENS PRETTY SELDOM that things fuck up so hard. So dont be scared.
Gosh – that became a long one.. And sorry not to publish more often – its just crazy busy here … See you soon.