Two Fundamental Questions!?

One of the things that I always find fascinating having looked at over 200 deals in the last 10 years and having invested in 20 of them is that there are two fundamental questions that seem to go on during the exchange between entrepreneurs and investors; 1) How smart does the entrepreneur think he is? AND 2) How dumb does the entrepreneur think the investor is?

The most fascinating exchanges typically happen when the entrepreneur thinks he (or she, but mostly he) thinks he is the smartest guy in the room. He will typically try to impress everyone in the room with how smart he is and will strive to defend any point to the bitter end. They are often very impressed with themselves and with what they think they are capable of or what they have done before. Typically, they have had their 15 minutes of fame and will never have lightning strike twice… at least not with that attitude. The best exchanges have happened with folks that are experienced, confident and listen more than they talk.

The second question about how stupid those of us looking to invest might be is always an interesting one. Most entrepreneurs have ridiculous ideas of how far along they really are, how much money they really need and what it is all worth. Everyone thinks their business is worth millions, or at least hopes so, but very few understand or appreciate exactly what it takes to build millions in revenue and continue to build value. Typically entrepreneurs will have projections that are too optimistic and gains are not based on logical or defensible positions in the market supported by current market conditions and the real length of sales cycles.

The ironic thing about both of these questions is that either the entrepreneur thinks that the investors are dumb, careless or superficial (and some are) or you have to assume that they they don’t actually know what the correct scenario really is. Either way, they don’t get my vote, or my money. Educate yourself, become comfortable with the reality and the simplicity of your business model. Explain it to your mother-in-law. If she doesn’t get it, then neither will your customers or investors. If she does get it and wants to invest, then call me.

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