There is a popular fable that provokes the question: Why can a rabbit outrun a fox? The answer is that the fox is chasing a meal, but the rabbit is running for his life.
Through the lens of entrepreneurship, never forget that your investor is the fox, and you are the rabbit. The investor is chasing a meal. You are running for your life.
If you’ve already started your company, you’re probably well aware of the “running for your life” sensation. Your company is your business card — your identity. It not only represents your financial upside but also embodies your being.
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You’ve recruited your friends, called in endless favors and obsessed about the weirdest things imaginable. All because you believe something should exist and you’re hell-bent on bringing it into existence.
While it’s unlikely that failure will lead to your death (as in the rabbit’s case), no one starts a company with the intention of losing. This is why investors tend to look for people who won’t quit. Talented entrepreneurs will pivot their way through everything from global recessions to competitive onslaughts. Even if their ownership in the company gets diluted, they’ll keep on trucking.
On the flip side, an investor’s perspective is inherently different. For any professional investor, you are one of multiple investments. Investors typically sit on several boards, as they are chasing many rabbits simultaneously.
This is why so many successful entrepreneurs later become investors. Sure, from an altruistic standpoint they want to help entrepreneurs and share what they’ve learned. But keep in mind that they are savvy business people. As investors, they can enjoy incredible upside in your company for a finite amount of risk.
Just look at the websites of venture-capital firms. They market to entrepreneurs because they are their customers. Therefore, they flaunt testimonials from other entrepreneurs and case studies of previous successes, in hopes of attracting the next crop of great innovators.
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This is not a knock on investors. Companies usually need money to get started, and investors fill a critical role. Fortunately, there are some truly great ones in the world. But their roles are fundamentally different than the entrepreneurs that they back, and their value beyond supplying capital can be limited.
As accomplished investor and AngelList CEO Naval Ravikant said, “I don’t like it when VCs say that they build companies. They support the entrepreneurs, but they don’t build the companies.”
As entrepreneurs build their companies, this can be a rude awakening. Unless an investor is leveraged to the hill and has placed every last penny of personal worth into your company, then her motivation will never be truly comparable to yours. For she isn’t sharing in the sleepless nights, strained relationships and overall emotional roller coaster, as some days your company is destined to IPO and other days it’s spiraling toward bankruptcy.
With this in mind, always ask potential investors for references, and follow up with entrepreneurs they’ve backed. Look for investors who contribute additional assets like business development, hiring prowess or executive training. While you may always be more motivated than your investors, your job is to extract as much value from them as possible.