Play nice: some thoughts about chemistry with your investors

I thought I should write about this because we had a distinct lack of chemistry with a very (intellectually) smart entrepreneur recently and it got me thinking…

One of our principles at Episode 1 is we like to be frank. I know having been an entrepreneur that the feedback from prospective investors tends to be a permanent maybe, and that sort of feedback is frankly time wasting and doesn’t help you improve or get you funding.
So at Episode 1, we aim to be frank with everyone that pitches to us – it’s a form of tough love, I guess, and our aim is to be useful even if we are saying no.
Throughout my career as an entrepreneur, angel and now VC I have very very rarely seen potential investors telling entrepreneurs they don’t like them or the way they pitched. It’s just easier to give a polite brush off such as “you’re too early” or “you’re too late for us”, than to say “hey, I don’t like the way you act” or “the way you ran that meeting”. But be aware that can often be how they are thinking.
Therefore, as you go round and pitch to lots of investors, you don’t tend to get the feedback you need if you are not coming over right.
So from time to time, I throw the VC rule book out and advise people to be nice. For example here’s part of an email I sent recently:

But you are going about things the wrong way with emails like the one below and with some of your tone in our meeting. You are much more likely to raise money if you have some humility to realise that it is a two way street. Everyone does things for their own reasons and most investors have a very large number of choices they can make. Angels tend to make decisions based on their gut feel. VCs have to answer to their LP investors and report on their investment decisions every quarter for many years going forward. One of the important aspects for a VC which is hardly ever broadcast is that we need to be very confident that we are making good decisions on the people and especially the CEO of a business.
So the consequence is that in every interaction with an entrepreneur we are assessing whether we want a relationship with you for the next 5-10 years. It’s not just about the idea – it’s even more about how we feel about the people.
Your latest email is all wrong at the stage we are at in the process. You shouldn’t be effectively forcing us to change our standard terms (or just say no) when we have had one meeting and haven’t even decided if we want a second meeting yet. Terms negotiations should be much later if both sides are interested in doing a deal.
Also in our meeting, your overconfidence given the state of the product and what you have achieved with the angel money came across quite a lot. In the meeting we were trying to work out some very initial thoughts of what we would do in your shoes with the product features and go to market strategy – that’s part of the fun of being a VC, we like to try and help you on your strategy and again we are assessing people in that process. Frankly we want you to listen to our thoughts but ideally have answers for lots of them, and then have the judgement if they are new ideas to you to think through whether our ideas have merit or have a good reason for not having merit. These interactions are all part of the assessment of people.
In our meeting, the details on the product road map and what you have to deliver for the two initial clients all sounded very vague. Also when we asked about unit economics, you just said sharply it’s all in the deck (as if we have memorised your deck), and in fact it was outlined in the deck but wasn’t particularly clear.
So the tough love is to say: when you meet investors, be the sort of person we would want to work with for the next 10 years. I think then you will have more chance of fund raising success.

The headline then is that we need to believe we want to work with you in the long term. Of course, some incredibly difficult entrepreneurs make huge amounts of money – Steve Jobs and Jeff Bezos being two very good examples. So I’m not saying you have to be sugar sweet all the time – that’s a turn off too, but in the first few meetings with anyone you really do have to get investors to like you and believe in you, so be a bit nice, hey.
PS it’s not a perfect fit for the message above, but here’s a longer clip of Toy Story which is so good, I had to include it 🙂


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