No Pansies Allowed: Why You WANT VCs Who Ask Tough Questions

Posted on July 14, 2010
Filed Under Entrepreneurship | 5 Comments

If I pitch a VC and they don’t ask any good tough questions, I’m not sure I want to take their money.

Let me say that again. If I pitch a VC and they don’t ask any good tough questions, I’m not sure I want to take their money. I bring this up because the more fundraising I do, and the more questions I get asked by entrepreneurs who are trying to raise money unsuccessfully, the more I realize that they are looking at this all wrong.

Hard questions are a perfect example of something entrepreneurs don’t like. People complain to me regularly about an investor who asked this or that, and how bad it was. But really, you want hard questions, for a few different reasons.

1. You can tell a lot about a person from a hard question
If someone asks a hard question mainly because they want to be a jackass, you don’t want that person on your board, so now you get to rule them out. You can usually see these questions because they have some complicated issue that any investor who really understands where you are would know is irrelevant at this stage.

If it’s a good hard question, it tells you a lot about where that VC sees the risk in the business. And THAT IS A GOOD THING. Do they see market risk or technology risk? Are they concerned you can’t become big enough to justify VC $$$, or are they concerned you are going to miss the boat?

Overall, a hard question lets you evaluate the asker. It shows the perspective and experience they bring to the idea, and it can often reveal how well they understand the market you are in. You don’t want someone who asks hard questions just for the sake of asking hard questions, but you want someone who shows that they understand your space and they aren’t afraid of the hard issues.

2. It’s good to get the hard stuff out on the table.
You don’t have to know all the answers. If all the answers were known, some slow ass Fortune 500 firm would be doing what you are doing. By getting the issues out on the table, you can see if you and the VC agree on the main risks in the business and can focus on mitigating them early. Risk doesn’t scare good VCs. Their whole business model is to place risky bets on risks they think they can beat. What scares them is when you aren’t acknowledging the risks you need to address.

3. Hard questions will push you.
If you are going to do a startup, you will be pushed on from all sides, in all kinds of ways. If a hard question gets you out of kilter, maybe you aren’t cut out for it. If someone joins your board and then doesn’t challenge you when things are going poorly, that isn’t good for you or the company. You want the hard questions. By making you uncomfortable, they force you to search for solutions.

In general, the lemming like behavior VCs display is shocking if you haven’t been part of the VC world before. That’s why you need to avoid so many VC firms, and why they have a bad reputation. You don’t want lemmings. You want independent minded people, the people not afraid to ask hard questions.

When Backupify raised our last round, part of what I liked about both the firms that invested (First Round and General Catalyst) is that they both came to us independently, and neither cared about who else was in the deal. They were both willing to pull the trigger and make an investment without another firm being invested. And yes, they both asked a few hard questions.

And that is what you want. You really do get married to your VCs in some ways, and while most of the time things will be good and you will have a lot of fun, you want someone who cares enough to ask the tough questions when things are going badly.

So if you pitch a VC and you get some hard questions, don’t get mad. In most cases it is probably a good sign.

How The HyperNovelty of Online Media Is Building a Generation of EntrepreLosers

Posted on June 20, 2010
Filed Under Critical Thinking, Decision Making, Entrepreneurship | 3 Comments

They don’t intentionally lie to you, it’s just part of the game. The new new thing is always more interesting than reality. That is why the stuff you are learning is mostly crap.

I hear it regularly, as people tell me their business ideas that show a total lack of recognition of what business is all about or how it works. And I’m blaming the media (aren’t they always the scapegoat?).

You see, hype and novelty always triumph in the short term, so when you live in the short term, you build your ideas around hype and novelty. Let me provide you an analogy. I used to play basketball at an open gym every Saturday where, every week, the “kids” (15 - 18 years old) took on the “adults” (25 - 55). It never started that way, but at some point in the day the kids always wanted to take us on. They never won. They always wanted to play because they couldn’t understand why they could never beat us.

They had flash and pizazz. They were more athletic. They had more energy. They watched Kobe and they thought they were playing his style. What they never understood is that, at most levels of basketball, flash and pizazz doesn’t win games. The older guys (granted I was on the younger end of the “old” spectrum) always played like a team. We did very basic stuff that was basketball 101: pick and roll, give and go, blocking out - nothing flashy at all.

Everyone wants to be flashy. Not just in basketball, but in business too. Of course, you wouldn’t read boring but useful business articles, so the business media writes about the new new thing. They cover the flash stuff. They cover novelty. The problem then, is what you read is more a reflection of its novelty value than its underlying business value.

That is my point. If everything you are learning about business comes from online media, you are probably learning mostly crap.

The reason I am bringing this up is because I never realized the extent of the problem until I got plugged more deeply into the entrepreneurial community after Backupify took venture capital. Now I know many more entrepreneurs, and I know too many people who think their business should be run like Twitter. They don’t realize Twitter is the outlier, not the norm.

So when I say “entrepreloser” I don’t mean it in the derogatory social sense of “loser”, I mean that your company is going to go to a big fat 0 because you aren’t focused on the right things. The incessant need of online media to present novel business ideas, and the obsession with outliers instead of the norm, are creating a generation of people that know all the wrong things about business.

Your body is healthier if you seek out the right things to eat rather than consume whatever it is that is pushed in front of you. Your business mind is the same way. You are what you eat. There is a Buddhist saying that “the mind is everything. What you think you become.” So think the right things. Turn up your filters. It’s noisy out there, and sometimes all you really need are the basics.

Heading to SXSW

Posted on March 8, 2010
Filed Under About | Leave a Comment

If you are going to be at SXSW and want to meet up, let me know. I’m there Thursday through Monday.

keep looking »